“Lafayette Dealing with Expected Headaches”

What’s Being Said Dept.

Christopher Mitchell over at muninetworks.org has picked up the recent Advertiser story on LUS’s Fiber division and various responses to it. His take is as succinct as the title: “Lafayette Dealing with Expected Headaches.”

That title is pretty much the story; the author walks carefully through the questions, starting with the fact that these “issues” were long-anticipated and were part of the community’s discussion from the very beginning. He notes that the title is not justified by the story and that which path to take at the crossroads was decided when the citizens voted to create the new utility. The story also notices that LUS Fiber came of age during the worst recession that the US has seen (and, I’d add, that this timing was largely due to delaying lawsuits initiated by the incumbents).

Most important, however, are his final words addressed directly to us in Lafayette:

But it should also make sure that someone is telling the LUS story. Where are the charts showing community savings as a result of more competition? Who is shouting out the success stories? Who is calculating how much more money stays in Cajun Country because it goes to Lafayette Utilities rather than Cox Communications?

This isn’t just LUS’s responsibility — after all, it is a community network.

That, of course, is perfectly true…So, what are we going to do about it?

LUS Fiber at a crossroads

A bevy of stories that have been in the cooker for awhile finally landed today. Check out the Advertiser for a Sunday quartet: LUS Fiber at a crossroads, Other municipalities try fiber systems. Details regarding National Cable Television Cooperative are hazy, and an editorial: Fiber system needs realistic plan. That’s a lot of ink spilled for a result that’s pretty hazy itself. There’s not much that looks like new news in the story and it seems mostly the result of researching recent remarks made by a councilman or two and insistence complaints by an old opponent of the project. That research didn’t turn up much that will surprise those of us that have followed the last couple of months of the story. The results are articles which no doubt schooled the reporter/s—and the public that hasn’t been following closely—in just how complex the issue actually is—and how unresolved matters are as they now stand. And maybe that’s not bad. It’s certainly a lot better than the hyperbolic reporting we got too often in the past.

The theme of the front page story, LUS Fiber at a crossroads, is that some sort of decision needs to be made soon about whether or not to commit to the project or dump it. But nothing in the story itself warrants such a theme. There’s nothing in the story that should make any reasonable reader think LUS Fiber is anywhere near failure and plenty of evidence that it is over the hump and is well on its way to success in what is hugely capital intensive business that nobody ever thought would make money in the first years. But more to the point: frankly the choice of whether or not to go forward has already been made: back on July 16th, 2005 when the citizens voted in the new public utility. The community now has the system that the citizens wanted. The discussion is no longer about “whether;” the discussion is now only about how to make sure it succeeds—and having succeeded how to make sure it is run so as to most fully benefit the community. Those are not trivial questions and I don’t intend to underplay them. But pretending that there might be a choice, well, it might make a better headline but it doesn’t help inform the real project at hand.

The editorial, Fiber system needs realistic plan, doesn’t quite succumb to the facile idea that some sort of choice between support and nonsupport might be offing, instead opting to advocate for the hazy idea that in light of changing conditions the plans for the system might need reworking. That’s not exactly news either. Any real enterprise that is not continually reassessing how it meets its goals isn’t doing its job.

What’s disappointing is the claim that the system is rudderless, that it lacks clear goals. That’s just silly. Of course it has a clear purpose and one that its leaders clearly honor: LUS Fiber is a public utility and its purpose is to put an essential service under the control of the community, to provide a first rate example of the service, and to provide it as cheaply as it is possible. That is i’s fundamental purpose and I submit that there is no question but that it is meeting that standard. LUS Fiber is, for every service, cheaper than the private alternative. It is available to each and every citizen of the city; something no private provider would promise. The services are high quality—the video and phone services are at least as good as the former monopolies and the internet is unarguably not only cheaper but better. Yes, it has to “make its nut” and not lose money but considering that Huval has recently said that they’ve got over 10,000 subscribers then it is clear that in a city of just short of 50,000 households they are with a few percentage points of the break-even point.

