By Shalini Ramachandran
As mayor of Somerset, Ky., Eddie Girdler on a daily basis
tackles issues ranging from opening new neighborhood parks to
stopping aggressive dogs from harassing mailmen.
Now he's got a new project: blocking the pending $45 billion
merger of cable giants Comcast Corp. and Time Warner Cable Inc.
Just in Somerset, that is.
Last week Somerset's city council voted against the deal,
denying requests for Time Warner Cable's systems to be turned over
to Comcast, and later to Charter Communications Inc., a third party
involved in the transaction. At least two other Kentucky areas,
including Campbell County and the city of Danville, have taken
steps toward similar ends.
The decisions of a few towns are unlikely to have much bearing
on the Comcast deal, since the merger agreement says it needs
approval from localities representing only 85% of Time Warner
Cable's 11 million subscribers. The deal's fate will be decided by
Washington regulators. But these communities' passionate
opposition, fueled by frustration with customer-service headaches,
points to some of the challenges Comcast and Charter will inherit
if they succeed in taking over Time Warner Cable systems.
Kentucky mayors and city managers say their constituents have
been through a number of cable deals over the years as smaller
operators have been gobbled up. In Danville, for example, the cable
system has changed hands from FrontierVision to Adelphia
Communications Corp. to Time Warner Cable. The result, officials in
several cities say, has been higher cable rates and worse customer
service, as the merging companies close regional offices and
consolidate operations.
"We're very concerned that the bigger they get, the less likely
they are to respond to any customer," Somerset's Mr. Girdler
said.
Charter, Comcast and Time Warner Cable say they are working
toward winning the necessary local approvals. "We look forward to
good relationships" with all the acquired territories, a Charter
spokesman said. Comcast said it expects to get the required
approvals.
Local governments have the ability to approve or deny the
transfer of a cable company, if that's stipulated in the
"franchise" agreement between the parties. In about half of U.S.
states, state-level bodies have that power, according to the
National Conference of State Legislatures. But in other states,
including Kentucky, city governments get the final say.
Tensions between cities and cable companies have a rich history.
Cable companies are ripe political targets and local politicians
have long used cable transactions as vehicles to negotiate
improvements on service.
Indeed, even as they press their case against the deal, many of
the Kentucky towns including Somerset are willing to acquiesce if
the companies promise concessions. The requests, which can seem
pedestrian, range from extending local store hours to getting
public-access channels broadcast in high-definition. Among
Somerset's biggest beefs is that Charter isn't guaranteeing that
the Weather Channel will be part of the basic TV package if it
acquires control.
Local officials aren't sure precisely what happens if towns go
through with rejecting the deals. Some acknowledge they would
likely face lawsuits.
Kentucky officials say that this merger could be the last
opportunity to extract favorable terms for the foreseeable future,
given the size of the companies involved and the small chance of
another big deal happening in the near term.
Some towns have reached deals with Comcast, Charter and Time
Warner Cable after threatening to reject the transaction.
Lexington, Ky., struck a 10-year pact Thursday in which the cable
companies all agreed to longer store hours and steeper, $500-a-day
penalties if they were to violate the contract. Charter also agreed
to create a new, affordable broadband option for low-income
residents.
Worcester, Mass., on Nov. 6 approved transfer of the local
Charter system to Comcast--but only after Comcast agreed to keep
the local call center open and continue backing the city's public
news program.
Danville, Ky., is approaching a final decision in coming weeks.
Among its demands: free cable-TV for all public schools and
continued funding of a local office and studio where churches and
residents can record public programming.
In Somerset, Mr. Girdler said people rely on weather TV coverage
during tornado season. "It isn't high rocket science--it's pretty
simple: Give us the Weather Channel, come on!" he said.
The roadblocks stem in part from negative consumer sentiment
about cable-TV providers in general, and these three companies in
particular. Cable executives acknowledge it is much harder to
integrate systems when taking over a cable company whose reputation
has suffered. In a J.D. Power survey this year of more than 30,000
customers nationwide, TWC ranked dead last in customer service
among TV providers in the South. Comcast and Charter rounded out
the bottom three.
The companies all say they are working on it. "We've seen an
increase in our customer satisfaction scores over the past year or
two and look forward to continuing to improve," a Charter spokesman
said. Comcast said improving customer experience is a "top
priority." Time Warner Cable noted that it has boosted Internet
speeds and streamlined customer service in Kentucky.
Cable franchise lawyers say the Kentucky localities' actions are
unusual. "In my 23 years practicing telecommunications law, I have
never had a community deny a transfer of control or have a
resolution to deny a transfer of control placed on their agenda, up
until this year," says Linda Ain, a lawyer who has worked on dozens
of cable deals and represents close to a hundred Kentucky
municipalities, including several of the current holdouts.
Adds Jim Baller, a longtime telecom lawyer at Baller Herbst
Group: Among local officials, "there's a widespread sense of
unquiet about this merger."
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
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