Date: Sun, 19 Mar 1995 20:29:01 -0800
Subject: Cable Regulation Digest 3/20
Reply-To: [email protected]

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CABLE REGULATION DIGEST
 Summary of regulatory news from Multichannel News 3/20/1995. Vol.2, No.12
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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John M. Higgins, finance editor: [email protected]
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Leslie Ellis, technology editor: [email protected]

  QUOTE OF THE WEEK
"Besides beaming from ear to ear, he did the gentlemanly thing: he got up
and helped her out of the cake."
   One of 250 people attending a raucous birthday party for Comcast
   Corp.'s 75-year-old chairman Ralph Roberts. The woman jumping out of
   the cake was Ralph's wife, Suzanne.

 SENATE COMMITTEE PUTS VIACOM SALE IN PERIL
 Washington -- Viacom Inc.'s sale of its cable systems appeared doomed
after the company lost a key Senate vote to preserve a tax break in its
deal with a venture backed by Tele-Communications Inc.
 However, Viacom and TCI are studying ways to structure a new tax-free
deal not involving the fading minority tax certificate program.
 Last Wednesday. the Senate Finance Committee voted, mostly along party
lines to kill the 17-year-old tax law that permits capital gains deferral
on the sale of a media properties to a minority buyer.
 At the same time, the panel, headed by Sen. Robert Packwood (R-Ore.)
voted to make the repeal effective date Jan. 17, before Viacom signed a
deal to sell its cable systems for $2.3 billion to a venture led by
African-American lawyer Frank Washington and backed by TCI and InterMedia
Partners.
 That would deny Viacom use of the tax certificate estimated to be worth
up to $600 million. The deal was contingent on receiving the tax breaks.
Sen. Carol Moseley-Braun (D-Ill.), the only African-American in the Senate
and a Finance Committee member, said the vote was blow to affirmative
action and minority ownership of broadcast and cable businesses.
 "All I know is that women have 3 percent of this industry [and]
minorities have about 2 percent of this industry and this [vote] cements
the glass ceiling," she said moments after the vote.
 The vote doesn't leave Viacom, TCI and InterMedia a lot of room. The
companies plan to keep pushing the issue as the bill moves to a vote by the
full Senate hoping that Braun and other key Democratic supporters of the
tax certificates can alter the clause.
 "We're extremely disappointed," said InterMedia CEO Leo Hindery. "We
still believe that retroactive tax policy is wrong and unfair."
 But no one was optimistic. "We're digging out of a hole that's really
deep," said one executive lobbying for the deal.
 Packwood has said that he wants to bring the bill to the Senate floor by
April 15 to allow self-employed workers to take health care premium
deductions included in the bill and paid for by the elimination of the tax
certificate program.
If they lose on the Senate floor, there are other ways TCI and Viacom can
work out a tax-free deal. The recent deals for TeleCable Corp. and Times
Mirror Cable Inc. and Colony Communications Inc. are all tax-free through
different kinds of stock swaps.
 But negotiations for the last deal went on for more than a year, so no
one is looking forward to recutting the transaction.
 "The only common trait is they want to sell, we want to buy," said one
executive on TCI's side. "God it's going to get tough after that."