That is all our new utility needs to do to justify itself. Everything is else is lagniappe…a little something extra. Absolutely we all hope it will boost our reputation and serve as the infrastructure for vibrant new businesses…and at both ends of the economic scale it appears to have already done so: witness the NuComm call center and Pixel Magic’s video studio. Yes, it’s been great for our kids: every school in the parish now has a 100 meg connection courtesy of LUS Fiber—at speeds and prices that it private competitors could not meet. Sure I, for one, have been an advocate of using our community fiber to do more to bridge the digital divide. No, I don’t think we’ve done enough there…yet. But, honestly, I have a million times better a chance getting our community to do really great things for our community than Cox or AT&T would ever find it affordable to do. The strange idea that LUS Fiber doesn’t know what its purpose is just foolish. Especially since it is apparently doing a good job of addressing its obvious purposes.

The other two stories, Other municipalities try fiber systems and Details regarding National Cable Television Cooperative are hazy are just not very interesting. After reading them both you get the feeling that the reporters decided these would be good sidebars and set about a fair amount of work reviewing what was out there and digesting it for us. But it isn’t clear what lesson is there for the reader to take away. I can point to problems with both stories, mainly in what doesn’t seem to be understood by the writer. For instance in the municipalities section the inclusion of Marietta, Georgia is pointless. Marietta never built or intended to build a public fiber to the home network but instead failed at what LUS had already succeeded at before our current network was proposed: building a wholesale fiber network to serve regional businesses. Similarly, you come away from the NCTC story with the sense that LUS is paying more for video because Cox is a leader in the coop…what the story doesn’t bother to tell us is that Cox only joined the NCTC after LUS won the right to build its network; that Cox joining was remarkable because until that period the coop’s purpose had been specifically to unite to get the same sorts of deals a corporation like Cox could already get; that two other municpal fiber providers that applied with Lafayette were accepted after a lawsuit was threatened; and that the only difference between those cities and Lafayette was that Cox, our competitor was on the board. That’s all something the community should know—frankly, there is a notable abscence of anything that could put Cox in a bad light in all four stories but this is a particularly outstanding instance.

So do read the stories, they provide a nice if bland and somewhat incomplete summary of the current situation. But don’t bother to take too seriously the hook of the main story—and don’t believe any mutterings that LUS Fiber doesn’t know exactly what its purpose is.

LUS Fiber Financials Covered in Local Media (and more)

I posted earlier about the LUS Fiber budget hearing yesterday. There I focused on the annoying return of the idea that LUS was (somehow) being subsidized — I suspected that Patin had successfully revived a truly dumb idea. Credit where credit is due: Neither the Advertiser nor the Advocate‘s reporters chose to take the bait and emphasize that foolishness. Instead they largely reported on the issues raised by the Councillors and Tim Supple. Take a look at both articles, they are worth the read though, frankly, the Advocate is better on the technicals possibly because Burgess was here during the fiber fight and has a deeper background.

Executive Summary: LUS’ financials are confusing. Financials just are confusing. Always. But LUS Fiber, being a semi-autonomous arm of the semi-autonomous LUS utilities (which is owned by the city but semi-run by the city-parish) is especially confusing. This is exacerbated by a sick state law designed to raise the prices that customers pay that causes LUS Fiber to give money to LUS utilities so that LUS utilities can loan it back to LUS Fiber—at interest. (Which means there is a subsidy: of LUS utilities; not the other way around.) Got it? Confused yet? Anyway:

The Important Stuff: LUS Fiber is doing ok, not great but ok. The “ok” part can be seen by its more than doubling its installed base in the last year; recent statements by Huval confirm that the utility has made over the bump and has the minimum number of users to break even. The “not great” part is due to the fact that it’s not meeting the rosy projections of a 2004 feasibility report that had predicted that LUS would be doing better than just ok, that they would be doing great by this point in the rollout. (The feasibility study was always sketchy and clearly a political document. See my first two blog posts on this issue. #1, #2)

Extras from my Notes: Caution: This is for the dedicated few who’d like a little more on the two and and a half hour session than a dry newspaper article has space for or fits the newspapers’ idea of a budget meeting story.

