Tacoma’s city-owned cable system could have a new business plan by this summer. The change may come just in time as its competitors ramp up their own Tacoma services.
If approved, Tacoma residents would have access to faster Internet speeds from Click Cable TV, which is operated by Tacoma Public Utilities.
But running a system that doesn’t require government subsidies could be difficult. Click faces increasing competition from the likes of CenturyLink, Comcast, Rainier Connect and Wave. A move to lease Click to Kirkland-based Wave last year faltered. Now the city is asking a six-member committee to come up with a viable business plan. Its work could be released next month.
Utility bosses say Click has lost millions already with its power customers footing the rest of Click’s bill. Click’s cable subscriber counts — mirroring a nationwide trend — have plunged by more than 25 percent since a high of 24,400 customers seven years ago. Internet subscribers are climbing, but not fast enough to offset financial losses from the cable side.
City leaders say they want to turn around that trend and keep Click under city control. To do so they will be guided by a business plan recommended by a group called the Click Engagement Committee. For the past several months the group has met in private to learn about the broadband industry and float ideas about what strategy might work in this market.
The business plan likely will say that the city would have to inject millions of taxpayer dollars into Click if it wants to retain the asset and nurse its budget into the black. At the same time, Click faces increasing competition from national and regional broadband providers.
Without a business model shift, “We continue to require electric funds to assist the finances of Click,” said Tacoma Power superintendent Chris Robinson.
That shift to a more profitable future likely includes cutting or changing ties it has with several Internet service providers who buy wholesale access on Click’s wires and sell retail packages to their customers.
With that so-called “all-in” philosophy, Click will be able to sell Internet service alongside its cable offerings. Customers will have one bill instead of two. The system might someday turn a profit.
A consultant said last summer that Click could provide gigabit speeds — around 10 times faster than the fastest residential speeds Click offers today — for around $3.6 million to $7 million. Click would still lose millions over time if it charged $45 per month for a gigabit connection. The analysis did not consider Comcast or CenturyLink’s entrance into the high-speed market.
Shortly after that presentation, CenturyLink announced its Tacoma expansion. Several other companies are eying Tacoma’s subscriber base and dense neighborhoods.
Last month, CenturyLink said 30,000 homes in Tacoma can now buy CenturyLink’s fiber service, and some of those connections have gigabit capacity. The company also has signed on 600 business locations for its high-speed service.
“We have picked up a lot of East Tacoma and all the way out to Salishan,” said Sue Anderson, CenturyLink vice president of operations for Washington state.
Anderson said the company is also in talks with the city of Tacoma to bring its Prism TV product into Tacoma’s footprint.
More bandwidth will become the rule rather than the exception as more homeowners buy Internet-connected appliances, said Walter Neary, spokesman for Comcast’s Washington market.
“We have a smart home product where you can tie together a thermostat, security cameras, door locks,” Neary said. “All of these products are predicting a greater thirst for bandwidth.”
A Wi-Fi-enabled washing machine or dryer can send you a text message when the cycle is finished. A Wi-Fi-connected cat toy allows users to use their smartphones to control a laser pointer to play with their cat and take videos.
Three of every four Comcast customers in Washington are on high-speed plans of 50 megabits per second or higher, Neary said. Users are expected to demand even more bandwidth as appliances use more data, he said.
Comcast, too, is seeing declining cable subscribers as consumers cut the cable cord. Last year was the first time Comcast’s Internet customers outnumbered the cable customers, he said. Nationwide, Comcast had 23 million Internet customers and 22 million cable customers.
“We expect that trend to continue in Washington for sure,” he said.
Rainier Connect, a Tacoma-based ISP that manages its own wires outside of Click’s footprint, is planning fiber builds in Graham, Eatonville, Centralia and Chehalis. These builds will allow Rainier Connect to eventually offer 1-gig service to those communities, said CEO Brian Haynes.
The company also is planning a quiet entrance into the Tacoma market, Haynes said recently. Rainier Connect is in talks with several large customers in Tacoma to bring in 1-gig service.
“We are engineering neighborhoods that we think would fit,” Haynes said. If low-income neighborhoods or Tacoma Housing Authority properties are within a block or two of his fiber build, Haynes said Rainier Connect would try to include the area. He remains interested in ensuring that Tacoma Public Schools students who qualify for low-income assistance get Internet access.
“You can’t even file a job application with a piece of paper. You need a computer to do it,” Haynes said. “We shouldn’t have a digital divide.”
Company CEO Steve Weed said Wave is the second in size only to Comcast in many of its markets from the Canadian border to south of San Francisco. Last year its offer to lease Click’s system started the current debate on what to do with the system.
“We have kind of moved on, but it would’ve been a neat deal,” Weed said.
Weed said the company is forging ahead with its plans for Pierce County and Tacoma.
Wave’s footprint in the South Sound is about to become much bigger. Wave won part of a contract to provide fiber speeds to 19 of Pierce County’s 20 libraries.
Many of those libraries are on 10 or 20 megabit connections. When the upgrades are completed, they will have access to 100 or 1,000 megabit connections, said library deputy director Melinda Chesbro: “It’s a substantial boost in our capacity.”
As Wave builds that system out, the company can then build to other customers near fiber lines leading to the libraries, Weed said.
“We’ve been building a network to do that for years now and focusing on helping our customers get television content over the Internet,” Weed said. “Most cable companies aren’t even there yet.”
CLICK PLAN DUE IN MAY
After spending months learning the ins and outs of the cable and Internet business, engagement committee members say they are starting to talk about business plans. Committee advisers include consultants from Chattanooga, Tennessee — which touts its affordable 1 gigabit per second residential Internet service on its municipal network. Chattanooga residents can buy 1 gig Internet service there for what Click customers pay for 30 megabits per second from one of Click’s service providers.
Committee member and Topia Technology founder Janine Terrano said the group seeks a business model that doesn’t require subsidies. If a model does have subsidies, the discussion will include “being realistic about who pays for subsidizing the operations if there is a need to subsidize it.”
In its many weeks of study, Terrano said the committee is aware of new competition in the broadband market. People’s livelihoods also are on the line: more than 90 Click employees and dozens of others from partner ISPs.
Karen Larkin, utility board and committee member, said the group wants Click to eventually break even.
“I’m still very optimistic that we are going to come up with a model that works,” Larkin said. “I don’t know what that looks like, but it has a black number on there somewhere at some point in time.”
But not all believe Tacoma’s all-in strategy is the way to go, namely Mitchell Shook, CEO of Advanced Stream. Shook said there’s nothing wrong with Click’s current business model and called cord-cutters a “myth.”
Shook said 90 percent of Advanced Stream customers pay for Click’s slowest package, at 6 megabits per second.
“My problem is nobody really needs it,” Shook said of faster speeds. “I have a handful, literally a handful, that want the 100 Mbps service that we have.”
Large broadband providers such as Comcast, CenturyLink and Wave “are not interested in the Tacoma market. It’s a scare tactic,” Shook said. “Cord-cutting is a myth. People love the convenience of a remote control in their hands.”