Loading...
HomeMy WebLinkAbout1984-05-18-CAC-rpt Report to Board of Selectmen.pdf h t ! 4' Report to the ,Selectmen Lexington Cable Advisory Committee May 18 , 1984 Subject Notifications by Adams-Russell (Cable Services Division) of; (1) subscriber rate changes to be effective July 1 , 1984 , (2) the signing of a franchise agreement with Bedford that involves use of off-air broadcast and satellite signals from the antennas of the Lexington cable system Introduction The Lexington Cable Committee has received, studied, and thoroughly discussed with Mr. Steve Pollack , General Manager of Adams-Russell Cablevision-Lexington. Inc , two Adams- Russell letters of notification as described in the Subject above As a result of questions posed to Mr Pollack at the Cable Committee meeting on May 7 that required further backup information, the meeting was adjourned until May 15 to allow for its preparation and transmission All requested additional information was supplied in time for the May 15 continuation, at which time almost three hours was spent in further discussions and clarification of the issues The Committee feels that it now fully understands the two situa- tions , and wishes hereby to transmit that understanding to the Board. Mr John McLaughlin, Board Liaison Representative to the Committee, participated in almost all discussions at both meetings Of the two issues, Board review of the rate change notifica- tion and consideration in any manner that it desires is the most pressing because of the effective date of July 1, and Adams-Russell' s need to notify subscribers 30 days ahead, i e , by June 1 As will be explained. Lexington was deregu- lated by the State Cable Commission a year ago, and the two-year fixed-rate period specified in the Lexington Fran- chise Agreement has expired -- thus Lexington has no actual control over the rate structure from this point on The Cable Committee and the Board should, however, determine to their own satisfactions whether rate changes are in fact reasonable and proper, and in line with Adams-Russell ' s ori- ginal expectations of cash flow and return on investment as set forth in the 10-year pro-forma financial projections presented in its 1980 proposal and 1980 amendment thereto After the past two weeks of consideration of all factors, the Committee now feels that this is the case -1- on the second matter, the Bedford franchise, extension of Lexington off-air and satellite signals into the Bedford headend will have absolutely no effect on the Lexington sys- tem from a technical standpoint (quality of signals) or detract in any way from Lexington channel capacities This is because Bedford will have its own headend like that in Lexington (except for antennas) , its own studio, and and its wn, independent local origination and access channels Also. the Lexington Institutional Cable will not be extended (the Bedford system will not have a separate Institutional"` Cable) Bedford will not, however, have a cable office. and will be managed from the Lexington office. with increased staff as necessary to prevent any diminution of services to Lexington subscribers Ramifications of this additional load on the Lexington office are discussed further on It is realized that time will be short at the May 21 Selectmen' s meeting, and it it therefore suggested that dis- cussion be confined to the rate change notification The Bedford extension is not as time-critical. but should be addressed before mid-summer if possible The Rate Change The notification of a rate change for Lexington cable sub- scribers is contained in a letter from William Henchy dated April 18 (WCH-84-100) , hand delivered to John Ward at the Lexington Cable Office on or about May 1, along with a sup- porting letter dated April 19 from Steve Pollack providing detailed financial information Mr Henchy ' s letter starts with two pages of background about the system and its opera- tion to date, followed by two pages of explanation of the numerous rate changes to be effective July 1 His letter should be referred to, starting with the last paragraph on page 2, for details of the changes A large number of the changes have to do with increases in rates for service calls of various types -- installations, reconnects , etc , and do not affect regular monthly bil- lings The most significant change. and one that will affect almost all of the present 5300 subscribers in Lexington, is an increase of $6 in the monthly fee for full (Expanded) service for the first outlet, i e , from $7 50 to $13 50 per month (from $6 to $12 for senior citizens) . and from $4 to $6 for each additional outlet The Lifeline rate ($4 50, or $3 50 for senior citizens) , is not being changed, but there are currently only 100-112 Lifeline subscribers. [As a metter of interest, 653 Lexington subscribers currently receive the senior discount At the same time, however, the monthly fee for the remote control option, used by about half the Lexington sub- scribers, is being reduced $2 20 (from $4 95 to $2 75) . and -2- there are no changes in the charges for the various pay channels The net increase for a first outlet for a sub- scriber with the remote option is therefore $3 80 Second outlets with the remote option will have a net increase of $2 . Subscribers without the remote option will have a larger increase ($6) for the first