By April, Tacoma’s Click Network could begin selling its own retail Internet and phone services, as Tacoma Public Utilities officials seek to ramp up the flat-lining telecommunications system to keep it competitive and viable into the future.
As part of the city-owned network’s new business model unveiled Wednesday, TPU officials said the network must expand beyond cable television to provide “bundle” packages of TV, data and voice services to compete with telecom giant Comcast and cover its own capital expenses.
“The whole idea of this is to put Click on a sustainable financial footing going forward,” TPU Director Bill Gaines said Wednesday.
Under a separate proposal, TPU officials are also seeking to raise Click Cable TV rates by 10 percent to close part of a $3.9 million revenue shortfall facing the network. If approved by the Public Utility Board and the City Council, the rate increase is proposed to take effect April 1.
The plan to expand the Click Network already has met with skepticism and opposition.
After TPU officials presented the plan Wednesday, utility board member Laura Fox raised doubts that a cable enterprise run by what’s “first and foremost an electric utility” can successfully compete against a telecommunications giant.
“I see this quite frankly as one last-ditch effort to save Click,” said Fox, who nonetheless reluctantly agreed to support the idea.
“Comcast spends boatloads of money on advertising that we don’t have, and quite frankly we shouldn’t (as a public utility),” Fox added. “This is a dog-eat-dog industry. I’m skeptical. I hope I’m wrong.”
Representatives of three private Internet service providers now hosted by Click also voiced concern that their wholesale partner would suddenly become a direct competitor.
“What you’ll end up doing is putting us out of business,” said Chuck Prater, technology director for Net-Venture. “There’s no question about it.”
Click has little choice but to make bold moves, TPU officials said.
Since its inception in 1998, the network has struggled to cover its operating expenses and has never covered its capital costs. TPU’s current two-year budget projects Click will take in $51.4 million in revenues – about $5.7 million more than operating expenses. But that still leaves the network about $2.4 million short of covering debt service and capital costs.
Meantime, Click’s customer base is stagnating. Through December 2011, about 23,000 customers subscribed to Click’s discounted cable TV service. Comcast and DirectTV largely serve the remaining customers within Click’s service area of about 110,000 households, TPU officials said.
The network had been growing until Comcast introduced its “bundle” service options in recent years, officials said. Click’s customer base then largely flat-lined – and it’s expected to only decline further amid growing demands for other video options, such as Web TV, an online subscription service for TV shows and movies.
“We can see the handwriting on the wall,” said Tacoma Power superintendent Ted Coates.
Along with cable TV, Click sells broadband access at wholesale to three local Internet providers that collectively serve about 18,000 residential customers. Click gets a 60 percent cut of the Internet service revenues.
TPU hired CCG Consulting to analyze the network’s operations. Among recommendations offered in October 2010, the consultants suggested Click begin offering its own service bundle that includes retail Internet service that would compete side by side with the network’s three ISP partners.
“Part of this decision is based on demand from customers,” TPU spokeswoman Chris Gleason said. “They’ve been asking for (bundled services). Click is at risk if we don’t provide these services.”
The consultants also recommended Click increase cable TV rates closer to market. Click’s television rates are now up to 22 percent lower than its local competitors and up to 40 percent lower than those in outside communities, TPU officials said. Over its lifespan, the network has saved collectively customers some $70 million, they added.
Click general manager Tenzin Gyaltsen said the network’s TV rates would still remain lower than those of competitors, and rates for any new Internet and phone services also would be at or below others’.
Click’s expansion also would add value should TPU one day decide to sell the network, Gaines said.
“One way of dressing it up before a sale is increasing its revenues,” he said.
If the Public Utility Board and the City Council approve the expansion plan and rates for the new services, Click’s bundle could be offered to customers at the beginning of April, Gleason said.
Under the plan, the process of obtaining Internet service directly from Click would be made easier, Gyaltsen said, as it reduces the number of phone calls, installations and bills involved now.
“It’s a very complex process to get the services you want,” he said.
But representatives of two local ISPs disagreed, saying their services aren’t as difficult to get as Gyaltsen describes.
Advanced Stream Chief Executive Officer Mitchell Shook said that the consultant’s analysis of Click is now 2 years old and outdated.
“Nobody wants bundling anymore,” Shook said. “That’s two years ago. It’s all unbundling now. This industry is moving fast.”
Click’s expansion would give the network an unfair advantage for Internet customers and renege on a promise the city made years ago, some added.
“At the time we entered into this agreement, (then) Mayor Bill Baarsma guaranteed Click would never be a competitor,” said Pete Kolbusz of Advanced Stream.
But Gleason noted that Click’s contracts with Net-Venture and Advanced Stream, which included noncompete language, have since expired. The network’s contract with a third Internet provider, Rainier Connect, allows for open competition, she said.
Utility board member Bryan Flint added that the plan’s goal isn’t to put Click’s partners out of business, but to compete with Comcast.
“We just want to compete with the bundle,” he said.
If that’s the case, Prater said TPU officials should target only Comcast – not its wholesale partners.
“I think a real solution is for our politicians to use their political clout to modify Comcast’s behavior,” he said.
Lewis Kamb: 253-597-8542
lewis.kamb@thenewstribune.com
blog.thenewstribune.com/politics
Twitter: @lewiskamb
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