Attendance: Theriot, Patin, Boudreaux (presiding) Shelvin (late), Castille,  Morrison Conspicuous by his absence: Don Bertrand who was a leader in the fight for fiber and certainly has a better understanding of all matters concerning LUS Fiber than any of fellow councilmen.  His participation would have really helped the rest of the council make sense of the arcane parts of the presentation—some of the questions asked showed a real lack of understanding.

Overall: Part of the confusion that reigned during the presentations was due to a new computer financials program and a new, much more extensive report format that was presented to the council. It was apparent that some had only read (at most) the summary sections and it showed in their questions. LUS Fiber is a big, new, different, retail establishment for the C-P to keep track of and understand and Toups seemed to feel that she was only just getting hold of it all.

Conservative Borrowing: A couple of times during the presentations it was apparent that part of the reason that LUS’ numbers were tight was because LUS was being…tight. One example came up when Shelvin asked whether it would all look better right now if LUS had taken the whole 125 million authorized by the voters instead of only bonding out 110 million dollars. Huval hemmed, hawed, and said that they just didn’t want to borrow more than they really needed. This was in the context of LUS having not yet taken the in-organization loan of 5.5 million that the council authorized. A lot of the noise we are hearing now is a direct consequence of LUS Fiber deciding to make do with the very least borrowing they can get by with.

Competition: LUS estimates that the citizens of the community have saved 5.7 million dollars—in part direct saving from LUS’ cheaper phone, video, and internet services and in part as a consequence of Cox lowering its prices and giving out special rates. Those special rates were discussed in the meeting with Huval pointing out that Cox had petitioned for and received permission to treat Lafayette as a “competitive” area. That meant that Cox could offer special deals to Lafayette users and, as we all know, has offered cuts to anyone who tries to leave. Those “deals.” as Huval pointed out to Patin don’t include the rural areas of the parish where Cox has no competition.

Coalitions: Intriguingly coalitions with other communities that have fiber were mentioned and Terry indicated that this was involved positive attention from the White House. I’m pretty sure that this is the US Ignite project—a project initiated by the administration that will bring together communities that have next-generation fiber projects. Conceivably this could be a “big thing” and bring ideas, financing, and lend emphasis to the movement to develop big bandwidth applications that could be used across these communities. Lafayette’s own FiberCorp has been a player in this effort.

“LUS Fiber now available to most of city”

Regardless of the title “LUS Fiber now available to most of city” the real story is that LUS Fiber has officially finished its build out.

“We were planning initially to have the build out finished by March or April, but we completed it ahead of time and on budget,” said Terry Huval, LUS Director. “We’re on every public street now.”

Mayor-President Durel added his remarks to the occasion:

Durel described the technology as “the infrastructure of the 21st century,” and said most of the country won’t have comparable services in 15 years.

“In 1896 the people of Lafayette voted to bring electricity here,” Durel said. “Where would we be if we didn’t have the leadership and community support we had back then? What we’re doing today, we’re doing for Lafayette 50 years from now.”

Now the build is essentially complete; further expansion of the system to some larger buildings and apartment complexes will look more like retail installs than full-scale infrastructure construction.

It is a pivotal moment in the project.

It is time to turn our attention to what we can do with our new network. Attention within LUS has necessarily been focused on getting the thing built. Now the focus can move to longer range questions. It’s both a happy day and a day for serious reflection.

Pat Ottinger, City Attorney, Steps down

Pat Ottinger, the city attorney through the entire (successful!) fiber fight is stepping down. The media are all carrying the story; you can look at fleshed out versions from The Independent, The Advertiser, and The Advocate.

Ottinger is the unsung hero of the fiber fight. He worked long hours and fought tirelessly to make sure that Lafayette got the chance to make its own future in spite of well-funded corporate lawyers, Cox, BellSouth and their stooges in the state legislature. His work was instrumental in defending what we had won after the referendum battle. Lawyers don’t get much glory; that’s not the sort of profession you go into if glory and adulation are what makes you run. We’ll surely get a more complete run-down on his accomplishments in the coming weeks as editors put together their stories and in that larger history the legal battles that swirled around Lafayette’s decision to build its own future will be far from the only story. But that is the one I’ve watched closely and I can say without reservation that Lafayette was well-served.

