More on the Bonds

The Advocate covers the Fiber To The Home bond presentations in New York this morning. Sounds good! Apparently the visit went well and Durel and Huval returned feeling good about Lafayette’s prospects for a favorable bond rating.

Some of the recent local contretemps were frankly discussed:

Last week, attorneys for the plaintiff in that lawsuit, Elizabeth Naquin, suggested that Lafayette might be subject to further legal action should it proceed in the manner it’s planning to issue and pay back the bonds.

Durel said he thought the timing of that suggestion was an attempt to spook the bond markets into a higher rate.

Ottinger said Lafayette officials discussed with the bond market representatives the possibility — or lack thereof — of another lawsuit stalling the project.

The Louisiana Constitution prohibits further challenges to the ordinance that authorized the bonds to be issued, Ottinger said.

Good. Being upfront about the opposition is the way to go in most cases and I’m sure honesty served them well here. The bond guys have done their homework and asked the next obvious question:

The bond market representatives also wanted to know if LUS was prepared should the existing telecommunications companies in the area start practicing “predatory pricing,” in an effort to undercut the new LUS venture, Durel said.

That is, indeed, the next issue; and that for which the people of Lafayette should prepare. The incumbents tried this in Bristol and it didn’t work. I suspect that the folks in Louisiana will recognize the ploy as easily as did those in Virginia.

It’s all good so far:

“The bond rating agencies and the bond insurers were impressed with the depth of information and analysis we had as well as our passion, and the community’s support, for the project,” Huval said. “We received favorable comments about LUS’ proven track record in managing the deployment of large projects.”

Let’s get on with it!

“Weather Channel to return to basic cable”

The Weather Channel is returning to Cox Communications’ basic cable lineup in time for hurricane season.

So says this morning’s Advertiser. That’s good news as we head into hurricane season.

Those with long memories will recall that Cox pulled the Weather Channel in the middle of hurricane season last year in a public relations gaffe that it is difficult to credit that ANY company, even Cox, could make a year after Katrina and Rita ripped across south Louisiana. That move caused a firestorm of criticism—that extended from letters to the editor to a command performance for Sharon Kleinpeter before the City-Parish Council. But last year Cox held firm.

It was part of a larger disturbing trend. Lafayette and the rest of Acadiana was being completely brought into line with the Baton Rouge market to create a single large entity dominated by the interests of Baton Rouge.

In both markets the channel guide was moved off basic onto a $30 dollar a month more expensive tier. In Acadiana the weather channel was also moved up (Rita not withstanding) to that tier. (Cox New Orleans, a different division, had the good sense to leave the weather channel alone in their area.)

Also at issue was the single French channel. It was moved up to a more expensive tier associated with sports. (Hunh?) This in a city where 13% of the population tells the census they speak a French dialect in the home. (The “large” Spanish-speaking population got a new 10-channel tier in contrast.)

Rates were raised on most services with Lafayette getting larger increases to bring them into line with Baton Rouge.

Local people were unhappy, to say the least.

The Advertiser story repeats Cox’s explanation that the channel was moved to make Lafayette more like Baton Rouge. While that wasn’t particularly well-received (Acadiana has no desire to emulate Baton Rouge, quite the contrary) there were other explanations at the time. A more complete explanation of the impulse to unify Baton Rouge and Lafayette lies in the size of the large new, unified advertising market Cox would create by combining Louisiana’s two most dynamic economic markets.

Moving popular and useful channels like the Weather Channel, the Channel Guide, and the French channel up into substantially more expensive tiers was meant to push as many people as possible off the cheaper tier which is still watched by regulators and whose valuable analog bandwidth is lusted after by the programmers. –Each analog cable channel can be made into many digital ones. Both short-term profits and long-term strategic goals make this a financially advantageous move for Cox. (If not for Lafayette.)

The changes to the lineup and the concurrent rate increases were all about increasing Cox’s bottom line.