 CABLE GROUP BAGS 29 PCS LICENSES
 Washington -- The Sprint-cable consortium walked away from the PCS
auction table with the biggest pile of chips, bagging 29 broadband
licenses, including the prized New York City market.
 But the price was huge: $2.1 billion. For the New York area license
alone, the group, called WirelessCo L.P., has to shell out $443 million to
serve a territory that includes 26 million people.
 The cable partners -- Tele-Communications Inc., Cox Enterprises Inc. and
Comcast Corp. -- and Sprint Corp. won their licenses last week when the
Federal Communications Commission declared the three-month auction over
after 112 rounds of bidding passed and no new bids were placed.
 The U.S. Court of Appeals, however, has blocked a new round of bidding,
aimed at awarding licenses to women, minorities, rural telcos and small
businesses.
 The Sprint group next will write the FCC a check for about $400 million,
a 20 percent down payment on the $2.1 billion. Overall, the auction grossed
more than $7 billion dollars.
 Jerry Gaines, senior vice president of telephony services at TCI,
predicted the group's talks with other potential affiliates with cable
systems or with PCS licenses "will be heating up dramatically now." Some
affiliates may be given equity stakes in the venture, he said. Cable
affiliates probably will be announced first, he said.
 WirelessCo will be touting a package of wired and wireless local and
long-distance calling along with cable TV services. "We think the game
really is the kinds of services you offer customers and how those services
are packaged and presented," said Tom Mateer, Sprint's director of wireless
strategy development.
 The venture is 40 percent-owned by Sprint. TCI owns 30 percent, and
Comcast and Cox each own 15 percent. The venture will take on debt separate
from the parent companies.
 Mateer said when he looks at a map he sees a sea of red -- WirelessCo
used red tacks to signify its high-bid areas. But there are plenty of holes
in the nationwide net. He said affiliates in Houston, Tampa and Chicago are
the biggest priorities. After that, in no particular order, are such
markets as Atlanta; Memphis and Knoxville, Tenn.; Charlotte, N.C.;
Jacksonville, Fla.; Cleveland, Cincinnati and Columbus, Ohio; and El Paso,
Texas, he said.
 WirelessCo's nationwide strategy includes drawing affiliates from further
PCS auctions. The next round is scheduled to begin in 75 days if the
appeals court stay is lifted.
 The second-highest bidder was AT&T Corp., which paid $1.6 billion for 21
licenses. A Baby Bell partnership of Bell Atlantic Corp., Nynex Corp.,
AirTouch Communications (a spinoff of Pacific Telesis Group) and U S West
Inc., paid $1.1 billion for 11 licenses.
 Cox, already awarded a license to serve 19 million people in the lower
California region, is required to pay about $251 million under the formula.
 In the auction, Pacific Telesis Group was the high bidder for the second
Los Angeles-San Diego license, paying $494 million for it.

 HOUSE BILL WOULD LET CONSUMERS BUY BOXES
 Washington -- Two senior congressmen kicked off a bipartisan effort last
week to allow consumers to buy an own cable set-top boxes -- currently
rented from operators in most cases -- from retail outlets.
 Not surprisingly, the proposed legislation rankles the cable industry,
because making set-tops commercially available also means that internal
descrambling parts -- necessary for operators to secure premium programs --
will be more easily compromised by would-be signal pirates.
 The proposal also poses an odd situation for consumers who buy a set-top,
then move out of their franchise area into another cable operator's domain
-- rendering the box useless.
 But in their proposal for new legislation, House Commerce Committee
chairman Thomas Bliley (R-Va.) and Rep. Edward Markey (D-Mass.), ranking
member of the telecommunications subcommittee, said the time had come to
open up the market for converter boxes and other communications access
devices.
 "Restricting consumers' ability to purchase and own cable set-top boxes
and other communications interface equipment is like putting a straitjacket
on technological development," Bliley said. "There's no incentive for
improvement, because there's no competition -- and prices are kept
artificially high."
 Bliley compared cable boxes to the telephones of "a generation ago" when
consumers were required to rent from AT&T Corp. He said the availability of
telephones on the retail level had led to innovations and reduced prices.
 Bliley said the bill would also make it easier for frustrated consumers
to find set-top equipment that is compatible with VCRs and special options
on television sets.
 Cable industry executives scoffed at both charges, saying that a
comparison of phones to converters is like a comparison of apples to
oranges.
 The cable industry, however, remains concerned about signal theft,
according to National Cable Television Association spokesman Rich D'Amato,
who couldn't comment on the specifics of the bill.
 D'Amato said cable theft is already a $4 billion drain on a $23 billion
industry, and that taking away operators' control of set-top devices could
create "a monstrous problem," not only for systems but for consumers, who
must ultimately foot the bill.
 Geoff Roman, senior vice president of technology for General Instrument
Corp., said he was concerned about maintaining network security.
 "It's unclear exactly what the ramifications of this [proposal] will be
on set-top manufacturers," Roman said, adding that "for network operators,
it could pose a real problem to secure signal transmissions."