The city has lost a real public servant, one whose earnestness and self-evident competence should serve as a standing rebuke to those who’d disparage those among us who choose to serve.

Lagniappe: I spent a few minutes looking through old LPF stories…the first one to mention Ottinger by name is worth your review as an example of the value of having an Ottinger on your side: The City replies to the BellSouth lawsuit

LUS: Who Governs?

The question of who governs LUS—and apropos this blog, LUS Fiber—was raised last night at the meeting of the Lafayette charter commission. Terry Huval, LUS director, suggested that he favors some sort of governing board. This drew sharp questions from the commission and featured articles from both the Advocate and the Advertiser. The Independent blog weighed in early alerting readers to the meeting and offering useful background information. But AOC, as part of its desire to inform the public, has uploaded the full meeting to the web and I’ve embedded it here:

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The stories, understandably, focus on the sure-to-be-contentious issue of governance. It’s a source of conflict because LUS’ governance is the point which most clearly illustrates the reasoning of those who are pushing for deconsolidation, for giving Lafayette back its own city government. LUS was owned by, and arguably was the most valuable asset of the city of Lafayette back in the days before consolidation. The clear intent of the new consolidated city-parish charter was to keep control of LUS in the hands of the city. In pursuit of that goal LUS was to be governed by the LPUA—a panel made up of all the members of the city-parish council whose district contained at least 60% city residents. Almost immediately, however, legal opinions were sought and contradictions were found between those sections that gave control of LUS to the LPUA and those that gave control of “all” functions to the full council. A subtext here is the general tenor of the time immediately after consolidation— a “we can all get along” feeling was apparently widespread and when bond attorney’s voiced a feeling that bond issues would be look stronger if both the LPUA and the full C-P Council approved them that principle was quickly generalized to all governance matters. With a few tweaks to the implementation details that has been how LUS has been governed since.

This all blew up recently when LUS asked for the first electric rate hike in more than a decade. Arguably (and I do so argue) the ensuing deconsolidation conflict grew from the fact that ideologically conservative Bellard and Theriot, rural members of the council with few city citizens in their districts, refused to honor the majority decision of the LPUA to grant the hike. That resulted in a squeaker vote and served notice that the traditional ways of working around the deficiencies of the charter could no longer be relied on. People began looking for ways to “fix” the problem by fixing the charter. But once that Pandora’s box was opened the issue quickly morphed into one focusing on sovereignty for the City of Lafayette—a new city-only council, a real mayor for the city, and total city control of city assets. LUS has become a secondary issue for most of those passionate about issue but it remains the biggest practical problem, and among those whose bent is practical and pragmatic a solution to the problem of LUS governance would go a long way toward ending their worries.

(Unintended consequences alert: Bellard and Theriot are the councilmen most passionately opposed to deconsolidation. It’s a practical not principled position. The new ideological conservatives are supposed to be all for smaller government and moving power closer to the people as a matter of principle—and deconsolidation would do both. But Bellard and Theriot have the practical problem that their largely rural constituencies would be the ones left without resources in a new, rump, parish government. So, principle aside, they are against it. If they’d been old-fashioned conservatives earlier and honored the tradition of allowing the LPUA to decide on matters relating to the city utility they’d not be in this position today.)

What was interesting in Huval’s presentation lay as much in what he did not suggest as what he did.

What was suggested (@ 1:16 minutes in the above video) was drawn from data offered by the American Public Power Association (a body of which Mr. Huval is a past president):

  1. 44% are run by an appointed Board
  2. 28% are run by an elected Board
  3. 28% are controlled by the Council or local equivalent

The Commision had asked Mr. Huval to suggest a range of alternatives and this is what he offered in response. Huval clearly did not want to wade in any deeper though he seemed, in several remarks, to favor some form of a board. For instance, he remarked that he’d recommend, and repeated this recommendation several times, that a condition of membership on the board be residence in the city of Lafayette. At another moment he was also clearly concerned that it was at least possible for a council to be made up representatives who, even if their districts were mostly in the city, were not themselves city residents.

