December 15, 1996 in Nation/World

Cable Companies Decide To Flip Television Viewers Tci’s Cash-Hungry Reputation Brings Fears Of Rate Increases

Grayden Jones Staff writer
 

Most Spokane cable TV viewers can tap into 77 channels, but only one company - Cox Communications Inc.

In a few weeks the cable provider also will change as Cox trades its 91,000 customers to the biggest cable company of them all - Tele-Communications Inc.

For critics of Cox, the transfer of its franchise to TCI is cause for celebration. But before opening the champagne, consider what’s happened recently to the new cable guy coming to Spokane:

Englewood, Colo.-based TCI has lost money for six straight quarters and is under intense pressure from shareholders to generate more revenue and reduce its costs.

To save money, it’s eliminating channels such as WGN, E! Entertainment TV, VH-1 and Comedy Central in many markets. All of those currently are offered by Cox.

It’s laying off 2,500 employees, including 23 in Spokane and 237 statewide.

It’s curtailing plans to upgrade wired systems to concentrate on a cheaper alternative - digital set-top boxes - that squeezes more channels through the wires and competes against direct-broadcast satellite services.

It’s setting a flat rate of $25 for installations at all its cable systems, compared with $9.10 that Cox charges for pre-wired homes.

It’s setting a minimum rate of $2 for basic converter boxes, compared with 28 cents at Cox.

It’s raising rates in January by 7 percent in some cities, six months after a rate hike that provoked 300,000 customers to disconnect from cable.

It has debts of $14.5 billion.

“TCI is counting its pennies,” says Peter Krasilov, vice president of Arlen Communications Inc., a Bethesda, Md.-based cable TV consulting firm. “Spokane probably won’t notice any difference immediately, but don’t expect any freebies from the company.

“TCI has a reputation for being extremely aggressive with programming networks and maximizing revenues from subscribers,” he adds. “It’s less aggressive in upgrading network infrastructure and the quality of cable service, preferring to see their cable systems as cash cows.”

TCI is expected to take control of Cox Cable Spokane Jan. 1, pending approval from the Spokane City Council and Spokane County Commission.

Because the Cox franchise is being swapped for a TCI franchise in another city, rather than sold or rebid, city and county officials have little authority to open the cable franchise contract and make demands on the company.

However, city officials have asked TCI to consider upgrading equipment used for public access Channel 5, opening a second government channel for the Fire Department and blocking unwanted pornographic channels. TCI has indicated a willingness to work with the municipalities, but made no commitments in writing.

Hank Sexton, TCI’s area manager in Olympia, promised the company will not raise the price of cable programming in Spokane.

But that’s because Cox already has pushed the fees to the maximum allowed in this market by the Federal Communications Commission, he said.

Cox’s expanded basic service, which includes Disney and 59 other channels, costs $27.36 per month. That compares with a national average of $23.07 per month, according to Paul Kagan Associates, a Los Angeles cable TV research group.

Sexton says TCI will decide next year what changes, if any, it will make to the Cox programming line-up in Spokane, and how rates will be structured.

If TCI’s nearest system to Spokane is any indication, cable programming could get more expensive for some customers.

The 40,000-subscriber system run by TCI in the Tri-Cities boosts its revenue per customer by increasing the percentage of premium and pay-per-view channels and raising the minimum number of basic channels that customers must buy.

Bare-bones basic cable in the Tri-Cities brings 20 channels, but costs $10.12 per month, or 51 cents per channel. Cox’s limited basic cable in Spokane is $6.36 for 15 channels, or 42 cents per channel. Exclude Spokane’s five educational access channels, and Cox is charging 64 cents per channel. The Tri-Cities has one public access channel.

The most a Tri-Cities customer can pay each month for regular programming is $51.89 for 44 channels, or $1.18 per channel. It costs another $12.45 per month to get the Disney Channel.

Cox’s highest bill is $60.92 for 73 channels, or 83 cents each. Disney is thrown in at no extra charge.

Sexton says Cox customers can look forward to TCI’s 24-hour answering service and its ability to carry the most sought after channels in America.

