From: owner-cablereg-l@netcom.com

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Date: Sun, 5 Mar 1995 21:22:48 -0800
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CABLE REGULATION DIGEST
Summary of regulatory news from Multichannel News 3/6/1995. Vol.2, No.10
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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Multichannel e-mail contacts:
Marianne Paskowski, editor: [email protected]
John M. Higgins, finance editor: [email protected]
Kent Gibbons, new media editor: [email protected]
Leslie Ellis, technology editor: [email protected]

QUOTE OF THE WEEK
"Can you believe that? I don't think it has any political significance,
though."
FCC chairman Reid Hundt on his car which was stolen from the FCC
garage while Hundt was in Brussels at the G-7 Telecommunications
Summit.

CHRONICLE OKAYS $570M TCI DEAL FOR WESTERN
Tele-Communications Inc. moved closer to a deal for Chronicle Publishing
Corp.'s cable operations last week as the company's board approved the MSO's
$570 million offer for its Western Communications unit.
Sources familiar with the deal said the board approval sent Chronicle
executives working with TCI to draft a definitive agreement to seal the deal.
One source familiar with the negotiations said a sale could be completed
"within days." However, one Chronicle executive cautioned that "there's not a
deal yet."
Sources said Chronicle also decided to pull its broadcast TV stations from
the auction block.
Western is particularly lucrative to TCI because the Englewood, Colo.-based
MSO is trying to dominate the Bay Area market. For the past year, the MSO has
struggled to lock up almost every cable system around San Francisco, to create
one giant cable system blanketing about 85 percent of the region's cable
homes.
Western's systems serve about 60,000 subscribers around San Francisco. TCI
already owns and operates systems serving 475,000 subscribers in the region.
Last year, TCI cut a system swap deal to acquire Lenfest Communications's
110,000-subscriber systems in Oakland and Berkeley. InterMedia Partners, which
has 155,000 subscribers in San Jose and Santa Clara, is already a TCI
affiliate. Together, TCI and InterMedia are backing a venture to buy Viacom
Cable and its 378,000 subscribers in the region.
The proposed tax-free deal calls for TCI to pay about $270 million in its
own share plus assume about $300 million in debt, sources said. That would
give TCI 14 additional systems serving a total of 325,000 subscribers in
California, Hawaii and New Mexico.
The price equals about 10 times Western's projected 1995 cash flow. However,
stock deals always carry a relatively low price because the seller gets tax
benefits. One finance executive estimated that TCI's proposal is equivalent to
11 times cash flow for a straight cash deal.
Chronicle and its advisers, Salomon Bros. and Waller Capital Corp., would
not comment on the deal, and TCI only acknowledged that its talks with Western
are continuing.
TCI's initial proposal failed. A year ago the MSO had teamed with Rupert
Murdoch's Fox Corp. in an attempt to acquire both Chronicle's cable and five-
station broadcast operation, including San Francisco-flagship KRON-TV. But
that created immense friction among heirs to the DeYoung family, which
controls the century-old media company, including one faction that opposed
selling the stations.
TCI even was willing to acquire the whole company -- cable, broadcast plus
the flagship San Francisco Chronicle newspaper.
Dominating specific markets is a new-found mantra for TCI. For years the
company was known for its bulk, controlling more than 20 percent of the
nation's cable homes, rather than the local concentration MSOs that Time
Warner Inc. and Cablevision Systems Corp. have emphasized.
But the telephone business is changing all that. The first problem is that
TCI and other operators are facing competition from telephone companies that
can not only reach every home in a particular market, but generally in several
contiguous states.

