From: [email protected]
Date: Sun, 22 Jan 1995 19:36:24 -0800
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CABLE REGULATION DIGEST
Summary of regulatory news from Multichannel News 1/26/1995. Vol.4, No.1
Copyright 1995 Multichannel News. Reproduction/distribution is permitted
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 * No Demand For Video On Demand As Rochester Test Fails
 * TCI Dueling With FTC Over Shopping
 * PPV Channels Face Re-Reg Drops

QUOTE OF THE WEEK

 "We're confused, we're frustrated and we're going to call the hand."
      TCI's Peter Barton over the FTC's opposition of its takeover of QVC

 "John's been waiting for the right fight, one he stands a good chance of
winning and one worth fighting. This one's it."
      Industry exec on why TCI president John Malone is fighting back against
      the FTC.

 ROCHESTER VIDEO ON DEMAND TEST HALTED
 Rochester, N.Y. -- Frontier Corp. has decided there isn't enough demand for
video-on-demand.
 The company, formerly called Rochester Telephone Corp., last week said it
has halted its VOD market test in Brighton, N.Y., even though it had
permission to continue the trial for another six months.
 What's more, Frontier, of Rochester, N.Y., said it has no plans to expand
the VOD offering into a "commercial, stand-alone service." Linda Crociata, a
Frontier spokeswoman, said, "It's technologically feasible but not
economically viable."
 She said the 52-home trial showed consumers want more from a digital,
interactive system than just movies and other videos. Frontier will explore
various ways to provide interactive services along with VOD or possibly near-
VOD, she said.
 But, for now, there are no plans for another trial or a commercial service.
 Frontier's decision could help fuel the debate over whether true VOD, which
lets consumers instantly retrieve movies stored on computers, is worth the
higher network costs compared with near-VOD, which forces consumers to wait
until the next scheduled start time.
 The cancelation also is a blow to USA Video, which had pitched Frontier on
expanding the trial to include business customers in addition to residential
consumers. USA Video also wanted to move into commercial deployment in
Rochester. Relations between the two companies -- which began with Frontier
buying a $100 million stake in USA Video -- cooled amid technical problems in
the trial, culminating in the decision to pull set-top boxes from the trial
homes about four months ago to make repairs.
 Jeff Toney, USA Video's director of sales and marketing, said the company is
trying to position itself now as a VOD systems integrator for cable operators,
phone companies and other corporations.
 Crociata would not disclose buy-rates for the movies and videos, which
ranged in price from 49 cents to $3.99 each. The response was not enough to
make the VOD service, on its own, commercially viable -- a judgment that has
become "a no-brainer in the industry," said Frontier's Russell Shipley,
business service operations director.
 Subscribers typically had access to about 100 video titles, including
movies, classic TV shows and other programs.
 The Brighton trial participants also had the option of subscribing to a
package of broadcast, cable and pay-per-view channels provided by CAI Wireless
Systems Inc. But that service merely duplicated what the residents already had
through a SMATV system in their apartment complex.
 William Vogel, a telephone-industry analyst with NatWest Securities in New
York, said Frontier chairman Ron Bittner was pressed about the trial results
at a meeting with analysts last month. Bittner's reply essentially was, "the
case was not compelling to go forward," Vogel said.
 Vogel added, "I applaud them for that." Frontier decided that the $270,000
test didn't produce results that merited going forward. "I think their point
is, why deploy something now that's got dodgy economics," he said.
 Frontier's trial was small and there were some problems with the  USA Video
Corp.-supplied VOD service. The service was fully available for only about
four months of the original six-month trial period, prompting Frontier to ask
the Federal Communications Commission for a six-month extension. The FCC
approved the extension in October.
 Crociata described the video quality as "variable" but said "ultimately we
delivered a VCR-quality picture."
 Despite the limitations, both Frontier and USA Video said they felt the
trial had run its course. Neither company said it was disappointed. Crociata
said "it was a very useful trial from a number of perspectives." And Toney
said, "We accomplished what we set out to do in the trial."

