With Knology entering the local cable market, Knoxville may be seeing a telecom show-down. But how long before consumers see the benefits?
by Matthew T. Everett
Standing outside the main assembly room of the City County Building on a Tuesday afternoon in early April, surrounded by newspaper and television reporters and a cadre of local government officials and business leaders, Rodger Johnson briefly outlines the future of the cable television industry.
Broadband service, providing multimedia telecommunications through bundles of fiber optic-rich wires, will revolutionize cable delivery in the near future, says Johnson, CEO of Knology, a West Point, Ga.-based cable company that was recently granted a local cable franchise agreement in Knoxville and Knox County. Within a year, Johnson says, Knology will provide full broadband cable capability to customers in Fountain City and parts of West Knoxville. Within four years, according to the franchise agreement and following an investment of $75 to $100 million by Knology in laying its own underground wiring and infrastructure, Knology service—both analog and digital cable television, high-speed Internet access, and telephone service—will be available throughout Knoxville and unincorporated Knox County.
But the promises of broadband technology and an open, competitive market aren't always met. In other cities where Knology and ComCast—which was, until recently, the sole cable provider for most of Knoxville and Knox County—have competed, consumers haven't seen the drastic price reductions or even, some observers say, the dramatic improvements in service that are supposed to accompany new competition.
Through broadband—a collection of wires that deliver previously disparate telecom services through one outlet—the frustrating pop and crackle sound of dial-up Internet connections will disappear; connections and downloads will be up to 50 times faster; government offices and county schools will be connected through an institutional network; and digital pictures and sound will be as near as the television in your living room. The system is also the first step required for bringing high-definition television, which national broadcasters will be required to provide in the local market in the next few years.
Knology representatives also say their broadband infrastructure will lay the groundwork for other, as-yet-unseen technological advancements, such as connections to local businesses and government offices and entertainment-on-demand. "You and I can't even imagine the ideas that will come forth in the next few years," Johnson said, just after the Knox County Commission's unanimous approval of Knology's 15-year franchise agreement. Along with the Knoxville City Council's approval of a similar agreement on April 18, the County Commission vote on April 11 has cleared the way for the first competitive cable and telephone marketplace in Knox County.
Local officials view Knology's presence as a boon for Knoxville's cable customers. Mayor Victor Ashe proclaimed Knology's arrival as "good news for consumers in our city."
"The reason I think it's a benefit to the city is that it will increase competition in the cable television and telecommunications fields," Ashe said after City Council's final approval of the franchise agreement. "It's certainly my hope that, with the increase in competition, Knoxvillians will see a cut in their rates."
That's what usually happens in newly-competitive markets. "In the short term, what you get are lower cable rates, and there is a lot of irritation about how cable rates have risen," says Dr. Barbara Moore, head of the University of Tennessee's broadcasting department. "And they say you'll get better services. The cable companies don't always deliver, but it would be great if it was true. Changes are possible in the next few years, but they've been possible for a while. The question is what the cable industry wants to commit to them."
Moore says the usual pattern is for new cable companies to offer lower rates, forcing down prices from companies that once held a monopoly in an area. Audiences are split among the two, and "frequently the one with the deeper pockets will drop rates until they drive the other guy out of business," Moore says. "Then you're left with a monopoly and the new guy collects all of the money lost from the competition. In an economic sense it doesn't make sense to have two systems in one area... It always sounds good, but usually one or the other wins out."
But drastic price-slashing may not happen. Instead, the new services that Knology is expected to offer in a convenient package may push ComCast to offer its own expanded services and to deliver better response from its customer service department.
"The really good thing with something like Knology is that the lack of competition has been delaying things," says Dr. Ben Bates, a broadcasting professor at UT. "Phone and cable companies aren't interested in competing with each other, but with a third party coming in, neither of them wants to get left behind."
Mike Adams, Knology's division manager for its new system here and a second system proposed for the Nashville metropolitan area, insists that dramatic rate reductions aren't on the horizon. "We want to be competitive, but I don't see a price war coming," Adams says. "We just want to bring good customer service to Knoxville and Knox County."
Knology's presence has already prompted ComCast to announce its own expansion. A press statement released on April 4—the day Knology was initially awarded its franchise by City Council—revealed plans for an upcoming "rebuilding" process that will offer digital service to unspecified parts of Knox County, more channels, and ComCast's own cable-modem Internet access.