GORE WAVES G7 TO PUSH DEREG
Brussels, Belgium -- By throwing down the gauntlet to the world's other six
major industrialized nations at the Group of Seven summit here, Vice President
Al Gore hopes to push the global powers to deregulate their telecommunications
industries soon.
Otherwise, Gore warned, they won't get any more freedom to enter the
lucrative U.S. market.
Gore made a surprise pledge at the G7 meeting here Feb. 24-26 to loosen or
eliminate the United States' 20 percent foreign ownership cap on common
carrier and wireless providers this year. His administration hopes that the
move will lead others to follow, resulting in bilateral agreements and
possibly a multilateral agreement on global telecommunications deregulation by
next year.
"The talks have been going on regarding these multilateral agreements. What
the vice president did was elevate them," Greg Simon, the vice president's
Domestic Policy Adviser, told Multichannel News. "He put it out in front so
that people couldn't ignore it and [put] a high level of support behind it:
The White House.
"We have certainly reached the point where protectionism is
counterproductive. Our companies want to go global. They can't because a lot
of other countries have far worse restrictions [than the U.S.]," Simon
explained. "We have the least restrictions of any of our trading partners,
with the exception of the United Kingdom."
Foreign ownership "can go to 100 percent in telecommunications," Gore said
at a G7 press conference, but he added that the new law would be "limited to
investors from countries that have opened their own markets. The principle of
reciprocity applies."
"When we come to these meetings, we have been criticized because we have
this one small restriction," his adviser Simon said later. "We're saying,
`We'll take ours away; you take yours away. Let's do it at the same time, and
let's get on with it.'"
G7 participants left the conference with the feeling that Japan would
continue to be the most resistant to opening its telecommunications market,
and that Gore's message on reciprocity was particularly aimed at France and
Germany, which are considered slow-moving deregulators.
U.S. officials are likely to reject a proposed 20 percent investment in
Sprint Corp. by Deutsche Telekom and France Telecom, based on the issue of
reciprocity, even if it makes it past European regulators, which is considered
unlikely.
Asked what countries need to be pushed most to change their rules, Simon
said, "I don't want to answer that question." But he declared that "the
inertia is set up against those who oppose it to justify why."
The G7 members include: the United States, Britain, Japan, Germany, France,
Italy and Canada.
The proposed U.S. foreign ownership limit change would not apply to cable
systems ownership, which is not restricted by foreign ownership rules, or
broadcasting, which is restricted.
U.S. officials say the change will be made either through the
telecommunications legislation currently being debated or through action by
the Federal Communications Commission, if the new bills get bogged down in
Congress. The Clinton administration has the power to sign a multilateral
telecommunications agreement with the G7 countries, with or without
legislation, but then Congress would decide whether to approve it, as it did
in the GATT world trade talks.