 FBI NAILS EAST COAST CABLE PIRATES
 Newark - FBI agents bagged two cable pirates for selling hundreds of
General Instrument Corp. descrambler boxes that may have been stolen from
MSOs in Baltimore and Philadelphia.
 In a complaint filed March 6 in a U.S. District Court in New Jersey, the
bureau said one of the men involved indicated that his suppliers were
employees at a cable system.
 The man told an undercover FBI agent that the employees covered their
tracks by erasing the boxes from the company's computerized inventory
system.
 A source familiar with the situation said the FBI may have stumbled
across a network of cable employees or contractors "that were funneling
hundreds of stolen converters to these people."
 It was not immediately clear if employees at both systems were involved.
 A check of GI records revealed the stolen descramblers originally had
been shipped to a number of GI customers, including Tele-Communications
Inc. in Baltimore, and Comcast Corp. in Philadelphia, according to the FBI
filing.
 In its complaint, the government alleged that on three separate occasions
in February, George Kanter, a.k.a. "George the Animal," and Stan Cottman,
a.k.a., Stan McLeod, approached the undercover FBI agent about acting as
the middleman for the sale of stolen descramblers.
 On Feb. 10, the agent purchased 75 new GI DPBB-7 descramblers still in
the original cartons for $9,100. He purchased another 70 boxes for $7,000
on Feb. 19, and another 86 descramblers for $14,930 on Feb. 21.
 In all, the agent paid a total of $31,231 for the stolen descrambler
boxes, or an average of $134 apiece.
 It was during the second transaction that Cottman allegedly told the
agent the descramblers were removed by employees at the cable systems.

 NEW DBS PLAYER, ALPHASTAR, ENTERS CROWDING FIELD
 Las Vegas -- The fast-growing direct-broadcast satellite industry may
have another service provider in December with the launch of the 100-
channel AlphaStar, announced last week by Canadian manufacturer Tee-Comm
Electronics Inc.
 AlphaStar would join a field already featuring DirecTv Inc., United
States Satellite Broadcasting Inc. and PrimeStar Partners' services. A
fourth service, EchoStar, may be under way by then, too.
 But because AlphaStar has relatively low satellite-leasing costs, it also
has a relatively small threshold to meet in order to break even: about
500,000 subscribers. Analysts said the service should be able to hit that
target, provided it has some programming that's different from its
competitors.
 "This AlphaStar has seen an opportunity to provide some different
programming that subscribers can't get on the others," said Michael Alpert,
a Washington, D.C.-based DBS consultant. "If they don't see it that way, I
don't think they have a business."
 AlphaStar's schedule depends on when AT&T Corp. is able to launch its
Telstar 402R satellite. Karl Savatiel, director of sales and marketing for
AT&T Skynet Satellite Services, said the company has applications before
the Federal Communications Commission and expects to launch the bird this
fall. AlphaStar will use 24 transponders on the satellite.
 Al Bahnman, chairman and CEO of Tee-Comm, which makes home satellite-dish
equipment, said the high-power digital system will feature a 24-inch dish
and a version of the company's Star Trak 1000 line for C-band satellite
receiving.
 Alpert said the 24-inch dish would be a competitive disadvantage compared
with the DirecTv and USSB "Digital Satellite System," made by Thomson
Consumer Electronics Inc., which uses an 18-inch dish.
 PrimeStar's system requires a 36-inch dish. Unlike the other DBS
services, which require consumers to buy the home equipment, PrimeStar
provides the dish and receiver.
 Although Tee-Comm is a Canadian firm, the company said it would comply
with U.S. regulations for beaming satellite TV into the U.S. Foreign-
ownership rules that apply to broadcast services would not be a factor
because the venture will use a U.S.-owned satellite, Tee-Comm said.
Analysts said that probably was correct, although AlphaStar could come up
against ownership rules if it builds a U.S.-based uplink facility to
transmit signals to the satellite. Tee-Comm plans to use an uplink center
near Toronto.
 Tee-Comm said the service will use the DVC Compression NetWorks
architecture designed by TV/COM International of San Diego.
 Tee-Comm will use its MPEG-2 system in Canada this fall through ExpressVu
Inc., a DBS service provider. That means Tee-Comm will have three months of
experience with the digital system before the AlphaStar launch.

