Out of Control

In a phrase, more competitive pressure. The Comcast and DirecTV deals are just the beginning. No doubt similar content pacts between the networks and cable companies will follow in the weeks ahead. And they won’t be cheap from a programming acquisition perspective. Networks have to consider the value of advertising they may lose. Yet at the same time, they need to retain viewership and the cable companies need to retain customers. For both sides, the value proposition was too good to pass up, especially as telephone companies such as Verizon and SBC roll out video service of their own.

Municipal systems, some of which do not yet offer HDTV or DVRs, will find themselves caught in the crossfire. It’s doubtful they have the financial resources to answer competitively. Still, they might say that video-on-demand, even for missed TV episodes, is a premium service and their mission is to serve low-end customers with economical alternatives.

All well and good, except wireless service providers, such as Sprint Nextel and Verizon Wireless, have reached the point where their networks also can support large Internet downloads, including video. Now a cell phone may not be the best platform to watch “Smallville,” let alone “Lord of the Rings,” but that’s not the point. Wireless is becoming a viable commercial alternative for Internet access because it can now better accommodate content delivery. It’s not 30 Mb/s cable, but it’s not dial-up either. Cities that once thought they would have to build and own their own municipal networks have been happily besieged by the likes of EarthLink, HP and Google eager to do the job themselves. As we’ve said from the start—applications and content drive broadband access.

The people of Lafayette voted to fund a $125 million municipal broadband project in mistaken belief that, some 24 months down the line, the competitive situation in their community would be the same—that Lafayette Utilities System would enter the market as a third company that could compete with Cox and BellSouth solely on the basis of price. By the time LUS gets its system up (if it doesn’t reconsider the idea outright), Cox and BellSouth could be the least of its problems.

In the months since the nationally-watched vote in Lafayette, we’ve seen moves by the likes of Yahoo and Google into the low-end market for Internet access. Meanwhile, eBay has purchased VoIP provider Skype. At the high-end, we see strategic agreements like today’s Comcast and DirecTV deals that will keep current customers on board.

Moreover, Lafayette straddles the regions hit hardest by Hurricanes Katrina and Rita. As a result, telecommunications infrastructure improvement may get a well-needed boost from an industry dying to try out new technologies and protocols. In fact, the eastern Gulf Coast could become the biggest U.S. test bed for low-priced wireless Internet access--funded not by local municipalities, but the private sector and, ironically for die-hard advocates of municipal ownership, the federal government.

Amid all this upheaval, where does a highly-leveraged, highly-localized municipal operation fit? How will Lafayette taxpayers, or their counterparts in Ashland, Bristol and Lebanon, feel about going in hock at up to $1000 per household for an uncompetitive, money-losing cable TV service while neighboring towns end up with what everyone wanted all along--a cheap alternative for basic broadband Internet access--without floating a single taxpayer dime? Call it a $125 million question.