Competition Comes To Cable In Maine

(from Maine Townsman, November 2003)
By Patrick J. Scully, Attorney, Bernstein, Shur, Sawyer & Nelson

       Competition in the provision of cable service in Maine is taking a major leap forward with the construction and deployment of a competing service in the Lewiston/Auburn area.

       In June 2003, the cities of Lewiston and Auburn granted cable television franchise agreements to Oxford Networks Broadband, LLC to construct and provide a competitive cable service.  Oxford Networks will become the first true “overbuilder” in Maine, building a competitive cable and telecommunications plant over the same streets as served by the current cable provider, Adelphia Communications.

       Municipal, state and federal regulation of cable television service is premised upon its status as a “natural monopoly.”  Traditionally cable television service has been immune from direct competition; it has been simply too expensive for two competing cable operators to build duplicate cable systems in the same municipality, or portion of a municipality, and to compete “head to head” for customers.

       This is true even though cable is not a legal monopoly.  Under both federal and State law, municipalities cannot grant an exclusive franchise, and they must respond to and consider the request of any cable operator to provide competitive service.

       Some actual competition exists in large urban areas, where the density of customers is so high that cable operators can compete and still attract sufficient customers to recover their capital investments.  This has never been true in Maine, at least not until today.  As a rural state, even Maine’s largest cities have never attracted competing cable providers.

       This model of the natural cable monopoly has eroded in recent years with the advent of direct broadcast satellite service (“DBS”).  DBS service provides wireless video service through the installation of a small dish antenna on each customer’s property.  DBS service has proven popular in Maine, particularly in rural areas where wired cable service is not available.

       DBS service has grown dramatically in the past decade.  DBS now serves approximately 17% of Maine households.

       However, there are drawbacks to DBS service.  DBS has only recently begun to offer local broadcast channels.  DBS also does not typically carry local “PEG” (public, educational and governmental) access channels.  In addition, DBS service requires a site with southeasterly orientation to install the receiving antenna.  DBS reception can be affected by rain and other weather conditions.

       The slow movement to competition in video service will take a huge leap forward in Lewiston and Auburn when Oxford Networks completes the first phase of its construction, currently scheduled for January 2004.

       The Oxford Networks system is unique in Maine and New England in several respects.  First, Oxford Networks will provide a range of “bundled” services over its system.  These services will include cable television service of approximately 165 channels, high-speed, all-hours broadband access to the internet, local telephone service as well as in-state and interstate long distance service.  Thus, the Oxford Networks system will compete not only with Adelphia for cable television customers, it will also compete directly with Verizon for local “dial tone” telephone service (a choice not previously available for residential customers), with other carriers for long distance service, and with Adelphia, Verizon and dial-up ISPs for internet access service.  Oxford Networks customer will be able to buy all of these services from one company at one time and receive a single, combined bill.

       Another very unique aspect of the Oxford Networks system is its technology.  Rather than using Verizon’s copper wires or Adelphia’s mix of fiber and coaxial cable to distribute it products to consumers, Oxford Networks is building a pure fiber optic system, known as “fiber to the home” (FTTH).

       In a typical current cable system, fiber optic cables distribute signals from the cable operator’s electronic center, known as a “headend,” to fiber nodes.  The optical signal is then converted to an electronic signal and distributed over coaxial cable to individual customers.  Several hundred homes may be served from each fiber node.

       In a FTTH system, each home is served by a dedicated optical fiber from the operator’s headend.  There are no amplifiers or other active electronic equipment between the headend and the home, and thus the system is sometimes called a “PON,” or passive optical network.  The fiber terminates at the home at a device known as a network interface device, or “NID.”  At the NID, the light signal is converted back to an electronic signal, and distributed by separate ports for cable television, data and voice (telephone) service. 

       Oxford Networks Lewiston/Auburn system is the first FTTH system built in New England.  It will provide each home with high-speed internet access as well as high quality and reliability in cable television and telephone service.  Because there are no amplifiers or other electronic devices along the system path, signals are delivered to customers with virtually no degradation. 

       The Oxford Networks project is also the first time a municipality in Maine has negotiated and signed a competitive franchise with a provider who would provide street-by-street competition to the incumbent cable company.

       The franchise negotiations between the cities of Lewiston and Auburn and Oxford Networks were quite unique.  The negotiations were lengthy and the cities proceeded very carefully.  The cities had a legal obligation to negotiate in good faith with the newcomer.

       At the same time, the cities were very conscious of the need to be fair to Adelphia.  The cities did not want to give either company a competitive advantage or impose substantially different rights and/or obligations on either company.  This was not just a matter of fairness.  The existing Adelphia franchises for Lewiston and Auburn contain so-called “level playing field” language requiring that any competitive franchises granted by the cities be on terms that, taken as a whole, are not materially more favorable or less burdensome than the terms of the Adelphia franchises.  The cities were very conscious of these obligations, and strove through the negotiation process to make the Oxford Networks franchises as comparable as reasonably possible with the franchises granted to Adelphia.

            After completion of its first phase of construction in January, Oxford Networks will begin making its services available to 3200 homes and businesses.  An additional phase serving another 3100 homes and businesses should be completed late in 2004 with subsequent phases to follow, in total a $25-30 million investment in these two cities.  This is an extraordinary development for consumers in Lewiston and Auburn.  For the first time they will have real choice in a range of telecommunications services.  Hopefully, a successful deployment of these services in Lewiston/Auburn will be just the beginning, and will lead to a new competitive model for other regions of the state.