Results mixed with municipal cable systems

As the date nears for Siloam Springs’ residents to decide if they want a city-owned broadband system, debate on the success of such programs nationwide continues. And while it’s hard to argue the success that two other Arkansas cities have had as cable and Internet providers, critics say they are products of another time.

Conway in central Arkansas and Paragould in the northeast corner have had city-owned cable services since 1980 and 1990, respectively. They’ve continued to upgrade and add services as times and technologies changed. Officials for both systems say they operate at a profit.

But critics of Siloam Springs’ proposal to add broadband service to its city utilities contend the northwest Arkansas town wouldn’t have the same success as its two counterparts.

“It seems almost backward for a municipality to try to offer those services now,” said Arkansas Lt. Gov. Mark Darr. Darr sent a letter last fall to Siloam Springs Mayor David Allen saying the city would jeopardize existing private sector jobs and could discourage new companies from locating in Siloam Springs because of fears of government competition.

CONWAY, PARAGOULD EXPERIENCE
Conway and Paragould are the only Arkansas towns which have city-owned broadband systems. However, nationwide about 150 municipalities offer broadband services, including nearby Sallisaw, Okla. Siloam Springs officials visited all three while researching the feasibility of broadband for their town of 15,000.

Siloam Springs voters will decide May 22 whether to invest $8.3 million to run fiber optic cable directly to people’s homes, creating the ability to have more bandwidth and faster service. Both Cox Communications and CenturyLink – the current cable, phone and Internet providers for the city – oppose the idea.

“Siloam Springs would be the first city in over 20 years to attempt this in Arkansas. Two other cities got into the video business before there was a competitor in the market, and before residential Internet or digital phone was available,” said Len Pitcock, director of government affairs for Cox. “Both of these communities are considerably larger than Siloam Springs.”

Paragould’s population now is 26,113. Conway currently has 58,900 residents. Both cities were considerably smaller two decades ago.

Rhonda Davis, chief financial officer for Paragould Light, Water and Cable, said there actually was another cable provider there when the city began offering services. She recounts a tumultuous beginning to what she claims is now a successful program. It was a journey that became the subject of a Harvard Business School case study and subject matter for various publications.

Paragould Light and Water’s efforts to add “Cable” to its name landed it in court as the defendant in an antitrust lawsuit filed by Cablevision Inc. The Woodbury, N.Y., company was then the city’s cable provider.

The city eventually won.

The public wasn’t happy with Cablevision’s service or rates,” Davis said. “We took it to a public vote and did it.”

Davis said the case drew interest from all over the United States.

Paragould’s electric company started in 1938. The city merged its electric and water utilities in 1984. In 1990, it hooked up its first cable customer. Internet service began in 1999. The city bought Cablevision’s remaining Paragould service in 1998. Paragould, they said, was a remote location and not in a cluster of other towns which the company served.

“Our system is now 20 years old. We’ve been replacing and upgrading ever since,” Davis said.

Paragould’s fiber lines don’t run all the way to people’s homes, but close enough to provide excellent quality, Davis said. Fiber nodes are placed throughout the city, she said. Coaxial cable hooks on there and delivers signal and data the rest of the way. Cox and CenturyLink use similar delivery systems in Siloam Springs.

Paragould Light, Water and Cable serves 13,000 homes and businesses with its electric service, and supplies cable to 11,080 subscribers and Internet to 6,550 premises.
Davis said the city does still run a debt for the cable and internet systems. The $3.2 million bond issue for cable in 1989 has been refinanced and increased over the years. It should be paid off in 2014, she said. But the system has been paying for itself since the sixth year of service, according to Davis.

During the first five years, the city increased property taxes by $100,000 a year to help make payments. The extra taxes amounted to $1 to $2 a month for most households and still allowed customers to get cable “way cheaper” than what they paid the private company, Davis said.

Richard Arnold, Conway Corp. CEO, said Conway has no debt on its system. The original cable launch in 1980 was funded by a loan from the city’s electric department. Cash flow from the cable system’s profits funded a complete rebuild in 1996, as well as subsequent upgrades.

Conway’s original electric utility launched in 1895. When Conway Corp. launched its services in 1980, there was no cable service in the Faulkner County college town.
“It was not a competitive thing,” Arnold said. “Residents were just not being served.”
Now some Conway residents use satellite providers. AT&T also now offers its U-verse service.

