On a recent steamy Friday evening, residents of an apartment complex in Southeast Washington arrive home to find themselves in the midst of a marketing war. Pitched in front of the Villages of Parklands is a white tent filled with smiling men and women eager to sign up people for a new cable TV service.
Curious passersby at the complex are told that Starpower Communications Inc. can give them more channels than District Cablevision Inc., and at lower monthly rates. Sign up now, they're told, and a Starpower technician waiting in the tent will go with you to your home and hook you up right away.
Catherine Pinkney, a mother of three and newly minted Starpower customer, smiled after signing her subscription contract. "When I saw the tent, I was so happy," said Pinkney, who had been a District Cablevision customer for about 10 years. "I've been paying an arm and a leg for fuzzy pictures and bad service."
It was a long wait, but genuine head-to-head competition in a traditionally monopolized business has finally begun in the Washington area. Starpower says its lines now pass about 10,000 homes in the District and Gaithersburg, and 3,800 of those households have signed up. Some also take the newcomer's other offerings--Internet and telephone service.
And by March, residents of Takoma Park and parts of Silver Spring are to have the same choice, with other parts of Montgomery County to follow. Last Tuesday, the Montgomery County Council granted Starpower a 15-year franchise, ending Cable TV Montgomery's 16-year monopoly in Maryland's largest cable market.
Montgomery County's approval gives the upstart more momentum to rally the Washington region to "join the revolution," as Starpower likes to say.
Its construction trucks are common sights on the streets of the District and Gaithersburg these days as crews build fiber-optic cable networks as fast as they can. In the District, they've focused on apartment buildings in Northwest and Southeast so far, but lately they've begun wiring residential neighborhoods in upper Northwest.
Falls Church, Starpower General Manager Tony Peduto said, is next on the list for construction, if the city grants permission in a meeting on Monday.
All told, Starpower has 300 miles of cable ready for service, said Bob Barclay, the firm's construction manager. Plans call for 100 more miles to be ready by December.
"We know we're in a battle," Peduto said. "Are we ready? Yes, and let's get it on."
But cable incumbents in the District and Montgomery County say they aren't worried about the new guy in town. They note they've been competing with satellite TV for several years, and in any case they've always had to win the customer's blessing. "I think every customer makes a decision every day either to stay with us or not," said Harris Bass, acting chief operating officer for Cable TV Montgomery. "This is not a brand-new situation."
Nevertheless, the established providers are gearing up for battle. They are upgrading their networks to provide more services and better picture quality. District Cablevision, for example, is working to upgrade its network so it can roll out high-speed Internet service by the end of the year.
"Competition is the reality of the marketplace today," said Earle Jones, general manager of District Cablevision. "The new world means providing new incentives to customers. 'Change' is the operative word here."
Perhaps Starpower's most competitive qualities are its pricing and its ability to provide video, data and voice over the same fiber-optic network. For a basic cable package, Starpower subscribers pay roughly 40 percent less per channel than District Cablevision customers. The programming lineup is quite similar to District Cablevision's.
Of the 870 households at the Villages of Parklands, about one-third are subscribing to Starpower after two weeks of marketing, company officials said. According to the National Cable Television Association, about 70 percent of U.S. households subscribe to cable, which suggests that Starpower already has grabbed as much as half the market from District Cablevision in these buildings.
If customers subscribe to its local and long-distance phone service, Starpower knocks $4 off the monthly cable bill. For basic phone services, Starpower said it prices its service at 5 percent less than Bell Atlantic Corp.'s publicly filed prices and charges 9.9 cents a minute for long-distance calls.
Starpower sales reps say it's a "daunting" challenge to stay competitive in services besides cable because there is already fierce competition in those markets. Some consumers say they are weary of bouncing among different phone services. "After a while, you just get confused," said Pinkney, who signed up only for Starpower's basic cable package.
Still, roughly 41 percent of Starpower's cable customers subscribe to its local or long-distance phone service, the company says. And about 11 percent subscribe to its high-speed Internet service.
The larger cable companies complain that Starpower might have an unfair advantage. For one, they dislike the way Starpower has depicted itself as the underdog. In an advertising campaign last year, one Starpower print ad showed a statue of Vladimir Lenin with a noose around his neck. The headline: "No empire lasts forever, especially one that keeps you waiting five hours for a repairman."
One of Starpower's co-owners is Potomac Electric Power Co., and it "has dominated its market for a long time," Jones points out. "Starpower has the advantage of an incumbent."
To create Starpower, Pepco invested $150 million, and together with matching funds from its other partner, Princeton, N.J.-based phone company RCN Corp., it began building its networks.
Bass worries that Pepco may show "favoritism to an affiliate, which would be extremely unfair," since both Starpower and Cable TV Montgomery use some Pepco networks to transmit their services. But Pepco spokeswoman Nancy Moses said all cable companies are welcome to use its excess capacity and are charged "virtually the same amount" for their use of Pepco networks and poles.
So far, Jones said, he hasn't encountered unfair treatment in winning rights to use Pepco utility poles since Starpower started to wire the District last November.
But he said he was concerned about Starpower's agreement with the District. It's an "open-video system" pact, an outgrowth of an obscure portion of the 1996 law that overhauled the nation's telecommunications laws. Open video was designed to encourage telecommunications companies to compete against entrenched cable operators by making it easier to enter a market without a formal franchise, according to Federal Communications Commission officials.
Cable companies typically operate under detailed, 15-year franchise contracts that take months and sometimes years to negotiate with a municipality. The open-video law sets a much swifter timetable for entry and limits the conditions that can be placed on a new provider, regulators say. Among other things, Starpower is obligated to wire only parts of the market. Starpower's larger rivals say that allows the newcomer to cherry-pick the most lucrative parts of the service areas.
Even in Montgomery County, where Starpower now has an official franchise agreement, it isn't obligated to serve the entire county, but only 280,000 households, or 89 percent of the total. Cable TV Montgomery has to provide universal service.
But Darryl Anderson, executive director of the District's Office of Cable Television and Telecommunications, calls open video a "win-win situation" that ensures competition. And Starpower is obligated to pay 5 percent of its annual cable revenue to the District, the same amount District Cablevision pays.
Right now, the market is "as level as we can make it to the law," Anderson said.
Starpower's open-video agreement will expire in June. Peduto said the company will start preliminary talks with the District on a franchise agreement by the year's end. Right now, he's focusing his energy on negotiating service agreements with other municipalities in the Washington and Baltimore areas. In addition to securing these agreements, Starpower needs to extend its fiber-optic network throughout the region, a job that will take years.
"We're the new guys in town. We've got to go at 100 miles a minute straight ahead," Peduto said. "We need people to know who we are."
The Revolutionary and the Old Guard
Starpower Communications Inc.
Owners: 50-50 joint venture between Potomac Electric Power Co. and RCN Corp. of Princeton, N.J.
Basic package: $31.95 a month for 94 channels.
Service area: System under construction; currently serving parts of the District and Gaithersburg.
Other services: Local and long-distance phone service and high-speed Internet access via cable modem.
District Cablevision Inc.
Owner: AT&T Corp.
Basic: $11.72 a month for 31 channels; basic and expanded basic, $33.87 a month for 60 channels.
Service area: Washington
Other services: High-speed Internet access via cable modem to be offered starting in December.
Cable TV Montgomery
Owner: Prime Communications
Basic service $17.17 a month for 41 channels; basic and preferred service, $36.73 a month for 70 channels.
Service area: Montgomery County, including Gaithersburg through Cable TV Gaithersburg subsidiary.
Other services: High-speed Internet access via cable modem.
Prices do not include tax.
SOURCE: The companies