If it were just about money, deciding what to do with Tacoma’s faltering cable TV system would be easy.
City officials say Click Cable TV is losing $7.6 million a year. Leasing Click’s cable and Internet operations to an outside company is the only way to save the cable service without continuing to subsidize it in the near term, according to a recent business analysis.
But city officials say their minds are on more than money. For them, the decision is shaping up to be about philosophy.
On one end of the spectrum: Monique Trudnowski, a Tacoma Public Utilities board member since 2013. A staunch business advocate, Trudnowski says Tacoma never should have sold cable TV service to customers. Private companies can do the job more effectively, she said.
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On the other end: Anders Ibsen, a Tacoma City councilman since 2011. He values Click for the digital connections it provides Tacoma residents. The Internet, he says, is a public good. “It’s probably one of the best things we’ve done as a city.”
If the city changes nothing, Click is projected to lose $37.7 million in today’s dollars in the next decade. That money has to come from somewhere. TPU Director Bill Gaines says that covering Click’s losses will fall to Tacoma Power’s 170,000 customers, whether they buy Click’s service or not.
For most Tacoma Power customers polled in a recent survey, that’s unacceptable. Seven in 10 residential customers polled said they would rather see Click shut down than have power customers or city government provide a subsidy to offset deficits.
“All of the magical thinking in the world won’t change the fact that what we are doing now is not financially sustainable,” said Mayor Marilyn Strickland.
TPU leaders favor a lease to a private company, which a consultant said could net $10.3 million for the utility over the next 10 years.
A recent report said the only other way Click can make money in that time is under an optimistic scenario in which Click gets out of the cable business and lays off two-thirds of its workforce but keeps selling fiber access to third-party Internet service providers.
Click could come out ahead by $3.6 million after 10 years under that option, said consultant Doug Dawson, but only if the ISPs are able to continue building their customer bases at the same rate they are now. Worst-case scenario: Click loses $37 million because many customers drop their Internet service once Click stops offering cable.
A third option — to go all in by keeping cable and adding phone and lightning-fast Internet service — is garnering attention.
TPU’s consultant says the utility can upgrade the entire system to support speeds of up to 1 gigabit per second — 10 times faster than Click’s fastest residential speed — for around $3.5 million to $6 million. That’s “a fraction of the cost of Seattle,” TPU board member Bryan Flint says.
Flint said the city has a chance to close the digital divide in Tacoma. Around 20 percent of Tacoma households do not have any Internet access at home, according to recent Census figures.
Seattle has explored a broadband network that would include gigabit speeds, but its consultant said the system would cost up to $665 million and would require 43 percent of single family homes to subscribe at $75 per month to pay back the debt necessary to build it, according to GeekWire.
Whether Seattle could gain that much market share is in question. CenturyLink and Wave already offer gigabit speeds in some Seattle neighborhoods.
This is where Tacoma has an advantage over Seattle, said City Councilman Marty Campbell. Nearly two decades ago, Tacoma paid about $200 million to install the city’s fiber optic and coaxial cable network, which connects to about 141,000 homes and businesses in Tacoma and surrounding communities. That initial investment means Tacoma would have to pay only to upgrade the network.
“The cost to do something truly innovating or life changing would be far more cost effective than almost any other community in the nation,” Campbell said.
Strickland, however, has said demand for gigabit speeds in Tacoma is unproven. Seattle has far more college graduates than Tacoma, for instance. Recent Census figures show around 60 percent of those born in Seattle over age 25 have at least a four-year college degree. By comparison, one in four people born in Tacoma do.
TPU’s consultant envisioned a scenario under which Click would sell a “triple play” package — phone, cable and Internet service — plus offer gigabit speeds for an additional $75 per month. While this option loses money overall in 10 years, it starts to make money in the seventh year, growing to $5.2 million per year.
Bundling could help halt the exodus of Click’s cable TV customers, who are leaving the network faster than the cable industry as a whole. Click’s original business plan called for 43,742 cable customers, said TPU Power Superintendent Chris Robinson. The utility recently counted 19,196 customers.
Internet customers are growing — from around 16,000 in 2006 to 21,769 last year. But the revenue earned from that line of business is not growing fast enough to offset the loss of cable customers.
Under the bundling option, cable might become essentially Click’s loss leader, the service the city keeps to lure new Internet customers and retain existing ones. Many people want the ease of doing business with one entity rather than two or three, the consultant said.
“What are other cities doing that you’re not?” asked Dawson, president of CCG Consulting. “They are offering triple play and you’re not. ... By not having that, I’m sure half of the customers hang up when they find out you don’t have all of the cards.”
Bundling wouldn’t solve a basic marketing problem. Because Click is owned by Tacoma, a city government, it cannot offer deals to new customers like its rival Comcast can, TPU officials have said. Such discounts would constitute as a gift of public funds.
COST NOT PARAMOUNT
Moving Click into the black is attractive, but not necessarily the driving force behind some supporters’ determination to save it.
Ibsen wants the city to recognize that the Internet, which was considered an afterthought 20 years ago when Click was founded, has become an integral part of life. He thinks it’s worth saving Click even if it operates at a loss, though the city should do what it can to recoup costs.
“The Internet today is what electric was 100 years ago,” Ibsen said. “It’s necessary for plugging into the world and being informed, applying for jobs and understanding world events ... .
“The Internet is as boutique as indoor plumbing.”
Dave Nelson, another TPU board member, said providing access to high-speed Internet is about remaining competitive. He said that as traffic congestion continues to get worse and the Legislature fails to act on transportation improvements, telecommuting will become more popular.
Tacoma must be positioned to provide speed for people who work for Seattle tech companies but want to live in the South Sound, Nelson said. He doesn’t want to see Tacoma become a “second city” when it comes to data speeds.
“I don’t trust Comcast if Click were to go away totally. I don’t know who else would step up to compete with them,” Nelson said.
For his fellow board member Trudnowski, who sees access to the Internet as an “equalizer,” getting more Tacomans online might be a worthy goal for the city. But the city should get out of the cable business, subsidy or not. She said a city can’t compete in that arena, nor should it.
“We are hamstrung by government and legislative regulations,” Trudnowski said. “We are not nimble, and it is not a good business model at all.”
She said she’s not sure where Click will land once the debate is done. City officials have said a decision about its future could be made in August.
“We have so many avenues we could go down,” she said. “We are still throwing spaghetti at the wall and seeing what will stick.”