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Self-reliance

Tue, 07/31/2001 - 8:00pm
Angela Langowski, Associate Editor

Size doesn't always matter. In the case of small cable operators, the fact that they have fewer subscribers than larger MSOs doesn't mean that their problems are small as well. Some of the issues they're wrestling with strike a similar chord: coming up with the capital to rebuild their networks and offer digital services and high-speed access to small communities; competing with direct broadcast satellite (DBS) providers and overbuilders; and finding employees who have the technical know-how to keep up with advancing technology.

"DBS is one of the biggest competitive threats a small operator worries about," says Mike Goodman, an analyst with the Yankee Group. "Along with that threat is the fact that small operators don't have the financial muscle or deep pockets to combat this threat."

Smaller cable operators often serve communities with fewer than 1,000 people—and the communities they provide services to stretch out over a geographic area like a crazy patchwork quilt. Many of these systems have been family-owned for decades.

While larger MSOs have more capital, orders of magnitude more subscribers, and, therefore, seemingly more influence when it comes to issues like negotiating programming costs, organizations like the American Cable Association (ACA) and the National Cable Television Cooperative (NCTC) keep a watchful eye on smaller and independent cable operators.

The ACA represents about 930 independent cable operating businesses, primarily located in smaller markets and rural areas. It represents its members before Congress, the White House administration and the Federal Communications Commission (FCC).

"Our goal is to ensure, through legislation and regulation, that the concerns of our members are heard and to ensure that regulation and legislation that comes out does not overly burden the operation of independent cable businesses," says Matt Polka, ACA president.

Polka says some of the issues his members now face include digital must-carry legislation; pole attachment fees; transitioning to digital cable and offering high-speed access; and access and availability of capital to offer these services.

The NCTC has nearly 1,000 member companies that serve about 6,500 communities and about 13 million cable subscribers, says Dan Mulvenon, NCTC vice president. The NCTC acts as a cooperative purchasing agent for the small and independent operator on both the programming and hardware side.

Eagle Communications, Hays, Kansas

Eagle Communications is located in Hays, a small community located in northwest Kansas. It has about 10,000 subscribers served by a single headend in the cities of Hays, Russell and Ellis; and about 2,000 subscribers each on individual headends in Wakeeney, Goodland and Hoxie. Eagle is owned by its 250 employees and also operates 20 radio stations in Kansas, Missouri and Nebraska. Eagle's smallest subscriber town is Hoxie, which has a population of 1,300 people, and its largest is Hays, whose population is 17,700.

While Eagle's communities are small, its service offerings are not. The company provides close to 100 channels of digital cable, 60-plus channels of analog cable and has been offering high-speed cable modem service for four years to Hays, Russell and Ellis. The three smaller communities have analog cable. The cable modem service was made possible because the three cities that have it are connected by fiber and consolidated together on one headend.

One of the biggest concerns Eagle's President/CEO Gary Shorman has is making sure the communities Eagle services stay as current and as "technically aggressive" as possible. But that's not always easy. "You have to keep in mind that with smaller communities, you can't offer the 'whiz bang,' brand new video-on-demand services because there is just not the population to be able to do that," he says.

But because of its ability to consolidate small communities, Eagle can provide highly targeted, locally important information. A good example comes from the towns of Hays, Russell and Ellis, where Eagle is currently working on a plan with the school district to provide cable modems to every teacher within the system. The company has wired the high school district and will work toward having every teacher be able to work at home.

But service is only half the battle. Finding the right people to build those networks is a challenge, too. "It takes money to do this and it takes people who know what they're doing," he says. "When you don't have a big company you have to make sure your staff stays technically current. We're not bleeding-edge technology people."

Which leads to another worry Shorman has: acquiring the financing to offer more services in each of the communities Eagle services. "We don't have the overall financing to throw money at it," he says about offering services like high-speed cable modem access.

Despite that, small operators can still be unique. Eagle Communications is often compared to larger system operators like Cox Communications in Wichita and Topeka and Time Warner in Kansas City, but Eagle is one of the few operators in the state to offer cable modem service.

In fact, Congressman Tom Osborne of Nebraska was traveling across the state, citing Eagle Communications as an example of a cable operator who is going "above and beyond" bridging the digital divide, says Shorman. Osborne apparently found out about Eagle through some work the company did in Kansas City and had been using that as an example of what could be done if people worked together in their communities.

Even though Eagle offers cable modem service, it's still beholden to other companies, which makes life interesting. Because Eagle contracts its Internet service through UUNET, there are parts of the company's Internet system that it doesn't control. Shorman cited a recent hour-long outage the company experienced that was particularly frustrating.

"That's what keeps you awake at night—making sure that you have the ability to control that technology," he says.

As for other services, Shorman says Eagle is looking at offering personal video recording functionality via a Motorola sidecar in the next year.