CLINTON OFFICIAL MAKES PUSH VS. RELAXING RATES
Washington -- Cable rate regulation is a matter of principle, not politics.
That was the message last week delivered by a Clinton administration
official, who flatly refused to endorse a Senate Republican plan that would
repeal all cable rate regulations one year after the new law took effect.
Speaking Thursday at a Senate hearing on pending telecom legislation,
Assistant Commerce Secretary Larry Irving spelled out administration policy on
cable and other issues saying cable deregulation under the GOP plan would harm
the public interest.
"We cannot and will not ... support deregulation of monopolies before the
arrival of actual competition. As long as monopolies continue to exist,
consumers must be protected," he said.
But Irving said he wasn't issuing veto threats over cable and agreed to
search for a compromise but would not provide many details.
"The administration has indicated a willingness to work with Congress and
[the cable] industry to minimize the burden of government regulation," Irving
told the Senate Commerce Committee.
In a related development last week, a top Department of Justice official
said the government would try to push its own telephone competition plan if it
seemed that reform legislation was bogged down in Congress.
But the plan would take years to implement because so much of it depends on
the willingness on state legislatures to rewrite their laws that protect local
phone companies from competition, conceded Anne Bingaman, the chief of the
Justice Department's Antitrust Division.
Speaking at the National Press Club on Wednesday, Bingaman said the DOJ's
plan would permit Baby Bell entry into long-distance phone markets but not
before the Bells themselves face competition in their local markets.
The next day, Irving clashed with GOP's broad deregulatory approach backed by
Commerce Committee chairman Larry Pressler (R-S.D.).
Pressler held the first hearing on his proposal March 2 in keeping his plan
to send the White House a bill by July 4.
In an interview, Irving said cable "was a thriving industry." He said the
administration had in mind helping small cable operators but "effectively
deregulating basic or enhanced basic is not something the administration in
favor of."
Irving's approach was slightly more flexible than the Senate Democrats'
plan, which would leave current law untouched and require cable operators to
lose 15 percent of their customers before deregulation occurs.
Irving said he was trying to avoid the experience of the 1984 Cable Act when
cable operators raised rates after Congress approved sweeping deregulation.
Over in the House, a bill or a draft of one has yet to emerge.
House Telecommunications and Finance Subcommittee chairman Rep. Jack Fields
(R-Texas) said last week he and Rep. Edward Markey (D-Mass.) were still
negotiating the terms of a bipartisan bill.
Fields has said he wants some form of cable rate relief to be included when
consensus legislation is introduced.
The National Cable Television Association is seeking rate relief for upper
programming tiers when telcos can compete and direct-broadcast satellite
subscribership reaches unspecified levels. The NCTA also wants to check the
Federal Communications Commission's authority to block rate increases.
In a speech last week to the CableLabs Convergence Meeting in Santa Barbara,
Calif., NCTA president Decker Anstrom stressed the need for cable rate
deregulation.
"Cable companies are the only likely source of competition to the phone
industry's $100 billion monopoly -- but our task is a truly monumental one,"
Anstrom said.
Before the Senate Commerce Committee, Irving said lifting cable regulations
would hurt consumers because DBS had not matured into a viable service.
By contrast, Anstrom said DBS was "signing up customers by the thousands,
adding that the combination of video dialtone and DBS would ensure that cable
rates "remain reasonable under a revised definition of effective competition."

MICROSOFT, TCI LIMIT TRIAL FOCUS
Englewood, Colo. -- Tele-Communications Inc. and Microsoft Corp., which are
jointly testing an interactive television system in Seattle, will target all
of their combined focus there rather than in Denver, as originally planned.
"We already had a good sampling of the kinds of demographic purchasing
behaviors in Denver through our Viewer Controlled Television [VCTV] test
here," said Bruce Ravenel, senior vice president and chief operating officer
of TCI Technology Ventures.
Further, said Ravenel, the companies decided to focus their attention on a
full 2,000 homes in Seattle, rather than split the trial up into 1,000 homes
in each location.

OVERBUILDER FPL FINALLY SELLS OUT
Once-ambitious overbuilder FPL Group finally brought its cable operations to
an end, agreeing to merge its Florida systems into a unit of Adelphia
Communications Corp.
FPL will merge its Telesat operation into Adelphia's Olympus Communications
partnership, which owns most of Adelphia's systems in south Florida. FPL will
receive $112.5 million worth of preferred equity in Olympus plus 1 million
Adelphia shares currently worth $11 million. Waller Capital Corp. represented
FPL in the deal.
Separately, Century Communications Corp. agreed to pay $98 million in cash
and stock for nine systems owned by Rock Associates.
The properties serve 47,000 subscribers in Coeur d'Alene, Moscow, and
Bonners Ferry, Idaho; Libby, Mont.; Friday Harbor, Wash.; Gunnison and
Telluride, Colo.; and Susanville and Burney, Calif.
Century president Bernard Gallagher called the Rock properties "nice,
middle-market systems" and was particularly interested in the operation on the
Washington-Idaho border.
In the Adelphia deal, FPL's Telesat unit was one of the most aggressive
overbuilders, embarking on an aggressive plan to compete head-on with
operators in developing parts of the state. Other operators accused Telesat of
being a "greenmailer," sparking price wars in order to force incumbent systems
to buy out Telesat.
That strategy was partly successful as Telesat coaxed some competitors to
buy or partner with its systems. Terry Bienstock, a Miami lawyer who
represented cable operators in a number of disputes with Telesat, said
Continental Cablevision Inc., Adelphia, Colony Communications Inc. and Storer
Cable Inc. all cut deals with FPL systems.
However, that exit was closed by the Federal Trade Commission, which in 1991
began blocking the sale of overbuild systems to incumbent operators, including
a proposed sale of Telesat to Time Warner Inc.
FPL was left with systems serving 50,000 subscribers in central and western
Florida, primarily competing with Time Warner operations. The power utility
put the properties up for a straight sale two years ago, but the systems
languished on the market.
The good news for heavily leveraged Adelphia is that the Telesat operation
carries just $7 million of debt and $20 million in cash. That will reduce
Olympus' leverage from six times cash flow to five times cash flow, according
to Salomon Bros. Inc. analyst Oren Cohen.
Olympus currently controls systems serving 252,000 of Adelphia's 1.4 million
subscribers nationwide. Overall, Adelphia's debt is running at a huge 10 times
cash flow, the highest leverage of any major operator.

