Cable TV industry sues EPB to block broadband service

The trade association for Tennessee's cable television industry sued EPB on Friday to try to block the city-owned utility from adding residential cable television, telephone and Internet service next year.

The legal challenge was filed in a Nashville court less than six hours after EPB's board unanimously voted Friday morning to expand its 7-year-old telecommunications business to every home served by EPB. Pending approval of the Chattanooga City Council on Tuesday, EPB plans to soon start stringing more than 3,000 miles of fiber-optic lines to build the biggest telecommunications network of its kind by any municipally owned utility.

The head of the Tennessee Cable Telecommunications Association said EPB's fiber-to-home plan is illegal because it would use EPB electric customers or Chattanooga taxpayers to subsidize a new business in competition with private companies. Under Tennessee law, EPB must operate its electricity and telecom divisions as independent businesses.

"They are trying to finance this business on the backs of the EPB ratepayer or the city taxpayer," said Stacey Briggs, executive director of the Tennessee Cable Telecommunications Association. "Such a blatant violation of law cannot be tolerated."

EPB President Harold DePriest said the cable TV industry is trying to limit choices for Chattanoogans. He said EPB developed its business plan over the past three years to allocate costs from the new venture in accordance with industry standards and Tennessee law.

EPB's business plan was reviewed earlier this year by the Electric Power Research Institute in California and approved last month by the Tennessee Comptroller's Office in Nashville.

If approved by the city, EPB will issue $220 million to $230 million in tax-exempt bonds to finance the fiber-to-home venture. The business plan would allocate more than 80 percent of the costs of repaying those bonds to the electric system, since the new fiber network will allow EPB to install so-called "smart meters" to eliminate manual meter reading, cut electricity theft and improve system reliability.

EPB estimates the system upgrade should save the electric system more than $13 million a year.

If successful, the fiber-to-home plan would be paid for by revenues generated from those signing up for high-speed Internet, video and phone connections from EPB, officials said.

"If anything, the telecom service should end up subsidizing our electric upgrade," Mr. DePriest said.

EPB projects at least 35 percent of its 160,000 customers will subscribe to its new broadband services, which would be faster and in some instances less expensive than what Comcast or AT&T now provide in the market. EPB Chairman Joe Ferguson said the utility has been "very conservative" in developing its business plan.

"What we heard from the community is that in order for us to be as competitive as we want to be, we've got to go with this next generation of broadband service," Mr. Ferguson said.

Mr. DePriest said that among 175 people attending a public hearing on the proposed service, Ms. Briggs was the only person to speak in opposition. Only six of 185 written comments on the fiber-to-home service have been negative, he said.

EPB Director Harold Coker, a former Hamilton County commissioner, said installing a faster broadband network in Chattanooga "will make this area jump with jobs and propel this community." He said he was surprised at the overwhelming support for EPB's plans and the lack of support for Comcast, AT&T and other existing telecom suppliers.

"I knew the suppliers were not well liked, but I didn't know it was that bad," he said.

A half dozen area business groups have endorsed EPB's fiber-to-home plan, including the Association of General Contractors, Chattanooga Manufacturing Association, Tennessee Multicultural Chamber of Commerce, Southeast Development Corp., the Homebuilders Association of Southern Tennessee and Southeast Tennessee Development District.

Caleb Ludwick, communications director for Tricycle Inc., said EPB's higher-speed Internet connection for businesses has helped Tricycle grow. "Adding better residential broadband service should be a great benefit for the entire region," Mr. Ludwick said.

Dr. Ron Rizzuto, an economist who has studied more than 50 municipal electric utilities with video services, said more than 75 percent have yet to turn a profit and most have not lived up to their advanced billing.

Dr. Rizzuto, professor of finance at the Daniels College of Business at the University of Denver, said EPB's business plan "seems to rely upon some overly optimistic revenue projections" and does not include any expenses to install the smart electric meters required for the EPB electric system benefits.

"This project is a massive undertaking for EPB and will, in all likelihood, result in a lower bond rating for EPB that will raise their borrowing costs," he said.

EPB Chief Financial Officer Greg Eaves said underwriters are ready to buy EPB bonds for the project and he does not anticipate any change in the utility's AA bond rating.

Mr. DePriest said the estimated $15 million expense of installing upgraded meters for all EPB customers over the next five years will be financed through the electric system out of savings from the system upgrade.

Six of the City Council's nine members will be needed to approve the EPB plan, or a majority could approve putting the proposal before city voters in a citywide referendum.

City Council Chairman Dan Page said Friday's lawsuit would not delay the council vote, and he believes the city will endorse the EPB business plan.

"This will be another key asset in our economic development toolbox," he said.