14 Jan Visions with TDS' David Witter: Video competition will benefit Wisconsin
Introduction: In Part II of our Visions interview with David Wittwer, president and CEO of TDS Telecommunications Corp., he addresses issues ranging from the Big 10 and NFL Networks’ dispute with major cable companies and consumer criticisms of the cable-franchising bill, which purportedly were addressed by the vetoes Gov. Jim Doyle announced when signing the bill. Andrew Peterson, director, legislative and public relations for TDS, also took part in the interview.
WTN: Both houses of the Wisconsin Legislature have passed a cable-franchising bill that is designed to open up cable TV competition, and the governor is likely to sign it [he has since signed it, with selected vetoes designed to protect consumers]. Since TDS supported the legislation, tell me how consumers will benefit?
Wittwer: Clearly, it will give us the option to offer video service in our markets without the administrative complexity of dealing with individual markets for franchises, etcetera. Although it sounds easy, the reality of how the cable industry grew over a long period of time, it kind of built franchises. Even in markets as simple as Verona, Wis., I think we’d have to put together something like four different franchises just to serve what we call Verona, Wis. Obviously, if you had any one or all of those not lined up, you would not have a good, robust offering. Certainly, it makes it a lot simpler for companies to get into the video business, and that’s important to us.
I think, at the same time, it did a decent job of also recognizing some of the safeguards that need to be there from a consumer perspective, as it relates to existing relationships that they had. Specifically for TDS, it’s going to give us the capability to offer video services without some of the franchise complexities when it was first drafted 30 or 40 years ago. I think it’s as simple as that.
WTN: Let’s go through the list of criticisms of the bill (as passed in the Assembly) and get your take on them. First, that it strips away consumer protections, leaving them vulnerable. What would you say to someone who worries about that?
Wittwer: The consumer is going to make the ultimate decision. I think that the extent to which you have multiple providers in there, if a company doesn’t do a good job of taking care of their customers and providing a high level of customer care, I’m not sure it’s really going to matter what’s been mandated, you’re not going to stay. You can put all kinds of requirements and a variety of other things in there, and those are very important when there is just a single provider. But I think as competition exists, irrespective of whether something is mandated or not, the market forces are going to dictate whether you’re going to stay with it. If you’re not happy with what they are doing, you’re going to move. You’re going to move your business.
Peterson: I think that’s right, and we’ve also seen a pervasive move to satellite, and that’s the first generation of competition in the marketplace.
WTN: A second criticism is that economically disadvantaged neighborhoods will be the last to receive the service, if at all.
Wittwer: I think that people need to understand and appreciate that there are going to be a lot of different factors that impact how companies build things out. Certainly, scale is an advantage associated with that. It’s not the intent of anyone to go in and pick particular neighborhoods and markets, etcetera. But again, when you go back to when the original franchises were granted, they were all built over a long period of time. As a new competitor coming in, it’s literally impossible to get to the same level on day one.
Actually, I think there are benefits that a new entrant can have in terms of creating packages and programs that are more attractive to different customer segments. I think, historically, being the primary provider, although satellite is certainly a very viable competitor and does a great job, there are very few choices around it. I’d love to see more going on around ala carte programming and a variety of other things that could appeal to a lot of different people.
WTN: Third, that it will lead to the death of public cable access programming. What is the likelihood of that?
Wittwer: Well, I can’t speak for the cable industry, but again, one of the tremendous advantages of IPTV is the number of video feeds is limitless. As you know, in a linear TV, it’s a push model and there are a certain number of channels that are distributed down to that customer at all times, and then your tuner is tuning in what you want to watch and what you don’t want to watch. I think the risk is that as other programs become more popular, without a requirement to say you need to have some public access channels in there, they would get squeezed out because technology-wise, they would have to. I don’t have any room. There is not enough room to send the boats down that river.
Conversely, in an IPTV world – again, this is where it gets into the value of us being a little bit more local – IPTV is a switch technology, and only channels that you’re interested in watching are distributed to you. So you literally can have as many channels as communities want to make available to you, available to consumers. So to the extent to which somebody is producing and delivering it, we can make it available to our customers. Other examples are if you lived in a gated community, we could dedicate a channel to monitoring the front gate, as opposed to a traditional linear provider who can’t do that. They can’t offer a channel to someone that appeals to a relatively small number of customers.
WTN: We have a columnist named Jim Carlini who frequently criticizes phone companies for not investing in fiber to the home, which would provide the highest-speed Internet connections. I know it’s expensive to do so, but what would it take for TDS to jettison copper connections and go the fiber route?
Wittwer: Well, most of all the new subdivisions we build today are all built with fiber to the home. We’ve already made that decision. Certainly, there are exceptions, but the majority of all the new subdivisions we’ve built are already built with fiber to home.
