From: owner-cablereg-l@netcom.com

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Date: Tue, 10 Jan 1995 05:48:33 -0800
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CABLE REGULATION DIGEST
Summary of regulatory news from Multichannel News 1/9/1995. Vol.2, No.2
Copyright 1995 Multichannel News. Reproduction/distribution is permitted
so long as this document is left fully intact. NO CHANGES are to be made
to this document without the written consent of Multichannel News.
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HOT NEWS
* FCC Against The Wall on Video Dialtone
* Sprint Cable Leading Wireless Bidding
* FCC Warns Cable on Digital Standards

FCC READY TO SET VDT PROGRAM RULES
Washington -- The Federal Communications Commission is about to accost a
critical video dialtone issue that has been festering for nearly two years.
The issue is this: What rules should the FCC apply when telephone companies
intend to program their VDT networks?
The FCC this week is planning to ask cable operators and others to suggest
safeguards, if any, when telcos become programmers.
"This issue is now getting teed up," an FCC source said.
The FCC never had to worry about such a proposition before because federal
law -- namely, the 1984 Cable Act -- expressly prohibited local phone
companies from programming VDT networks in competition with the local cable
company.
But there's a new reality to which the FCC is only now adjusting. Since
August 1993, one federal court after another has declared the telco-cable
cross-ownership ban an unconstitutional infringement upon the First
Amendment rights of telcos.
Just last week, the Ninth U.S. Court of Appeals in San Francisco overturned
the ban, paving the way for U S West Inc. to offer video programming directly
to its customers in 14 states.
The FCC's VDT rules clash with these court decisions. Its rules state that
telcos are to act as common carriers of video programming with limited
interest in network programmers. The FCC also said neither the VDT provider
nor network programmers would need to obtain a local franchise or pay
franchise fees, a critical distinction between VDT and cable systems.
The National Cable Television Association asserts that when a telco programs
its own network, it is acting like a cable operator and should be subject to
the same rules as the nation's 11,000 cable systems.
"The whole key to being a common carrier is not exercising an editorial
function," said Daniel Brenner, NCTA's vice president of law and regulatory
policy.
The FCC's no-franchise requirement was upheld by a federal appeals court in
Washington, D.C., last year. But the court did not address whether franchise
requirements would be needed when a programmer is an affiliate of the telco.
The FCC launched VDT in 1991 and produced a second draft in 1992. It
revisited VDT rules last October and virtually banned telcos from being
network programmers -- even as the telcos were piling up court cases.
Bell Atlantic, the first telco to win in U.S. District Court and the U.S.
Court of Appeals, has not gained FCC approval to be a programmer. Bell
Atlantic officials have said the FCC would be in contempt of court if it
continues to block the telco from programming its VDT networks.
Last week, the Justice Department and NCTA filed petitions with the appeals
court in Richmond, Va., asking for a rehearing.
The NCTA told the court that it failed to recognize that the FCC has
authority under the 1984 Cable Act to waive the cross-ownership ban upon a
"showing of good cause." The court should have addressed this issue before
invalidating an act of Congress, the NCTA added.
The Justice Department's filing said the court misapplied a Supreme Court
precedent.
"It's customary [and appropriate] for the government to ask a circuit court
for a rehearing," a Justice Department source said. "The granting of rehearing
is not common."
Bell Atlantic was not pleased to learn about the DOJ and NCTA's actions.
"We can't understand why the Justice Department would file for something
like this," said Bell Atlantic spokeswoman Joan Rasmussen.
An FCC source last week said that the agency has a big job ahead of it.
One FCC source suggested it was conceivable that the agency could rule that a
telco's network was a common carrier, but its programming affiliate using the
network would be regulated as a cable operator.
"I would go along with that. I have pretty much argued that anyway," said
John Seiver, an attorney with Cole, Raywid & Braverman, who has been handling
VDT filings for regional cable associations.
"I don't think we would like that concept," said a source at regional Bell
company Nynex Corp., stressing that phone companies still would be required to
transport the programming of unaffiliated programmers while cable operators
would not.
BellSouth Corp. media relations manager Lois Phillips said the telco
believes no new rules are necessary. "If the FCC really wants effective
competition with the incumbent cable operator, then the last thing we need is
more rules," she said.
A FCC source said a key question facing the Commission is how to treat Bell
Atlantic prior to the adoption of safeguards. One option is to let Bell
Atlantic become a programmer and require the telco to adhere to the safeguards
retroactively.
The whole issue could be snatched from the FCC. Congress could pass new
telecommunication legislation that directs the FCC to adopt safeguards to
apply to the telcos.
In last year's House-passed bill, the telco would have needed to pay
franchise fees -- but not obtain franchises -- and comply with must- carry
rules, retransmission consent and program access provisions of the 1992 Cable
Act. The bill also required establishing programming affiliates as separate
subsidiaries.

