On the day Tribune-United Co. won the right to build Montgomery County's cable television system, Tribune officials celebrated with champagne.
But others who had competed fiercely for the coveted franchise sharply questioned whether Tribune-United could deliver on its promises and bemoaned an abdication of responsibility for the system to outsiders from Denver and Chicago.
Today, three years later, those complaints seem prophetic as the county's cable system is in turmoil. Like nearly every other major urban jurisdiction that won "blue sky" promises from big cable operators during the heyday of cable franchising in the early 1980s, the county was sold a Cadillac but may end up with a Chevy instead.
Based on interviews over the past week with local officials, cable executives, Wall Street analysts and industry experts, it appears that the county's cable woes are symptomatic of a major upheaval that has shaken the cable industry over the past few years.
Added to that, they said, was the county's, and the industry's, shortsightedness, motivated in part by corporate greed and in part by the desire of Montgomery officials, mainly for political reasons, to build the most elaborate system possible, regardless of costs.
In the region, Montgomery's cable problems are second only to those of the District of Columbia, which has renegotiated its contract several times because of financial problems and has yet to have a single house wired.
Only about 18,000 homes out of 228,000 in the Montgomery County have been wired.
Major systems in Prince George's County and Fairfax County, which offer basically the same services Tribune-United contracted for, have not made major changes in their contracts, although their executives sympathized with Montgomery's problems.
"We have built a much larger system than we need. Now we are trying to find ways to refine it . . . to reduce operating costs," said Winfield Kelly, an executive with Prime Cable, which holds a franchise to provide service in northern Prince George's County.
"We have been able to work out changes to our mutual benefit and continue to do that," he said.
In Fairfax County, Thomas E. Waldrop, chairman of the board of Media General Cable, said the system there, which contains all the "toots and whistles," is 65 percent complete, and there have been no changes to the contract.
"We are making an honest effort to live up to what the commitment was," he said. "Most of the large metro [systems] built-in just an inordinate amount of public access. In the long haul it might be something less than we committed to here."
Tribune-United, which had offered to deliver a dazzling array of programing and services to every home in Montgomery County for pennies a day, has been beset by construction backlogs and consumer complaints.
In the most telling blow, the company, without notice and blaming equipment shortages, halted all new construction on the system last month, leaving county officials bewildered, angry and vowing to impose stiff penalties if work does not resume immediately.
The action, county officials said, was part of a pattern of major contract violations by the company, problems that have led some officials to charge that the parent Tribune Co. of Chicago is trying to slash its investment in the system while searching for someone to buy its cable television holdings.
"They want to sell it as quickly as they can at the best price they can without [putting] any further resources in it," said Alexander J. Greene, a special assistant to County Executive Charles W. Gilchrist.
The Tribune company, officials add, has issued contradictory statements about the franchise's financial health and has yet to make concrete proposals to resolve problems it claims exist in the contract.
The irony in the current dilemma is that the county went through a meticulous franchise award process designed to avoid many of the pitfalls it has since encountered.
County officials picked the winning company based on extensive evaluations by an outside consultant, an in-house cable expert and a citizen advisory committee.
Tribune-United won, Gilchrist said at the time, because it promised to wire the entire county within four years and to provide basic services at rates lower than those offered by competing companies.
In addition, Tribune-United officials promised to back their proposal with a $375 million line of credit. Money, said a company spokesman, was a "nonissue."
So what went wrong?
Kenneth B. Lerer, a vice president for Warner Amex Cable Communications Inc., a firm that bid on the Montgomery franchise, said, "Looking at it now, it's easy to see that the cable companies promised too much and that cities asked for too much. It was a combination of those factors that contributed to the problem, in our view."
"The industry went through a period where operators were in a stampede to acquire new franchises," said Peter A. Falco, an analyst for Merrill Lynch. "There was a bidding war among cable operators and a compulsion among city fathers to outdo whoever got the next previous franchise."
The period, from 1979 to 1983, is now generally known in the industry as the era of "franchise frenzy."