Obviously, you have a big infrastructure of existing homes. It is not as simple as “you need to make decision to overhaul it.” It’s not one where you can say, “I can intermix them” and say, “Okay, well, here is a new customer that has moved into an existing neighborhood and that was the last lot to be build, so I’ll put them in at fiber versus copper.” There isn’t the infrastructure investment that’s necessary, and it would be the same thing as the cable company would experience. Their technology really doesn’t allow for it as well as ours does. So the equipment and technology that we’ve been buying has allowed us to do that. Every day, we put more customers on fiber, certainly many business customers are already on fiber where their data speeds demand it, and we build directly into them with fiber.
In Farragut, Tenn., we actually went through that particular market and replaced all the existing copper infrastructure with fiber, similar to what Verizon had done.
WTN: How long would that take if you wanted to do it everywhere? Twenty years? Thirty years?
Wittwer: It would take a long time. Certainly, we are all so opportunistic if there are things that occur in a community that cause disruption. Communities might have major road moves or a major sewer project or something that would cause us to relocate our facilities. We’ll take every opportunity like that to replace copper with fiber rather than replace that with copper, so you’re opportunistic around that. But it is prohibitively expensive to simply go out and change the whole thing. [We’re in] 29 states and some markets are very, very rural.
WTN: Is there a metric that indicates just how expensive?
Wittwer: It’s going to depend on whether it’s a new subdivision or whether it’s replacing an existing customer. It makes a difference whether it’s aerial versus buried. It depends on how well the city works with the company around zoning and rights-of-way. If all kinds of restrictions are put in place in terms of rights-of-way, it makes a difference as to whether the access to the customer’s home is in the front or the back. All those things impact that expense.
We typically look to say that in a new subdivision, we’re probably in the neighborhood of $1,500 a home for fiber, which is roughly twice price of doing it with copper, maybe not quite.
The other thing, again, that’s good about what’s happening with Verizon, what’s good about what’s happening with AT&T, is technology keeps getting better, vendors keep making equipment that is designed for it. The more they engineer it and mass produce it, the cheaper it gets, the better. All those things are good things. We’ve already seen the price of the connectors that go on the side of the home drop from where we were looking at this a couple of years ago. That’s good. Every day, that helps move things forward.
WTN: Carlini views it as an economic development issue, and contends that geographic areas that are late to the party will suffer in terms of jobs and tax base. Does he have a point?
Wittwer: I think there is a role for states to think about broadband deployment, how important broadband deployment is in their state, and how they might be willing to help fund more extensive broadband deployment. My sense is that would be a better first step than to simply focus too much on getting fiber there. So let’s try to deal with the areas that are prohibitive to serve today because of their density. Let’s find a way to make that work. My sense from an economic development perspective is that getting more people connected to the broadband world is more valuable than an initiative, in and of itself, that says we need to get fiber there.
Clearly, though, you see developers developing areas that prefer to have that, and sometimes they are willing to work with us on that. But again, every new subdivision we’re building, we’re already building that with fiber.
WTN: How would you address the dispute between cable companies and the Big Ten Network?
Wittwer: I think it’s the traditional law of supply and demand. The Big Ten Network has created a valuable product, and they have created a pricing structure that in their mind adequately compensates them for what they have got, and I think that has to be respected. They obviously have paid money to get that, and they deserve to be compensated, in some way, for that. So they’ve offered that up and I think the cable company has simply got to decide, like any business decides about anything, is that a product I want to carry and is there enough benefit to pay for it?
My sense is I would not be interested in arbitrating or splitting the baby or mandating it. They have a product. It’s got value, and they’ve offered it up. If you look at the IPTV model that we have in Tennessee, obviously the Big Ten Network isn’t important there, but we have the NFL Network there because that’s important to our customers. We made that decision. Echo Star, a company we have a relationship with and that we sell, they’ve made the decision to have it because they believe it’s valuable. Direct TV, they are all in the same business. They are all providing entertainment, so you’ve got to let the cable companies decide. I don’t think you mandate it.
WTN: Do you think there will be wholesale migrations to the Dish Network and Direct TV if the dispute lasts much longer?
Wittwer: Yes, it’s already happening.
Peterson: It’s indicative of competitive market. I think, frankly, it’s been of tremendous advantage to us.
Witter: Right now we’re selling 1,500 dishes a month. That’s a combination of a great product, a good channel lineup, and a good sales force, but certainly from a customer perspective, I think there was a certain mystique about satellite that is becoming more mainstream. I think people don’t view it as kind of an add-on service anymore, and indeed there is a full compliment.
It has more HD than most cable companies have today. It’s had video digital recorders. It had them before the cable companies had them. So it’s not like an inferior service. In fact, it’s a superior service, and very reasonably priced. I think there is a lot of market momentum around why customers have it, and when you look at both what’s reported for Direct TV and Echo Star’s churn, they are amazing numbers.