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LUS Fiber is a municipally-owned provider competing in Lafayette, Louisiana
Lafayette Utility Systems’ LUS Fiber has filed a formal complaint with the Federal Communications Commission accusing the cable industry co-op of blocking the company from getting the favorable discounts and access to cable networks its competitor Cox Cable receives.
LUS Fiber Director Terry Huval said the blockade against LUS Fiber could ultimately cost the city millions and deny subscribers access to popular cable networks. Huval accused its rival, Cox Cable, of being behind the repeated denials of membership for the Louisiana municipal cable system.
The municipal provider issued a news release stating that its complaint to the FCC originally was joined by municipal providers in Wilson, N.C., and Chattanooga, Tenn., but the National Cable Television Cooperative has since admitted those systems, while keeping LUS Fiber out.
“The NCTC opened membership to two other municipally-owned telecommunications companies that are very similar to our own Lafayette operation and in the same week refused to admit us on the same terms and conditions,” Huval said. “The only difference among the three systems is that our major cable competitor is NCTC’s largest member as well as a member of NCTC’s board of directors.”
LUS Fiber's primary competitor is Cox Cable
The NCTC is critically important to many medium and small sized cable companies who together collectively bargain access and the best possible volume discounts for hundreds of cable networks and broadcasters. Those discounts are substantial, considering only Comcast gets larger discounts than the NCTC’s group membership. NCTC membership also frees members from the tedious one on one negotiations cable systems would otherwise be required to conduct to obtain and maintain agreements with cable programmers.
Keeping LUS Fiber out means the municipal provider could be left charging higher prices than Cox charges for cable-TV in Lafayette.
Federal law appears to be on the side of LUS Fiber as part of the 1992 Cable Act that consumer groups fought for:
It shall be unlawful for a cable operator, a satellite cable programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers.
The NCTC operates a spartan website at nctconline.org
As someone who personally was involved in the passage of that legislation, the ironic part is we were fighting -for- the NCTC back then. Of course, those days the cooperative was made up of wireless cable providers, utility co-ops, municipal co-ops, and other independent cable systems that were constantly facing outright refusals for access to cable programming or discriminatory pricing. Satellite dish-owners were also regularly targeted. NCTC was a friendly group in the early 1990s but has since become dominated with larger corporate cable operators, especially Cox Cable and Charter Communications.
NCTC and its dominant members have not only grown significantly in size and power, but they have become increasingly anti-competitive themselves. They are now undermining Congress’s pro-competitive intent by using denial of membership in NCTC as an anticompetitive device to insulate NCTC’s existing members from competition by new entrants.
Specifically, in 2007 and 2008, NCTC imposed a “moratorium” on new members, claiming that it needed time to review its membership policies. In late 2008, NCTC supposedly lifted the moratorium, posting new application procedures on its website. These procedures, NCTC stated, would ordinarily result in admissions within 60-120 days. LUS promptly applied for membership, furnishing all of the information that NCTC required. In reality, NCTC only lifted the moratorium for private-sector cable operators, including Cox and Charter. For LUS and other municipal cable operators, NCTC’s claim to be open to new memberships turned out to be little more than a deceptive sham.
In short, as of April 2010, despite publishing procedures suggesting that new members would be admitted within 120 days, NCTC had not admitted a single new public communications provider during the year and a half since it supposedly lifted its moratorium.
Without access to programming at competitive prices, no one would consider switching to a municipal provider that charged higher prices than the incumbent. The NCTC’s increasingly secretive and erratic admission of new municipal members provides ample ammunition for those on the outside looking in to accuse the group of unfair practices.
Other stories of interest:
- Wilson, North Carolina Builds Its Own Municipal Fiber Optic System When Others Didn’t Step Up
- Burlington Telecom ‘Not Financially Viable,’ Panel Urges Partially-Privatizing Municipally-Owned Fiber Service Provider
- WRAL Raleigh: David vs. Goliath – Wilson Faces Cable Industry Boot Crushing Municipal Broadband
- North Carolina Action Alert: Anti-Municipal Broadband Bill is Back & Better Than Ever (If You Are Time Warner Cable)
- Frontier’s Low-Fiber Diet: ‘Most Users Don’t Need Ultra-Fast Internet Access,’ Says Company Official
This site is reporting on things that it only knows or shares half the story. I have been following the City of Lafayette’s foray into this folly since 2004. This is all brain-dead political grand-standing from people who don’t know what they are doing and don’t care (the City I mean).
