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Upstart threatens Comcast chokehold
By Lori Pugh
IBJ Reporter
It looks like Comcast Cablevision's Marion County cable monopoly won't last long.
The Philadelphia-based cable company is poised to own almost the entire
residential market later this spring when it takes over lines in older areas of the city
now served by Time Warner Cable, but new players are planning to crash the party.
Digital Access Inc., based near Comcast in suburban Philadelphia, is in the process
of raising $1.3 billion in combined debt financing and venture capital, a quarter of
which it will spend here building the infrastructure for a hybrid fiber-coaxial network
capable of providing a variety of telecommunications services.
Digital Access, founded in 1999, plans to provide full-scale broadband services,
including high-speed Internet, digital television, phone service and other video
services to both business and residential customers.
Cable systems across the country are beginning to offer services similar to those of
Digital Access as their systems are digitally upgraded to offer more bandwidth. Both
Comcast and Time Warner have been in the process of upgrading their systems here,
with Comcast recently finishing its Marion County upgrade. Digital Access' entry will mark the first time a cable company in Indianapolis has gone head-to-head with another cable company for the same customer.
Comcast is expected to close in May on a deal to swap cable lines in the Tallahassee, Fla., area for cable lines serving 100,000 Time Warner Cable customers in Indianapolis, effectively making Comcast the only cable provider in Indianapolis. The two companies currently serve different areas of the city that do not overlap. Comcast officials say they have no problem with competition. "One of the things I find to be very interesting is they are going to spend a lot of money to basically duplicate what we have in the market already," said Troy Bruinsma, Comcast's sales and marketing manager for the Indianapolis office. "It's going to be an amazing process for them to complete all the construction that is necessary. All this will be going on while Comcast is continuing to do business."
So far, Comcast has signed up 3,000 high-speed Internet subscribers just through
word-of-mouth, Bruinsma said. The company expects to push that number to 8,000 or
9,000 after an aggressive marketing campaign this spring. Comcast has signed 31,000
subscribers for digital cable television service, which offers more premium channels
than regular cable. Digital Access plans to launch its systems first in Indianapolis; Kansas City, Kan.; Milwaukee; and Nashville, but doesn't expect to be up and running in Indianapolis for another 18 months. The company is uncertain whether Indianapolis, Speedway or Carmel will be the first to get the service, said Joe Cece, Digital Access CEO.
Digital Access plans to roll out high-speed service to businesses at the same time it
launches its residential service. "I think for a city that has aspirations to be 'wired and inspired,' it needs the infrastructure to support that kind of economic development," said Cece, making reference to the city's slogan for attracting high-tech businesses. Comcast, which already offers high-speed Internet and digital cable to all its existing customers in Marion County, wants to introduce service to businesses later this year. Although it will beat Digital Access to the punch on seeking business customers, it doesn't yet offer telephone service through its digital cable infrastructure.
Cable companies have been slow to get into telephone services. Cable phone service is available in only 600,000 homes nationwide, according to Paul Kagan Associates Inc.'s Cable TV Financial Databook. That figure is expected to balloon to 13.8 million subscribers in 2005.
On the Internet front, Digital Access and Comcast will differ in how they relate to
other Internet service providers. Digital Access plans to allow other providers to use
its system. Comcast has its own service, Comcast@Home, and does not allow others
to use its service. Digital Access will distinguish itself in other areas. Instead of the traditional tree-and-branch cable infrastructure system, the company is building its network in a ring so that if a service line is cut somewhere, there's usually an alternate way to provide service, Cece said. Digital Access also plans to hook up fewer homes to one cable plant to provide customers access to more bandwidth than is typical.
Digital Access will ultimately employ 300 people here after its build-out in three or
four years. The Indianapolis market was chosen primarily because of the density of homes per mile and because there are no new high-speed cable entrants to the market, Cece said.
"For this business model to work, there is only room for one new broadband
infrastructure [company]," Cece said. "Timing is everything." Just how much competition the market can handle is an open question, said Rick Maultra, director of the Indianapolis/Marion County Cable Communications Agency, which will make a recommendation to the cable franchise board about granting Digital Access a franchise agreement to operate in the city's and county's public right of way. It's unclear how long it will take Digital Access to get through the regulatory process. Maultra said he expects another cable broadband company to announce plans in the next month to provide service here. "My feeling is, let them come, and let's see what the market will bear," he said.
Regardless of how many competitors ultimately emerge, Maultra said prospective
providers have told his office that rates will decrease 15 percent to 20 percent for
those who take combined services from one provider. Maultra said more competition
should also result in better customer service from Comcast and Ameritech.
For years, Maultra said, cable companies stood by the unwritten credo "Thou shalt
not compete with thy brethren." "If they do, that blows away the spin they put on elected officials for years that cable overbuilds are not profitable," he said. But now, with the cable pie increasing to include phone and Internet service, competition is erupting.
By offering more services than just cable television, Maultra said, cable companies
could boost monthly customer bills from $40 for cable service only to $150 for a
package of cable, Internet service, and local and long-distance phone service.
David Beckwith, vice president of communications for the National Cable Television Association, said the association's members don't have any problem with competition as long as everyone is held to the same standard. Beckwith said cable companies already face competition from a variety of sources, including direct broadcast satellite companies and telecommunication companies offering higher-speed digital subscriber line service. The 10 largest metropolitan areas in the country offer at least 10 broadband providers to choose from, he said. "All this competition is bound to be good for the consumer," he said. "More choice, lower prices."
Copyright © IBJ Corp. 2000.
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