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Cox Plots Overbuild Of Tiny R.I. System

Most of the current wave of wired-cable overbuilds have come from utilities or industry newcomers determined to siphon off business from entrenched incumbent MSOs.

But in these competitive times, even those operators that had been happy to let neighboring operators maintain their monopolies must take opportunities as they arise. That's the case in Rhode Island, where Cox Communications Inc.-one of the nation's largest MSOs-wants to expand into Bristol County.

Cox has 300,000 subscribers and a 95 percent market share in Rhode Island, and Bristol County is one of the few parts of the state it does not already serve.

The MSO has applied for approval to offer cable in Bristol County, but has not yet received the go-ahead from regulators. Nonetheless, it is already building its network there under a competitive local-exchange carrier license through which it can offer telephony across the state.

Moving into Bristol means overbuilding Full Channel TV, a mom-and-pop cable operation that's already spurned a Cox buyout offer for its 12,000 customers in Bristol, Barrington and Warren, R.I., according to both sides.

Full Channel-which also faces a potential overbuild from upstart American Broadband Inc.-has not taken the incursion lightly. Last week, the company said it plans to file a protest with the Rhode Island Division of Public Utilities and Carriers accusing Cox of an "outrageous disregard" for state cable regulations, and of resorting to intimidation tactics after Full Channel rejected Cox's buyout attempt.

Full Channel president John Donofrio released a prepared statement accusing Cox of ignoring state regulations by failing to obtain permits to install electronic equipment in Smithfield, R.I., and by closing a public, educational, and governmental access studio without prior state approval.

"They're being very arrogant," Donofrio, who applied for the state's first cable franchise in 1965, said in an interview last week.

In response, Cox last week released a handwritten Oct. 3 letter from Donofrio to Cox CEO Jim Robbins. In the letter, Donofrio said Cox might want to "revisit" sales talks rather than risk having "aggressive and potentially embarrassing questions" raised before the DPUC.

"We think that speaks to [Donofrio's] motivation" for last week's press release, a Cox official said.

Rhode Island DPUC officials called the Smithfield incident a local matter and said Cox was seeking to move its access studio to the Community College of Rhode Island. The MSO was fined for the early closing, however, agency officials said.

Donofrio said Cox has been trying to intimidate Full Channel since the company turned down its bargain-basement offer of $2,000 per subscriber. At that time, he said, Cox was buying up properties elsewhere in the U.S. at price more than twice that amount.

"We have a great system here," Donofrio said in an interview. "And we think we should get market value, rather than what you would pay for a 32-channel system in Nowheresville."

Donofrio said Cox knew Full Channel was in talks with another potential buyer. "So they announce an overbuild, which, of course, scared off our buyer," he said.

He also that claimed Cox asked Barrington officials for permission to offer local phone service, even though it couldn't obtain enough "trunking capacity" from Verizon Communications, the community's local exchange carrier.

Cox's transgressions also include coming into the town of Bristol, where it isn't licensed to operate, to televise the town's annual July 4 parade, Donofrio added.

A Cox statement last week expressed disappointment that Donofrio had inaccurately characterized Cox's plans for "growth and investment" in Rhode Island.

"From the moment we learned of the DPUC's decision to invigorate the telecommunications marketplace in Rhode Island, we recognized the time was right for us to respond to the frequent requests for service Cox has received for years from Bristol County residents," the company said. The DPUC had solicited telecommunications companies to the state, following a string of cable-rate increases.

Cox officials concede their company began looking at "alternatives" after failing to convince Donofrio to sell.

But they insist their business strategy always included offering telephone service throughout Rhode Island, which would mean expansion into Bristol County.

"If you're going to provide telephone service, you might as well provide it everywhere," Cox spokeswoman Ellen East said. "Rhode Island had a unique set of circumstances."

John Wolf, Cox's vice president of government and public affairs for the New England region, said a Bristol County overbuild would maintain Rhode Island's reputation as the state with the most access to high-speed Internet services.

The MSO has wired about 90 percent of Cox for broadband services, a percentage that would increase after a Bristol County buildout.

Full Channel, meanwhile, has an older, 450-megahertz cable operation, one it hopes to upgrade to 750 MHz. The upgrade is under way in Barrington, general manager Mike Davis said.

Donofrio acknowledged that he's trying to sell the operation. But with Cox already building a network in his territory, Donofrio may already be seeing the value of his real estate decline.

"Right now I'll bet he wishes he took that offer," said one source, who asked for anonymity.

Some observers think Cox was compelled to move into Bristol after Boston-based American Broadband Inc. petitioned the DPUC for permission to offer cable, high-speed Internet access and phone services in Cox territories.

"I would think that Cox now wants to put all the pieces of the Rhode Island puzzle together, and get in there [to Bristol County] and milk it before we can," said American Broadband spokeswoman Donna Garofano.

While all this is going on, Full Channel-which has already suffered losses to direct-broadcast satellite carriers-has started upgrading its network, effectively "overbuilding ourselves," general manager Davis said.

With existing rights-of-way and pole-attachment agreements, Full Channel hopes to have its 750-MHz upgrade completed up to 18 months before Cox or American Broadband can get into the market.

"It's a footrace," Davis said. "And the winner will be the first one to the door with a package of broadband services."

Davis said Full Channel is more afraid of its satellite competitors. DBS operators have siphoned off about 10 percent of the state's cable viewers, including some 600 former Full Channel customers.

"There are products available to [DirecTV Inc. parent] Hughes Electronics that aren't available to even AT&T," Davis said.