Montgomery and a score of other other major jurisdictions such as Dallas, the District of Columbia, Milwaukee, Houston and Tampa, Fla., went to the market, seeking cable companies to build their system.
"Montgomery's bidding process was rated on who gave the most without serious regard to the financial problems the system would run into," said Lerer. "Everybody thought at the time that Montgomery County was heading for a problem."
Montgomery County awarded its cable franchise in October 1982, and it completed negotiations on a contract with Tribune-United early the following year.
"I think they sincerely believed what Tribune told them, and very probably Tribune believed that it could do it," said R. Robert Linowes, a prominent area zoning attorney who headed a rival firm that finished second in the running.
"I don't think there was any misrepresentation or fraud. I think it was just a question of a lack of realism and good business judgment," he said.
Like other major cable companies, Tribune-United, in addition to promising a full range of programing on more than 100 channels, agreed to a smorgasbord of government giveaways, such as public access channels, educational channels, an institutional channel, public studios and equipment, and grants of money to fund local programming.
Over the 15-year contract, the cost of public access is expected to total $36 million, said Michael Pohl, a company spokesman.
In addition the company must devote 1.5 percent of gross revenues to pay for local programing, a figure that could exceed $90 million, he said.
In a confidential report submitted to Montgomery County by Tribune-United in May and made available to The Washington Post, the company argued that revenues from other services would not be sufficient to pay for those items on the scale specified in the contract.
The report notes, for example, that services such as the Dow Jones financial wire, pay-per-view television events, a home security service and advertising were originally expected to raise $327 million. But under revised estimates, the company said, it expects to get only $82 million over the life of the franchise.
The company acknowledged in the report that it had been caught up in the franchise frenzy and had promised too much -- problems that are similar to ones that the Tribune company is experiencing with other franchises in Lakewood, Calif., and Oakland County, Minn.
Tribune-United now predicts it will have $100 million in losses over 15 years in Montgomery County without substantial rate increases or significant contract concessions.
A wave of contract renegotiations swept the industry beginning in early 1984, when former U.S. transporation secretary Drew Lewis, now chairman of Warner Amex, announced that his company could not afford to build the system it promised in Milwaukee and Dallas.
The announcement signaled the beginning of major retrenchment in the cable industry, according to industry experts.
Since then, Omaha, Tucson, Detroit, Chicago, Scottsdale, Ariz., St. Paul, Minn., Vancouver, Denver, New York City, Pittsburgh, Houston, Cincinnati and the District of Columbia, among others, have agreed to substantial contract concessions, according to industry officials.
"You had a real period of indigestion and you are still not quite through it," said Merrill Lynch's Falco. "You're sitting in the middle of one in Montgomery."
Problems with the Montgomery system surfaced in March 1984. Less than a year after winning the franchise and before the first homes were wired for service, Tribune-United asked for a rate increase. The county acquiesced even though the company had promised in the contract to hold rates steady for four years.
Despite the increase, within eight months the company had fallen behind on several other contract commitments, including the construction of I-Net, a two-way data service for businesses, according to letters and meeting minutes obtained by The Post.
The council voted unanimously in January to recommend taking formal action against Tribune-United, according to one of the letters.
In a letter two weeks ago, Gilchrist aide Greene informed Tribune-United that it was obligated to pay $3.8 million by the end of the year for public access services, about half of which is overdue.
In another letter last Friday, County Attorney Paul McGuckian formally notified Tribune of contract violations for halting construction on the system. The company has 10 days to respond before the county can start imposing $9,000 a day in fines.
"We're a little surprised," said Pohl in response to the letter. "They are aware of delays that have inhibited our ability to keep pace with our present construction rate."
Pohl said the company last week asked the county to scale back operation of its public access channel and to negotiate other concessions on public access grants and equipment.
He attributed current problems to "misunderstanding on their part and lax response our our part."
"I think we are both professional enough to know we can agree to disagree. Our first concern is the happiness of the subscriber," he said.