Four times larger than Cox, TCI is part owner of several cable channels that it tends to promote, including Encore, Home Shopping Network, TBS, Discovery Channel, E! Entertainment, QVC, Court TV, Prime Sports Network, Black Entertainment and Faith and Values.

TCI also may begin installing digital set-top boxes next year, Sexton says. The company is targeting 5 million of its 14 million subscribers for the upgrade.

Cox’s Spokane franchise stretches from Chattaroy to Moran Prairie, Newman Lake to Fairchild Air Force Base. Five smaller cable companies, including Century Communications in Coeur d’Alene and Pullman, provide service in areas not wired by Cox.

Cox is exchanging Spokane and several other franchises with TCI franchises as part of a national swap that affects 14 markets and 600,000 cable customers. Officials say the deal should help both companies concentrate their operations and reduce their costs.

The Spokane franchise is the only system owned by Atlanta-based Cox in the Pacific Northwest. But TCI has 800,000 subscribers around Puget Sound, Vancouver, Yakima, Walla Walla, the Tri Cities and other Washington communities.

The franchise swap does not include the Spokane Primestar operation, a satellite broadcaster owned by Cox, TCI and others. Cox will continue to operate the six-person office, though it must move out of Cox headquarters at 1717 E. Buckeye.

Allan Collins, Cox general manager in Spokane and one of 23 people losing their jobs, said the swap will help the companies compete for telecommunications services against the geographically concentrated baby Bell Telephone companies, while fending off satellite and microwave program providers that are undermining the traditional cable TV market share.

The Spokane market, where 91,000 of the 135,000 wired homes and apartments subscribe to Cox Cable, has grown little in the last two years, Collins says.

“Historically, cable companies have not had a great deal of competition,” he says. “Now they do.”

Rene Wukich, general manager of VideoWave Television in Spokane, a cable TV alternative, says the arrival of TCI is just the break she’s been hoping for. VideoWave sells a $20 per-month, 29-channel package that’s beamed by microwave to 9,000 Spokane County homes who either can’t get cable, or don’t want it.

“Cox is one of the best operators in the country so we feel there will be some opportunities when they leave,” Wukich says.

Despite TCI’s lack of profits, company spokeswoman LaRae Marsik says, the firm will continue to aggressively sell cable TV services in former Cox markets. TCI, she says, is financially strong and making gains where it counts.

One indicator is operating cash flow - a cable industry figure that tracks money coming in before the company invests it on upgrades, programming and acquiring new systems. TCI’s operating cash flow jumped from $1.5 billion during the first nine months of 1995 to $1.7 billion in the same period this year, Marsik said. That means TCI is putting money back into its cable system.

“Because of our capital investments, we haven’t seen positive earnings statement for years,” she says. “Cable is not an inexpensive business.”

But how can a cable company generate more revenue in a mature market such as Spokane?

One way TCI does it, analysts say, is to add a few channels to an existing program package and then charge another $1 for it. Another way is to roll out new technology such as digital set-top boxes and charge more to customers who want the variety found on satellite-to-home broadcasts.

Spokane viewers can only hope that TCI will be sensitive to their lack of choice in cable companies.

“My gut feeling is that we’re not charging any more than anybody else,” says TCI’s Sexton. “But when you’re the largest player, you’re also the biggest target.”

, DataTimes ILLUSTRATION: Map of area.

MEMO: These sidebars appeared with the story: THE NEXT STEP Spokane County commissioners are scheduled to consider on Tuesday a request to transfer the Spokane cable TV franchise from Cox Communications Inc. to Tele-Communications Inc. The Spokane City Council will consider the request Dec. 23.

TV CHOICES As Tele-Communications Inc. enters the Spokane market, electronics stores selling satellite dishes and other alternative programming providers are beefing up their efforts to lure cable TV viewers. Here’s how some competitors compare with Cox:

Cox Cable Spokane Available channels: 77. Lowest possible monthly bill: $6.36 for 15 channels. Highest possible bill: $60.92 for 73 channels. Premium movie channels: $9.60 each. Pay-Per-View: starts at $3.95 each. Adult programming: yes. Standard installation: $9.10 pre-wired; $21.84 new wire. Converter: 28 cents-$1.96 each. Additional TV outlets: Free. Remote control: 21 cents. Cable guide: $1. Franchise fee: 5 percent of bill. Advantages: programming selection; clear wired reception; local stations. Disadvantage: accessible only to wired homes.

