cover story :: FEBRUARY 23, 2005

Hiding the remote:
Comcast may make it hard for Lansing to change channels

By GRETCHEN COCHRAN

The City of Lansing is preparing to go to war with the largest cable TV company in the United States.

Of course, the city hopes it won’t come to that. But just in case, it’s arming itself with consultants who know the terrain.

The moment of truth has arrived because Lansing’s 30-year-old cable TV franchise agreement, signed when many of today’s telecommunications wonders were little more than science fiction, expired in April 2004. The contract is in effect day to day until a new one is forged.

‘The quicker you guys get out of this town, the better we’ll all be.’

Words like these, from cable channel host Gary Andrews to Comcast regional representative Leslie Brogan, set the tone of last week’s meeting of Lansing’s Cable and Telecommunications Advisory Board.

Andrews feared the city will bargain away the public access channels to placate Comcast when the contract is re-negotiated. His concern only sharpened when Brogan responded: “The only reason the city has access channels is that they are in the franchise agreement. Lansing is one of the few cities in which the cable operator provides a studio, equips it and runs it.”

Board member Letitia Fowler was even less thrilled with Brogan’s response to her questions about frequent rate increases.

“Some things are totally in the purview of the company,” Brogan told Fowler. “We are requested to provide information about changes, but we cannot announce them in advance. Rate increases are unregulated business decisions made according to the marketplace.”

Fowler was not consoled. “We’d like a dialogue instead of just receiving information,” she fumed. “This is an indicator of our relationship with the company.”

The news that Comcast’s contract is up for renewal gave an edge to the gathering, at which about $8,000 in grants were distributed. The money preliminarily went to Andrews, Christine Timmon and others who host programs on Comcast’s Channel 16, one of Lansing’s public access channels provided through the city’s cable franchise agreement.

Darryl Burgess, who produces an access program on Channel 16, believes the studio, at 1401 E. Miller Road, is filled with antiquated rather than “state of the art” equipment, as is required in the franchise agreement. Timmon, who produces four programs, was less critical. She had just received a recommendation for more than $1,000 in grants for her program support.

Shepherding the advisory board is Karen Schmidt, employed by the city to manage City TV, one of the city’s so-called PEG (public, education and government) channels. Schmidt brings to the board letters of complaint from city subscribers, and Comcast is expected to explain how it responds.The city’s tangle with Comcast is a high-stakes poker game. At least $1 million per year in income to the city is on the table, as Lansing leases its public rights of way for the stringing of cable, leveraging what it will get in return in cash and services.

The deal will also affect cable rates, the speed of Internet service and a host of other communications issues involving local telephone service, community access programming and economic development.

Cities across the country and in Michigan have already tried to negotiate with Comcast, and the process hasn’t always been pretty. Utilities and co-operatives that have tried to wrest ownership from the cable giant have faced hardball lobbying, deep-pocketed ad campaigns full of alleged disinformation and even a First Amendment lawsuit.

The Federal Communications Commission further complicated matters for cities in 1996, laying down rules for agreements with cable providers that restricted the concessions a city might seek and narrowed the terms under which a cable provider may be dumped.

With this in mind, the city has tapped Bradley & Guzzetta of St. Paul, Minn., a firm that frequently represents municipalities in cable and telecommunications matters and is used to fighting for local government control over public rights of way.

The firm will work with CBG Communications, a Minneapolis telecommunications consulting firm, for a compensation yet to be negotiated, but amounting at least to $50,000.

Joining the consultants in crafting the agreement will be mayoral assistant David Wiener; Councilman Brian Jeffries; Paul Novak, city attorney; Margo Vroman, assistant city attorney; John Green, senior buyer; Sandy Novick, general manager of the Board of Water and Light; and Karen Schmidt, City-TV manager.

The 2 percent solution

It’s a given that the negotiations will focus on money — how much the city gets from its lease, and how it gets it. Under the old contract, still in effect pending re-negotiation, the city receives 3 percent of Comcast’s Lansing-area revenues. This money, which came to $600,000 last year, has supported City TV (at $100,000 for salaries and equipment); the Lansing Community College channel ($14,000); the Lansing School District channel ($14,000); and grants to public access Channel 16 producers ($8,500). The remainder, about $450,000, goes into the general fund and is mostly earmarked for arts programming, Mayor Tony Benevides said.

