Competition has officially come to Iowa's
second-largest cable market, albeit on a limited basis so far.
McLeodUSA began competing against Tele-Communications Inc.
in Cedar Rapids last month, when it turned on its first customer in the northeast section
of its hometown.
Launching neighborhood-by-neighborhood, McLeodUSA is
offering 97 channels of programming and high-speed Internet access, as it proceeds with a
$40 million expansion of the fiber optic backbone that it uses to deliver local phone
service in Cedar Rapids.
However, officials for the telecommunications-services
provider conceded that full-blown, all-out competition for TCI's 41,000 local cable
customers is months away.
As of last week, the company's expanded plant only
passed some 600 homes in a market of 55,000 households, and it had attracted just over 50
customers.
"But we're going to do it right," said Henry
Royer, general manager of the Cedar Rapids overbuild. "We're going to ring
55,000 doorbells."
McLeodUSA is offering a 63-channel expanded-basic package
at $26.90 per month -- the same price that TCI charges. Consumers can also purchase two
additional 10-channel "Value Tiers" for $5 apiece, and premium-movie-channel
offerings range from $2.75 for a multiplexed Encore package to $11.50 for four channels of
Home Box Office.
The entire package, including 15 movie channels, is going
for $69.95 per month.
As an additional inducement, McLeodUSA is offering the 20
individual channels on the two Value Tiers a la carte, with free installation thrown in
during the service's introductory period.
Royer conceded, however, that McLeodUSA is competing
against TCI on more than just price: It's also going against a first-rate cable plant
that TCI inherited when it acquired the system from Cox Communications Inc. in January
1997.
"TCI is not an unformidable competitor," he said.
"[But] what we're competing against is not your normal obsolete plant. This is a
very nice plant here. Most other overbuilders would tell you that they prefer to go
against the old TCI plant."
Meanwhile, some industry observers are taking a
wait-and-see attitude about McLeodUSA's foray into cable, arguing that it must still
must secure enough of the Cedar Rapids market to justify the incremental cost of building
out its network.
"I think that you have to [be cautious]," said
Lowell Bolken, a Minneapolis-based analyst with Dain Rauscher. "A couple of years
ago, the direct-to-home satellite business was going to take a lot of cable customers, and
that hasn't happened. It's still a matter of consumer reaction."
Nevertheless, McLeodUSA's entry into the Cedar Rapids
markets is the first shot in a competitive battle that promises to spill over into Des
Moines -- the state's largest market, and another venue where TCI is the dominant
operator.
McLeodUSA hopes to place a proposed cable franchise before
Des Moines voters in a special referendum in November. The company, which already provides
phone service to 5,500 residences and 2,500 business in Des Moines, plans a fiber optic
network capable of delivering video, phone and Internet access to the city's 190,000
residents.
Meanwhile, TCI continues to take a moderate tone in
reacting to competition in Cedar Rapids, promising that it will "compete effectively
in the marketplace."
Debora Blume, regional communications director for TCI of
Iowa, said the system has responded by introducing its TCI Digital programming package in
Cedar Rapids, and it plans to unveil its TCI@Home high-speed Internet-access offering by
this fall.
"Our mission is clear," Blume said. "We
intend to continue offering our customers a robust product at a fair price. Right now, our
customer base is growing in Cedar Rapids, which tells us that we're on the right
track."
The MSO has repeatedly said that it does not object to
competing against a private entity like McLeodUSA, but that it objects to the municipal
overbuilds that are springing up in Iowa.