The weather channel replaces an all-ads-all-the-time channel at 22 that often is used to promote Cox products–and had kept its privileged place in the basic tier when the French channel and the Weather Channel were expelled. This was a change that the Lafayette City-Parish Council suggested during the dispute but at that time Kleinpeter said legal issues made that impossible and her claim went unchallenged. Apparently it wasn’t so impossible after all.

At one point Kleinpeter explained the community’s vocal distress with:

“It’s just change. People don’t like change”

That was never anything but a breathtakingly arrogant response. One that only a monopoly could make. Apparently Cox is now taking the upcoming competition from LUS a tad more seriously as we head into this year’s hurricane season.

You can chalk the change up to the mere promise of locally sensitive competition.

Good.

Cox to build Broussard’s WiFi?

There’s interesting by-play being reported in the Advertiser today. The town of Broussard, just south of Lafayette is set to renew its cable franchise with Cox….and install a government-use WiFi system there. Anybody besides me think this is the opening move in a years-long chess match between LUS and Cox in Lafayette Parish and Acadiana? From the short story:

The cable company has agreed to provide the city with wireless Internet for the police and fire departments and city administration. “We’ll pay a nominal fee for the service,” said Mayor Charles Langlinais shortly after the March 28 City Council meeting. “Whether they expand city-wide will be dependent on them.”
One point under negotiation has been the fact that the company is not required to provide service in rural areas, unless there are at least 40 residents per linear mile, Langlinais said.
Langlinais recommended lowering the number to 25 per mile, which he estimated will provide the opportunity for cable to most residents of the Broussard area.

There are at least three pieces of context that a reader should take into account.

  1. Cox does not, anywhere to my knowledge, do municipal wi-fi.
  2. Langlinais has been a very vocal supporter of the LUS project and
  3. Broussard has talked about putting up its own wi-fi system; a system which would have run afoul of the anti-Lafayette “Local Government Fair Competition Act.”

Juxtaposing those three reveals a nexus of conflicting interests and local politics. What’s going on? What are the interests of Cox, the city of Broussard, and local citizens?

Cox:
Why would Cox offer a totally new service to a small town in south-central Louisiana? In doing this Cox is substantially adding to the list of things a local community can demand in its franchise agreements. Every city wants wifi. The cachet of being a wireless city is being pursued by cities ranging from tier 1 cities like Philadelphia and San Francisco to tiny places like Chaska, Minnesota. The idea that just any little city can forgo all the pain of building its own wireless net or enticing a commercial entry with tax funds, tax givebacks, or exclusive contracts in order to get them to do so is just stunning. If Broussard can just attach wi-fi to its franchise agreement upon renewal why can’t anyone? This is a big deal–perhaps a bigger deal nationally than it will be locally.

That Cox is willing to go this far reveals some things: This offer reveals that Cox takes widely-speculated-on elements LUS’ expansion very seriously and feels compelled to respond.

  1. They believe that LUS will build a wi-fi network as part of its fiber-opitc build. (I am confident they are right—but no such announcement has been issued.)
  2. They believe that LUS is poised to extend its retail telecom presence into the parish outside its traditional city footprint. (I think they are right—but no such announcement has been made.)
  3. They are terrified that the addition of wireless services will give LUS a large advantage. So large that they believe that Cox can’t afford not to respond with a preemptive product of its own even if it has to offer it out of sequence with its national plans. (Which, they have hinted, will someday include their own wireless product.)

As a consequence they are willing to use Broussard to place a roadblock to LUS’ expansion to the south even at some risk to its larger corporate interests. The City of Broussard won’t be available as an anchor tenant on any LUS system.

I won’t be shocked if Cox tries to launch such a system in Lafayette proper. But I will be surprised. Competing with LUS’ wireless system will be very hard: LUS will be running off a dense fiber network and that will enable it to run a system that will be as far ahead of other wifi networks as its FTTH system will be ahead of other wired competitors. I expect 30 times the bandwidth provisioning of conventional muni wifi networks. Entering into competition with that could be embarrassing.

Broussard & Langlinais
If Cox’s interests are clear, so are Broussard’s—and Langlinais’.