 CABLE GAINING GROUND WITH STATE TELCO REGULATORS
 Washington -- The cable industry's state-by-state effort to open local
phone markets appears to be gaining ground.
 Last fall, the National Cable Television Association announced it was
targeting six states in a joint lobbying effort to pry open local phone
markets.
 The NCTA listed Florida, Georgia, North Carolina, Ohio, Texas and
Virginia.
 One of the six -- Virginia -- has already enacted legislation that lifts
the ban on phone competition and authorizes the state corporation
commission to approve service by new entrants.
 "In just two months into 1995, we're making some real progress in those
states," NCTA president Decker Anstrom told reporters last week. "In
Virginia, we appear to have a clear victory."
 Utah and Wyoming have joined Virginia in passing new laws in the first
quarter. Nationwide, 14 states have competition laws on the books; of
these, seven have actually authorized a competitor to take on the incumbent
phone company.
 Anstrom said later this year Time Warner Cable would likely be the first
MSO to derive revenue from local phone service. Time Warner Inc. is gearing
up to go head-to-head against Frontier Corp. in Rochester, N.Y., the
country's 13th-largest local exchange carrier.
 Cablevision Systems Corp., Anstrom said, was planning to offer local
phone service next year on Long Island, N.Y., having recently reached an
interconnection agreement with Nynex Corp., the state's dominant local
carrier.
 "The tide for competition in telephony is irreversible and the telcos
can't stop it. Not surprisingly, however, they are resisting these efforts
in a number of states," Anstrom said.
 Anstrom pointed to Ohio where the right for cable operators to compete
against Ameritech Corp., a Baby Bell, won't be easy. Time Warner has filed
petitions with the Public Utility Commission (PUC) to compete in 37
counties.
 "Ameritech has now challenged the PUC's authority to allow a second
carrier into any of these markets, and indeed, has told the state that
competition for competition's sake should not be the state's policy,"
Anstrom said.
 Anstrom said the NCTA decided to add two more states to the list --
Missouri and Arizona -- because deregulatory legislation appears to be
moving forward. A Missouri bill has cleared committees in the House and
Senate (see story below).
 The cable industry, in concert with long-distance carriers like AT&T
Corp., competitive access providers, newspapers and consumer groups, was
forced to adopt a state-by-state strategy because Congress failed to pass
telecommunications reform legislation last year.
 Last September, legislation died on Capitol Hill that would have swept
away local laws prohibiting local phone competition. A few of the Baby
Bells opposed the legislation because they disliked provisions dealing with
their entry into long distance, among other things.
 "Obviously, the RBOCs in particular are the single greatest barrier to
competition in telecommunications," Anstrom said.

 TCI CONTRACTOR TRIGGERS GAS EXPLOSION
 Denver -- A TCI of Colorado subcontractor was blamed last week for an
explosion that leveled two homes and severely damaged three others in an
upscale subdivision north of Denver.
 Developers Cable Construction Inc. was using a "Ditch Witch," an
underground drilling tool, to bore a 900-foot path for television cable
when it sliced an 11-inch section out of a natural gas line that runs
beneath the affluent Stratford Lakes subdivision.
 The gas seeped into two nearby homes, where it was ignited by an
electrical spark, flattening both residences and causing severe fire damage
to three others. Two of those homes will have to be condemned and torn
down, the Denver Post reported.
 Only minor injuries were reported, although there were some close calls.
 A woman on the second floor of one of the homes that exploded was thrown
clear by the blast. The only serious injury was to a three-month-old child
in a nearby residence who suffered a broken collarbone.
 Mark Stutz, a spokesman for Public Service Co. of Colorado, said this was
not the first time a subcontractor working for a cable company had severed
one of the utility's gas lines.
 "We've had some problems with subcontractors for cable companies, but I
couldn't give you an exact number," Stutz said.
 Steve Santamaria, general manager of TCI's cable operations in metro
Denver, said the subcontractor had been suspended from doing any more work
for TCI pending an investigation.
 However, Santamaria said Developers Cable Construction had done 120 miles
of underground drilling for TCI of Colorado in the last two years, "and
they hadn't had an incident during that time."
 Santamaria headed a TCI response team that visited the site two days
later, offering assistance with lodging, food and clothing.