By state law, the City had to conduct a “Feasibility Study” and present it to the public. I was there when they did, on both nights. It was a dog and pony show to present a 30 page marketing brief. One financial scenario was presented: outstanding success within 3 years. They only allowed discussion about how great it was going to be.
In the Feasibility Study published in November of 2004, LUS assumed that it would be able to join the National Cable Television Cooperative (NCTC) to get better rates for programming. They have had 6 years from then to now to get that membership secured, but they didn’t. They had 5 years before their initial launch to do that, yet they didn’t.
Knowing full well that they did not have this piece of the puzzle, they launched anyway in Spring of 2009. Getting a volume discount on programming is probably significant if one of your big promises is that you will be “20% cheaper on average” than the competition.
Then to gripe about this while they raise rates is disingenuous. They knew all along that they would have to raise rates. It had to be built in as part of the plan even as a fallback position on the rates, or they just planned poorly.
In either case, the management of LUS is to blame, not the NCTC. If you put your boat in the water and forget the plug at home, does it make sense to be mad at the guy whose boat is not sinking???
But this is politicians and bureaucrats that we are talking about. They are good at 2 things: telling people what they want to hear, and blaming other people for their problems.
How is this any different?
ThatGuy,
I am hoping that both you and Phillip can perhaps update everyone on this situation since the original post is from June.
You seem to favor the NCTC, but I think that some of your comments lack context. For example, you state that the whole story is not being told on this site. Could you provide some citations for the “other” viewpoint? Since this has been an ongoing situation that has lasted for many years, can we get some sense of where everyone stands on the issues currently? I think that would help flesh out the counter argument a bit better.
You also state that you were at the public meetings, on both nights they were held. You also seem upset that the public was not given a chance to speak their opinion about the proposal. Is there any documentation about these meetings? As a concerned citizen, what did you personally do to try to get your message across? Contact the local media? Go on local discussion forums and make posts so that a discussion could be held? Please provide citations for anything that you can.
It doesn’t surprise me that the “Feasibility Study” showed expected growth and success for the program. If it didn’t, then the project would have been scrapped and we would not be discussing this situation. Also consider that back in 2004/2005 the economy was not like the current economy that we have had for the past three years. I bet if you went back and did some research that you would find tons of companies (private, public, and government) that had short and long-term business strategies that ended up failing because of the historic economic recession. This is simply the nature of the beast (in my opinion); companies have to be able to adapt to external environments and adapt quickly or they lose market share and sustainability.
But part of that “Feasibility Study” was based on the assumption that LUS would be granted membership into the NCTC. This was a safe assumption at the time because it was sort of implied that the NCTC existed to help companies like LUS, so why would they deny them membership?
You also have to look at the timeline when discussing the slow progress of negotiations. Since this was an older post, I read through it again but I may not understand everything correctly. Phillip, if I am getting any of this information wrong, then please correct me. If NCTC stopped their new membership applications, then how can that time be counted against LUS? Should the numbers be roughly 5 years from the “Feasibility Study” and 4 years before launching? Not sure if that even makes a difference with the point that you were trying to make, but I want to make sure that everyone is on the same page as far as what the facts of this situation are.
“In either case, the management of LUS is to blame, not the NCTC. If you put your boat in the water and forget the plug at home, does it make sense to be mad at the guy whose boat is not sinking???”
But that is kind of the whole point of this situation: the NCTC won’t even let LUS put their boat in the water, or at least the water that the NCTC has guidance over. So LUS had to put their boat in a different body of water, one that is not controlled by the NCTC. The negative for LUS is that it costs more to be in their current body of water than the one that is controlled by the NCTC, so that is why LUS wanted to go with the NCTC in the first place.
Well, since you asked….
“You seem to favor the NCTC, but I think that some of your comments lack context…” It’s not that I favor the NCTC position, its that I am pointing out the tremendous folly in LUS’ position. Programming content is one of the biggest if not the biggest recurring expense in providing cable TV service, and the provider’s cost is solely driven by volume discount. They started all this without any indication whatsoever that they could or would be accepted into the NCTC or any other organization. That was a tremendous assumption that they have had 6 years to work out and it has proven to be a bad one.
“You also state that you were at the public meetings, on both nights they were held…” It was a dog and pony show. The administration and the council had already made up their minds. Supporters were greeted with joviality and thanked for their comments. Folks who asked critical questions or spoke critically of the program were treated just the opposite. We were treated with suspicion across the board and guile in many cases. I spoke and asked questions on both nights. I wrote to the newspapers. I was part of a group of citizens who organized a petition drive to bring it to a public vote. We succeeded.