Municipal wifi is almost universally a mayoral project. Securing a major, new, hot, “visionary” service for its citizens (at no cost) has got to look good to any mayor.

That aside, Broussard is, I strongly suspect, playing a smart game with its franchise agreement. Typically municipalities have NO leverage come franchise renewal time. In the normal course of events the cable company knows that there is no practical chance a competitor will enter the fray and give local citizens choices. Given its practical monopoly status, no city council will dare endanger their citizen’s cable television shows. (You think potholes are a big local issue? Try disturbing a man’s Sunday afternoon football game. Or access to Opra. NO way.)

But Broussard has managed to get city-wide wifi (with a “possibility” of residential access). That alone is an amazing feat. Broussard is also negotiating with Cox for an expansion of its build-out. Changing from a density requirement of 40 per linear mile to one of 25 might not sound impressive to some. Such folks might want to take a good look a map of Broussard. Broussard—much more than any of the other communities surrounding Lafayette—has incorporated huge swaths of rural land with only the spottiest development. Some large tracts have no development at all. Changing this requirement will mean that many new areas will get service (and you can bet Mayor Langlinais knows just who should be grateful). Nation-wide the phone companies are driving hard to eliminate municipal franchising precisely so they won’t have to serve all parts of the community; especially poor and sparsely settled areas. Cable companies have mostly been going along, asking only for an equal ability to not serve whoever they don’t think will yield a large profit. What is not on the table is increasing build-out requirements during franchise re-negotiations.

Should this plan go through Broussard will have pulled of an almost unimaginable coup, getting governmental wifi, a potential retail wifi network, AND forcing Cox to serve a greater portion of its citizens. For this Langlinais and Broussard will owe the citizens of Lafayette who have created a credible competitive alternative to the local Cox cable TV monopoly a vote of thanks. (Eatel’s competition, those with long memories may note, did the citizens of East Ascension a similar favor.)

Citizens
So the citizens of Broussard are in for what looks like a really good deal. At least in the short run. And for as long as neither the Feds nor the state of Louisiana succeed in stripping franchising power from local governments. But the citizens should be going down to the city council and asking some hard questions. Questions which will determine whether this short-term treat is a long-term good deal. I suggest starting with:

  1. How long will the new contract run? How long is the city locked into Cox as its wireless provider?
  2. Will Cox’s system have mobile capacity? (A huge advantage for police and firefighters.)
  3. How robust will the system be? (LUS’ will be huge–potentially running at 30 megs, a speed unheard of in muni wifi.)
  4. Is there any exclusivity element in the wifi agreement? Can others come in and compete?
  5. Does the city have any influence on what Cox charges its citizens in return for use of city-owned poles and rights-of-way?
  6. Is there any revenue sharing on the retail wifi end in return for the use of city property–as there is for Cox’s cable TV product?
  7. Just how “nominal” is the nominal cost for governmental services?
  8. Will citizens be allowed to access the system while on city property–say while doing research at city hall?

One question about LUS’ system is absolutely put to rest by this development. I’ve heard people ask what possible benefit LUS’ fiber-optic network will be to the rest of the parish. I’ve not heard this as much since LUS ran fiber to every school in the parish. But this development shows what an astounding benefit the tonic of even the threat of a little competition can bring to surrounding communities.

AT&T & Cox should reconsider state video franchising

Tis spring and the legislative season is opening in these United States. Our Louisiana silly season won’t begin ’til April but many state legislatures are already in session. An article in the Jackson, TN newspaper reminds us that phone companies are still up to their old tricks. Last year the telephone companies launched a nation-wide push in state legislatures to take control of local rights-of-way away from the cities and counties that own them and create state-level privileges for phone companies who wanted to get int the cable TV business.