Service and accessibility are what local officials are excited about. Mark Hartsoe, who, as the city's deputy law director, was part of the joint city/county negotiating team that developed the Knology agreement, is proud of the educational requirements demanded by the franchise contract, particularly the institutional network, or I-Net, that will connect public schools throughout the county.
"If you're teaching advanced calculus at Bearden High School, then you can go over the network to Fulton or Carter or wherever you don't have a critical mass of students to take that class, and they're not disadvantaged," Hartsoe says. "They can be connected to real-time distance learning so they can participate in classes they otherwise wouldn't be able to take. It eliminates a lot of the bricks and mortar issues about schools."
In addition, the franchise agreement requires Knology to operate a 24-hour, seven-days-a-week, 365-days-a-year educational channel and provide premium cable service, with educational outlets like The Learning Channel and the History Channel, free to all local public schools. ComCast's educational channel only airs during school hours and during the school calendar, with no broadcasts through the summer or weekends, and the company only provides basic cable access to schools, without the more educational programming that can be found on premium service.
And, Hartsoe adds, the deal requires Knology to maintain a retail office downtown. Hartsoe says the company's presence in the Central Business Improvement District will foster the redevelopment of downtown. "That will be part of our synergistic effect to improve the quality of downtown," he says, though the company will also have headquarters in West Knoxville, on Pellissippi Parkway.
But how well will it all work out? In Augusta, Ga., one of a handful of mid-size markets where Knology and ComCast have gone head-to-head, the early results have been mixed. Knology moved into Augusta last year, with Adams as system manager, just after ComCast acquired the city's old monolithic cable system, Jones InterCable. Knology, still in the early stages of its planned build-out, now offers its full broadband service to select parts of the city at $81.95 a month; that includes digital cable television, high-speed Internet access, and local and long-distance telephone service. ComCast still only offers limited digital cable, as it already does in Knox County, and Internet access at a monthly cost of $49.95. That's hardly a price war—Bates says he has seen competing cable companies go as low as $8 to $10 a month for service in order to beat out other companies—but ComCast apparently added its expanded digital service and Internet access in response to Knology's presence, as it appears to be planning here.
"Knology's been slow to build out here. It hasn't had that big an effect," says Frank Whitsel, who has covered Knology's insurgence for the Augusta Chronicle, adding that a price war never developed. "ComCast has stepped up to the competition. They've advanced their schedule to compete."
Adams acknowledges that many of the potential features that broadband capability may someday offer, like connections for e-commerce with local businesses and government offices, are still a long way off for Knoxville customers. "The system we're constructing has the capabilities of that," he says. "But it's not something we'll offer anytime in the near future."
In addition, Whitsel says, Knology's foray into the telephone business—the service that sets them apart from traditional cable franchises—hasn't been successful. "They're still mostly a cable company," he says. "They've been slow to build out, and haven't kept to their schedule. But they are building out."
Without revealing any numbers, Adams insists that Knology's phone service is state-of-the-art and, like all of the company's services, is supported by "improved customer service."
Adams insists with equal fervor that Knology will be a long-time player in Knox County. "We're bringing leading edge technology to our systems," he says. "We're bringing choice to Knoxville and Knox County."
But, while Knology does represent a new competitive climate, the threat of another monopoly down the road still lingers over Knology's presence. ComCast's technology is still less advanced than Knology's, and future expansion beyond the latest rebuild could cost tens of millions of dollars. And, unlike other cities, such as Nashville, where Knology will be accompanied by a handful of other competing franchises, Knology appears to have frightened off other competitors, says Hartsoe. Knology officials say they expect to turn a profit by early 2003, so the real price war may still be a few years away.
"The reality is that the economics involved in making a $100 million expenditure in a market with only one overbuilder is that it's just not worth it," Hartsoe says. "Some other companies were interested, but they saw how far ahead Knology was and focused their attention elsewhere."
Even then, though, Bates says the capabilities of broadband technology really will change the telecommunications industry. "Far enough down the road, past all the marketing aspects, it really is a big advantage," he says. "It can handle virtually anything—from broadcast, interpersonal communication, video-phone type service to delivering television channels. It can handle pretty much anything you imagine."
May 11, 2000 * Vol. 10, No. 19
© 2000 Metro Pulse
| 