What was not suggested was any of a range of alternatives that had been batted about and which were mentioned in passing by Commission members. Specifically: proportional voting. In such a scheme all members of the council who had any city citizens in their district would get a proportional vote on the LPUA/Council on matters relating to LUS. So, in one example, if Representative A had a 20% city constituency then he’d get 20% of a vote and Representative B, whose district was 80% city would get a vote that was 4 times as large as A’s. Bruce Conque, a commission member who’d floated such a suggestion, was not present at this meeting.

Also not suggested were ways of dealing with the issue by simply changing the charter to take away any ambiguity as to the governance of LUS. It should be a relatively simple matter to make LPUA control explicit. Why that should not be explored more specifically is a matter for speculation. How much of the bond-worthiness of the city and the parish is due to having the large and stable income of four utilities to stabilize its income?

Nor was there any discussion of separating the traditional utilities—which operate as a municipal monopoly and the LUS Fiber division which operates in a much more competitive environment and under a vastly different set of constraints. State law already separates LUS Fiber from the rest of LUS for many purposes (part of the infamous (un)fair competition act) and discussion of the value of a separate LUS Fiber board would seem in order—even if it were finally decided that was not the way to go.

A lot of the questions asked by the Commissioners centered or touched on the role of LUS in encouraging or discouraging annexation of developing areas into the city. Mostly this centered around water (which is now being sold to surrounding areas at a rate that is higher than the retail rate in the city!) LUS Fiber, which is too young to have an historical role to play in that story was largely unmentioned. But it should be clear that LUS Fiber adds significantly to what the city of Lafayette can offer unincorporated areas. What isn’t being discussed is how LUS’ tight ties to the city have limited the growth of the utilities themselves. To the extent that the people of the community own their own utilities they keep local money at home and can use the resources to best serve the people of the community rather than the best interests of out-of-town investors. LUS has traditionally been seen as a huge benefit to the town and then city of Lafayette and it is often cited as a partial explanation for the way Lafayette moved past larger, but less progressive cities to become the hub city of the region. Is there any way to extend those benefits to others in the region without being unfair to the people of the city of Lafayette? I’d hate to see the value of public ownership stifled by peculiar historical arrangements. Of all the suggestions so far put forward the most easily adaptable to allowing the utilities to benefit the people outside the city limits would seem to be proportional voting. It’d make sense to separate LUS Fiber and the other utilities so that they could advance at differing rates. (It is my understanding that bond covenants which entangle all of the traditional utilities would likely make it impossible to separate out the water service from the electric. I’d be happy to stand corrected.)

Interestingly, the current dustup isn’t the first time the issue of LUS governance has been raised locally. The local League of Women Voters (full disclosure: I’m an active member) recommended an oversight board as the “final recommendation” in their extensive study of LUS Fiber’s potential for the community. Interestingly Terry Huval was at that time adamantly opposed to the idea, attending a public meeting SLCC called to discuss the issues raised by the report chiefly to make the point that such a board for LUS Fiber was not a good idea. It isn’t clear what has changed between then and now…beyond the uncomfortable realization during the rate hike discussion that LUS could no longer count on the city-parish council to honor what city councilors thought best for the utility.

“Judge asked to toss LUS Fiber suit” [updated]

¿¿ “Judge asked to toss LUS Fiber suit” ??

Uh, no—The suit in question is the National Cable Television Cooperative’s (NCTC) suit. Lafayette Consolidated Government has filed papers further supporting its contention that the NCTC’s lawsuit is merely designed to block an ongoing FCC inquiry into the matter.

So if the headline isn’t actually the news in this story then what is?

Well it is a little hard to tell from the Advertiser story. Especially since important bits that might make it all make sense are missing.

The real timeline involved goes something like this: LUS and two other cities with new FTTH networks who have submitted applications for membership after years of being ignored and then enduring a “moratorium” on new members started proceedings at the FCC asking the FCC to exercise its obligation under the Communications Act to block anticompetitive practices. The FCC requires that complaints be preceded by filings of intent at the FCC and fully informing the interested parties. LUS and its sister cities did so. (This is not fairly characterized as a “threat.”) The FCC’s hope in requiring this is pretty clearly that the two parties will get together and work it out without burdening their docket with the case. Indeed, the two other cities were admitted…and only Lafayette was refused. Why? Well the NCTC simply hasn’t said. But the fact (unreported in this story) is that Cox Communications is the largest member (this is recent—they joined after the successful referendum battle in Lafayette and the “moratorium”) and has a seat on the board of directors. The two other cities don’t compete against Cox or any other NCTC member. (This is not established policy, other places have more than one competitor in the NCTC.) If the point of the NCTC refusing only LUS membership is to stifle competition on behalf its most powerful member—well…on the face of it that would make their action anti-competitive and the FCC would be obligated to act.