Background
Most important of these privileges was state permission to avoid the build-out requirements of towns and cities-local governments that have, for pretty obvious reasons, consistently insisted that if a business wanted to use local property to make a profit off its citizens then offering service to all the citizens was a non-negotiable starting point. “All of us or none” was the stalwart principle. In various places the phone companies have conceded to every other demand from monetary rewards to PEG channels. But they are not willing to give up the competitive advantage over the cable companies of skimming off the cream of the local market. They want to take the most profitable customers and move on with no assurance that their “competition” will ever reach most of the community.

Our legislature fell for it and only the governor’s veto pen kept the state from writing into law a bill that would have solidified the digital divide between poor and rich as well as between rural and urban for at least a generation. (In fairness to individual legislators, it should be said that there was a truly inspirational confrontation on the floor of the Senate. Friends of the people went down kicking.)

On the evidence of what is going on elsewhere this season in places like Tennesse, Wisconson, and it seems likely that Louisiana will again see an attempt by AT&T to ram through a state-wide video law that favors its interests. While AT&T (then BS) found tough sledding early in last season’s attempt to pass such a law after partnering up with Cox and the cablecos they managed to pass a law fairly easily. The new, cableco-approved version would have allowed cable companies to break their contracts with local communities in order to use the same advantages offered the phone companies. The cable companies apparently thought that, on the balance, the new advantages over communities was a decent trade-off for the benefits the bill gave the phone companies in their competition with cable. (Did that dark alliance clue in the legislative majority? No.)

So I expect the AT&T-BS/Cable coalition to be back at the trough this year. With the FCC rule that gave the phone companies most of what they failed to get from the last congress now in jepordy from a resurgent Congress there is no reason to think that the incumbents won’t continue to try and get what they want from the local yokels they’ve taken before.

But whoa up a moment: is that really wise?
Things change. That article from the Tennessee paper contains a suggestive paragraph:

One advantage of the state legislation, however, is that Jackson Energy Authority [JEA] would be able to expand its cable and Internet services outside of its present designated service area, Farmer said.

JEA is Jackson’s equivalent of LUS–the fiber-laying, incumbent-slaying upstart. Incumbents take heed: Lafayette’s own muni fiber optic network is now assured. EATel, the locally owned rural phone company, is building its own fiber network on line between New Orleans and Baton Rouge and has made clear its ambitions for expansion from the beginning. St. Charles parish is contemplating building its own network and looks to Lafayette. Rumors about New Orleans Fiber In The Sewers (FITS) continues to make the incumbents slumber fitful. It’s beginning to look like a trend.

Any and all of these entities could take advantage of the same (still unfair) privileges that for which AT&T/BS has been angling.

That’s not what BellSouth intended. When that law was originally proposed NOBODY that could compete with BellSouth would have benefited. The late inclusion of the cable companies didn’t really change the competitive landscape much. They are already built out as much as they think profitable, new challenges from them were unlikely.

AT&T/BS might want to rethink its position in Louisiana. They’ll be enabling folks who might (gasp!) actually decide to compete with them–and compete at their own game with superior technologies. If the phone company succeeds legislatively what is to keep EATel from deciding to serve, with real fiber, the new mushroom ring around New Orleans–but only the wealthier new suburbs, the local cream, and doing to AT&T what it plans to do to the cable companies: cherry-pick the most profitable areas and leave the rest for the incumbent providers. What’s to keep St. Charles from doing its own network with support from Lafayette’s backend facilities–right down to using LUS’ billing and branding systems? What’s to keep LUS from aggressively moving into every non-incorporated new subdivision in the parish using its now-pervasive fiber backbone that feeds the schools? What’s to keep LUS from being invited into cities as full competitors in places that like what they see happening in Lafayette? With a state-wide franchise: Nothing, Nothing, Nothing, and Nothing.

No doubt LUS, as a municipal entity itself, will not be willing to move into a city without negotiating with the local authorities and sharing income. But that might be a big advantage in the long run. If AT&T really manages to come in, cherry pick the cream, and stiff the cities on income and services it will be a painful, ugly thing as cities take the hit in franchise income. (The cable franchise is usually 3-5% of gross revenues–a critical component of local discretionary revenues.) LUS (and similar entities its example may spawn) wouldn’t have to extract nearly the profit the incumbent desire and could afford to be generous with services and profit-sharing. That could prove very attractive to places abused by the incumbents inevitable move to squeeze the municipalities once the cities are stripped of bargaining power by state or federal takings.