“It doesn’t surprise me that the “Feasibility Study” showed expected growth and success for the program…” The problem was not that the Feasibility Study was optimistic, it was not a feasibility study at all. A true study shows the good, the bad and the ugly and then demonstrates why a particular course of action is recommended. This was a 30 page marketing brief that presented one deployment scenario, one financial cash flow analysis, no actual market analysis data, etc. Earlier that year, the town of Cary, NC did a true feasibility study (over 200 pages)… let me put it this way… I read both and Cary’s was a real study. Cary decided not to go forward because it was too risky.
The primary flaw of the “marketing brief” is that it is based on the premise that ALL competition would either not try to or not be able to compete. That too was a bad assumption. Cox, the CATV incumbent, has a product offering that is (arguably) across the board equal to or superior to LUS and is competitive on price (cheaper actually with some of the offers they have out now). That’s not what they told everyone would happen. They sold the idea on the premise that LUS would provide products that would be noticeably superior to what else would be on the market, and also be “20% cheaper on average.” Wrong and wrong.
The other main flaw is that they don’t understand a competitive market with multiple product lines. This is a Utility entity that sells electricity, sewer service and water to a captive market. In the City of Lafayette, you have to have all 3 services and you have to get them from LUS. Period. They spent a half million dollars to convince a small number of voters in a low turnout special election to let them borrow $110 million, but to convince individual consumers to buy your product one by one is a very different matter. In that arena, they are not faring well.
“But part of that “Feasibility Study” was based on the assumption that LUS would be granted membership into the NCTC. This was a safe assumption at the time because it was sort of implied that the NCTC existed to help companies like LUS, so why would they deny them membership?”
No, that was a bad assumption at the time. But the key word is “assumption.” Two things to understand about the NCTC are that 1, it is governed by it’s members and 2, it is a private organization. So membership is at their discretion. One thing to understand about CATV operators, especially those in the NCTC is that they don’t compete against each other. The NCTC helps various CATV operators around the country play with the big boys (i.e. Dish Network, DirecTV the 2 largest content buyers in the US), not rip each other up. LUS is outside of that mould. They are competing directly against one of the NCTC’s members. Why would this private organization that exists to help its geographically disparate members compete against the big boys want to let in a muni like LUS that is competing against one of it’s own, especially when the success of such a muni could spur other muni’s to compete against it’s members? The obvious answer is that it probably would not want LUS as a member because it is not in the best interest of ANY of it’s members. I’m not saying that is politically correct or attractive to some people, but it is an objective assessment.
“But that is kind of the whole point of this situation: the NCTC won’t even let LUS put their boat in the water…” Let’s keep the analogy straight. The “water” is the competitive market. LUS got in the water of its own accord with a boat that they made all on their own (well, mostly made by consultants, but that’s for a different day). On July 16, 2005, the City of Lafayette had voter approval to move forward to sell bonds to create this system. They identified in 2004 in the “feasibility study” that they would need membership in the NCTC or some collective bargaining group to have competitive programming rates. From July 2005 to February 2009 when they had their soft launch, that was almost 4 years. From then to now, it’s over 5. Count it from Fall of 2004 and it’s 6. No matter how you want to count the time, they have had more than ample time (i.e. years) to resolve this if it is resolvable, and they have not.
If this is such a critical part of their plan, should they have launched or shouldn’t they? SHould they have proceeded with spending $110 million in the first place or shouldn’t they?
But then again, we arrive at the folly underlying the whole matter. Politicians and bureaucrats telling constituents one very subjective version of the story (i.e. what they think they want to hear) and then blaming others for their mistakes if those things don’t pan out. In no case did the City EVER discuss with the people what could or would happen if they did not achieve their goals (except in lip-service).
That’s the folly, but the shame of it is that if it does not work out financially, it is the people of Lafayette who will be stuck with the bill. The city wrote an ordinance to sell bonds that requires the captive market of the Utilities system to cover the money gap if the folly of the communications system does not make their rather lofty financial goals. And that has already started this year.
Shame, shame, shame…
ThatGuy,
You seem to make some contradicting statements in your response and you did not provide any citations to prove or back up what you wrote. I will ask you again to please provide citations so that everyone reading this can better understand your position.
“It’s not that I favor the NCTC position, its that I am pointing out the tremendous folly in LUS’ position.”
I disagree.
“In either case, the management of LUS is to blame, not the NCTC.”
That is a quote from your first comment. Looks like you favor the NCTC position to me.
“That was a tremendous assumption that they have had 6 years to work out and it has proven to be a bad one.”
