Betting on Cable Payoffs

The Los Angeles City Council took a gamble Tuesday in clearing the way for cable television competition. But the potential payoff--for residents ranging from World Wrestling Federation fans to World Wide Web wonks--is worth the risk.

Cable companies have long been considered natural monopolies, not by decree but by circumstance. Few are willing to build a costly cable network unless they are the only ones doing so and can be assured of reaping all the profits. Five cable companies divvy up Los Angeles’ 14 franchise areas but don’t compete directly. Short of moving, Angelenos with high rates or poor service can only pay up or tune out.

In the few cities with competing companies, rates are 20% lower on average. But competitive ventures remain risky, requiring challengers to spend huge sums to install their own cable with no guarantee that customers will switch. And all the cable contenders, including the established companies, face competition from direct-broadcast satellite and other alternatives.

The risk to a host city like Los Angeles is that a new venture will fail, leaving residents still without competition. Or worse, the company will run out of money and leave behind dug-up streets and sidewalks. Before receiving the council’s approval, Denver-based Western Integrated Networks, or WINfirst, agreed to put up a $29-million performance bond.

The council also took pains to choose a company that has a decent chance of succeeding. While much of the attention has been on cable service--who, after all, doesn’t have a complaint?--WINfirst’s fiber-optic network will also deliver local and long-distance phone service and the kind of high-speed, high-capacity Internet access usually found only in businesses. The Strategis Group, a Washington, D.C.-based telecommunications market research and consulting firm, reports that challengers who deliver multiple services have a better chance of succeeding than those offering cable television only.

The payoffs from this ambitious citywide project could be enormous, from better prices and service to increased telecommuting. The council’s Information Technology and General Services Committee, chaired by council President and MIT alumnus Alex Padilla, also won agreements from WINfirst to donate fiber-optic networks to schools and community centers and to provide internships for local students. And WINfirst promised an “open access” policy that allows users to choose their own Internet service providers. Cable companies often require that their Internet customers use an in-house provider or one that has contracted with the company, giving consumers no say over costs or service.

Now, if the council can just get HBO to speed up production on “The Sopranos.” ...