outlet, but the same $2 increase for each additional outlet Adams-Russell justifies these increases on the basis of fixed-asset costs to date of $5 5 million , compared to a projected $2 5 million in the 1980 proposal for the third year of system operation (an increase of 120%) , and roughly doubled costs of operation, compared to proposal projec- tions They have provided a cost breakdown of all system equipment, construction labor , and subscriber devices, and comparison of this with the proposal figures indicates that inflation has taken its toll , although underestimation of cost is also a factor , particularly for underground con- struction The fact remains that they have spent over twice as much building the system as anticipated. Also, antici- pated annual operating costs were about $500,000; Mr Pollack' s figures indicate that the actual current figure is about $1,000, 000 per year Cable economics for a new system are characterized by very large up-front costs, and net incomes that are negative for a number of years. The A-R 1980 proposal pro-formas indi- cated expected negative net income until the eighth year of operation (page 23 of the Sept Amended Proposal) , i e until interest expense had been sufficiently reduced by cap- ital payback As the Committee understands the situation, the doubling of the capital investment and operating costs has pushed the breakeven point well beyond the anticipated eighth year , other factors remaining the same The Committee has compared these other factors with proposal expectations and finds that present pay-channel income is almost identi- cal to that projected in the proposal , and that present sub- scribership in Lexington is about 30% higher (.110.0.-versus a projected 3947 in the third year) While income at the present rates is therefore somewhat above projection, this is not enough to offset the higher costs of capital and operation. It seems clear that rate increases are necessary if the Lex- ington cable system is to remain viable, otherwise A-R would be justified in cutting back on operating costs, and it is the local programming and access operations that are the usual casualties in cable systems that are having a cash flow problem. A-R has not chosen this route , and in fact is increasing its dedication to local usage. including the school video and data links on the institutional. cable, and is helping institute additional Town usage (e g. , the Fire Department and the Library) How much of an increase is. of -3- course , open to question It would appear , however, that if investment and operating costs have doubled from the time of the proposal that the new rates are not out of line It should also be noted that the Bedford franchise has the new Expanded service rate, and higher rates for pay channels than the Lexington system Also. the rates in surrounding communities have recently been raised by other companies -- to $12 .50 in Arlington, for example. Deregulation The fact that Lexington had been deregulated by the Mass Cable Commission on Mirrh 1 , 1983 came as a surprise to the Committee We have learned that that this was done in Docket R-104 by which the Commission proposed a number of communi- ties for deregulation, with a hearing process Nothing rela- tive to this was ever brought to the attention of the Com- mittee , and it would be of interest to know whether the Town ever was notified by the Commission about the Docket and the hearing, or the decision Mr Henchy has supplied, in letter WCH-84-135, May 11, the Docket (R-11) for the current year as an example of the pro- cess, and states that the 1983 deregulation of Lexington occurred without his knowledge I note, however . that in the current Docket R-11 cable operators in the communities pro- posed by the-Commission tor suspension of price regulation are requested to submit information on cable penetration and coverage by the three major networks to support deregula- tion, and that Mr Henchy did so on March 9 . 1984 for A-R systems in Acton. Norwood, and Westwood He seems to be saying that they were not notified re Lexington in 1983 . and did not submit data as he has this year. Is it possible that the Commission took action without letting either A-R or Lexington know of the process or the results? In any case, Lexington is deregulated and has no control over rates , except for agreements which it might make with Adams-Russell on a non-regulatory basis The Committee does not like rate increases , but feels that the present ones are not out of line. given the A-R financial data supplied to it , and has little confidence that A-R could be talked into reducing them. Bedf2r_d Franchise The Committee has been kept well informed by Steve Pollack over the past two years about the progress of the Bedford negotiations , and the fact that it was A-R' s intention to dra ,t rt- ' , u , ' ,, . ._ than build new antPn�a� ;n RarlfnrA_ At the same time, the Committee has on many occasions pointed out to him that at -4- some point such a connection would have to be brought to the attention of the Selectmen, and that it could possibly affect the franchise agreement and the permits granted for the use of Muzzey School as the cable office, and the con- struction of the headend and antennas on Walnut Street In each instance, he has said that A-R preferred to delay such notification