Sale Sparks Talk of Public Ownership of Cable TV Systems

The pending sale of five Group W Cable Inc. systems in the South Bay to Century Communications Corp. has raised hopes for better service, fears of higher rates and calls for public ownership.

The Gardena City Council on Tuesday night directed City Administrator Kenneth Landau to contact officials in El Segundo, Hawthorne, Lawndale and Torrance to see if they are interested in forming a consortium to buy the Group W systems in their cities.

Gardena Councilman Mas Fukai said he suggested looking into joint public ownership because both Group W and Century have had almost no communication with the city since the announcement of the pending sale last month. He said he also does not like being virtually forced to accept Century as the new operator.

Under their franchise agreements, the cities have the right to stop the transfer of ownership before it is complete, but only if the new owners lack the money or technical experience to operate the system or refuse to accept the obligations of the franchise agreement.

Outdated System

“Century’s only system in the South Bay is in Redondo Beach and it is very outdated,” Fukai said, referring to a system Century has operated since 1973. “We should look into the feasibility of owning the systems ourselves. If we are all together we could probably use some kind of municipal bond to buy it.”

There are no city-owned cable systems in Southern California, and only one, in San Bruno, in the state, according to the California Cable Television Assn., a cable operators group.

Westinghouse Electric Corp. reached an agreement on Dec. 24 with a group of five operators, Century, Tele-Communications Inc., American Television & Communication Corp., Comcast Corp. and Daniels & Associates, for the sale of its entire Group W Cable subsidiary.

The group will pay $1.6 billion in cash and assume $500 million in debt and taxes. The five companies will divide the 135 Group W nationwide systems among them. Century, based in New Canaan, Conn., will take over most of the Group W systems in Los Angeles County.

Several phone calls in the past few days seeking comment from Century officials were not returned.

Individual Price

No price has been announced for any of the individual cable systems, but an accepted industry formula places the value of a system generally at $1,000 per subscriber. The five Group W systems in the South Bay together have about 43,500 subscribers, suggesting a sale price of about $43.5 million.

At least one official in another South Bay city is interested in public ownership of its cable system. El Segundo Councilman Jack Siadek said his city should “do Century a favor and take over the system.”

“I think the private sector has done a very poor job of providing cable service,” he said. “We have obsolete equipment and antiquated hardware that is always breaking down. It’s just not a good system and really not worth their time.”

Last October, before the Group W sale was announced, Torrance officials began preliminary inquiries into taking over operation of its system, but Torrance cable administrator Warren Carter said the city is no longer pursuing the idea.

Willing to Discuss

Torrance City Manager LeRoy Jackson said he would be willing to discuss Fukai’s idea of joint public ownership, but he said he would need more information.

Officials in Hawthorne and Lawndale also would not commit to the idea, but said they would participate in the discussions if asked.

Cable television consultant Wally Siembab, of McAdams and Siembab in Los Angeles, said that cities may need to take over operation of a cable system to ensure that the system is available for such uses as the dissemination of public information, as well as for entertainment.

He said franchise renewals and transfers of ownership give cities an opportunity to impose new requirements on operators and make them abide by provisions of existing franchise agreements.

“If the person who intends to take over does not intend to fulfill the obligations of the existing contract, then it would seem to me that the owner is over a barrel,” Siembab said. However, in practical terms, if a transfer is not approved the issue could end up in court, he said.

Could Consolidate

Even if a public consortium is not formed, Century could still consolidate the South Bay’s five Group W systems and its Redondo Beach operation.

In any case, the Century takeover could mean better service for subscribers but could also lead to higher rates, city officials and other observers said.

Carl Pilnick, a cable consultant with Telecommunication Management Corp. in Los Angeles, said Century would probably follow a growing national trend to consolidate adjoining systems’ services, such as public-access channels, studios, equipment and billing.

“It gives them that opportunity for economy of scale,” he said. “Common maintenance, motor pools and technicians are all areas for lower costs.”

If approved, the sale to Century would combine two older systems in Redondo Beach and El Segundo with four state-of-the-art systems built in the early 1980s in Gardena, Hawthorne, Lawndale and Torrance. For Redondo Beach and El Segundo, consolidation could mean access to facilities not currently available and not required under their franchise agreements.

“We could instantly become the beneficiary of the other cities’ access channels, to studios and technical support, maybe even access to programming,” said Tim Casey, Redondo Beach city manager. “My best guess would be that we would hook up to other benefits.”

Higher Rates

For the four newer systems, however, the Century takeover would mean having to share facilities, and would inevitably lead to higher rates, said consultant Pilnick.

Century’s rates are among the highest in Los Angeles County. Basic service costs $14.95 a month in Redondo Beach, and El Segundo subscribers pay $12.75 a month for basic service. The average monthly basic rate in the four newer Group W systems is about $8.

But even if Century was not among the most expensive, Pilnick said, with state and federal deregulation of rates taking effect next January, prices for both basic and pay channels will rise to whatever the market will bear, probably about $15 a month for basic service.

