When United Cable Television Corp. won the coveted East San Fernando Valley cable franchise in 1983, it promised to finish the job in two years. The company's confident slogan was, "We build on time."
Now that United is nearly three years late finishing the job, the company's new slogan is: "It's been worth waiting for."
From a technological point of view, that seems true. "What they are building is state of the art, and the rest of the city is doing a rebuild to get to that level," said Gayle Johnson, an aide to Councilman Ernani Bernardi, whose 7th District covers much of the franchise area.
But United Cable also stumbled its way through three construction extensions and many wiring violations while piling up $350,000 in liquidated damages, much like a fine, from the city. Nevertheless, cable analysts lay much of the blame for the delays on a tangled city bureaucracy that slowed United's ability to get financing for the project.
The real wonder of it all is that it probably will be worth the wait for United, a $200-million company based in Denver that is the eighth-largest cable operator in the nation. The enormous East Valley franchise, bounded by the San Diego Freeway on the west, Ventura Boulevard on the south, Burbank on the east and Sylmar on the north, is the third-largest, with 175,000 dwellings, of the 13 cable franchises awarded by the Los Angeles City Council.
"United has a very long-term approach to its systems and investments and views the East Valley as tremendously attractive," said West Whittaker, a cable industry analyst for Kagan Associates Inc., a market research company in Carmel, Calif.
Although 55% of its potential customers in the East Valley are still waiting for cable hookup, United officials talk of earning $5 million a year on $42 million in revenues by 1995 from the company's $67.5-million investment.
But the delays aren't over. United's goal is to have 1,110 miles of copper-lead wire cable strung by May, 1988. On June 11, however, only 463 miles had been activated for customers.
United has hired contractors to attach its cable to about 43,000 utility poles that belong to the Department of Water and Power, General Telephone and Pacific Bell. The DWP must approve the work before the lines may be attached to an amplifier that relays United's signal to homes. And, until recently, the utility's inspectors often have not liked what they have seen.
United maintains that the DWP has allowed them to activate only 40 of the 200 miles of cable that its contractors have strung this year. "They're just nit-picking little violations, not major safety violations," said William Cullen. He is head of United Cable's Los Angeles operation, based in Van Nuys, that encompasses two other groups of cable systems serving seven communities in Los Angeles County and Arizona.
John Owen, superintendent of pole line specifications for the DWP's Power Distribution Division, disagreed. "They are creating some life-threatening infractions in the field, which they need to correct," he said.
The sniping between United and the city isn't over, either. "The bidding people promise the moon--but they aren't the ones who end up having to deliver it," Johnson said.
Meanwhile, potential cable customers are still waiting. "I'd just love to have it," said Cherie Willis of Studio City, whose husband was art director on "Right of Way," a Home Box Office-produced television movie that could only be seen on cable television. "We don't get to see half of my husband's work. Everyone else has it but us. We have to get friends to make a tape."
The problems trace to late 1980, when eight companies submitted bids for the franchise, attracted by estimates of $15 million a year in revenues, or as much as $100 million over the life of the contract.
The battle for the East Valley franchise was rancorous, political and financially rewarding for City Council members, a Times survey found. The council members netted an estimated $300,000 in campaign contributions from cable bidders.
After three years of public hearings, the race narrowed to East Valley Community Television of Sherman Oaks and United's Los Angeles subsidiary. East Valley won three recommendations from the city's consultant, but United hired veteran City Hall lobbyist Philip Krakover for the home stretch.
In late August, 1983, after intense lobbying by Krakover and $30,000 in campaign contributions to City Council members in the final five months, United won the franchise.
It was the financial strength of United's corporate parent--not its political contributions--that gave it the edge, according to Charles Firestone, an East Valley Cable TV investor who later became head of the city Board of Telecommunications Commissioners. "Everyone else had to drop out along the way," Firestone said. "Plus Krakover was better. In his long career of lobbying, this was his biggest coup."
Another delay, however, proved to be the city's decision in the 1970s to put all its cable franchises up for renewal in 1987. By the time the East Valley franchise was awarded, United had only three years to find more than $60 million in financing and string the 1,100 miles of cable.
"The financial institutions laughed at us," said Cullen. "No bank that loans to the cable industry would loan without the insurance that it would be paid back. It takes eight to 10 years to pay back a capital loan of that size."
United spent the next two years pestering the city for a 10-year franchise extension and a modification of a construction schedule that Cullen termed "completely unrealistic."
"If they didn't like the terms, they shouldn't have accepted it, should they? But they did--and that made them responsible," said Susan Herman, general manager of the city's Department of Telecommunications.
Cullen said the company accepted the deal because it was "confident the city would be reasonable" and extend the franchise.
United started to string cable in May, 1985, but failed to meet a June 30 deadline to activate 50 miles of cable and was fined $150,000--$50,000 of which was paid and the rest deferred.
The company eventually received three waivers in its construction schedule. And, according to Firestone, the City Council realized that, if it did not give in to United's request for a 10-year franchise, the city would have to start the bidding process all over again, delaying everything several more years.
So in November, 1985, the city approved a 10-year franchise extension, allowing United to start work in the same month it had once promised to finish the job.
Then United postponed putting the financing together until February, 1986, to take advantage of tax-law changes and got hit with almost $300,000 in fines by the city, which the company is contesting.
"We lost $8 million in revenue as a result of construction delays, and we hope the city sees that as penalty enough," Cullen said.
Cullen finally assembled a limited partnership to provide the $67.5 million needed to build, market and operate the cable system.
United Los Angeles, the general partner , laid out $9.7 million. The four limited partners--Mellon Bank, Westinghouse Credit, Philadelphia National Bank and United Corp.--lent $20 million to the partnership in addition to putting in $2 million in cash. The rest came from four Canadian banks.
"A partnership like this throws off tremendous tax benefits," Cullen said. The limited partners get 99% of the tax benefits, while United gets a 92% ownership stake.
It wasn't until April, 1986, that United had its first home on line. So far, United has only signed up 18,000 subscribers, for a 35% penetration rate, about 15% below the national average.
But in large urban areas, the success rate of cable sales is lower than in rural areas, cable analysts said, because there are more free TV stations. Cullen still expects to increase penetration by 1% a year, until it tops out at 45%.
Until 1994, all the cash flow from the franchise will go to paying off debt, Cullen said, but by the 10th year of the franchise, he expects United East San Fernando Valley to finally start making a profit of at least $5 million a year.
Despite the bad blood between the city and United Cable in the past, Cullen generally gets high marks for getting things moving, since he took over management of the East Valley franchise in 1984.
"In the past, they have been overzealous and over-optimistic, but that has been tempered," Herman said. "They are now off by a quarter of a year, but will probably be caught up by next quarter. . . . I think they've got an excellent chance of making it."