Videowave TV Total available channels: 35. Lowest possible monthly bill: $19.95 for 29 channels. Highest possible bill: $46.85 for 35 channels. Premium movie channels: $4.95-$7.95 each. Pay-Per-View events: start at $14.95 each. Adult programming: no. Standard installation: $24.95. Converter: no charge for first TV; $3.95 for others. Remote control: free. Cable guide: $1. Advantages: low setup costs; direct microwave relay; local VHF/UHF stations; leases antenna. Disadvantages: limited reception area; limited programming; no pay-per-view movies.

Direct-broadcast satellite Total available channels: 175. Adult programming: yes. Hardware: $500 for first TV; $400 for second. Installation: $70-$200. Lowest possible monthly bill: $5.95 for two channels from DirectTV. Highest possible bill: $49.99 for 130 channels from Dish Network. Pay-Per-View: starts at $2.99 each. Advantages: programming choice; direct broadcast; lock-out movies. Disadvantages: pricey; no local stations.

Primestar Total available channels: 90. Adult programming: yes. Standard installation: $199. Hardware: free. Lowest possible monthly bill: $34.95 for 32 channels. Highest possible monthly bill: $54.95 for 41 channels. Pay-Per-View: starts at $3.95 each. Advantages: programming choice; direct satellite broadcast; lease equipment; lock-out movies. Disadvantage: pricey; no local stations.

Check with companies for special offers. Cox information subject to change by TCI. Grayden Jones

These sidebars appeared with the story: THE NEXT STEP Spokane County commissioners are scheduled to consider on Tuesday a request to transfer the Spokane cable TV franchise from Cox Communications Inc. to Tele-Communications Inc. The Spokane City Council will consider the request Dec. 23.

TV CHOICES As Tele-Communications Inc. enters the Spokane market, electronics stores selling satellite dishes and other alternative programming providers are beefing up their efforts to lure cable TV viewers. Here’s how some competitors compare with Cox:

Cox Cable Spokane Available channels: 77. Lowest possible monthly bill: $6.36 for 15 channels. Highest possible bill: $60.92 for 73 channels. Premium movie channels: $9.60 each. Pay-Per-View: starts at $3.95 each. Adult programming: yes. Standard installation: $9.10 pre-wired; $21.84 new wire. Converter: 28 cents-$1.96 each. Additional TV outlets: Free. Remote control: 21 cents. Cable guide: $1. Franchise fee: 5 percent of bill. Advantages: programming selection; clear wired reception; local stations. Disadvantage: accessible only to wired homes.

Videowave TV Total available channels: 35. Lowest possible monthly bill: $19.95 for 29 channels. Highest possible bill: $46.85 for 35 channels. Premium movie channels: $4.95-$7.95 each. Pay-Per-View events: start at $14.95 each. Adult programming: no. Standard installation: $24.95. Converter: no charge for first TV; $3.95 for others. Remote control: free. Cable guide: $1. Advantages: low setup costs; direct microwave relay; local VHF/UHF stations; leases antenna. Disadvantages: limited reception area; limited programming; no pay-per-view movies.

Direct-broadcast satellite Total available channels: 175. Adult programming: yes. Hardware: $500 for first TV; $400 for second. Installation: $70-$200. Lowest possible monthly bill: $5.95 for two channels from DirectTV. Highest possible bill: $49.99 for 130 channels from Dish Network. Pay-Per-View: starts at $2.99 each. Advantages: programming choice; direct broadcast; lock-out movies. Disadvantages: pricey; no local stations.

Primestar Total available channels: 90. Adult programming: yes. Standard installation: $199. Hardware: free. Lowest possible monthly bill: $34.95 for 32 channels. Highest possible monthly bill: $54.95 for 41 channels. Pay-Per-View: starts at $3.95 each. Advantages: programming choice; direct satellite broadcast; lease equipment; lock-out movies. Disadvantage: pricey; no local stations.

Check with companies for special offers. Cox information subject to change by TCI. Grayden Jones


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