 NEW NETS STILL STRUGGLING
 New York - Continued channel shortages and delays in fundraising have
prompted several aspiring new cable networks to push back their launch
dates, but they're still planning to debut by the end of the year.
 World African Network, Booknet, The Military Channel and the four new
networks announced by Discovery Networks -- Animal Planet, Living, Quark
and Time Traveler -- all said they had adjusted their launch plans. All the
services insisted they would launch.
 "We found that there's a lot more work than we anticipated," said Eugene
Jackson, chairman and CEO of WAN, a premium service that now plans to
launch in the fourth quarter of 1995. "We certainly wouldn't be hiring all
this staff if we weren't going to get on the air."
 At the Military Channel, "Our challenge is to get our launch capital in
place," said Lt. Col. Steven Titunik, president.
 Discovery Networks had initially announced its four new channels would
launch in the second quarter of this year, perhaps as early as April.
 A Discovery spokesman said president and COO Greg Moyer was not available
to discuss the delays, but he insisted the four channels will launch by the
end of the year. The spokesman attributed the holdup to the lack of channel
space currently available.
 A Discovery Networks source said the delays, estimated at 9 to 12 months,
would give network executives time to rethink business plans for the
spinoffs.
 The source said the services -- originally designed for new product tiers
-- might achieve more distribution than expected if Congress deregulates
cable rates. When Discovery announced the new networks in mid-1994,
government deregulation was not considered a realistic possibility.
 Cable operators said they had not been pitched on the new Discovery
networks lately.
 Aside from pushing back WAN's launch date, Jackson said the channel was
proceeding according to its original business plan. He said the network had
already spent $3 million, adding that WAN expects it will take an
investment of $20 million to $30 million to break even.
 Jackson said he expected the $9.95 service to attract 100,000 subscribers
after its first year of operation, 250,000 after two years and 400,000 --
the break-even point -- after three years.
 "We've had a much longer pre-operation period than we thought, but it's
been beneficial to us in some ways," said Jackson. "It's given us more time
to do research and get ready to launch."
 Jackson said the Atlanta-based WAN, which currently has 20 employees,
will hire 20 to 30 additional people by the end of this summer. The network
has not yet leased a satellite transponder.
 WAN's programming schedule will include Hollywood and independent movies,
two-and-a-half hours of news a day, African films and "historical" sports
shows.
 Titunik said The Military Channel, which runs some of its programming on
Tele-Communications Inc.'s tv! Network, needs $15 million to $20 million in
funding to launch the channel. He said the channel was in talks with
several investors, but�20no deal had been struck yet.
 "Everything is keyed to the funding coming in," said Titunik. "We can
launch a product 120 days post funding."
 The Louisville, Ky.-based programmer has 18 employees and has secured a
satellite transponder. Titunik said the service will launch with eight
hours of daily programming.
 The Military Channel, which has a version of the network in front of 1.5
million cable homes in Taiwan, will feature movies, documentaries, call-in
shows with military leaders and sports from military colleges.
 Booknet, the brainchild of author E.L. Doctorow, had hoped to launch in
summer 1994, but funding issues and lack of channel capacity have pushed
the launch date back to somewhere between September 1995 and January 1996,
said a spokes-man.
 "It's taking longer than we thought it would," he said.
 The network aims to create a 24-hour schedule with programming about
books, documentaries about authors, news about the publishing industry,
children's programming and home shopping for books.

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

 Would Jones Intercable leave Denver? Well, it's not moving its
Englewood, Colo. HQ but the MSO might part with its suburban Denver cable
systems. Smurfs say that Jones is talking with TCI, but only about swapping
for other systems, not a straight sale. TCI has been striving to dominate
metro Denver and currently serves 349,000 customers -- 76 percent of the
market's cable homes. It's not clear what TCI is willing to give up in
return, but the MSOs overlap in two areas important to Jones: Maryland and
Arizona. Both companies issued a big "no comment" on the talks. The Jones
systems serve around 40,000 customers and are worth around $80 million.

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