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Duarte Plans to Sell Cable TV Business

March 27, 1988|SUE AVERY | Times Staff Writer

DUARTE — The city, faced with financial difficulties as a result of its decision in 1984 to build its own cable television system, has announced plans to sell the troubled operation.

Kinneloa Television Systems of Pasadena, which manages the system, is interested in buying it, although company owner Melvin Matthews would not say how much he has offered. The system cost $2.5 million to build.

Kinneloa owes Duarte $500,000 as payment for bonds the city issued to finance construction.

Cable television, almost a necessity in many neighborhoods because of nearby foothills, was undependable or nonexistent until the city took it over.

Although the entire city became wired for cable one year ago, and most subscribers say the service is much better, the city is losing money and had been uncertain whether taxpayers should continue to subsidize the operation.

Rather than lose additional money or find another operator who would generate more income, the council decided last week to sell. After making their decision, council members declined to discuss the matter.

The council voted to try to negotiate a termination of its lease agreement with Kinneloa. But Matthews said the agreement contains a renegotiation clause so that his payments to the city could be rearranged, and that he will insist the city honor the agreement if he is not allowed to buy the system.

Matthews said he has a substantial investment in equipment and customer good will. Because of that investment, Matthews said he does not think he will owe the city $500,000 in back payments on the bond issue if someone else buys the system.

'Would Not Walk Away'

He said, however: "We would not walk away acknowledging that we owe them $500,000."

Although the system has operated for only one year, Duarte has had to spend $500,000 from its reserve fund to pay interest on $4.7 million in bonds floated to wire the city for cable.

Kinneloa had agreed to reimburse the city $35,793 a month for the first two years of operation, plus 7% of its gross revenue. At the beginning of the third year, payments were to increase to $47,000 a month.

But for a variety of reasons, including a one-year delay in construction, overestimation of the number of subscribers and sale of the bonds at a higher interest rate than expected, Kinneloa fell behind in its payments, Matthews said. Last year he paid the city $48,434, an amount representing the entire profit from the Duarte operation that year, he said.

Matthews thinks that the system, which now has 1,748 subscribers out of a potential 5,000, eventually could show a profit.

City officials have said they like Kinneloa's operation of the system. The family-owned business has served an area of east Pasadena and Altadena for 18 years.

The first cable franchise in Duarte was granted in 1967, after it became apparent that residents in the foothills could not get adequate reception.

Over the years, the system was sold several times and each sale resulted in unfulfilled promises of more and better service, said Donald Pruyn, director of community services.

By the time the system was sold to Acton Communications Co. in 1983, the equipment was outdated.

Rather than risk another round of unfulfilled promises and citizen complaints, Duarte decided in 1984 to buy the system from Acton and build and lease its own equipment.

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