TMCnet News

Utility expands phone business, eyes cable TV service
[February 09, 2006]

Utility expands phone business, eyes cable TV service


(Chattanooga Times (Free Press, TN) (KRT) Via Thomson Dialog NewsEdge) Feb. 9--More than a half century after the Electric Power Board helped electrify Chattanooga, the city-owned utility is wiring a growing share of the region for high-speed communications.



EPB's 7-year-old phone division and 4-year-old Internet business now serve corporate giants such as UnumProvident, Olan Mills and the soon-to-open T-Mobile call center.

With its commercial phone and Internet business now in the black, EPB officials are looking at whether to extend the utility's fiber-optic lines to individual homes and enter the cable television and residential broadband market.


Critics argue such an expansion would be unfair and unnecessary and could be costly for EPB ratepayers.

J.R. Clark, a UTC economics professor who helped author a study last year of municipal broadband systems, said only one of the 200 communities analyzed met their projections and turned a profit from their cable TV or Internet systems.

"Your odds of success are much better going to Las Vegas than entering this volatile and rapidly changing business," Dr. Clark said. "The bottom line is that competitive broadband, cable and Internet service is not the same as running a monopoly electric, gas or water utility."

Stacey Biggs, president of the Tennessee Cable Telecommunications Association, said government shouldn't compete with private businesses.

"Why should electric ratepayers or city taxpayers enter such a risky venture when there are experienced private companies already providing such services?" she asked.

The Tennessee Legislature imposed a temporary moratorium last year to block most municipalities from entering the cable TV business until the issue was studied in more detail. That moratorium ended last week, however, and utilities in Jackson, Kingsport and Pulaski are among the Tennessee communities either offering or planning to offer cable TV and high-speed Internet services.

Last week, however, the Clarksville City Council voted down a proposal for their electric system to expand into broadband communications.

In Chattanooga, Mayor Ron Littlefield said he would like to see a competitor to Comcast, which is the city's only provider of cable TV and a major residential high-speed Internet provider.

"A competitive market in this industry, I think, would be in the best interests of ratepayers and taxpayers," he said.

EPB officials insist they have made no decisions on whether to enter the residential broadband market and will carefully study their options. Before a municipality may offer its own cable television service in Tennessee, the city council must approve the plan by at least a two-thirds vote or submit the plan to a voter referendum.

To build its telephone business, EPB Telecom hired primarily veterans from the competitive phone market. Kathy Harriman, the senior vice president of EPB Telecom, previously build Adelphia Communications into a profitable $32 million annual business in Nashville before the parent company got into financial trouble.

"From our executive level right through to our installation and service personnel, we have a depth of expertise that is unparalleled in the communications industry," Ms. Harriman said of EPB's 47-person telecommunications staff.

North American Credit Services is among the companies that have linked with EPB to move its data quickly.

"We know that when we get to a point where we have to have more broadband capacity, they can deliver all we need and upgrade us immediately," company President Dallas Bunton said.

Ms. Harriman said EPB's locally based fiber-optic links are an economic asset for Chattanooga. But rivals contend that they can provide such services in the private market without a government-sponsored utility.

U.S. Lec sued EPB last year, contending that the use of the EPB name and the reference to the 67-year-old electric system provided the new telecom business an unfair advantage. The Tennessee Regulatory Authority rejected the claim, and the Tennessee Court of Appeals is yet to rule on the lawsuit.

BellSouth District Manager Patsy Hazlewood said the phone market now is a competitive arena, and she dismissed claims that EPB was bringing new services not otherwise available in the market.

"We've been a very committed and involved partner in Chattanooga for many, many years, and we plan to continue to provide high-value, competitive services to both business and residential customers," she said.

Under state regulations, EPB Telecom must be operated as a separate, stand-alone company and can't use revenues from EPB's electric system. The city owns EPB, but the telecom business must borrow at market rates, according to the 1999 statute that allowed municipalities to enter the phone market.

But the well-known EPB brand and the synergies of sharing some fiber-optic lines and personnel between the electric and telecommunications divisions have helped provide some economies of scale, Ms. Harriman said.

EPB Telecom, launched in 1999 as a separate subsidiary of the power board, has captured nearly one of every four business telephone lines in Chattanooga.

With more than 200 miles of fiber-optic lines laid around Chattanooga, EPB has emerged as the largest of the 28 competitive local exchange carriers licensed to provide some type of telecommunications competition against BellSouth in the Chattanooga area, according to utility and regulatory officials.

"We are now generating over $1 million a month in revenue from our telecom division, and we expect both the telecom and Internet businesses to continue to grow and each to be profitable this year," EPB President Harold DePriest said.

EPB Telecom, which began with an original 10-mile loop of fiber-optic lines originally laid for the electric system, has grown its fiber-optic cables by more than 20-fold over the past six years. EPB has invested about $30 million in its telecom division, Mr. DePriest said.

The business has reported an operating profit for the past two years but until this year has not generated a net income. The utility originally forecast that it would be profitable within five years.

"It's taken a bit longer than we expected because the FCC has changed some of their rules," Mr. DePriest said.

Mr. DePriest said EPB is turning a profit when most competitive local exchange carriers are not because EPB has laid its own lines and installed its own switches.

"What is working for us is that we are building new technology with new infrastructure that competes head on with the best infrastructure that Bell has," he said. "Our strategy for the long run has always been to have our own infrastructure to compete."

As EPB has extended its lines to capture major customers around Hamilton Place mall, Northgate, Collegedale and other suburban areas from its original downtown loop, small businesses along the way also have gained access to EPB-laid fiber.

"It's like a shopping center built around a few anchor stores," Mr. DePriest said. "When we land these major businesses, that broadens our network and allows us to better serve many smaller businesses along the same path."

EPB PHONE SERVICE:

Telecom revenue*: $11.6 million

Telecom customers: 2,300

Internet revenue*: $515,000

Internet customers: 575

Fiber cable lines: More than 200 miles

Staff: 47 employees

* Calendar 2005

Source: EPB Telecom, EPB Internet

[ Back To TMCnet.com's Homepage ]