“They didn’t come in here to fail,” Arnold said. “You have to have a competitive product.”

Conway Corp. is experimenting with fiber-to-the-home. Arnold said one new subdivision receives its service that way. But the utility supplies most homes with fiber to nodes or remote locations throughout the city, then via copper or hybrid fiber coax on to the houses.

MUNICIPAL FAILURES
Clint Reed of Little Rock, founder of Arkansans for Limited Government – a coalition formed to oppose the Siloam Springs proposal, said, “Conway came in many, many years ago. It was a much different time.”

Pitcock, a former executive director of the Arkansas Cable Association, said, “In Conway, there were no other providers. It was a completely different environment.”

The overwhelming majority of municipal governments that try to enter the telecommunication market fail, he said.

“There are many, many municipal failures that have put municipalities deep in debt. That’s the norm, at least from what we’ve seen.”

Some criticism has been directed at Siloam officials for choosing the same company to do the feasibility study that did work for the Provo, Utah, utility – a system that, by most definitions, hasn’t been successful.

Reed, former head of the state Republican party, referenced it in a news release he wrote in early March to announce his coalition.

“Provo, Utah, attempted a similar venture and is now in debt $39 million. Each electric customer now pays $1,300 to fund the network whether they use the service or not. Siloam Springs’ consultant is the same one used by Provo,” Reed wrote.

The Provo mayor’s office did not return phone calls for comment.

“That’s a cheap shot in my book,” said Dave Stockton, principal of Uptown Services Inc., the company that did Siloam Springs’ feasibility study.

Any problems Provo had, he said, were the results of restrictions forced upon the city by Utah state law. The restrictions mandated that Provo, which paid to install the cable and Internet infrastructure, outsource delivery of the services.

SALLISAW SUCCESS
Stockton said his company has done dozens of successful projects, including Sallisaw, Okla.

Keith Skelton, assistant city manager for Sallisaw, said the city’s fiber-to-the-home project, called Diamond Net, started offering service in 2005.

“We had no high-speed internet. DSL was available but it was limited. We only had dial-up (Internet connection),” Skelton said. “Our incumbent provider at the time was making no progress to better it.”

Skelton said the city met with the cable and phone companies and discussed a partnership.

“They told us we shouldn’t be in it,” he said.

“It all boils down to satisfaction, and quality and price of product,” Skelton said. “I don’t think they (companies) would have invested all that for us.”

Sallisaw’s system is 100 percent fiber optic. The work was made easier since they could follow the same trunk lines as the electrical system.

The city invested $7.5 million to lay 100 miles of fiber cable and install equipment.
The city now has greater than 50 percent penetration and serves 1,938 households and businesses. The city has 3,500-3,700 premises, Skelton said. The city’s population is 9,000.

“Our project is not yet paying for itself. We’re still using other utility funds to pay for it,” Skelton said. But that could change by the end of the year.

Skelton said the city continues to gain more customers and surpassed $200,000 in monthly billings for the first time in February. Another $15,000-$25,000 a month would allow the city to break even on payments. Skelton said he thinks they can reach that by the end of the year.

Skelton said the project is ahead of projections. The payoff date has been extended only because the city has refinanced the original bond issue to use it for other utility projects.

The city is looking at replacing some equipment, but not the main lines.

“One of the great things about fiber is you’re only limited by your equipment as to how much data you can push through it,” Skelton said.

HIGH-TECH TOWN
Uptown Services did the programming agreement for Chattanooga, Tenn., a much larger city which has garnered praise for its program. When some manufacturers left or closed down, Chattanooga tried to reinvent itself as a high-tech town.

“They’d hoped their cable provider would increase their bandwidth to put them on the leading edge of technology,” said David St. John, a spokesman for the Fiber-to-the-Home Council. “They wouldn’t, so Chattanooga got into the business itself.”

The city is now getting widespread recognition for being able to provide a gigabit of bandwidth to customers. “That’s more than Silicon Valley,” St. John said, “more than D.C.”

Stockton said many other smaller systems are doing very well. “Wilson, N.C., is cash-positive and Telehoma, Tenn., is doing great.”

“I know there are different perspectives and (whether government should be involved) is a philosophical question, but more and more, at the end of the day, broadband is like the highway of tomorrow,” Stockton said. “It’s critical infrastructure. It’s obvious to me why community leaders want to be on the leading edge in this area.”