It may be a little too early to determine the ultimate
outcome, but Ameritech New Media, the cable-television subsidiary of Chicago-based
regional Bell operating company Ameritech Corp., appears to be making some inroads in the
battle for subscribers in selected suburbs of the Windy City.
According to several proxy statements filed by partnerships
of Englewood, Colo.-based MSO Jones Intercable Inc., Jones cable systems in three Chicago
suburbs are losing subscribers at a healthy clip. And at least one local official said ANM
was closing the gap on Jones in his town.
Cable TV Fund 14-A and Cable TV Fund 15-A -- partnerships
in which Jones is the lead partner -- filed proxy statements with the U.S. Securities and
Exchange Commission Oct. 16. In those statements, it was shown that Jones is losing
subscribers in at least three of the five areas around Chicago where it operates. Those
three systems also represent more than 40 percent of the company's subscribers in
that area.
Jones agreed to sell the five systems to
Tele-Communications Inc. in April, for $500 million in cash. The systems have about
253,000 subscribers.
But according to the proxy statements, Jones is under
"intense" pressure from ANM, which has been overbuilding cable systems in
several communities in Illinois, Ohio and Michigan since 1996. The partnerships said in
their proxy filings that the hardest-hit areas were Naperville, Barrington and Matteson,
Ill.
According to the proxy statement, Jones expects revenue at
the Naperville system to decline 7 percent in 1998, from $9.4 million to $8.8 million.
Cash flow for the system is expected to drop 17 percent, to $2.3 million from $2.7 million
in 1997.
"Declining revenue and cash flow are the result of the
intense competition that the Naperville system is facing from the overbuilder,
Ameritech," the document stated.
While neither company would give out subscriber figures,
Jones has about 20,000 subscribers in Naperville to ANM's 14,000, according to Gary
Karafiat, a spokesman for the city. However, he believes that ANM is closing the gap fast.
"[ANM] has done a very good job since they came in
marketing their system," Karafiat said. "There are a fair amount of customers
who have switched, and they have done well with new households."
TCI agreed to purchase the Naperville system for $23
million, or $1,211 per subscriber.
In Barrington and Matteson -- the two largest systems in
the deal, representing 82,500 subscribers in 25 suburban Chicago communities -- Jones said
its revenue will increase, but cash flow will drop by about 1 percent. That, too, is due
to the increased pressure from ANM.
Jones originally agreed to sell the five systems to TCI for
$175 million, on the condition that it could deliver 84,750 subscribers to TCI. However,
the company later revised its estimates, claiming that it could only deliver 82,500
customers. As a result, Jones agreed to take nearly $5 million less for the systems --
$170.4 million.
While this appears to mean that Jones has been hammered by
competition from ANM, it came as a bit of a surprise to many in the cable industry.
Although ANM has been overbuilding systems in selected Midwest communities for about two
years, it was widely believed that the company had only a minimal impact on incumbent
cable-service providers.
Ted Henderson, an analyst with Denver-based research firm
Janco Partners, said he was a little skeptical about ANM's impact in Illinois.
However, he added that competition is a way of life in the cable-TV industry.
"In this arena, every operator should be wary of
competition," Henderson said. "Chicago is an outstanding cluster -- a very
valuable cluster. TCI goes into this with their eyes wide open."
Henderson said it was a little strange that Ameritech --
which is in the process of being acquired by SBC Communications Inc., an RBOC with little
interest in video -- was not heavily promoting its success in the Chicago market.
And he added that the general consensus is that Americast
the video consortium that includes Ameritech, SBC, GTE Corp., Southern New England
Telecommunications Corp., The Walt Disney Co. and BellSouth Corp. -- has not been doing
very well.
"I would think that Americast would be screaming a lot
louder, promoting a lot louder what great inroads it is making in the video
business," Henderson said. "I will say this: Americast has not been a raging
success story."
TCI, which is scheduled to take over the Jones Chicago
systems later this year, wasn't concerned either.
"We are facing competition in many markets, and the
number of subscribers is pretty fluid," said Katina Vlahadamis, a spokeswoman for
TCI. "We are ready to face competition in Chicago, and we are looking forward to
clustering and strengthening our local presence there."
ANM has been reluctant to release details on its cable
operations, stating only that it has about 150,000 subscribers in 65 markets in Illinois,
Ohio and Michigan. However, the company has targeted only the largest cities in those
states Chicago; Cleveland and Columbus, Ohio; and Detroit for video service.
That strategy may be paying off, at least in some places.
"Our goal is to raise the bar in the cable
industry," said Geoff Potter, a spokesman for ANM.
And while it seems -- at least on paper -- that ANM is
winning the battle of Illinois, officials at Jones were unconcerned.
Dan Capasso, a spokesman for Jones in Elgin, Ill., said the
declining revenue figures were normal for these types of transactions.
Elgin is part of the Barrington system, where ANM has been
offering a competing cable service for about two years.
"It is not uncommon to readjust projections,"
Capasso said. "This is simply a slight downward forecast. We're currently
exceeding our expectations [in Elgin]."
But according to officials in Elgin, the effects of
competition there may be a little more serious.
Eric Stuckey, assistant city manager for Elgin, said that
although neither ANM nor Jones has released subscriber numbers regarding his city,
franchise fees have risen by about 5 percent so far this year, mainly from ANM --
Jones' franchise fees to the city were down slightly this year.
"There might be some other explanation, other than the
number of subscribers," Stuckey said. "It could be that they are spending less
on advertising. It might not be fair to say that they are losing subscribers."
But absent any hard figures from Jones -- ANM doesn't
release subscriber numbers for individual markets, either -- a decline in Jones'
customer base may be the most logical explanation.
Why would customers make the change, given that both Jones
and ANM offer a similar number of channels for nearly the same price? ANM would say
subscribers switch due to its superior customer service, although a quick survey of both
Jones and ANM subscribers showed that pricing and channel capacity were the main drivers
in decisions to switch.
Roy Larsen, a Jones subscriber in Glen Ellyn, Ill., said he
had considered switching to ANM when he moved to a condominium in the city about a year
ago. However, he elected to stay with Jones after it increased its channel offerings and
agreed to reduce his monthly cable charges for six months.
"I am not at all loyal [to Jones]," Larsen said.
"I've had no trouble with Jones, and I don't know if Ameritech could offer
me more, but if they could, I would switch in a minute."
That lack of customer loyalty swings both ways.
Jodie Spackowiak said she switched to ANM in Elgin about a
year ago because it offered more channels for the same price. However, since Jones added
some channels to its Elgin system -- particularly a community-news channel that shows town
council meetings and local events -- she may be willing to go back.
"I'd probably go back to Jones if they offered
free installation," she said.
Spackowiak added that the last thing on her mind was the
exemplary level of customer service that both Jones and ANM claim to provide.
"If you pay your bills on time, the average Joe just
doesn't see it," she said.