Sooo, armed with a more complete picture can we now discern what the real news is?

Why yes, it is contained in the final, trailing paragraphs:

Included in Lafayette’s latest filings is a letter from an FCC official, supporting Lafayette’s position.

“We are extremely gratified that the Federal Communications Commission has taken the extraordinary step of writing a letter for submission to the federal judge in order to indicate that the agency is in full agreement with Lafayette’s position that the FCC should have primary jurisdiction over resolution of the issues under the Communication Act,” City-Parish Attorney Pat Ottinger said in a statement.

Lafayette has garnered the support of the FCC, which is agreeing that the matter falls into its domain. This is a big deal and Ottinger is right to be “extremely gratified.”The court will surely understand that if it allows the lawsuit to proceed it will be in danger of federal preemption—that the FCC will simply exert its right under the Communications Act to rule on such issues and take it out of state courts.

That, actually, is news. And it is good news for Lafayette and LUS

7/28/10, 2:12 pm: I’m Wrong: It has just been pointed out that federal preemption can’t be at stake here because the case is in federal court. That was careless. Thank goodness there was a knowledgeable reporter around to gently set me straight.

It’s still good to have the FCC asserting its authority and that will help sway the court to defer to administrative authority but it is not nearly as effective in a federal court as the implied threat of preemption would be in a state one.

Revised LUS Fiber Budget

Both the Advertiser and the Advocate have articles today on last night’s council meeting and LUS’ revised budget. The big news was that LUS will not meet its own revenue projections; in fact they are off by about half…a disturbing shortfall.

Huval’s explanation cites two factors: the lack of initial marketing and defensive budgeting that was designed to make sure that a worse case scenario of having too many customers wouldn’t “break” the budget.

Defensive Budgeting
This is one of those cases where the Advertiser has the better quote:

“We made projections based on the most optimistic approach,” LUS Director Terry Huval said. “We didn’t want to get into a situation where we might have budgeted too conservatively and we don’t have the materials and supplies for the customers.”

To understand what Huval is worrying about requires some background. LUS is in the odd position of having a brand new service that needs to be cautious about growing too fast. Hooking up and initially provisioning each household is a VERY large expense. The labor and materials costs — especially the set of three boxes that sit on the side of the house and the set top box inside the house—are all very costly. It will, in many cases, take several years to recover that initial investment. While the profit margin is good, even with LUS’ reduced prices, you have to invest substantially in each customer. On the books you will typically lose money for a time on every new customer you bring on. As a consequence you might have to look at borrowing more money. For most businesses this would not be something to worry about very much. Any bank could see that you were a better risk for capturing a larger share of your market than you initially anticipated. You’d get your “float” loan.

But LUS is not like other businesses. LUS cannot, practically, go back and get a bridging loan. They have borrowed all their money upfront in the form of bonded indebtedness. Budgeting in this situation is, in part, a way of projecting the “draw” the business will be making against that loan. What Huval is saying is that they originally projected the most “optimistic” draw against the loan so that they would be sure that they had enough money at the ready to buy the equipment they needed to complete the budgetary period without going back to well…So budgeting for the most extreme case was, in this case, “conservative” budgeting. A typical business would typically borrow for its most optimistic realistic case in order to have a little reserve and to avoid having to go back and borrow money again—usually at higher rates. This maneuver is LUS’ equivalent.