until such time as the negotiations with Bed- ford were completed and the final license signed. an event which finally took place on April 18 The Committee was notified in a letter from Mr Henchy dated April 17 , which is attached As stated in the Introduction of this report, the Committee sees absolutely no detriment to the Lexington cable service or capacity from this connection -- providing a "drop" to the Bedford headend is no different than providing a drop to one of the Lexington schools, with its own internal wiring The issues, if there are any , are benefit to A-R in not hav- ing to spend money for an antenna system in Bedford (a $600 ,000 portion of the Lexington headend costs) , political, dilution of facilities (i e , the van) and local programming/access personnel, and use of the Lexington office to handle operation of the Bedford system •i1 The Committee has discussed all these issues with Mr. Pol- lack over the past year, and in great detail in the meetings of May 8 and 15 . He has said that the addition of Bedford subscribers will help the Lexington operations, and that this has been taken into account in deciding on the amount of the rate increase for Lexington He has also stated, and Mr Henchy has confirmed, that Lexington has first priority on use of the van, and that it will only be scheduled for Bedford when not needed in Lexington. They are also adding personnel to handle the Bedford studio (it will be in the High School) , and that since this will not be a full-time operation, they can assist in Lexington when not needed in Bedford The main issue seen bu the Committee is use of the Lexington office to serve also for Bedford Will it decrease service to Lexington subscribers (service is a matter on which we already have complaints, particularly about getting through on the phone) Mr Pollack has assured the Committee that there will be separate phone numbers and lines for Bedford, and enough additional office personnel to handle the increased activity Will there be a traffic. problem? Mr Pollack has supplied, in a letter of May 16 . an analysis fi showing that they have about 110 office visits by sub- scribers per month (average 5 per day) because 97% of sub- scribers pay by mail He would expect an even lower visits- tion rate by Bedford subscribers because of the lower number (2000 expected) and the greater distance from their 'homes . l' ! f : -5- The Committee feels that the above are the issues that should be taken into consideration, both initially and as time goes on, in regard to A-P'�s to drive the Bedford system from t.i)e Lexington raE] . i It sees no real problems. u� AL seems worthwhile to come to a formal understanding with A-R on to each of these issues As stated in the Intro- duction, Bedford turnon is some months off. and these issues do not need to be addressed immediately They do need, how- ever , to be addressed in the coming month or so Mr Pollack has said that he stands ready to meet with the Board at any time to discuss any and all questions relating to the Bed- ford extension Other Possible Extensions The Chairman was a bit startled 10 days ago to receive a call from the Chairman of the Wayland Cable Committee asking about A-R, and imparting the information that A-R' s proposal to Wayland involved getting signals from the Lexington antenna ! Inquiry to Mr Pollack has brought a response from Mr Henchy (last paragraph of his May 11 letter on deregula- tion) that indeed this was the case. and that they had simi- lar proposa] s in Lincoln, Weston , Conc d. and Belmont In effect, Lexington would oe the hub of one o two regional systems envisaged by A-R, the other having its antennas in Stow and serving a number of surrounding communities Connections to Belmont and Lincoln could be similar to the Ir Bedford situation because they abut Lexington -- they would feed off the Lexington cable at the Town boundary Concord. Weston, and particularly Wayland are too far away for this type of connection Instead A-R would run a special "super j . frank" £rpm the Walnut Strut headend_ ai rattly to Yhacv_ ".,.'- munitiec The Committee is informed that the super-trunk would not be routed through Lexington, but would go into Waltham (only a few feet away ) and out Trapelo Road to Lin- coin, etc None of such connections should have any detri- mental effects on the quality of Lexington Cable signals. Also. regional operation could be of benefit to Lexington subscribers in terms of future rate stability , and in A-R' s ability to support additional dishes needed to pick up new satellite services, i e , to enlarge the program menu The latter would, of course. mean enlargement of the present headend complex, which would require the usual hearings for modification of the present site permit. The Committee has taken no position on these possible future additional extensions, having just gotten the information a i _ few days ago It felt, however. that the information should be immediately passed on to the Board The Board may wish to enter a dialog with A-R about them The Committee wonders y= if A-R should have felt at least a moral commitment to men- nu tion to the Town that it was submitting proposals in other ,I communities based on connection to the Lexington system. rather than having the Town find out via the back door \6)Str.,--40, Cks1)-u-Lui-Zrat. -7-