But according to the FCC, the city can charge its cable provider up to 5 percent of its revenue. A hike from 3 percent to 5 percent could increase the city’s income to $1 million per year.

How the fee is assessed is a critical question. It can be levied, for example, on numbers of households or on miles of cable stretched. It can also be levied on Internet customers, which is not now the case in Lansing, an option that could further enhance the city’s income.

Firm projections are hard to come by. Comcast would not provide City Pulse with either its cable or Internet subscriber numbers “for competitive reasons,” said Christine Ervin of the company’s press office in Grand Rapids.

Who is Comcast?

Comcast calls itself “one of the world’s leading communication companies,” but may as well be known to less formal observers as “Godzilla.” Headquartered in Philadelphia, it boasts 70,000 employees and over 21 million customers, 7 million of them new Internet subscribers. Its cash cow is Comcast Cable Communications, which took in $67 million in profits last quarter, out of $20 billion in revenue.

In the Michigan region, Comcast serves 446 communities, including East Lansing and Meridian Township, and in 2003 paid out $42.9 million in franchise fees.

Comcast has been Lansing’s cable franchisee for three years, after a typical series of little fish-big fish corporate gulps. The city’s original contract was with Continental Cablevision, which became Media One, and finally TCI, which was purchased by AT&T. Comcast and AT&T Broadband, in turn, merged in 2002 to become the country’s largest cable provider.

Hell hath no fury

As the city forges a competitive deal with Comcast, it may find itself in the role of a flea biting a dog that’s paddling for its life. Given the relatively small size of the Lansing market, the inroads made by phone companies into cable and allied technologies and the impetus to cut costs, Comcast may be in no mood to concede any ground. Cities across the country have tried to strike sweet deals, and the landscape is littered with their laments.

Two years ago, San Jose, Calif., preliminarily denied renewal of its franchise agreement with Comcast. The company retaliated by suing the city, alleging its First Amendment rights to access the public right of way were being impinged upon, according to TheStreet.com. A federal district court threw out Comcast’s case in October, but not before San Jose spent valuable dollars and time defending itself.

Greg Starks, a member of Lansing’s Cable and Telecommunications Advisory Board for 10 years, thinks the best deal of all would be for the Lansing Board of Water and Light to take over the city’s cable business. Wyandotte, Holland and Tecumseh are three Michigan public utility companies that have already done so.

The town of Shrewsbury, Mass. has owned and operated its cable television system since 1983 and has recently added fiber optic cable to its coaxial cable grid.

But Comcast has not taken kindly to similar local power grabs in other areas. In 2003, the cities of Batavia, St. Charles and Geneva, Ill., sought to form a Fiber to the Home system under which fiber optic cables — the next generation of cable technology — would be owned by the cities. Comcast and SBC joined forces to kill the effort to compete with them. Advocates of public fiber ownership in Batavia alleged dozens of counts of Comcast misconduct, including aggressive disinformation campaigns about costs and services. Comcast employees were also alleged with calling voters directly, fraudulently misrepresenting themselves as government employees.

Karl Bode of www.dslreports.com was disgusted at the unfolding drama. “If you thought dirty tricks were reserved for presidential politics, you should try wiring your town with fiber optic cable. As several communities prepare to vote on such home-grown broadband networks today, they face disinformation campaigns, bogus think-tank studies and an uphill battle against deep pocketed corporate adversaries who’ll go to any lengths to avoid competition,” Bode wrote.

The Illinois project failed at the polls, primarily because voters feared it would result in higher taxes. The belief, wrote Bode, was “not based on any fiscal reality, but because SBC and Comcast spent a considerable sum” on “polls with questions like: ‘Should tax money be allowed to provide pornographic movies for residents?’”

Last year, the communities gave it another go. Since citizens were scared off by Comcast’s tactics, cities found private investors to finance the new entity. Again, the measure failed. “SBC and Comcast tripled their ad output,” Bode wrote. “Comcast went so far as to send locals Hallmark cards just to let them know they cared.”