 COMCAST, TCI FACE OFF VS. FTC
 New York - Comcast Corp. and Tele-Communications Inc. moved to force a
showdown with the Federal Trade Commission over their plan to take over QVC
Inc.
 After months of wrestling with antitrust regulators, the two companies
notified the Commission they would push ahead with their long-delayed tender
offer for the 65 percent of QVC's stock they do not already own. However, the
proposed closing date isn't until Feb. 6, giving them an opportunity to try
and reach some sort of settlement with the Commission.
 TCI and Comcast executives expect FTC staffers to recommend that
commissioners reject the deal as blunting competition because TCI already
controls rival video retailer Home Shopping Network Inc. TCI's arguments that
both networks compete directly against thousands of retailers from Wal-Mart to
Macy's have been rejected.
 Peter Barton, president of TCI subsidiary Liberty Media Corp., acknowledged
that he expects the Commission to try and block the takeover and that both
sides could end up in court. He believes that the Commission staffers are
wrong and are unfairly impeding the QVC deal.
 "We're confused, we're frustrated and we're going to call the hand," Barton
said.
 QVC officials agree with TCI's position on the FTC challenge. "We believe
that there are no real antitrust issues because QVC competes with all sorts of
retail outlets," said general counsel Neil Grabell.
 The Commission has not publicly voiced a position on the QVC deal and an FTC
spokesman would not even confirm the Commission was reviewing the deal.
 However, the QVC deal is just the latest in an ongoing feud between TCI and
the FTC over the MSO's power in the cable industry. The dispute over QVC is
the FTC's fourth challenge of a TCI acquisition since September 1993.
 Two cases have called for consent decrees, TCI's re-acquisition of Liberty
Media Corp. and the pending takeover of TeleCable Inc., which is scheduled to
close this month.
 A third was TCI's participation in QVC's bid for Paramount Communications
Corp. The FTC forced TCI to agree to sell its stake in the retailer if QVC
chairman Barry Diller succeeded in acquiring the studio. QVC ultimately lost
the bidding, and never had to sell.
 Now that the Commission appears ready to oppose the QVC takeover, TCI
chairman John Malone has decided to hold his ground. "John's been waiting for
the right fight, one he stands a good chance of winning and one worth
fighting," said one source familiar with the QVC deal. "This one's it."
 Comcast and TCI had hoped to quickly close the deal in September. But the
normal antitrust review of takeovers snagged the MSOs. The key antitrust
question is QVC's "relevant market." Does QVC compete only with other shopping
channels? If so, TCI's ownership of large stakes in both HSN and QVC -- which
collected all but $30 million of the $2.1 billion spent by home shoppers last
year -- presents a conflict.
 But are shopping channels really just players in the $30 billion mail-order
game, competing with Land's End and Eddie Bauer as well? Or should the
relevant market be all hard goods retailers selling the same housewares,
stereos and jewelry in strip malls across the country?
 FTC staffers "apparently" see shopping as a distinct market, said TCI senior
vice president Robert Thomson. "To suggest that any person relies exclusively
on TV shopping is ridiculous," he said. "They are even apparently unwilling to
include other forms of television merchandise," like products sold through
infomercials.
 Comcast and TCI need to move fast. The merger agreement has a drop dead date
of Feb. 28, allowing either side to walk away if the deal hasn't closed.
Diller has said that if this deal doesn't work out, there are other buyers who
have expressed an interest in the company.

 TCI DROPPING PPV CHANNELS
 Englewood, Colo. - Capitalizing on the economic advantages of adding basic
services due to the going-forward rules, Tele-Communications Inc. has switched
out a number of PPV services for low-priced basic channels.
 Hardest hit were Playboy TV, Action PPV and Request's five channels, which
lost a combined 750,000 subscribers Dec. 31 -- with only two weeks notice
before being removed.
 While industry executives said the switchouts come at an inopportune time
for the PPV networks, they do not expect other MSOs to follow suit.
 "We were just starting to turn the corner six months ago when we thought PPV
services were going to be added and now its turned 360 degrees," said Curtis
Symonds, president and COO for Action PPV, which lost approximately 215,000
subscribers.
 Along with Action, Playboy TV lost approximately 150,000 to 200,000
subscribers and Request Television lost upward of 350,000 across its five PPV
channels.
 Greg DePrez, vice president of PPV for TCI, admitted the network has
switched out several PPV networks for basic services as part of the going-
forward rules, although he would not comment on specific numbers.
 "We had to make some sacrifices," DePrez said. "Look at it as baby steps
until we get channel expansion necessary to add the channels back."
 At the heart of TCI's move is the ability to capitalize economically on the
Federal Communications Commission's going-forward rules. Presented with an
opportunity to add new basic services at a nominal licensing fee and net 20
cents per new basic subscriber -- compared with the less than 20 cents per
basic subscriber most PPV networks are generating -- TCI went for the quick
money, said a source close to the situation. Networks such as The Cable Health
Club, Prime Showcase and The Learning Channel were some of the networks that
benefited from the switchout, according to MSO sources. TCI has stakes in all
of those services, but also owns interests in Request and Action.
 "Even if a [PPV] network is generating a 10 percent buy-rate, if the system
isn't at least 60 percent addressable it can't come close to that," said the
source.

