The District of Columbia's dream of having a home-grown, black-owned cable television system is dying.
Instead of a cable system with financial and managerial roots in Washington, it looks like we are going to end up as another link in a chain of cable systems run by an outfit in Denver.
It will still say District Cablevision Inc. on the door, and Robert L. Johnson -- the Washingtonian who founded Black Entertainment Television -- will still be the president, but these facts belie the reality of what's going on with the long-awaited cable franchise.
The way you keep score in business is with money, and the money for Washington's cable system is coming from the pockets of Tele-Communications Inc. of Denver, the nation's largest cable operator.
Nowhere in the list of concessions Mayor Marion Barry offered to give DCI last week does it say that the city is retreating from its goal of local, minority ownership, but that is the clear implication of what's happening.
As part of the deal, Tele-Communications is going to put another $30 million into its partnership with DCI and has promised as much additional money as needed. Since Johnson and his local investors have failed to come up with even the $600,000 cash they promised to contribute to the partnership, there's no doubt about who's holding the marbles.
The unraveling of the District's dream is, unfortunately, no surprise.
The mayor, the City Council and DCI all should have recognized when the cable contract was signed in February that the deal was at best marginal and at worst a mistake.
By then, retrenchment in the cable business had already begun. Cable companies left and right were reneging on the promises they had made to win franchises. Across the nation, it had become obvious that the gold-plated cable systems demanded by many politicians and willingly promised by cable applicants were not economically sound. Here in Washington, it was easy to see that a wave of tax reform was threatening the tax-shelter limited partnership financing on which DCI was counting.
Yet the District and DCI contracted to build a system with 16 free channels for public use, a community access TV studio in each of the city's eight wards and a trio of multimillion-dollar slush funds for public access programming. All that and only $1.95 a month for basic service sounded too good to be true. On the day the deal was signed, one of DCI's own board members -- financial consultant Herbert P. Wilkins -- warned that financing "will be extremely difficult." Wilkins said that "minority control and the market for limited partnerships are double negatives."
Johnson's programming success with Black Entertainment Network has not yet produced either the capital or the cash flow to finance a $100 million cable system, forcing him to bootstrap the venture by creative financing.
So far, financing the system has proven impossible. Now DCI is pulling back some of its promises to cut costs by $32 million and is turning to Tele-Communications Inc. for financing it had hoped to get from selling limited partnerships.
Instead of a 78-channel cable system, we will get 54; instead of 16 municipal and public access channels, there will be seven. All three public access slush funds will vanish; the $15 million public access corporation endowment will be replaced by a $100,000 a year pittance. It will be five years before the whole town is wired, rather than four. A plan to placate council members by requiring that construction begin simultaneously in every ward will be scrapped to cut construction costs. And DCI wants out of its crucial promise to wire every block in the city, hoping to avoid costly underground wiring downtown and in some densely populated neighborhoods.
The biggest cost cuts will come from eliminating a proposed institutional cable network, known as I-net, that was supposed to be used by business and government to transmit data as an alternative to telephone lines. That decision is raising eyebrows because one of DCI's partners in the cable venture is C&P Telephone, which will build, maintain and own the cable distribution system and lease it to DCI.
Protecting C&P from competition is probably not the only reason for killing I-net. Montgomery County has just agreed to prune its cable I-net from 440 miles to 50 for lack of business, and the same thing has happened in other cities. As Johnson explains, "There is no community where I-net is a viable business; we don't want to put $3 million to $5 million in the ground if there is no business."
C&P's influence in eliminating competition from the high-tech business cable system is not the only aspect of the phone company's role in the D.C. cable franchise that has come into question.
The C&P lease was supposed to help DCI obtain financing by bringing in a rich partner to handle the wiring job. But many in the cable business believe the C&P deal made it impossible for DCI to get financing.
Most cable companies use their wires as collateral for loans, but DCI can't do that because the wires belong to C&P. In addition, terms of the lease require DCI to reimburse C&P as construction progresses, so DCI rather than C&P has to provide the up-front money for construction financing.
Johnson disagrees with the criticism of the phone company; "C&P played a big role in providing the credibility we needed to build the system," he said. Some people would translate that statement to mean that the political clout of C&P Vice President Delano Lewis, a close friend of the mayor, is what got DCI the franchise. Johnson disputes that, too.
The cable entrepreneur does acknowledge that the new financing deal with Tele-Communications Inc. "will dilute the individual shareholders" and put TCI in the driver's seat. Pointing out that TCI owns almost one-third of Black Entertainment Television and has not interfered with its minority management, Johnson says he is confident the same thing will happen with the cable venture.
Johnson may well be right, but that begs the question: Would the D.C. City Council have given the cable franchise in the first place to a white company from Denver with local black managers? I doubt it.
And that raises another question: If the city isn't getting either the cable system it signed up for or the minority ownership it wanted, why should we stick with the DCI deal?
The answer seems to be that starting the selection process all over again would hold up the cabling of Washington for at least another year. Delays are worse than dilution of minority ownership and service as far as most potential cable subscribers are concerned.
Tell that to the two unsuccessful bidders for the cable franchise. They have moral and perhaps legal reason to be outraged that the company that "outbid" them is now being allowed to water down its offer.
The question the City Council ought to ask when it begins hearings this week is not whether DCI deserves a break, but whether the cable selection process ought to be reopened.