In the face of a fiber-optic incursion by telecommunications provider RCN Corp., helped along by Southern California Edison, established cable providers are scrambling behind the scenes to head off the upstart.
If RCN succeeds in building its new system, it will offer cable, Internet and phone services all in one package, allowing customers to pay for everything with one bill and deal with one company.
And while the company may not yet be raking in the bucks elsewhere in the country, where it has begun offering similar services, RCN promises to shake up the already confusing L.A. cable world.
“The convenience of doing it all with one company can’t be underestimated,” said Rohit Shukla, president of the Los Angeles Regional Technology Alliance. “I think people (in L.A.) will see it as an opportunity.”
Wall Street certainly has taken notice. As of last week, shares were trading at around $63 after hitting a 52-week low of $23.50 last March perhaps a reflection of Microsoft Corp. co-founder Paul Allen recently investing $1.65 billion.
Since 1997, RCN has been working with local energy utilities to build new fiber-optic networks in densely populated areas of the country. The partnerships have allowed the company to lay fiber at a rate of 15 miles per day, according to company officials, and offer service in Massachusetts, New York, New Jersey, Maryland, Virginia, Illinois and California.
Even so, RCN currently has the capacity to reach just 713,823 homes nationwide. By contrast, MediaOne can reach 200 million homes. And building fiber lines is not cheap; last year, RCN reported a loss of $355 million.
Rivals not nervous
Rival cable companies insist they’re happy to see a new company enter the L.A. market.
“We believe in competition,” said Bill Rosendahl, vice president of operations for Adelphia Communications Corp. in Southern California. “We welcome giving our customers choice with whatever product lines they are interested in.”
But Shukla and others say it’s clear that the cable companies are nervous. That helps explain MediaOne’s scramble to become the premier broadband provider in L.A. and elsewhere. The company recently spent $5 billion in California alone to upgrade its cable system to broadband, according to Giselle Acevedo Franco, director of corporate communications for MediaOne.
Details of RCN’s plan for L.A. remain sketchy. Company officials say it’s too early in negotiations to start talking specifics. Municipalities where RCN is trying to enter the market were even more unwilling to give information.
RCN officials did say that they expect to have franchise agreements with several communities in the coming weeks.
Remember the name
RCN is able to enter the L.A. market in the first place through its relationship with Edison. Last December, the companies signed an agreement in which the utility will install RCN’s fiber-optic network on local utility poles.
“We’re going to build thousands of miles of cable for RCN that will be completely separate from our network,” said Corey Ford, vice president and general manager of Edison Carrier Solutions, the utility company’s new telecommunications branch.
The deal means that RCN can hang cables on poles in all regions served by Edison without seeking special permits. In other areas, including L.A., RCN will have to receive permission from local utility companies.
Some have speculated the cost of the regional network could be as much as $1 billion. Edison and RCN officials were not willing to speculate. “We’re not talking about specific dollar amounts at this point,” said Ford.
But before the company can start offering service on the network, it will have to establish brand-name recognition. Right now, few L.A. customers know much about RCN.
Officials from RCN say that won’t be a problem. For the past three years they have been refining their message, and their pricing, to pitch an attractive package to consumers.
“We’re the new entrants, the challenger, the upstart,” said Scott Burnside, senior vice president of government affairs for RCN. “We’ll advertise with themes that convey that and that register with our customers.”
In other cities, RCN has plastered buses and filled the airwaves with images designed to portray it as revolutionary. One ad shows the Berlin Wall crumbling and a statue of Stalin hanging from a crane. Slogans like “Dynasties fall, why not cable companies?” and “You can pick your president, why not your cable company?” convey RCN’s message that the company is the bringer of democracy vs. the fat-cat cable franchise holders.
“There’s a really pro-competitive spirit in America,” said Paul Trane of Telecommunications Insight Group, a cable-advisory group. “That’s an important psychological element for consumers in the area.”
RCN wants to attract customers mainly by cutting prices. In other cities, the company offers cable rates 10 percent lower than franchise competitors. “Basically, they’re coming in with an aggressive pricing plan,” said Trane, who has worked closely with RCN in several Massachusetts communities. “It works out pretty well.”
Repeat performance?
In trying to crack the crowded L.A. market, the company will face a number of bureaucratic obstacles as it negotiates a franchise agreement with City Hall. But some officials already are welcoming the competition.
“To me, it’s in the best interest of the consumer,” said Councilman Alex Padilla, chairman of the Information Technology Committee. “You always want more choice, and they will develop a state-of-the-art system.”
RCN could ease its way into L.A. Without providing specifics, company officials say they hope to start with several small southern beach cities, such as Redondo Beach. That strategy could abate bureaucratic concerns, if officials in L.A. see that the company is doing a good job in smaller cities.
RCN also hopes to gain government favor by opening its broadband capabilities to other companies. While the debate rages at City Hall over whether the government should require cable firms to open their lines to competing Internet service providers, RCN has sidestepped the argument by announcing it will sell space it does not use on its cables roughly 85 percent to any comers.
“We’ll sell to anyone who wants to use it,” said Burnside.
In the long run, RCN’s most valuable commodity may not be its service but its extensive cable network, which could make it an attractive takeover target for other media companies.
“It’s not a question of if it will be purchased, it’s a question of when,” said Trane.
Some speculate that RCN eventually will merge with Paul Allen’s Charter Communications because the venture capitalist owns large stakes in both companies.
