Portland's cable market poised for competition

By Su-jin Yim of The Oregonian staff 

If one cable start-up gets its way, it will pour more than $500 million into building and maintaining a state-of-the-art cable TV, Internet and telephone network in the Portland area. 

That planned investment is enough to turn heads, especially considering that the upstart is grappling with AT&T, the entrenched, dominant cable provider.

Now multiply those plans, and it becomes clear that Portland is poised to become a battleground on the new digital frontier, where companies are racing to capture a fast-growing market for online and cable services.

Portland, benefiting from changing tides in the cable industry and a strong stand on a major industry issue, is fielding offers from four companies that want to build brand-new cable systems to compete with AT&T.

More details emerged this week as the city continues talks with two companies already authorized to start crafting an operating license to offer cable services. All four companies are on the agenda for tonight's Mt. Hood Cable Regulatory Commission meeting, which will include public comment.

Wide Open West, a Denver-area start-up with $50 million in promised funding, has told local cable officials that it will cost $515 million and a little more than four years to build and maintain a system that will serve Multnomah, Washington, Clackamas and Clark counties.

RCN, a publicly held New Jersey company that already serves customers coast to coast, said it would take about $490 million and seven years to build a comprehensive system.

Both RCN and Wide Open West have been cleared to begin negotiating franchise agreements.

The companies' aggressive plans represent a shift in the cable industry, which had long dismissed building new systems in areas that already have service. More than 15 million households in the country have or will soon have a choice in cable companies, according to Paul Kagan Associates. That's a far cry from a decade ago, when fewer than two dozen markets had a choice.

"It's a phenomenon that's occurring nationwide," said John Mansell, a senior analyst with Paul Kagan Associates. "It's occurring because the economics of the entire business have changed. It used to be you could only provide video service. Now you're providing a whole range of telecommunications, Internet and telephone services.  

"You don't need 30 percent to 40 percent penetration. Now you can have 20 percent."

Many submit proposals In Portland, the interest from the so-called overbuilders was also sped up by the city's and Multnomah County's insistence that AT&T open its cable network to Internet competitors. AT&T sued the city and county after they insisted on such "open access." That suit is pending in appeals court. The city of Portland then asked for other companies to submit proposals to offer service on an open network.

Just because multiple companies are vying for a franchise in the Portland area doesn't mean they all will end up serving residential customers. One new company, Open Access Broadband Networks, plans to sell space on its network to Internet service providers and other companies, not individual consumers. And tonight's meeting will mark the first appearance of Western Integrated

Networks, a new company that is seeking approval to start license negotiations.

Customers bound to benefit It's not clear that the Portland market can bear four cable rivals.

"I don't know of any market that has four" overbuilders, Mansell said. "They have to get the financing. They're not going to get the financing if their financiers recognize there's really going to end up being cutthroat competition."

David Olson, head of the city's cable office, agreed. "It's not to say that everyone will survive the licensing process," said Olson, who expects the field to shake out by year end.

Still, customers are bound to win, Mansell said. AT&T will probably drop rates and new services to compete against any new rival, he said. 

That doesn't mean it will be an easy road for the contenders. Any new company will have to be able to take away customers from AT&T, which serves about 60 percent of the area.

"If their programming's very similar, it's mainly going to (rest on) price," Mansell said. "Even if the challenger has a couple bucks lower price, it doesn't mean everybody's going to switch. There's a lot of built-in lethargy among subscribers."

Under Wide Open West's preliminary schedule, construction would start six months after it wins a license, putting it on schedule for this fall. It would take the next four years to finish as the company builds different parts of the network simultaneously. That means some Portland customers could still lack a choice in cable providers in 2005. Others could switch from AT&T as soon as next year.

RCN plans to start construction first in Portland, then build in Gresham in 2002 and other areas in 2006.

Source: http://oregonlive.com/business/00/03/bz031608.html