An agreement needs to be made about the timeline here because I dispute the 6 year figure that you keep providing. I don’t think it is fair to include the time that NCTC was not accepting new applications.
“I spoke and asked questions on both nights. I wrote to the newspapers. I was part of a group of citizens who organized a petition drive to bring it to a public vote. We succeeded.”
Again, I would like to see some kind of proof of this.
What you describe about the cable industry is called tacit collusion. Cable providers can compete against each other, they have just chosen not to. But I am not sure why that matters in regards to membership applications. Does that mean that overbuilders are also shut out of the organization? What about the other two municipal companies that were accepted?
I stand by my analogy. Since the NCTC is a private group that can dictate who they accept, this creates a “closed body of water” that they control. LUS is in another body of water but is hoping to move to NCTC’s body of water. Therefore, it is not a combined body of water that everyone is in.
I can’t answer the question of should LUS have launched: that was a decision made by them that hopefully included the input of stakeholders. I understand that you do not agree with their decision. You mentioned that you were part of a group that was able to get a petition drive going – what was the result of that? Is their any election/vote data that we can look at and analyze?
The bottom line is that the NCTC may have unfairly discriminated against LUS and that this discrimination may have caused a negative impact on their business.
The NCTC is quite the cartel these days, shrouded in secrecy and inconsistent in how it deals with its potential and current members.
It was originally founded to serve entities precisely like LUS Fiber — community networks, co-ops, rural phone companies, city owned utilities providing telecom services, etc.
But as programming costs continue to be a problem, even smaller commercial cable companies want in to take advantage of group volume discounts. It’s hardly a surprise politics cable-industry style has now infected the group. Will NCTC continue to be a purchasing co-op or a closed group slowly being taken over by smaller cable multi-system operators like Cox for their own benefit? It’s a battle now in progress.
I think LUS has a very strong case of unfair treatment. Trust me when I say a lot of the community networks like LUS Fiber are talking regularly with other community networks. They know perfectly well what it takes to get in and when they are unfairly getting blocked. When systems in North Carolina can gain admission to the NCTC with few roadblocks, it’s more than a little suspicious that a virtually identical application from LUS gets the cold shoulder, especially when Cox Cable, their local nemesis, holds a position of power in NCTC that makes such roadblocks possible.
This group is supposed to be a cooperative, not a tool for corporate revenge-taking. It actually hurts all of NCTC’s members for LUS to be on the outside looking in, because the more volume the group generates for programmers, the bigger the discount.
The fact the NCTC has singled LUS out and refused to deliver a reasonable explanation why speaks volumes. Just saying they are private and they have a right to do so does not answer the bigger question of “why?”
Is Cox the stronger product in Lafayette? I’d argue no, because LUS Fiber was not born out of nothing. Community networks come about because of dissatisfaction over incumbent providers. LUS runs a superior network, is in a position to deliver savings to consumers if the NCTC lets them in, and answers to and serves the community, not Cox’s shareholders in other states.
Anyone who tells you cable programming rates are not going to continue their relentless increase on all platforms is not telling you the truth. So long as consumers cannot build their own programming packages to bring their out the door price down, rate increases will continue until there is a paradigm shift — such as the parade to online video, and away from traditional cable TV packages.
The rate of that increase is debatable. Cox can charge lower rates now because they benefit from some very strong discounts LUS cannot obtain for its subscribers because of the NCTC, If they could, LUS can almost certainly charge lower rates than Cox. But Cox can also cross-subsidize rates, increasing them in some places to deliver below-cost service in Lafayette, something now allegedly happening with Time Warner Cable in Wilson, NC.
I think it is a mistake to sell community networks to residents based on cost savings alone. What also needs to be considered is LUS is a fiber to the home service that can deliver better, 21st century broadband service, is infinitely upgradeable for less than many other technologies, and can pay dividends to the community down the road. Ultimately, LUS is not going to oust Cox Cable, but it will force that cable operator to offer better service and avoid the kinds of rate hikes Louisiana residents have been paying for years.
That’s the best part of this story. LUS helps Cox subscribers just as much as their own.
I am aware of the cost concerns people have about community broadband, but keep in mind any provider building a new network from the ground up is probably looking at fiber to the home as a strong possibility because of its capacity. I also think commercial or non-commercial, feasibility studies done prior to the Great Recession are probably now looking a bit like crystal-ball gazing. A lot has changed in the last few years for everyone. But that doesn’t mean LUS isn’t still a very workable and positive development for Lafayette.
I think regardless of the position one takes, everyone should be opposed to cable cartel pricing and control because it limits competition and will cost everyone on all sides of this issue more money in the long run.