The tendency to be conservative here is aggravated by a state law that shapes the way LUS has to assess the risks to its business. And we have Cox and AT&T to that for that: Long-time readers will recall my inveighing against the (un)Fair Competition Act. This is one of the places where that incumbent-written law comes into play. One of the provisions of that law is that LUS is forbidden to loose money for any year. If they do, the law mandates a fire sale of the business. Given that law, you’ll notice that once you understand that LUS is actually investing in each customer that it is entirely possible to be successful too quickly. Suppose LUS took 50% of the market in a single four month period…and then, having saturated the local market it would have to endure a year or two or three of losing money just to pay off that initial investment before the income from the bulge of new customers turned positive. It is far safer to grow at a steady rate as long as you get above the break-even point before the bond money runs out. Losing money too fast is always a problem. But the (un)Fair Act makes being successful too fast a problem too. State lawmakers piously claim that they are just protecting the citizens of Lafayette from losing money. This case makes it obvious that the people that wrote the bill, AT&T and Cox, are the ones being protected. Lafayette doesn’t need or want Baton Rouge’s protection.

Marketing
LUS also acknowledges that it hasn’t run much of a marketing campaign, saying that it doesn’t make sense to gear up a large and expensive campaign if you aren’t yet ready to sell your product to all the people you’re paying to reach. From the Advocate:

Revenues for LUS Fiber this year might have been more in line with the initial projections had the city pushed a more-aggressive marketing campaign, Huval said.

But he said the decision was made to hold back on intensive marketing of the service until it was available to most residents, so as to get the most out of the marketing dollars.

That does make a certain amount of sense. But that excuse is already effectively over—LUS is currently finishing off its build-out. The vast majority of the citizenry is now ready to receive service. So we should now begin to see a much more aggressive campaign. —Though, of course, not sooo aggressive as to run afoul of the (un)Fair Act’s penalty on gaining customer share too quickly. (sigh)

In all fairness, LUS also has another reason not to want to sell too much of its cable product too soon. also been wrestling with the set top box software—the initial software was simply not up to snuff…it provided the fundamental functions in that it would change channels and record material but the interface was outdated and it was clumsily designed. It was even worse than most cable providers interface and that is saying something. With the new Microsoft Mediaroom LUS has come out on the other side–the interface is very slick, it works well and there are obvious hooks left for the development of innovative features. But until that mess was settled and LUS knew that Alcatel was going to step up and make good on its promises LUS Fiber was looking at a situation in which it very strongly suspected that each and every video customer was going to upgraded to a new box and software platform in the very near future. They had little desire to put the whole city on a solution that they would have to turn around and dump.

Take-Rates
The most reassuring part of the story is that the Advocate reports that Huval is saying that they are making their break-even rate—that is, they are getting the 23% of the population they need to win over to break-even and pay back the dedicated bonds. That, frankly, is the only important number—

[Huval] said that even though LUS Fiber is not meeting the early revenue projections, he feels confident the venture is building a solid foundation and will be successful.

LUS Fiber can break even with a 23 percent market penetration, Huval said, and that percentage has been “handily” reached in most areas where the service has been available for more than a few months.

What’s interesting is that while LUS will doubtless get some flack for not meeting its defensive budget estimates nobody is asking what LUS achieving its break-even rate means for the other actors in this little drama: Cox and ATT. Leaving aside ATT for the moment since it is not selling a cable product let’s look at Cox. Nationally the take-rate for cable video is supposed to be about 50%. I don’t have any reason to think Lafayette would be much different. If LUS is taking more than 23% of the local market “after a few months” that would imply that in just a few months—without a very credible set top box arrangement and with very little marketing—LUS can take about half of Cox’s well-established cable video market. That makes LUS, by any reasonable assessment, a very successful competitor.

Lafayette, the NCTC, and National Policy

Both the Advocate and the Advertiser have posted stories focusing on the latest move in the Cox/NCTC versus LUS/LCG contest being gamed out in the courts. In this turn Lafayette is has filed suit to dismiss a lawsuit filed in in Kansas by the National Cable Television Cooperative (NCTC). That lawsuit was filed in an attempt to block LUS from pursuing a complaint with the FCC.

So…this is a suit to block a suit which hopes to block a filing at the FCC…there’s a legal logic in there somewhere I am sure. Or in the words of the Advocate:

Attorneys for Lafayette argued in court filings that the cooperative’s lawsuit is an attempt “to drag a Louisiana municipal public utility into court on the plaintiff’s home turf in an effort to avoid being held accountable for its conduct before the Federal Communications Commission.”