SPRINT GROUP LEADS PCS AUCTION
The auction of wireless communications air waves took a holiday break last
week after topping $1.6 billion but still falling short of government hopes.
About a quarter of the high bids so far -- $426 million -- have come from
WirelessCo L.P., the grouping of Sprint Corp. with cable MSOs Tele-
Communications Inc., Comcast Corp. and Cox Cable Communications.
The foursome maintained the highest bid --$221 million -- for the largest
available market, New York, when the 20th round of bidding ended on Dec. 21.
It had high bids for 30-MHz licenses in 18 markets, including Boston-
Providence, R.I., ($52.7 million), Chicago ($42.8 million), and Dallas-Fort
Worth ($27.2 million).
"Sprint's playing an extremely aggressive game, much more so than I would
have dreamed," said Barry Goodstadt, director of wireless industry consulting
for EDS Corp. in Washington, D.C.
Goodstadt said he was guessing the auction of 99 (30-MHz) licenses in 51
metropolitan areas might generate about $3 billion. He said it was unlikely
that later auctions of an additional 60 MHz would bring in as much, so the
federal government might not make its revenue target of $10 billion.
While treasury minders might be disappointed, Goodstadt said the results so
far are good for the wireless industry. The leading bidders are winnowing down
to a core of well-financed companies and groups, including AT&T Corp., GTE
Corp. and Pacific Telesis Group, which are likely to follow through and build
competing systems after winning licenses.
"Given the nature of the players who are showing up there, it's guaranteed
that at least two players are going to be built out in every market,"
Goodstadt said. That means competition to existing cellular duopolies, he
said.
Spending less than expected for licenses also means those new players will
have more money to spend on building and marketing the new "personal
communications services," Goodstadt said.
Here are the latest bids in other markets:
* PhillieCo L.P., the Sprint group minus cellular owner Comcast, led bidding
for a Philadelphia license with $38.8 million.
* Continental Cablevision led bidding for a license in the Richmond-Norfolk,
Va., market with a $20.6 million offer.
* Cox had the high bid for a license in the Omaha, Neb., market at $2.2
million.
* Centennial Cellular Corp., mostly owned by MSO Century Communications
Corp., led bidding for a Puerto Rico and U.S. Virgin Islands license at $16.4
million.
AT&T Wireless PCS Inc. led bidding on 18 licenses, with total high bids of
about $225 million. PCS PrimeCo L.P., the grouping of Bell Atlantic Corp.,
Nynex Corp., U S West Inc. and AirTouch Communications Inc., led bidding for
11 licenses with total bids of about $215 million.
Pacific Telesis Mobile Services led bidding on three West Coast licenses and
one in the Phoenix, Ariz., market, with total bids of about $177 million. And
GTE Macro Communications Corp. had high bids on six licenses at a total of $91
million.
The auction resumes Wednesday.

FCC OFFICIAL WARNS CABLE OVER '95 DIGITAL ADVANCES
Orlando, Fla. -- Operators considering rollout of digital services to
subscriber homes should pay close attention to the Federal Communications
Commission's standardization moves in that area, according to Richard Smith,
senior engineer for the Commission's Office of Engineering and Technology.
"I would caution those parties planning to implement digital services [to
the home] anytime soon," Smith said during a luncheon address to the SCTE's
Emerging Technologies conference here.
Smith noted his awareness of cable operators planning third-quarter 1995
digital deployments. "Those [operators] need to pay close attention to our
actions in the area of digital standards," he said.
He also said that the FCC is considering extending its compatibility rules
to set-top boxes. If there is one issue your industry needs to be concerned
with, this is it," Smith said, adding that "we will soon decide whether to
extend the cable-ready rules to set-top boxes."
The FCC last April ruled on the compatibility of consumer devices, such as
televisions and VCRs, with cable converter, through a decoder interface
device.
"We now have a draft specification [of the decoder interface], and will soon
issue a Further Notice of Proposed Rulemaking related to compatibility," Smith
said.
Walter Ciciora, former Time Warner Cable executive, and consultant and
recognized industry expert on the consumer interface, said afterwards that any
extension of the cable-ready rules to set-top boxes or mandated digital
standards are "very scary propositions."
"Does that mean the industry deploys set-top boxes with plugs?" Ciciora
asked, adding: "If so, that's a real threat to innovation."
Ciciora also was dismayed with the possibility of FCC-mandated digital
standards, which Smith described to include both compression and encryption
measures.
Other likely FCC initiatives this year will include early work on cable
telephone and "several other actions," Smith said.
Saying that the FCC wants to "promote the growth of the information highway
and competition," Smith said he foresees a future in which cable operators
will be able to offer services traditionally provided by telco common carriers
-- and vice versa.
"At the Commission, we're relying on the [cable] operators as a part of this
new structure," Smith noted.

