Telecommunications ventures remain on hold for Elizabethton Electric

By Thomas Wilson
STAR STAFF
twilson@starhq.com

   Technology is very nice and very expensive.
   While a neighboring power board seeks to become a one-stop-shopping site for utility customers, the expense of becoming a telecommunications provider remains cost-prohibitive for the Elizabethton Electric System.
   "Right now, my main concentration is keeping reliable power," said Phil Isaacs, EES General Manager. "The front-end costs would be so expensive to get the cable and the head end equipment ... we couldn't see the cost effectiveness of getting into that."
   The Bristol Virginia Utilities Board (BVUB) constructed a fiber-optic cable network capable of delivering cable, telephone and Internet communications services to homes or businesses.
   The service was slated to go into effect on Dec. 2 until telecom rival Charter Communications filed suit against the BVUB in federal court last week to block the utility's telecommunications service plan.
   Isaacs said he and city officials had engaged in informal discussions about providing cable television services, particularly when franchise agreements granted by the city to private cable companies came up for renewal.
   Tennessee state law permits any municipality operating an electric plant to build and/or own a cable television system, telephone and Internet services.
   A municipality must go through the same regulatory hearings and procedures as any other telephone company, according to Joe Warner, chief of the Telecommunications Division of the Tennessee Regulatory Authority in Nashville.
   If the EES decided to become a cable television business, the agency would be required to form a separate subsidiary company with a different administration, funding and bank accounts.
   A municipality is required to file an operating agreement with the TRA that states there will be no cross-subsidization of operations between the electric system and the telecommunications system.
   State law also prohibits a power provider from commingling any revenues collected from electricity sales to fund or finance the telecommunications system's start-up or operation.
   "I can't take any of our electric funds to start a cable company," said Isaacs. "We would have to open a completely new company."
   Elizabethton Electric serves approximately 25,000 customers with 750 miles of power lines stretching across three counties.
   Isaacs noted that Elizabethton Electric has 33 customers per mile of power line -- an impressive number since cable line construction is frequently based on a minimum number of customers that can be served per mile.
   "Telephone is very capital intensive," said Warner, pointing out the construction of lines.
   To recoup those long-term capital costs, any entity entering the telecom field looks for a high rate of subscribers for the shortest amount of system construction.
   "The profitable areas are the densely populated areas," Warner said, "and that is what is attractive to telecommunication providers."
   Isaacs said if the EES ever decided to enter the telecom market, the initial target area would be inside the City of Elizabethton.
   "If we are going to do it, we would be focused in the city and branch out into the outlying areas later," he added. "We'd have to start at a small scale."
   Bristol Virginia Utilities' plan hit a snag last week when U.S. District Court Judge James Jones granted a temporary restraining order against the BVUB's "OptiNet" service sought by private cable provider Charter Communications.
   Charter filed suit against the BVUB, claiming it is unfair that OptiNet would have to compete with a municipal utility.
   "We are of the opinion that our competition in no way would be unfair or non-competitive," said Jim Bowie, the attorney representing the Bristol Virginia Utilities Board.
   Bowie said it was the intention of the board to begin OptiNet services on Dec. 2. The restraining order is effective until Dec. 9 when the utility and Charter officials appear at a hearing on the suit in U.S. District Court in Abingdon.
   The utility's primary service area would be concentrated in Bristol Virginia.
   Bowie defended allegations that the BVUB's foray into the telecommunications market could effectively impede competition from Charter or other private telecom companies.
   "They (Charter) have been there all these years and have thousands of customers," he said. "We have to go out and convince the public we can provide better service."
   Charter Communications officials did not immediately return calls seeking comment.
   Telecommunications and Internet services providers are not regulated by a state government agency in Tennessee. A municipality's legislative authority -- such as the Elizabethton City Council or the Utilities Board of the county commission -- votes to grant franchise terms to private cable companies.
   Tennessee functions as a "home rule" state where a municipal electricity company can do anything not strictly prohibited by the state legislature.
   Virginia operates under "Dillon's Rule", which permits that state's legislature to authorize the activities of municipal power providers such as telecommunications and telephone services.
   Bowie said the BVUB had "no intention and no plans" for extending fiber services across State Street or into other areas of Tennessee.
   The utility would have to submit a request to the TRA to encroach utility service into Tennessee, said Bowie.
   If no new restraining orders are issued, roughly 200 Bristol Virginia residents would be begin receiving services through the fiber optic network on Dec. 9, said Bowie.
   Bowie said electrical devices were required at each home and business to convert fiber-optic light signals to receive picture, voice or data signals. The receptor devices have already been installed on a couple of hundred premises and all would have to be done would be throw a switch to activate it.
   The BVUB would begin installation of the fiber-optic receptors to 400 to 500 homes per month, Bowie added.
   The Chattanooga Electric Power Board was the first municipality that entered the telecommunications market in Tennessee. Memphis Light, Gas & Water is currently involved in a joint-venture to provide telecom service with a separate entity.
   Those hearings drew criticism from private sector companies, according to Warner.
   "There have been very contentious hearings," said Warner of municipal governments foray into the competitive telecommunications market. "It was hotly debated."
   Isaacs acknowledged trends are leading municipalities into the telecommunications industry. The technological superiority of fiber-optic communication was also allowing new management of electric substations, he said. He also did not rule out probing the telecommunications industry in the future.
   "A lot of utilities are installing fiber optics to communicate with the substations, provide telecommunications, and the Internet," said Isaacs. "I would get in the cable business if it was cost-effective and provided good service."