Maybe AT&T will still think the advantages it gains over cable are worth the competition it courts by promoting a law that will give every small public or private entity in the state a license to compete in every corner of the state on an ad hoc basis. Maybe. But a year later it is clear that the decision is no longer a no-brainer with nothing but upside for the company. As the old saying goes: Be careful what you wish for.

Cox’s (and the other cableco’s) rationale for backing AT&T’s law this time around is even less clear than it was last year. The emerging pattern of AT&T predatory build out policies in other states (predicted here at LPF) is now obvious: they take the best and leave the rest for the cable companies who have already built their networks to serve the entire community and have to carry that extra overhead.

Cox Baton Rouge, which now includes Acadiana, is particularly vulnerable: On the south it faces EATel, a local phone company which makes no bones about it desire to bring its FTTH-based cable competition to rapidly growing–and lucrative arc of outer suburbs developing south and east of Baton Rouge. That ambition was spoken before the storms devastated New Orleans and made those areas the new home to much of the population of that metropolis. Should EATel secure that arc it’d be posed to eat into the densely populated segments of the city–but not with AT&T’s barely capable DSL-based offerings but with full throated fiber to the home. On the Western verge of that territory it is now certain that Cox’s largest profit center in Acadiana, Lafayette, will be a profit center no longer. Inevitably LUS’ expansion will come out of Cox’s established base; with few exceptions every cable customer LUS gets will mean a lost subscriber for Cox. That nightmare is visible on the horizon. In short order Lafayette will be one of the least profitable networks in its system, supported by a subscriber base that is a fraction of what headquarters has grown to expect.

No, Cox does not need to add to its troubles by supporting a law written by its deadliest enemy.

Cox has allied with the wrong side. Here’s what would be much smarter: Ally with the Louisiana Municipal Association and the parishes. Join them in suggesting a pre-emptive law that protects local rights and keeps AT&T/BellSouth from securing unfair competitive advantages.

The outlines of such a law aren’t hard to see and could be based on a law suggested by local governments last year. That law offered to put a 90 day “stop clock” on any negotiation with a new competitor, assuring that no one could be unreasonably delayed in entering a new market. If an agreement couldn’t be reached quickly all the competitor had to do was agree to sign on to the same contract the incumbent cable company already had. Easy, fast, efficient, and transparently fair. It was, of course, rejected out of hand by the phone company. Their interest lay in securing advantage, not a level playing field.

This year’s version could look like this, for starters:

  • It should be based on the current local franchise; preserving local control of local resources.
  • It could lay out a reasonable timeline for a full build-out to match the current cable footprint. Small communities could expect to be served by a full competitor in three years and larger cities in, say, seven. That would remove the most anti-competitive aspect of the law, and the one that puts the established incumbent at a permanent disadvantage.
  • It could include a time clock (the cities are willing to agree to 90 days) after which the default “established contract” goes into effect–that would mean no long delays of the sort the phone companies claim to be worried about.
  • The default contract could include certain standard modifications such as: a “revenue neutral” clause for the city; meaning that the extras, like PEG monies, channels, service networks and the like would only have to be provided once…not twice. This could include a clause allowing the new entrant to pay the current provider for providing their pro-rata-by-subscriber share of these services or allow them to take over a portion of the responsibility directly as they expand and acquire the capacity.
  • Also standard could be clauses that provide real, automatic, penalties for not meeting contract requirements like one mandating buildout. To make sure that both cities and competitors are motivated to insist on contract adherence the default contract could have escalator clauses built into the monies paid the city and the incumbent if they failed to meet their promise to compete fully and fairly.

It would make a lot of sense for Cox and the state cable association to get together with the municipal and parish organizations and promote a bill that protects their rights and competitive interests while giving the phone company the quick and easy route to competition that they claimed they wanted last year.