Challenges Name of Game for Small Cable Ops - Industry Trend or Event

You may not realize it what with the attention given to supersized MSOs, but there are actually independent cable operators toiling away in smaller, usually rural markets.

And while their larger peers trumpet the billions they spend on system upgrades and new services, the story is much different for these smaller systems struggling to keep up in an increasingly competitive service market.

Matt Polka, president of the American Cable Association, said while the goal is the same, the path to upgrades for smaller operators is much different compared to their corporate giant brethren.

His association, formerly the Small Cable Business Association, represents a sector of the cable industry that is still quite large. At last count, courtesy of the FCC, there were about 1,439 operators with fewer than 400,000 subs in the U. S.

Challenges are numerous for smaller operators. The average channel capacity for ACA members is about 50, putting many systems in the 440 MHz range. To add data and Internet services, systems must reach about 750 MHz -- and "must" is a key word, Polka said.

"They need to get connected and they need to be offering these services to remain competitive in the coming years," he said.

Subscriber density is often an issue. With member systems covering rural areas where densities range less than 20 homes per mile, major fiber-optic upgrades may not be feasible, Polka said.

Local financing

Finance is not an easy road, either. Given fewer assets and smaller pocketbooks, it is often harder for independent cable operators to convince financial lenders to foot the bill.

"Financing for independent operators is much more difficult than for an AT&T or a Time Warner," Polka said. "These folks go to Wall Street. We go to the local banks."

And when they get there, they face questions about the viability of their operations to pay back on improvements -- especially facing the rising threat from satellite television operators.

"It's a difficult thing for a bank to say `We're going to give you this big pot of money to make significant upgrades,' even as DBS services are starting to make a lot of noise," Polka said.

Some strategies available to independent cablers include joint buying power through the National Cable Television Co-op. Then there are the "turnkey" operators such as High Speed Access Corp., that offer to share upgrade costs and operations for high-speed Internet services, accessing cable, digital subscriber line or wireless broadband technology.

"Essentially for you it is hands-free," Polka said. "That's an easy way for a smaller operator to get into the Internet business."

That in part will help fend off the erosion of what Polka calls the "new toy" in the video industry -- satellite providers. As DBS operators gain access to local channels and other satellite companies plan high-speed Internet services, independent cablers have no choice but to increase channel capacity to offer the same services or face abandonment by customers.

Lisa Schoenthaler, senior director for the National Cable Television Association's Office of Rural and Small System Operators, agrees. She adds despite smaller bank accounts, these systems are making the investment.

"They are facing a lot of challenges," she said. "I think if you look at the market smaller cable companies are competing against at least two DBS operators. They have been rolling out digital services, expanded channels and even high-speed Internet service."

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