Cable mergers come home

The owners of Hanover Cable TV never intended to sell the business to Cable York, said company president Joan McAnall.

Hanover Cable, which covers Hanover Borough and surrounding municipalities in York and Adams counties, is continuing to grow, McAnall said. The 25-year-old family-owned company has kept up with changing technology and has not experienced any real competition from satellite dishes or any other form of wireless communication.

While the company has been battling GS Communications Inc. of Gettysburg for local cable franchises, for the most part Hanover Cable has been the aggressor, she said.

So what happened? Cable York simply made an offer the family felt it could not refuse, McAnall said, although she declined to discuss the details of the agreement.

When Cable York takes over Hanover Cable and its 17,000 customers on Feb. 1, the transaction will cement the company's position as the major cable television provider in York County.

Offers too good to refuse are occurring frequently in the cable industry, where fewer companies now own a larger share of the cable market. These companies in turn are being bought by telecommunications giants like AT&T.

Consumer groups are concerned by the trend, saying it gives cable companies a virtual monopoly in a given market. But officials in the industry say consolidation is necessary if they are to remain competitive in the face of a technological revolution that is giving TV viewers more options than ever before.

Cable television began in 1948 as a service to homes in mountainous or geographically remote areas where reception of over-the-air TV channels was poor, according to the National Cable Television Association (NCTA) in Washington, D.C.

In the late 1950s, cable's role shifted from transmitting local broadcast channels to pulling in channels from hundreds of miles away. This gave consumers more programming choices.

Local television stations viewed this move by the cable industry as competition. In response to the broadcast industry's concerns, the FCC placed restrictions on cable to import distant channels in the 1960s.

The cable industry fought back, and federal restrictions on the industry gradually eased during the 1970s. As the industry grew, cable companies expanded their territories by seeking franchises from cities, townships and boroughs across the country. Cable operators had to bid against each other for the right to provide service to the residents of a given municipality.

At the same time, the cable industry's development of satellite communications technology led to an explosion of growth in cable networks. The number of new cable networks expanded again in the 1990s, when the industry began targeting some of its programming to specific niche audiences.

By spring 1998, the number of national cable television networks had grown to 171, according to the NCA. About seven in 10 households with television subscribe to cable.

Five years ago there were 11 cable providers in Central Pennsylvania, encompassing Cumberland, Dauphin, Lancaster, Lebanon and York counties. Today there are nine.

By early summer that number will drop to seven. Not only is Cable York buying Hanover Cable, but telecommunications giant Time Warner is trading away its local cable systems.

Sometime this spring, Time Warner Cable, the largest cable provider in the nation, is exchanging 17 of its cable systems in seven states for 26 cable systems owned by TCI Communications, the nation's second-largest provider.

As part of the swap, TCI will get the Time Warner cable system that serves about 49,000 subscribers in northwestern Lancaster County and Lebanon County.

TCI, based in Englewood, Colo., already has a sizable presence in Central Pennsylvania. The company owns 50 percent of Lenfest Communications Inc., Philadelphia, the parent company of Suburban Cable TV Co. Inc. Suburban Cable is the largest cable provider in the region, with about 215,000 customers throughout all five counties.

There are several reasons for the merger trend in the cable industry, said Bill Cologie, president of the Pennsylvania Cable & Telecommunications Association in Harrisburg.

In 1992 Congress passed the Cable Consumer Protection Act, which placed 700 pages of rate regulations on the cable industry. Smaller companies couldn't handle the burden of complying with the law and either went out of the cable business or sold out to larger companies, Cologie said.

The regulations weren't the only problem for the smaller companies, McAnall said. The 1992 law also froze cable rates for more than two years.

Another reason for the consolidation is the growing convergence of the television, telephone and computer industries, largely through advances in digital technology.

Cable companies can now offer high-speed Internet services over their cable systems, Cologie said. Since a certain economy of scale is required to finance the switch to the new high-technology services, cable companies have been consolidating their operations by either acquiring smaller, neighboring cable companies or swapping cable systems with other companies.

This technological convergence is being encouraged by a new telecommunications act passed in 1996 that allows telephone and cable companies to become involved in each other's industries. The act also relaxed industry regulations.

Central Pennsylvania will begin to experience the effects of the new law later this year, when AT&T completes its pending acquisition of TCI's parent company, Tele-Communications Inc.

As the cable industry has consolidated and expanded its services, many cable subscribers and consumers' groups are speaking out against what many consider excessive rate hikes.

Since passage of the 1996 Act, cable rates have gone up about 14 percent, according to Consumers Union, the nonprofit organization that publishes Consumer Reports magazine. That's more than three times the rate of inflation, which rose 3.8 percent in that same period.

The organization claims the cable industry has a virtual monopoly in most markets, despite the efforts of the 1996 law to spur competition from the telephone and wireless communications industries.

Consumers Union and other consumer groups have submitted a petition asking the FCC to impose an immediate freeze on cable rates, as it did four years ago. The groups also requested a full-scale investigation into the reasons for the rate hikes.

"The bottom line is, this is an industry out of control," said Kathy McShea, spokeswoman for Consumers Union. "And it's time for the government to do something about it."

Cable rates have gone up to cover upgrades in technology and rising programming costs, Cologie said. As for the monopoly charge, he said the cable industry faces growing competition from direct broadcast satellite, wireless cable, and other emerging video-delivery services.

When you break it down, cable television costs about $1 a day, he said. The rates charged by satellite delivery companies often fall in the same range.

"We in the cable business think there's plenty of competition," Cologie said "(The direct broadcast satellite figures go up astronomically every month. In 1998, there were just as many new subscribers for DBS as for the cable companies."

The cable industry is going to look vastly different 10 years from now, Cologie said. As the various technology industries continue to converge, customers will have more services available at lower prices.

Hanover Cable's McAnall agreed.

"I think cable (television) has a very bright future," she said. "First of all, the offerings as far as television programming are expanding all the time. We also have cable companies getting into the Internet business and providing a flow for data. A lot of cable companies are venturing into the telephone business for local calling. So I think it's a really strong industry."

Consolidation of the cable industry is inevitable, McAnall said. Because many of the new technologies are in their infancy, companies with deep pockets are required to take the risks necessary to expand those technologies.

The trend will ultimately benefit the consumer, McAnall said. Larger companies will be better equipped to meet the public's demand for more channels.

One down side of consolidations is that they often result in layoffs. For example, Cable York is keeping on only three of Hanover Cable's seven full-time and two part-time customer service representatives, and 11 of its 16 technical staff members. Cable York also chose not to retain Hanover Cable's general manager.

Cable York's general manager, Bruce Abbott, said it is the York company's policy to purchase adjacent cable systems whenever the opportunity presents itself.

Does Cable York plan to remain locally owned, rather than selling to one of the regional or national cable giants?

Absolutely, said James Munchel, senior vice president of cable operations for Susquehanna Cable, which oversees Cable York for its privately owned parent company, the Susquehanna Pfaltzgraff Co. of York.

"I think the fact that we are rebuilding our cable system to offer advanced services indicates that we are determined to remain independent," Munchel said.