UTAH DEREGULATES TELCO INDUSTRY
Salt Lake City - Utah lawmakers voted last week to abolish the state's
telephone monopoly, setting the stage for an invasion of the local exchange by
cable television operators and long-distance carriers.
The Senate voted 25-0 to approve the Telecommunications Reform Act that
passed the House of Representatives on an equally overwhelming 73-0 vote the
previous week.
"We didn't leave anything to chance," joked David Spatafore, spokesman for
the Utah Cable Television Association. "Our legal counsel is reviewing it now
and we're very encouraged."
The law guarantees any telecommunications company certified by the Public
Service Commission the right to interconnect with U S West Communication's
local telephone network.
Moreover, it ensures number portability, a provision crucial to competition
because it allows consumers to switch local carriers without having to
surrender their current telephone number.
With 80 percent of the Utah cable market, Englewood, Colo.-based Tele-
Communications Inc. stands to reap the biggest benefits from the new law.
Sources indicated that a member of the Utah Department of Public Utilities
immediately contacted TCI to inquire how soon the company would be ready to
enter the market.
Vickie Hansen, a spokeswoman for TCI in Utah, said the company's rebuild of
its 26,000-subscriber Salt Lake City system is expected to be completed by
year's end.
"So the ability [to provide telephone service] will be there," Hansen said.
"As well as other telecommunications services."
As for U S West, the law stipulates that on May 1, 1997, the state will
substitute price cap regulation for its existing rate-of-return method of
regulating the company.
It also empowers the PSC to designate areas in the state where competition
has emerged, and grants U S West full price flexibility to respond to
competition in those zones.
In the interim, U S West will submit a rate case to the PSC that will set
basic telephone rates in non-competitive areas. Those rates will be frozen for
three years, unless effective competition enters an area.
At the end of three years, the PSC is expected to have devised a formula for
determining how much telephone rates can increase in non-competitive zones.
Crucial to passage of the law was a last-minute amendment giving the PSC the
right to determine how much of an estimated $39 million investment in the
local telephone infrastructure U S West will be allowed to recover through
higher rates.
"You can talk to any of the parties involved, and I think you'll find that
nobody got everything they wanted," said U S West spokesman Duane Cook. "But
in the end, I think we came up with a true compromise."

RBOC CHIDES CABLE ON FILINGS
Washington -- Bell Atlantic Corp. last week said the cable industry had only
itself to blame for having to incur a growing share of regulatory fees imposed
by the Federal Communications Commission.
In an FCC filing, Bell Atlantic said the cable industry has added to the
FCC's costs by flooding the agency "with filings that seek to avoid the
congressional mandate of rate regulation."
The Baby Bell, which should be among the first to offer video dialtone, also
said the cable industry has filed "often frivolous filings made in an effort
to prevent competition from telephone companies."
Finally, Bell Atlantic said cable's proposed share of the fee payment pie
"is disproportionately low because the cost of those filings are included as
part of the cost of regulation of telephone companies and not cable."
Under orders from Congress, the FCC is planning to collect $116.4 million in
user fees to cover a portion of its $185.2 million budget. Cable's share would
be about $30 million or 25 percent.