VIACOM HIT WITH $450K REFUND ORDER
Washington -- The Federal Communications Commission last Thursday ordered
Viacom Cable Services to pay about $450,000 in refunds to 211,000 cable
subscribers in three northern California communities.
In a separate decision, the FCC determined that cable operator King
Videocable Company had overcharged subscribers in Valley Springs and Jackson,
Calif., but the refund amount was viewed as being so small that the agency
decided no refund was necessary.
According to an FCC source, the King Videocable case was the first time the
agency ruled that it was not in the public interest to order refunds.
The FCC said the Viacom decision resolved 22 complaints against the MSO's
rates in Contra Costa, Redding and San Francisco.
The agency found that Viacom overcharged for expanded basic service. Under
the 1992 Cable Act, the FCC is responsible for determining whether expanded
basic rates are reasonable under a benchmark formula that is intended to
approximate what cable rates would be in a competitive market. The largest
order so far was a $1.2 million penalty against Times Mirror Cable Television
in November.
The FCC said Viacom had 30 days to submit a refund schedule for 14,500
subscribers in Contra Costa, 26,000 in Redding and 171,000 in San Francisco.
The agency said the refund totals were $8,270 in Contra Costa, $26,000 in
Redding and $420,544 in San Francisco plus interest covering a five-month
period after Sept. 1, 1993.
The FCC said that although the refund amount would vary from subscriber to
subscriber, the average payout would be 55 cents in Contra Costa, $1 in
Redding and $2.45 in San Francisco.
In November, Viacom was ordered to refund subscribers in Nashville and
Goodlettsville, Tenn., about $200,000. Viacom is appealing the action, a
company spokeswoman said.

NEB. CITIES DITCH CABLE PLAN
The League of Nebraska Municipalities has seemingly abandoned plans to
pursue legislation that would have allowed cities to build and operate their
own cable systems.
A league official last week said League members apparently believe the
advent of direct-broadcast satellite television -- an understandably
attractive service in predominantly rural Nebraska -- will make city-owned
cable systems a bad investment.
"They feel like cable may not be around in a few years," said League
spokesman Lash Chaffin. "I guess over Christmas everybody saw those ads for
the RCA 18-inch dishes."
Originally, municipalities envisioned the law as providing leverage over
cable operators who allowed their systems to decay, while at the same time
pushing for double-digit rate hikes.
The League has blamed the failure of previous bills on well-orchestrated
lobbying campaigns by the state's cable industry.
The League's apparent decision not to pursue legislation when lawmakers
reconvened last week was welcome news for Nebraska cable operators, who have
beat back four separate attempts to pass such a law in the last 10 years.
Similar legislation was narrowly defeated in 1990, followed by another
attempt in 1993 that failed to get out of committee.
"At this point, it's unlikely that we'll re-introduce the legislation,"
Chaffin said. "Not unless there's a real groundswell from the membership, and
that doesn't seem to be coming."
"That's good news for me," said Dick Bates, president of the Nebraska Cable
Communications Association. "But I wonder how much of that is their previous
record on this, and how much of it is [pending] federal legislation that will
allow the telephone companies to get into the [cable] business."
Bates said the association can now turn its attention to urging its members
to seek certification from the Nebraska Public Service Commission to provide
telephony service in the state.
"At some point in time, they're going to need that certification, so we're
going to be urging them to put themselves in a position to get it," Bates
said.

APPEALS COURT RULES FOR TELCO
The telcos kept their winning streak going in court, as U S West Inc. won a
Dec. 30 appeals court panel ruling upholding a June victory in U.S. District
Court.
Pacific Telesis Group claimed a share of the same appeals ruling, in the San
Francisco-based Ninth Circuit Court of Appeals, because it has a cross-
ownership ban challenge pending in a district court under the appeals court's
jurisdiction.
Robert Stewart, a PacTel spokesman, said the company would continue to await
Federal Communications Commission construction approvals before building video
dialtone networks -- despite the court victory and despite separate agreements
that PacTel is negotiating in California communities. "I think we'll do what
everybody is doing, which is proceed with plans," before the FCC, Stewart
said.
Five regional Bell companies now have won district court orders declaring
the cross-ownership ban illegal, and three (including Bell Atlantic Corp.) can
claim appeals court wins.

NINTENDO, GTE TEAM UP
Las Vegas -- GTE Interactive Media, part of the same GTE Corp. planning
broadband television systems, last week said it has teamed with powerhouse
Nintendo Co. Ltd. to produce and develop games for interactive TV.
The two companies are expected to contribute games to GTE's planned
interactive TV trial, with AT&T Corp., in 1,000 homes in Manassas, Va., later
this year (pending federal approval of the trial). Their aim is to create
networked games, which would let players compete against each other via
broadband telephone lines.
Nintendo's main rival, Sega Enterprises Ltd., is working with Tele-
Communications Inc. and Time Warner Inc. on the Sega Channel for cable
systems. That service launched Dec. 12.
The first joint effort by GTE and Nintendo is FX Fighter, a three-
dimensional software game for the Super Nintendo Entertainment System. The 16-
bit game is the first one Nintendo had ever co-published. It was on display at
the Winter Consumer Electronics Show here last Friday.
Patrick Ferrell, who heads up International Data Group's interactive
software unit, said the deal helps both companies by giving GTE access to
Nintendo's huge retail distribution channel and lets Nintendo ride on GTE's
development of interactive TV systems.
FX Fighter is expected to be released this fall with a retail price of about
$70. It will use the Nintendo FX2 graphics enhancement chip.
GTE Interactive also will help develop games for the planned Nintendo Ultra
64, a 64-bit game platform.

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