October 25, 2005

Residents could close AFN gap

90% of Charter customers would have to switch over to fiber network, which would have to increase rates

By Vickie Aldous
Ashland Daily Tidings

Ashland Fiber Network engineer Chris Barber rolls out cable in September 2004. Photos by Orville Hector | Ashland Daily Tidings

It’s a refrain often heard around town that people just need to buy the Ashland Fiber Network’s services instead of those from the competition in order to save AFN.

Residents could in fact close AFN’s financial shortfalls themselves for nearly a decade — without having to pay the $7.50 fee on all electric bills that was set to begin this month but was delayed by the Ashland City Council until January because of concerns about its impact on senior citizens and the poor.

But virtually every Charter Communications cable television and Internet customer in Ashland would have to switch to AFN. And all cable customers would have to accept steep price increases to top market rates, according to a scenario developed by the Tidings and run through the city’s financial modeling software by Ashland Finance Director Lee Tuneberg.

Internet prices already are at market rates, so were not raised in the scenario.

After cable rates were boosted — hiking the cost of the popular Expanded Basic package from the current price of $34.83 to $48 per month — inflationary increases of 3 percent per year would be needed under the scenario.

Currently, AFN is projected to have a $3.8 million shortfall by the 2010-2011 fiscal year if the city does not collect the electric bill fee — and that assumes 10 percent revenue growth year after year from cable television and Internet sales, according to finance department projections.

AFNA enginer Chris Barber replaces filters in September 2004

Under the Tidings scenario, budget surpluses would stockpile through the 2008-2009 fiscal year and then would gradually be eaten down by budget deficits. AFN would have about a zero cash balance in approximately the 2013-2014 fiscal year, rather than being millions of dollars in the hole by then.

In subsequent years, AFN’s cash shortfalls would grow.

An unlikely scenario

Ashland resident Mary Ann Penrose is like many AFN supporters who have said Charter customers should consider switching to the city service.

She said she appreciates the quality of AFN, the local service and the cable television channel line-up selected by the residents who make up the unique Ashland Programming Committee.

Presented with the scenario that would require mass Charter customer conversions to AFN and price increases, Penrose said, “I think in time, AFN will be a very, very important thing for our community. I feel strongly about the money I pay being kept locally. I’d pay $48, but I think most people wouldn’t.”

Resident John Jory, who also believes Charter customers should switch to AFN to help the city service’s finances, said he also would pay the increased amount for cable television.

Even if every Charter customer didn’t choose AFN, the city council could still lower the planned $7.50 electric fee significantly if a number of Charter’s customers changed sides, he said.

“I think all these people screaming about the $7.50 should be pushing their neighbors who are using Charter to switch,” Jory said.

Fully covering AFN’s debt for nearly a decade through the conversion of nearly every Charter customer would require a massive groundswell of support from residents.

On the cable television side, AFN has about 3,170 customers, and city staff estimate Charter has about the same. An estimated 10 percent of Ashland households cannot get AFN service, usually because of the high cost of connecting those homes, according to city staff.

If Charter has 3,170 cable television customers, of whom 10 percent cannot get AFN, the remaining 90 percent — or 2,853 customers by Tidings estimates — would all have to switch to the city service.

On the Internet side, AFN has approximately 3,686 customers, compared to an estimated 1,400 customers for Charter. The Tidings’ scenario also requires 90 percent of Charter’s Internet customers — or 1,260 — to switch over.

Charter television customers would have to give up their current money-saving deals and join AFN, where they would pay $48 a month for Expanded Basic, with more inflationary price increases to follow.

Locked in fierce competition, both Charter and AFN offer almost identical prices on the Expanded Basic package that are well below the national average of $48.

AFN cable television customers already face price increases in January under a recent Ashland City Council decision that helps close the deficit. The price for Expanded Basic will rise from $34.83 to $42.95 a month, but the council also had added the $7.50 monthly AFN fee on all 10,000 electric accounts to get AFN out of the red.

It remains to be seen whether Charter will follow the planned January cable television price increase with rate increases of its own.

Competitive world

It is also questionable whether customers would pay the national average of $48 per month for Expanded Basic.

Charter Communications has a published price of $45.99 for Expanded Basic in the Rogue Valley, although it quotes prices of $32.40, minus fees, to potential customers in Ashland.

If Ashland customers paid $48, they would only be paying a few dollars more than many other Rogue Valley residents already pay for cable television.

However, Charter and satellite companies also are competing for customers. Satellite companies have offered promotional $35 per month packages, even to Rogue Valley residents who live outside Ashland and don’t have a city-owned provider.

Outside Ashland, Charter representatives are currently going door-to-door in the Rogue Valley, offering 18 months of Expanded Basic cable plus movie channels for $34.99 to satellite customers who switch to Charter. The regular published price for such a package is $54.99.

Some of Charter’s Ashland customers also are just plain opposed to city government being in the telecommunications business. They believe such ventures should be left to businesses and wouldn’t join AFN on philosophical grounds.

“Basically I don’t think it’s an enterprise the city should be in. It belongs to private enterprise,” said resident Virginia Sommerlot.

Along with her husband, Robert Sommerlot, she had planned not to pay the AFN fee on her electric bill before the city council delayed the fee. She believes AFN was ill-conceived and should never have been launched.

“If I was running a business I had to make a living at, I would be bankrupt long ago due to poor management and planning. I don’t know why we should support something that is not bound by the same rules,” she said.

The city council is not relying on a wholesale conversion of Charter customers to AFN, but instead appointed the AFN Options Committee this summer to explore alternatives for the service’s future.

Options include selling off AFN to the highest bidder, rolling out new services in hopes of bringing in more revenues or spinning AFN off as an independent nonprofit. The committee is expected to present option details to the council next month.

The city likely would not be able to sell AFN for enough to cover the full $15.5 million debt. The estimated market value for AFN ranges from $5 million to $10 million, according to options committee members who researched the issue.

The city, and therefore residents, would be left to make up the difference.

A nonprofit spin-off also probably could not survive saddled with the full debt load, again leaving the city to pay some or all of the debt.

Despite all the uncertainty over AFN’s future, one thing is clear: The days when Ashland residents could enjoy cut-rate cable television prices without somehow paying the price are over.

AFN’s deficit is due in part to construction costs for the system that were higher than expected and because the city did not charge market rates for cable television.

Since AFN’s roll-out in the late 1990s, AFN and Charter cable television customers in Ashland have saved roughly $5 million. A single cable customer, on average, has saved almost $800 during that time, according to Tidings calculations.

Staff writer Vickie Aldous can be reached at 482-3456 x 3018 or valdous@dailytidings.com.