Last year, Group W began negotiations with Torrance, Hawthorne and Gardena to modify its agreements so it could raise rates and reduce channel capacity from 120 to 60 channels. In addition, Group W has been seeking to have Gardena, Hawthorne and Lawndale share staff, facilities and equipment. Group W already considers those three systems as one for statistical purposes.

Construction Costs

Group W said the changes are needed to offset higher-than-expected construction and operating costs.

In May, Gardena agreed to the changes. Talks are continuing with Torrance and Hawthorne, according to Judy Shane, a spokeswoman for Group W’s southwest region. She said talks would continue until the sale of the systems was complete.

Consolidation, or “clustering” as it is called in the industry, is attractive to operators because they can offer advertisers more potential viewers for a given program, consultants said. Instead of one system with nearly 9,000 subscribers in Redondo Beach, Century could offer advertisers a South Bay audience of more than 53,000 subscribers.

“You can sell more advertising when you can deliver a bigger audience,” said Pilnick.

Redondo Beach Manager Casey said he is at best “minimally” satisfied with Century’s service in his city. Century has held the franchise since 1973, when it bought the system from Cablecom-General of Southern California. The 20-year franchise expires in 1989.

Problems Resolved

Three to five years ago, Casey said, subscribers complained about outages, poor reception and an inadequate response to service calls. He said most of those problems have been resolved.

Casey said the city’s desire to be among the first to provide cable nearly 20 years ago left it behind technologically.

“We’re still driving a ’69 Chevy,” he said.

With negotiations for renewal of the franchise only months away, Casey said the city will conduct a financial and technological study and evaluate the community’s cable needs before talks begin with Century.

“We’re 17 years into new technology and we would like to have some of it,” he said.

Chronic Problems

A study of the system in El Segundo by Telecommunications Management Corp. concluded that the system “has some chronic technical problems” caused by salt-air corrosion of parts, particularly connections at utility poles and homes.

In addition, the consultants said, problems develop because El Segundo does not receive a direct satellite feed. Instead, the satellite feed goes to Group W facilities in Santa Monica and then to El Segundo by microwave transmission. The microwave feed crosses Los Angeles International Airport, which occasionally causes interference.

Preliminary discussions have been held between Group W and El Segundo on solutions to those problems, including the possibility of changing the origination of the feed from Santa Monica to Hawthorne or Torrance to avoid the airport. The talks have been put on hold with the pending change of owners.

El Segundo Councilman Siadek said Century probably will not be willing to pay the estimated $3.5 million required to rebuild the system. He said it would be best for both subscribers and Century for the city to take over the cable operation.

“It could be a profit-making enterprise for the city, and we could still reduce prices by about 25%” because it would be nonprofit and tax-exempt, he said.

CABLE SYSTEM OPERATORS

These subscription figures are from the cable television operators in the South Bay. The basic rate includes the rental of converter boxes.

Potential Actual Basic City Cable Operators Subscrip. Subscrip. Cost/Mo. Avalon Catalina Cable 500 340 $12.95 Carson Tele-Comm. Inc. 19,000 6,000 12.95 El Segundo Century* 5,400 3,402 12.75 Gardena Century* 16,882 5,371 8.95 Hawthorne Century* 16,988 7,228 6.95 Hermosa Beach Storer 9,630 4,300 13.18 Inglewood Tele-Comm. Inc. 30,000 5,234 12.95 Lawndale Century* 4,190 1,929 8.95 Lomita Copley-Colony 8,018 2,131 7.95 Manhattan Beach Storer 13,700 6,000 12.92 Palos Verdes Est. 3,140 1,798 11.40 Times Mirror Rancho Palos Verdes 6,828 5,907 11.40 Times Mirror Redondo Beach Century 26,000 9,808 14.95 Rolling Hills Times Mirror 38 24 11.40 Rolling Hill Est. 840 568 11.40 Times Mirror So. San Pedro Times Mirror 16,600 4,960 11.40 Torrance Century* 47,599 25,668 7.50 Wilmington Copley-Colony 2,921 940 9.95 Westchester American Cablev 17,426 6,904 10.40

Pay TV ..TE: City Cost/Mo. Avalon $9.95 Carson 11.95 El Segundo 13.95 Gardena 9.95 Hawthorne 7.95 Hermosa Beach 11.75 Inglewood 10.95 Lawndale 11.95 Lomita 8.95 Manhattan Beach 11.55 Palos Verdes Est. 11.95 Rancho Palos Verdes 11.95 Redondo Beach 13.95 Rolling Hills 11.95 Rolling Hill Est. 11.95 So. San Pedro 11.95 Torrance 9.95 Wilmington 9.95 Westchester 10.95

* These five systems are being sold by Group W Cable to Century Cable, one of five cable operators purchasing Group W’s systems nationally. The sale is expected to be completed in June.

The franchises in Gardena, Hawthorne and Lawndale were joined together as one by Group W for statistical purposes after June 1985, and these figures are the last available showing separate subscribers. Combined, subscriptions have increased by nearly 4,000 in those three cities since then.

Storer Cable considers its franchises in Hermosa Beach and Manhattan Beach as one and combines the statistics. The numbers shown are the last available separate statistics. As of last October, subscribers combined have increased by nearly 2,000.