The Advertiser:

The FCC complaint by LUS Fiber argued that NCTCS engaged “in unfair, deceptive and anticompetitive conduct that has the purpose of effect of preventing LUS from becoming a member of NCTC and thereby obtaining the huge quantity discounts and other that NCTC negotiates for its members…” “We have stated in our pleadings filed today that the court should dismiss NCTC’s complaint in deference to the jurisdiction of the Federal Communications Commission, or alternatively suspend any further proceedings until the FCC has decided the case initiated by the Lafayette complaint,” city-parish attorney Pat Ottinger said.

The story closes, appropriately, with the note:

NCTC’s largest member is Cox Communications, LUS Fiber’s primary competition.

That Cox is engaging in anti-competitive behavior through its influence at the NCTC is the core of Lafayette’s public relations case; and, given Cox’s behavior here in Lafayette, it seems entirely likely. The fact that the other two cities that had initially joined Lafayette in its complaint, but were after filing suit admitted to the membership process, did not have the NCTC’s largest member as competition is damning. That these cities’ corporate competitors do not belong to the NCTC tends to clinch the argument.

In fact, that those other cities had competition that does not belong to the NCTC is a strong argument that more is at stake nationally than simply the interest of a mid-size, aggressive city somewhere along Louisiana’s cost and its huge corporate competitor. As I’ve pointed out previously, other members of the NCTC have engaged in the sort of anti-competitive blocking that Cox has used in Louisiana.

The NCTC used to be a mechanism for small, locally-owned cable networks and municipalities to get relatively fair programming prices for their customers. Over the years the market has changed and single-system mom and pop operations have all but disappeared as large and medium size “mulitple system operators” (MSOs) cable companies have grown by leveraged buyouts of smaller competitors—not by successful competition with other cable companies. Successful head-to-head competition requires building a better network and providing better services. (The route, incidentally, that Lafayette has chosen.) Buyouts only require taking on large debt burdens…burdens in fact so large that they can make finding the money to make major service upgrades very difficult.

Now the NCTC is run by debt-heavy MSOs, not mom and pop, local, cable companies. Cox is merely the biggest. Many other NCTC members are no doubt in the same structural position as Cox cable—heavily in debt—and many of those are in the smaller locales that may be actually losing population. These smaller municipalities could reasonably feel that they’ve lost the local businesses to which they felt loyalty to faceless corporations who do even fewer network upgrades than the small local businesses did. Those small cities and towns are the ones that, nationally, are most likely to consider investment in a fiber network an investment in their future.

The NCTC has a legitimate national function…lowering cable prices for the customers of small cable companies and thereby allowing local alternatives to enormous international telecommunications corporations to exist. The outcome of the current conflict over Lafayette’s membership will be a decision-point for the nation. Either the NCTC will provide that service for all small operators or it will turn itself into an exclusive cartel that uses its purchasing power to push out all competition.

That is a national problem; it is not simply a small side fight down in some damp part of Louisiana.

Correction: It’s been pointed out that Lafayette has not really filed suit in response to the suit. They’ve merely responded to the NCTC’s Kansas suit. Point taken. That is actually clear in the press release. I let a fun line get in the way of a close reading…mea culpa.

“LUS vs. Cox goes federal”

In a return to its he-said, she-said, sorta-kinda-neutral editorial policy on LUS Fiber the Advertiser runs a Saturday editorial on the exclusion of LUS from the national cable buying coop that manages to leave the vague impression that the Advertiser is piously favor of…of something good for our citizens. It sorta endorses whatever would be good without coming to any firm conclusion about just what that might be.

Come on…sure Cox is an advertiser who takes occasional full pages and all but really; no firm position on an obvious injustice? Where is the fire we saw late in the fiber fight? There was a time when the Advertiser had finally come to understand what was and wasn’t to the advantage of their community—and as a consequence what was to their own advantage.

I’m not asking for much here, just a dose of enlightened self-interest that can see beyond next week’s revenues. A newspaper can take its name all too seriously.

Sigh…

You can read it for yourself.