Within the next couple of years, most Chattanoogans should be able to pick from at least three local providers to get any of their cable television, telephone or high-speed Internet services.

Competition is growing in the once-monopolistic phone and cable TV market as Comcast and AT&T upgrade their systems to invade each other’s traditional telecom turf.

By next February, EPB, Chattanooga’s electricity provider, will join the fray with plans to add residential phone, Internet and cable TV services as part of a $220 million fiber-to-home initiative, President Harold DePriest said Friday.

The battle in the marketplace was opened up in the past year after earlier legislative and legal fights delayed both AT&T and EPB from expanding their services. With prior regulatory restrictions removed, AT&T filed this month for a statewide franchise to bring its Internet protocol television service — essentially Internet, cable and phone services through the TV — to Tennessee and EPB officially launched its residential telecom business.

AT&T, which brought telephone service to Chattanooga a century ago, plans to expand its U-Verse Internet-protocol TV service into Chattanooga and other Tennessee cities over the next two years, company spokesman Bob Corney said Friday. The $400 million venture “will bring the next generation of broadband” across the state, Mr. Corney said, “and bring more competition for consumers.”

At EPB, Mr. DePriest said he expects the city-owned utility to award major contracts in the next month for the electronics and satellite services that will control EPB’s cable TV service. The first of 170,000 EPB customers that could receive the new telecom services should be hooked up by February, he said. EPB expects to cover 80 percent of its service territory within three years.

Neither AT&T nor EPB has settled yet on details about pricing options and cable TV offerings, although each promises to offer deluxe packages with more than 100 channels and options for cheaper service than what is now available in the market.

“We’re laying fiber optic lines right now for our fiber-to-home service,” Mr. DePriest said following the Electric Power Board meeting Friday. “This will bring truly high-speed, fiber-quality Internet and cable TV services that will help set Chattanooga apart from other cities and should give us an economic advantage.”

Need for speed

Mr. DePriest said the new EPB fiber-optic network will be able to deliver up to 100 megabits of Internet service, far faster than any broadband now in the market.

Jim Busch, who operates a Chattanooga radiology company, says EPB’s fiber network has helped his company to grow by allowing high-quality, instantaneous remote readings of medical images and records.

"We are growing faster than I can keep up with this business,” he said.

But Comcast and other cable TV providers in Tennessee question the demand for such Internet speed for Chattanooga residences. They also claim EPB’s so-called advantage might come at the expense of EPB electric ratepayers.

Comcast, which added telephone service last year and is upgrading its own TV service this year, insists it can meet the telecom needs of Chattanooga. Valerie Gillespie, general manager for Comcast in Chattanooga, said the cable TV company can tailor the speed of its Internet service depending on a customer's need.

"How many homeowners need 100 megabits?" Mrs. Gillespie asked. "My operation here doesn't run on it."

Comcast, with a staff of more than 300, uses less than 10 megabits of Internet speed on a daily basis, she said. The company's hybrid fiber-coaxial network is a viable choice, she said.

Utilities square off

Comcast and the Tennessee Cable Telecommunications Association (TCTA) each unsuccessfully sued EPB in the past year, claiming EPB was using its electric system revenues to illegally subsidize its new residential telecommunications services. The cable groups also mounted a television advertising campaign to generate public opposition to the electric utility from expanding into their business.

Neither proved successful, although TCTA President Stacey Briggs said the court cases may be appealed next week.

EPB, which helped electrify Chattanooga over the past 70 years, began offering telephone service to businesses eight years ago and has provided commercial broadband Internet service for more than five years.

With 2,300 business customers, EPB Telecom earned $1.3 million on revenues of $16.3 million in the fiscal year that ended June 30, EPB Division Vice President Katie Espeseth said.

“We think the success of the telecom model is proven and we have a track record of success with our model,” Ms. Espeseth said.

But Ms. Briggs disputes such claims.

“If EPB’s business were a success, debt should be going down, not going up,” she said.

EPB’s telecom operations had a debt of $31.2 million at the end of its fiscal year, about $500,000 less than a year ago, EPB Chief Financial Officer Greg Eaves said.

To expand into residential Internet and cable TV, EPB’s electric system this month lent the company’s telecom division another $28 million. The growing debt burden for the telecom division “should cause great concern for ratepayers” at EPB, Ms. Briggs said.

“EPB’s debt is only increasing and not decreasing,” she said.

Based on bond documents, EPB may extend or refinance that debt, Mrs. Briggs said, so the principal won’t be repaid.

Most of the cost of EPB’s fiber-optic network is being absorbed by current electric ratepayers not future cable TV customers. But EPB officials said that’s because the fiber network will improve the connections and reliability of the EPB electric grid and allow the utility to install so-called “smart meters” that allow for time-of-day pricing and energy-efficiency controls by consumers.

Mr. Eaves said the telecom division is profitable and paid down a portion of its debt in the past year, even excluding depreciation expenses. Most startup businesses in capital-intensive industries such as telecom take years to turn a profit, he said.

The debt on the new fiber-optic network is like a house mortgage because it’s a long-term investment, said Danna Bailey Cannon, vice president of marketing.

“I’ll pay my mortgage for a long time, but I’m not having financial trouble,” she said. “It’s a long-term debt.”

Mr. DePriest said EPB is investing in the future and its new telecom services will help lower consumer rates and give Chattanooga an advantage in recruiting high-tech businesses needing plenty of broadband capacity and speed.

But in its television ads that aired last month, the state cable TV association urged citizens to call on the Chattanooga City Council to exercise caution about EPB’s plans. The ads highlighted the failure of another telecom venture involving the Memphis Light, Gas and Water division. That municipal distributor of TVA helped launch Memphis Networx in 1999 but ended up having to sell the venture at a $28 million loss in 2007.

Chattanooga City Council member Jack Benson said the ad campaign proved counterproductive for Comcast and the cable TV industry.

“I got more calls from citizens who were upset and mad because they thought the money that was being spent on these ads was coming from Comcast’s rate increase this year,” he said. “Most people I’ve talked with want some competition for Comcast and they like what EPB is trying to do.”

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