In a move virtually unheard of in almost two decades, a
small Midwest cable operator is defying history by launching an overbuild of an entrenched
incumbent.
In fact, Buckeye CableSystem Inc., a Toledo, Ohio.-based
operator with 128,000 subscribers and 200,000 homes passed in 17 adjoining suburbs, plans
to go head-to-head with FrontierVision Partners L.P. in three area communities consisting
of 15,000 households.
Buckeye has already signed to build systems in Waterville
and Northwood, Ohio, with a third franchise in the works in neighboring Bedford Township,
Mich.
Because of the proximity of the three communities, Buckeye
is betting that it can extend its $120 million upgrade to each town without adding
significantly to the cost of the rebuild. The result will be an increase of approximately
7.5 percent in homes passed.
"As we add to our platform, it makes sense to do it
now," said Buckeye spokesman Tom Dawson, noting that the three towns had been after
the MSO to come in an compete with FrontierVision.
Nevertheless, the prospect of one operator overbuilding
another took some observers by surprise.
Historically, operators have carefully avoided overbuilds,
arguing that was financial suicide to spend millions on a network, only to share the local
video market.
"It's unheard of. You need an awfully dense population
pattern to support two operators on the same pole. Otherwise, neither makes a
profit," said Bill Bradley, an industry consultant and former head of the Denver
Office of Telecommunications.
Other experts, however, say overbuilds have become less
rare, although they remain almost the exclusive purview of Ameritech New Media, a
subsidiary of Ameritech Corp. that competes against MSOs in 75 midwestern markets --
including Ohio and Michigan.
"You can't ignore what Ameritech is doing. It proves
that overbuilds do happen," said Barry Orton, professor of telecommunications at the
University of Wisconsin-Madison. "But it's the fact that this is a little guy doing
it that makes it news."
As such, Bradley said Buckeye must know something.
"Before I'd invest that kind of money, I'd have to be
pretty comfortable that I could drive the other outfit off the streets," he said.
What Buckeye knows, Dawson said, is that once it upgrades
to 860 megahertz, it will be capable of delivering enough new services to generate the
additional revenues needed to justify the overbuild expense.
Among those offerings is expected to be local telephone
service via cable, which will complement the local competitive access and long distance
service it currently offers area businesses through its Buckeye TeleSystem and Toledo Area
Telecommunications Services affiliates.
"With cable, telephone, data and cable modem service,
we feel like we can hold our own," Dawson said.
In FrontierVision, Buckeye will be going against an MSO
struggling to overcome the customer services problems it inherited when it acquired the
systems in Waterville, Northwood and Bedford Township.
In addition to an aging plant, the biggest problem was the
previous operator's lack of a local presence in the communities. That meant residents had
to call as far away as Chillicothe, Ohio, when they wanted service.
To address the problems, the company has office in each of
the communities, and has launched upgrades that guarantee that "Buckeye is going to
have competition, too," said regional manager Steve Trippe.
"We've only owned these systems for the last few
years," Trippe said. "But we're moving ahead now with the capital expenditures
needed to upgrade these communities so we can be competitive."
Trippe said competing against Buckeye is nothing new for
FrontierVision. The two companies have had over-lapping operations in the Ohio communities
of Perrysburg, Monclova Township and Springfield for the last 10 years.
Even so, he disputes Buckeyes' contention that it had been
approached by the three communities about coming in and competing against FrontierVision.
"We've talked to the folks in Bedford Township, and
they told is that Buckeye approached them about wanting to offer phone service
there," Trippe said.
The first community to grant Buckeye a franchise was
Waterville, a village of 5,000 residents some 20 miles south of Toledo. Local officials
expect the MSO will find a lucrative market when it turns on its system this week.
"It turned out to be a perfect marriage for both
sides," said municipal administrator Tom Mattis. "We have a college educated,
white collar, high per capita income, professional population. Demographically, it's great
for the services they [Buckeye] can provide."
Mattis conceded that FrontierVision's customer service was
the original impetus for seeking out a second cable provider. But it was the lure of a
local service provider bringing competition and enhanced services to the market that
finally sealed the deal.
Buckeye is going to come here and provide good services,
and that's going to force our other provider to compete," Mattis added.
In Bedford Township, a community of 28,000, FrontierVision
has been "slow to bring its network into repair," said township supervisor LaMar
Frederick.
Township officials decided to sign on with Buckeye rather
than continue to field calls from angry consumers complaining about hours spent trying to
get through on FrontierVision's 800 service number, he said.
"We finally had a number of people just throw up their
hands and say `I'm going to a dish,'" he said.
Frederick said FrontierVision has since opened a local
office in Bedford Township, and is working to improve its service.
"But I don't have anybody calling in and saying their
service is magnificent," he said.
Trippe predicts all that will change once FrontierVision
completes its upgrade in the three towns. The company, he said, is evaluating what new
services it will offer, with a roll out of digital cable expected sometime this year.
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