 VIACOM DEAL GETS HILL SCRUTINY
 InterMedia Partners was on the cusp of finally cutting its deal to buy
Viacom Inc.'s cable systems for $2.4 billion Friday, but a key congressman
called hearings to review the sale even before the contracts were signed.
 House Ways and Means Committee chairman Rep. Bill Archer (R-Texas) scheduled
a hearing for this Thursday to review a minority-tax certificate, which would
allow Viacom to defer about $400 million in taxes on profits. Viacom is
eligible for the certificate because the systems are being acquired by two
partnerships controlled by African-American lawyer Frank Washington, with the
backing of InterMedia Partners and Tele-Communications Inc.
 Sources said that Viacom, InterMedia and TCI were reviewing final contracts
for the sale plus the settlement of Viacom's antitrust suit against TCI. But
those agreements have been in the "final" stages for weeks, with the companies
repeatedly arguing over snags. Sources cautioned that further glitches could
emerge.
 But the tax break is drawing political heat. Federal benefits for minorities
have always been a hot issue and the size of the Viacom deal has attracted
scrutiny by newly-empowered Republican critics on Capitol Hill.
 Archer has no immediate plans to draft legislation altering the terms of the
tax breaks. But the hearings could persuade him to change his mind and move a
bill that would block the Federal Communications Commission from issuing the
tax certificate to Viacom, Capitol Hill sources said last week.
 Archer's Oversight Subcommittee, headed by Rep. Nancy Johnson, (R-Conn.),
had not disclosed a witness list by Friday, but officials from the FCC, the
Treasury Department and the Internal Revenue Service were expected to testify.
 Both Viacom and InterMedia said that a denial of the tax certificate would
scuttle the deal. InterMedia CEO Leo Hindery said the deal was carefully
formed to meet all the standards required by Congress and the FCC.
 "It is not surprising that these types of transactions would invite
scrutiny," Hindery said. "We're confident that the structure we've chosen is
completely in line with the requirements."

 WIRELESSCO KEEPS UP PCS PACE
 Washington, D.C. -- WirelessCo L.P. likes the Chicago market so much it
briefly was high bidder last week for both of that market's 30-MHz wireless
licenses in the current government auction.
 The problem is, WirelessCo, the consortium of Sprint Corp. and three cable
MSOs, or any other bidder can only own one 30-MHz license in any of the 51
markets.
 AT&T Wireless PCS Inc. made the point moot by topping WirelessCo with a $242
million bid for one of the Chicago licenses Friday morning. WirelessCo took
the lead for both Chicago licenses in bidding round 42 last Thursday, with
bids of $220 million and $211 million respectively.
 Federal Communications Commission officials overseeing the auctions said any
bidder that ended up with both licenses in a market would have to give up one
license and pay a penalty.
 Total high bids topped $3.7 billion through 43 auction rounds Friday.
WirelessCo, whose MSO partners are Comcast Corp., Cox Enterprises Inc. and
Tele-Communications Inc., had high bids for 21 licenses. Its total high bids
after the Friday morning round totaled about $650 million.
 After Thursday, WirelessCo had led in 25 markets and its high bids
(including the two in Chicago) topped the $1 billion mark.
 High bids for the single licenses available in the top two markets, New York
and Los Angeles, held steady all week at about $330 million each. ALAACR
Communications Inc., owned by Craig McCaw, led in New York, and Pacific
Telesis Mobile Services led in Los Angeles.
 Only one license is available in those markets because of "pioneer
preference" licenses previously issued to Cox Enterprises in Los Angeles and
Omnipoint Corp. in New York.
 AT&T Wireless PCS Inc. submitted a new high bid in the Washington, D.C.-
Baltimore market during the second round on Thursday, offering $110 million.
GTE Macro Communications Corp. had taken the lead there a round earlier. The
Washington market also has a pioneer license-holder: American Personal
Communications L.P., a WirelessCo affiliate.
 New high bids were posted for 12 of the 99 licenses in round 43.

 FCC DROPS CHARGES AGAINST TWO MSOS
 Washington -- The Federal Communications Commission last week dropped
negative option billing charges against Time Warner and Comcast Corp.
 The FCC found that the MSOs did not violate agency rules when they enrolled
subscribers in four-channel a la carte packages. Time Warner was cleared of
wrongdoing in Milwaukee, Wis., and Comcast in Tallahassee, Fla.

