Torrance May Buy TV System : Would Be First City in Area to Own Cable Facilities

City officials are looking into buying the cable television system here from Group W Cable. If the deal goes through, Torrance will have the first city-owned system in Southern California and the largest such system in the nation.

City officials got the idea when Group W’s parent firm, Westinghouse Electric Corp., announced in August that it wanted to sell the company, which is the nation’s third-largest cable operator with 2.1 million subscribers. Westinghouse said it wanted to sell the system to a single buyer for $2.5 billion.

But Torrance Cable Administrator Warren Carter said the city’s 1982 franchise agreement with Group W allows the city to purchase the system, through eminent domain if necessary. The agreement says: “The city shall have the right to purchase the . . . system upon demand at any time . . . by paying (Group W) the value of said system.”

While no price has been set for the Torrance system, a formula accepted industrywide says a system is generally worth $1,000 per subscriber, said Jerry Yanowitz, a spokesman for the California Cable Television Assn., a cable operators’ group. The Torrance system has about 25,000 subscribers, or about half of the 50,000 households in the city. Under the formula, the selling price would be $25 million.

Local Group W officials and those at the corporate headquarters in New York declined to comment on the city’s interest in buying the Torrance system. Westinghouse has said it wanted to sell the entire Group W system to raise money for other ventures.

Carter, who stressed that the city’s inquiries are at a “very preliminary” stage, said the city is looking at purchasing the system because it could lower costs for residents and provide revenue for the city.

“The Torrance cable market is very profitable,” Carter said. “What better way to take what is generated by the community and put it back into the community? Why should we send it all to some corporation in New York?”

Carter also said the city would like to avoid the possibility of the system continually changing owners. Cable industry experts predict that within the next 10 years only a handful of major companies will own all cable systems, he said.

Group W has been negotiating with Torrance city officials to reduce the system’s capacity from 120 channels to 60 by deactivating one cable of a two-cable system. The company is also seeking rate increases, but under federal law it will be able to raise rates without city permission at the end of 1986.

Carter said the city’s interest in purchasing the system is real.

“It’s not a negotiation ploy,” he said. “We feel it would be in the best interest of the community if it will not draw from the general fund.”

City Manager LeRoy Jackson was cautious, however. “We’re simply asking for information,” he said. “Even if the company says yes, that doesn’t mean we’ll automatically say yes.”

The city could float bonds, borrow from its general fund or get a bank loan to buy the system and pay back the money with revenue from subscribers, Carter said.

Carter is on a two-week fact-finding trip to gather information on other municipally owned cable systems. He will also meet with cable consultants and accountants. He said he expects to report his findings and recommendation to the City Council by the end of the month. At that time, he said, the council will decide whether to move forward with the purchase.

In a telephone interview from St. Louis, where he is attending the National Assn. of Telecommunications Officers and Advisers’ national convention, Carter said Torrance’s interest in buying the system is the “buzz of the conference.”

“My colleagues are telling me that they think it is a great idea,” Carter said. “They are saying the market is right, the timing is right, the risks are minimized.”

Carter said most cities decide whether to run a cable system themselves before it is built. He said there are more risks at that point, however, because the number of subscribers and certain costs are unknown.

The Torrance system, he said, is doing well to have 50% of potential subscribers. Industry standards consider a 40% penetration successful.

Yanowitz of the state cable association, which represents 95% of the cable companies in California, said there is only one city-owned cable system in the state, in San Bruno. “Cities don’t want to be in the broadcasting business.” he said, “It gets real political to decide what to charge customers. It’s different than running a power or water system where you know generally what kind of usage you’re going to have.”

Yanowitz said there are about 100 municipally owned cable systems in the country, many operated by city power companies and most with only about 500 subscribers. The largest city-owned system in the country, in Frankfort, Ky., has about 10,000 subscribers.

The nation’s second-largest municipally owned system is the one in San Bruno; the Northern California city has reached 68% of its households, or 8,750 subscribers.

David Thomas, San Bruno’s director of cable television, said the city opted to build and run the system itself in 1971 after hearing that cable operators in adjacent cities had not kept promises. Thomas said his system has done so well that it is spending $1 million in cable revenues to upgrade the system from 27 to 58 channels. The original system cost less than $600,000 to build, with money borrowed from the city’s water department.

The city of Palo Alto, near San Francisco, last year decided not to pursue a city-owned cable system after determining that the financial risk was too high, Deputy City Manager Larry Moore said.