“We are not in the business of striving to scuttle any community agreements,” said Jerome Espy, communications director for Comcast of Michigan. “None of that took place. We do not operate that way in the tri-city area [referring to Illinois], and we do not operate that way in Michigan.”

Successful cities

Other cities, however, have gleaned better deals. Lansing itself has eight channels set aside without charge, including one for the city’s use (City-TV), four for the schools and one for religious access. It also has the use of Comcast’s production studio in south Lansing. At a recent meeting of Lansing’s Cable and Telecommunications Advisory Board, however, a Comcast representative said such arrangements are “few” (see sidebar on the meeting).

Yet some cities are seeking even more. Cleveland received $3 million for a technology fund, free cable modems and Internet service for one computer center in each of its 21 wards from Adelphia, the nation’s fifth largest cable company. The city also got a volume discount for Internet service and cable modems for all city facilities, public libraries, computer centers and primary and secondary schools. Seattle received similar services, plus a staff person to assist, coordinate resources for and strengthen the services and educational quality of community technology programs.

Showing some fiber

Adding to the volatility of the upcoming negotiations is the high-stakes battle between Comcast and phone companies for 21st-century telecommunications turf.

The focus of this rough-and-tumble competition is a light-carrying pipette finer than the finest angel-hair spaghetti. “The future of telecommunications is at the end of a strand of glass,” wrote James S. Granelli of the Los Angeles Times. Fiber optics, as Granelli explained, transmit huge amounts of data over vast distances, providing high bandwidth in a small space at relatively low cost and low power consumption. What is more, fiber is insensitive to electromagnetic interference, and produces clean, clear transmissions of voice and data.

Comcast has been laying fiber in the Lansing area, as opposed to the outdated coaxial cable, but will not say how much “for competitive reasons.”

“Fiber holds the promise of the high-speed future,” Granelli wrote, “a nearly unlimited bandwidth for video, voice and data on networks that are easy to repair in rare cases of breaks or outages. Industry analysts say fiber is the ultimate broadband technology and will rule communications for at least 40 years.”

According to George Mannes of TheStreet.com, “The race is on between phone and cable companies to offer consumers bundles of telephone, television and high-speed Internet services. Analysts predict that as many as 15 million homes will be getting their phone service from cable operators by the end of the decade.”

Indeed, SBC, the dominant telephone company in the Lansing area, is avidly seeking Internet and video business, having launched Internet test projects in five cities last year. According to Reuters, SBC announced two weeks ago it will launch its own video service in November. And while SBC is champing at the bit to get into Internet and video services, Comcast has announced it will launch phone service later this year. As for video, Comcast’s CEO Brian Roberts told Wall Street earlier this fall that he expects the TV business to change more this decade than it has in 40 years, Mannes said.

Sandy Novick of Lansing’s Board of Water and Light throws yet another card on the table: broadband over power lines, a recent technological development now in its infancy. It can carry the Internet well, but is still developing video capability. Also lurking in the technology stew is Wi-Fi, the wireless capability that works for the Internet, but not yet for video.

This onrush of new technologies makes the length of the city’s contract period a crucial point. The city originally intended to go after a 10-year agreement, but one option under consideration is to shorten this period, allowing for advances in technology and leaving a doorway for the Board of Water and Light to take over in the future.

The board’s Novick will be at the table in the Comcast negotiations. Time will tell whether the Board of Water and Light will play a significant role in the city’s communications systems in the future.

Citizens’ input wanted

In view of the complex terrain, the city and its negotiators have a big job ahead. In addition to helping negotiate a new agreement, the consultants are charged with two other tasks: performing a technical audit of the existing equipment used in Lansing, including an evaluation of signal quality; and mounting a multi-pronged public survey, including the hosting of public hearings. A financial audit to analyze the method Comcast uses to determine the revenues it reports to the city has already been completed.

Residents will have plenty of opportunity to be involved, Wiener said. A community-needs assessment will be conducted, seeking input via telephone and direct mail surveys and public hearings. Meanwhile, residents may call their Council member’s office or the mayor with comments.

The negotiations are unlikely to end soon. Judging by the experience of other cities, the process could last at least a year. It took one city in Michigan 10 years to forge a new agreement with its cable provider. “We are not in a hurry,” Benavides said. “We want the best deal possible for the city.”