 FCC OFFERS LOOPHOLE ON COMPETITION RULES
 Washington -- The Federal Communications Commission stated Friday that it
would be willing to deregulate expanded basic cable rates even though the
cable operator is not subject to effective competition under the 1992 Cable
Act.
 In a ruling last week, the FCC declared that if a cable operator could
demonstrate that its rates were not "unreasonable" due to the presence of
multichannel competition, the agency would considering liberating the operator
from rate regulation.
 "In such instances, the public interest may be served by relying on the
market forces instead of our rate rules to ensure that the operator's rates
are not unreasonable," the FCC said in an action by the Cable Services Bureau.
 In a statement, Cable Bureau chief Meredith Jones said, "In cases where the
operators are price-restrained by market forces, the bureau will examine the
whole picture of competition in the franchise area. "As the Commission noted
in its video dialtone ruling and its ruling on new product tiers, and as [FCC]
chairman Hundt reiterated in his speech to the [Washington] Metropolitan Cable
Club last month, where competition assures us that prices will note be
`unreasonable,' we don't necessarily have to set prices by rate regulation,"
Jones said.
 The FCC declaration was buried in a case involving Tel-Com Inc., a West
Virginia operator that claimed a second cable operator, Triax Communications
Corp., was competing against it and therefore Tel-Com should be deregulated.
The FCC rejected Tel-Com's petition.
 For cable, the FCC's declaration is significant because current law requires
operators to lose 15 percent of their customers before the FCC, by law,
surrenders jurisdiction to regulate rates.
 The FCC said its comments in the Tel-Com decision related to the regulation
of expanded basic tiers only.
 The National Cable Television Association is lobbying Congress to repeal the
law's effective competition test, calling it an arbitrary measure of
competition.

 CABLE UNVEILS '95 TELECOM STRATEGY
 Washington -- The cable industry is asking Congress to overhaul the 1992
Cable Act's rate rules and prohibit telcos from cable markets until monopoly
telephone networks are readily accessible to competing providers.
 The National Cable Television Association recently unveiled its legislative
strategy in a 33-page battle plan transmitted to Capitol Hill lawmakers and
Clinton administration officials.
 Although the NCTA declined to release the full text to the media, the 17-
point plan that calls for deregulation of expanded basic tiers leaked out
almost instantly.
 Bradley Stillman, legislative counsel for the Consumer Federation of
America, blasted the NCTA's platform, saying the industry was attempting to
escape from key provisions of the 1992 re-regulation law.
 He said the plan was a "bald-faced attempt to get what they can ... They
really want to rollback all the benefits cable customers have received."
 One portion of the plan would overhaul the rate complaint process. It would
deny the FCC the right to consider an operator's rate increase unless the city
files a complaint or at least 5 percent of the subscribers complain
individually within 90 days.
 NCTA spokesman Rich D'Amato said the plan was limited in that the industry
was not requesting changes to regulated basic tiers. Honoring its pact with
broadcasters, the NCTA is not seeking repeal of must-carry or retransmission
consent, he said.
 Cable's plan surfaced during an active week on the telecommunications front
in Washington.
 A coalition headed by AT&T Corp. and MCI Communications Corp. announced that
retired Sen. Howard Baker (R-Tenn.), a former Majority Leader and White House
chief of staff under President Reagan, would serve as the group's chairman.
 Baker's group, the Competitive Long Distance Coalition, is trying to keep
the Baby Bells out of long-distance markets until local phone service is
competitive.
 The regional Bell companies earlier this month formed their own lobbying
group, the Alliance for Competitive Communications -- a successor to the MFJ
Task Force -- and named former Pacific Telesis vice president Gary McBee to
head it.
 D'Amato said the NCTA was not searching for a big name Republican to lobby
for cable in the GOP-controlled Congress. Also, House Commerce Chairman Rep.
Thomas Bliley (R-Va.) and Telecommunications and Finance Subcommittee
Chairman Rep. Jack Fields (R-Texas), encountered criticism for staging closed
meetings with cable, broadcast, satellite, local and long-distance company
executives on Capitol Hill.
 Cable executives that were invited were Ted Turner, president of Turner
Broadcasting System Inc.; Brian Roberts, president of Comcast Corp.; Gerald
Levin, chairman of Time Warner; and John Hendricks, chairman of Discovery
Communications Inc., sources said.
 Rep. John Dingell (D-Mich.), the Commerce panel's ranking member, said the
meetings seemed "to be the functional equivalent of a committee hearing" and
thus inconsistent with new GOP-backed rules on openness. House Speaker Newt
Gingrich defended the private sessions as appropriate, promising public
hearings in short order.

 -=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=-
 Quiz Show(time) ... Robert Redford believes in synergy, and clearly had an
eye on Viacom's other assets when agreeing to team with Viacom's Showtime to
launch the Sundance Film Channel. In announcing the deal, Redford told
Showtime's Tony Cox that he had some new terms in mind. "If this works out I'd
like to be assured of my own shelf at Blockbuster, O.K.?" Redford joked.

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