Three South Bay cities are balking at approving the sale of their cable television franchises, fearing that service might suffer under new ownership.
The three--Torrance, Hawthorne and Lawndale--are expected to be among a handful of cities nationally not to approve the sale by the June 30 deadline set by a consortium of five cable companies that is buying Group W Cable Inc.
The consortium agreed last December to pay Westinghouse Electric Corp. $1.6 billion in cash and assume $500 million in debt and taxes for 466 Group W cable systems with a total of about 2.1 million subscribers.
Systems to Be Parceled
The five firms--Century Southwest Cable Television Inc., TeleCommunications Inc., American Television & Communication Corp., Comcast Corp. and Daniels & Associates--will divide the 466 systems among themselves.
Under the consortium's preliminary plans, Century is slated to take over the five Group W systems in the South Bay. Century already owns the cable system in Redondo Beach.
The lack of unanimity will not delay the sale, but it raises doubts about whether Century ultimately will take control of the five South Bay systems.
City officials say that the consortium has the financial and technical ability to operate the systems, but they question whether Century has the money to operate them by itself.
Services Might Be Lost
City officials also fear that services in their state-of-the-art systems would be lost under Century, which has a reputation for running a lean operation.
Leonard Tow, president of Century, which is based in New Canaan, Conn., did not return repeated telephone calls.
A preliminary financial review of Century for the city of El Monte--which has approved the transfer of its Group W franchise to the consortium--found that Century has a debt-to-equity ratio of 15 to 1, which the report said is "extremely high, even for a capital-intensive industry such as cable television."
Carl Pilnick of Telecommunications Management Corp., the consultant who prepared the study, said in his report the usual ratio is less than 3 to 1.
'Extreme Financial Pressure'
He said Century's debt can be compared to "buying a house with a 5% down payment." While borrowing provides the opportunity to expand with a minimum of equity funds, Pilnick said, "it places all company operations under extreme financial pressure, and it increases vulnerability during times of economic difficulty."
The report said that with the acquisition of 28 Group W franchises in Southern California, including the five in the South Bay, Century would lose $31.9 million in fiscal year 1985.
Century is buying about 12% of the Group W system, all in California, and will pay about $250 million for about 237,000 subscribers.
Earlier this year, Century sold stock to raise $25 million to reduce its bank debt.
Pilnick said that because of Century's high debt, it would be "under very heavy pressure to reduce costs." Still, he recommended that El Monte approve the transfer.
"I can't in good conscience say they don't have the money to operate the system," Pilnick said during a telephone interview. "They've got good credit. They can raise money to buy the systems, they can raise money to operate them if they had to."
However, the three South Bay cities, which combined have about 34,000 subscribers, remain suspicious.
"We will not consider the transfer until we have all the financial information on the specific operator who will run our system," said Paula Cone, Lawndale assistant city manager who oversees the city's cable system.
Waiting for Services
Cone and Harry Reeves, who oversees the cable system in Hawthorne, said they also are waiting for Group W to satisfy some provisions of its franchise, including an institutional network that would allow schools, City Hall and other institutions to communicate with each other by cable. Hawthorne also is waiting for more staff and facilities to handle public access programming.
Group W officials have said they intend to fulfill those promises, but they will not say when, and city officials said they will not move on the transfer until the promises are met.
Hawthorne and Lawndale are sharing financial and legal information with Torrance. Coopers & Lybrand, an accounting firm in Los Angeles, will conduct a financial audit of Century for the three cities, and Miller & Young, a communications law firm in Washington, is handling legal matters.
Coopers & Lybrand is expected to complete its financial analysis of Century in six to eight weeks.
Torrance Cable Administrator Warren Carter would not comment on the transfer, but in a staff report recently prepared for the City Council, Carter said approval of the transfer to the consortium should be granted only if Group W and the consortium abide by three conditions:
-City approval would be required before the consortium could change the physical design of the system or change significantly the number of staff members or the management structure.