THREE BABY BELLS ISSUE SET-TOP RFP
The three-member Baby Bell consortium known as Platco last week issued a
request for proposals on the 4 million "digital entertainment terminals" and
related network components it needs to build video networks.
Bell Atlantic, Nynex Corp. and Pacific Telesis, which enjoy a combined
customer base of more than 30 million homes, hope to bring down the costs of
the terminals through bulk purchasing and economies of scale, so that they can
be "the absolute low-cost provider" of video dialtone services, according to
the RFP.
"By agreeing on basic functionality and combining our orders for set-top
boxes, we expect that manufacturers will be able to produce the high-
performance equipment our customers want at a significantly lower cost," said
Walter Silvia, vice president of broadband marketing and implementation for
Nynex, in a statement.
Platco's target price for a digital box falls in the $250- to $350-range,
according to one executive affiliated with the request.
Specifically, the regional bell companies are seeking proposals for digital
entertainment terminals, network interface modules (NIMs), analog set-tops,
and associated software so that customers equipped with the terminals can
receive and decode video signals and interact with their respective video
entertainment providers.
Notably, manufacturers General Instrument Corp. and Scientific-Atlanta Inc.
are named in the RFP as providing technology with which other respondents must
conform.
The exact language of the document asks respondents to propose a price that
"includes the GI price for sub-assembled or fully-assembled network interface
modules (NIMs), plus any applicable licensing fees." NIMs are slide-in circuit
boards.
Respondents may also be required to acquire NIMs from Scientific-Atlanta,
according to the RFP.
Approximately 30 set-top manufacturers received the bulky RFP, which one
vendor described as "about an inch thick," on Feb. 24. Responses are due on
April 3, and Platco executives hope to make vendor selections in May.

SEGA WILL SELL NEW TITLES DAILY
The Sega Channel will launch a new, daily "transactional" service this
summer that will allow monthly subscribers to access newly released titles.
The yet-to-be titled service will provide subscribers with the opportunity
to download a game within the same window as the title's home video release,
said Katherine Lewis, general manager of the service. Currently, Sega offers
video games approximately three to four months after their commercial releases
in home video stores.
Lewis, who recently joined Sega after serving as vice president of PPV for
Time Warner's New York City Cable Group, said subscribers will pay a premium
-- around $3 -- on top of the $12.95 to $14.95 monthly charge the channel
costs them for the new titles.
"If you're a Sega subscriber you'll have the opportunity to rent and play a
brand new game day and date with the video store," said Lewis. "It also gives
the industry a chance to be truly competitive with the home video."
The amount of time the subscriber has to access the game has not been
determined, but it would not be longer than 24 hours, Lewis said. She added
the new service will not effect Sega's monthly premium service, nor its "test
drive" service that provides early previews of upcoming titles.
In other Sega Channel developments, the network has a "tentative" June
launch date on Time Warner Cable's Paragon Cable system in Manhattan, N.Y.,
said a Sega channel spokeswoman. She added the service currently has close to
60 system affiliates representing approximately 2 million households.

-=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=-

New Paris, Ind., does not want its MTV. Or its VH1. When Quality
Cablevision Inc. ran a consumer survey of its 1,173 subscribers to see which
channels they preferred, MTV came in dead last, with VH1 not much higher. So,
on March 1, the system dropped both Viacom channels to add The History Channel
and MOR Music, which might be replaced with MuchMusic. System general manager
Mark Grady said only 69 of the 600 survey respondents watched MTV often, and
many wrote negative comments about its content. Weirdly enough, one-third of
Grady's coverage area competes directly with the neighboring TCI system, which
carries MTV. "Two people called to say they would change to TCI," said Grady.
"But we've had four calls from people that said they would come over because
we took it off."

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