Bend Cable Communications and Crestview Cable of Oregon

Located in the high desert of central Oregon, Bend is famous for its many forms of outdoor recreation in summer and winter. Because of that, its current population of 50,000 rises and falls depending on the season.

Bend Cable Communications offers digital and analog cable service and high-speed cable modem service to a 25,000-subscriber base in the cities of Bend, Black Butte and Sisters. Besides being a haven to outdoor recreation enthusiasts, Bend is also known for being an upscale retirement community.

Bend Cable is a family owned business and has been around since the late 1950s when the company "was hauling three channels over a mountain," says Paul Morton, president of Bend Cable.

Because Bend is often a destination city for people who come from larger cities, Morton has to meet the expectations that come from attracting upscale consumers. These people often have digital cable and high-speed Internet access in their homes or businesses. "The group that owns this cable system knew that in order to survive they had to move into some cutting-edge stuff," he says.

Morton was hired to help expand Bend Cable's service offerings. In the three years he's been there, Bend Cable started offering cable modem service (1998), launched digital cable service (1999) and then started a fiber rebuild later that same year that it hopes to finish by 2004.

All of this growth for the cable system has led to another issue Morton worries about—attracting and holding technically skilled employees. When Morton started at Bend Cable, the company had 40 employees. Today, it has 100 employees. "We've been in an incredible growth mode, along with this community," says Morton.

To facilitate this growth, Morton says, the company has had to go out and find people with computer skills. This is the toughest group to find, he says. "You have a level of expectation for salaries," he says. The company looks for "younger, hungry people" to help fill positions, he says.

That leads to yet another issue Morton worries about—employee training. "We need to help our employees grow and explore because it comes back to us two-fold," says Morton.

Besides hiring and training employees, he says he also worries about programming fees that can cripple a small operator by trimming the system's profit margins to the bone.

Margins, increasing programming fees, hiring skilled employees and planning all this around a small operator's economies of scale are concerns echoed by Roger Harris, controller of Crestview Cable located in Medford, a small town in southwestern Oregon near the California border.

Crestview Cable owns four small cable systems providing analog cable and high-speed cable modem service to the cities of Pineville, Madras, La Pine and Enterprise. The system has 10,000 subscribers on three headends. ZCorum of Alpharetta, Ga. provides Crestview with Internet access and e-mail service. Crestview's parent company, California Oregon Broadcasting, also owns four television stations.

Crestview's technical team currently consists of Harris and one other employee. The cable system has not rolled out digital cable because it just upgraded its plant to two-way communication, and at the time, two-way cable set-tops weren't available, says Harris. The system hopes to start offering digital service soon, he says.

"The beauty of a small company is that all we need is a yes or no from the owner," he says.

Sjoberg Cable, Thief River Falls, Minnesota

Located in the northwest corner of Minnesota, Sjoberg Cable is 60 miles from North Dakota and the Canadian border. The family-owned system, which has been around since 1946, has about 8,000 subscribers on four headends and serves 33 towns and townships throughout Minnesota. The system offers digital and analog cable and has been offering high-speed cable modem service for the past two years.

What is interesting about Sjoberg offering cable modem access is that its customers are mostly made up of agricultural businesses. "We couldn't believe how many businesses wanted high-speed cable access," says Richard Sjoberg, president/CEO of Sjoberg Cable.

Besides echoing the issues other small operators have mentioned, Sjoberg says another issue that troubles him is the possibility of providing federal funding to companies to help bridge the digital divide. Operators like Sjoberg Cable are concerned because they spent their own money to provide services to rural communities they serve which could be considered part of the digital divide.

"I'm concerned when someone is rewarded for doing nothing, especially when (the government) doesn't distinguish between served and unserved areas," he says.

Great Plains Communications, Blair, Nebraska

Great Plains Communications is located in tiny Blair, Neb., population 7,000. The system serves 32 communities across the state and has 770 subscribers on 11 headends. But the communities Great Plains serves aren't contiguous. Great Plains' Director of cable TV LeaAnn Quist calls the system "geographically challenged."

Great Plains offers telephone, digital and analog cable TV service, and high-speed DSL access through its own ISP that it operates through its telephone company. It has been family owned for four generations and is owned by the Hunt family.

Competition from DBS providers and the threat of wireless service from competitors are a couple of concerns for Quist. She also struggles with how to get digital service into smaller communities like Chapman, which has 70 subscribers.

Quist says a great advantage small operators like Great Plains have is "the entrepreneurial spirit that helped build cable."

While many small cable operators share similar concerns regarding access to capital, upgrading their systems, deploying digital video services and high-speed Internet access, DBS competition, federal regulations like digital must-carry and pole fees, all of them have one major advantage: They're small, nimble and can roll out new services much faster than their larger MSO brethren. They have had to learn to employ ingenuity to overcome the issues that keep them up at night and, in the process, have helped provide digital and high-speed service to rural communities that otherwise might be ignored.

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