telecom@eecs.nwu.edu (TELECOM Moderator) (03/19/90)
When Group W made its financial projections in 1984, it figured that five years later its Chicago cable system would serve 225,000 subscribers and generate $151 million in annual revenue. They must have figured something wrong, since it did not turn out that way. It didn't even come close. At the end of 1989, Group W, whose service area is the north and northwest sections of Chicago, had just 105,000 paying subscribers, and losses of $1.5 million per *month*. The total loss in 1989 was just about $19 million. Not surpisingly, Group W wants out -- badly. No one here was surprised then when Prime Cable, of Austin, Texas made an offer to buy the Chicago market from Group W. Prime Cable is in the business of taking over failing cable systems and making them into profitable operations. The most notable example of this is what they did in Atlanta. Prime Cable agreed to buy Group W Cable for $198 million, or what at that time was about $2000 per subscriber. That's about $800 per subscriber less than what a healthy cable system could fetch. What did come as a surprise, and will potentially kill the deal is the arrangement between Prime Cable and their partner, Pac Tel Corp. of San Fransisco; a subsidiary of Pacific Telesis Group, one of the former members of the 'Bell System'. The plan calls for Prime Cable to purchase Group W Cable, then sell it immediatly to Pac Tel ... and sign a management contract with Pac Tel to operate the Chicago system. "Not if we can help it," said Michael Green, the general manager of Chicago Cable Television, the cable system that serves the south side of our city and the lakefront area. Like other members of the National Cable Television Association, Chicago Cable strongly opposes the entry of a 'Baby Bell' into the cable business. But some members of the NCTA are saying privately they don't care if Pac Tel operates cable, as long as they don't do it in the same communities where they are the telco. Likewise, if Ameritech/Illinois Bell tried to go into cable *in the Chicago area* there would be a major battle brewing. In 1984, when Judge Greene presided over divestiture, one of the terms was that the 'Baby Bells' could not enter the cable television business. If he grants the waiver Pac Tel is requesting, a precedent will be set which may well lead to all the telcos getting into the act: something that gives the existing cable operators nightmares. In fact, cable operators and broadcasters rarely agree on anything, but the National Association of Broadcasters and independent television broadcasters have joined the NCTA chorus against Pac Tel's attempted move into the Chicago market. They say one small step today (allowing a telco to buy into the Chicago market) can serve up a later rationalization for a giant leap into information services on a widespread basis. And I assume we all know that given the opportunity to be in cable, the telcos would move in a hurry, and the relatively small existing cable industry in America would be soon gone -- squashed dead by the Sisters Bell .... His Honor hasn't indicated which way he will rule, and the next few months should bring a flurry of activity to his courtroom as the cable guys fight to keep Pac Tel from getting a piece of the action here, or anywhere. Which still doesn't answer the question, 'Why would anyone WANT the cable business in Chicago?' ... the fact is, it has not panned out as expected in Chicago or most large urban areas. Maybe Pac Tel needs a tax writeoff. Patrick Townson