From: [email protected]
Date: Sun, 26 Mar 1995 22:25:20 -0800
Subject: Cable Regulation Digest 3/27
Reply-To: [email protected]

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CABLE REGULATION DIGEST
 Summary of regulatory news from Multichannel News 3/27/1995. Vol.2, No.13
Copyright 1995 Multichannel News. Reproduction/distribution is permitted
so long as this document is left fully intact. NO CHANGES are to be made
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 QUOTES OF THE WEEK
 "The legislation as marked up falls far short of what we had hoped for."
      Robert Sacks, senior VP legal affairs for Continental Cablevision
      echoing cable industry disappointment that the Pressler bill would not
      eliminate cable rate regulation.

 "The bigger picture is more important. This is a very good day."
      Another senior MSO executive.

 OPS WIN TELCOM REFORM, BUT SUFFER RATE DEFEAT
 Washington -- Cable operators' march toward rate deregulation stumbled last
week when a Senate committee passed a sweeping telecommunications reform that
could still cap cable prices.
 The bill eases cable entry into telephony, eliminates Federal Communications
Commission oversight of video dialtone after one year and allows the seven
Baby Bells to enter the long-distance phone market outside their regions right
away, but not inside their areas.
 While the Senate Commerce Committee's 17-2 approval last Thursday of Sen.
Larry Pressler's (R-S.D) telecom bill would help clear operators' route into
the telephone business, senators at the last minute scrapped a proposal to
deregulate cable rates. After a hurried and at times chaotic debate, the
committee decided to only partly relax expanded-basic service regulation and
keep the broadcast-basic tier regulated.
 Under a "bad actor" clause, the FCC could still price regulate the upper
tier when the rate charged "substantially exceeds the national average rate
for comparable cable programming services."
 The compromise was included after a night-long battle between staffs of
deregulatory-minded Republicans and a coalition of rural state Republicans and
Democrats fearful of cable price hikes.
 While lauding many of the provisions forcing telcos to compete, MSO
executives expressed frustration over what Marcus Cable chairman Jeff Marcus
called "the Wednesday night massacre." On Tuesday, operators thought the bill
would virtually level all price caps.
 "The legislation as marked up falls far short of what we had hoped for,"
said Robert Sacks, senior vice president of corporate and legal affairs for
Continental Cablevision Inc.
 "Our position will continue to be that we think the upper tier should not be
subject to regulation," said Decker Anstrom, president of the National Cable
Television Association. "We haven't had a chance to look at the language.
We'll have to study it some more."
 Commerce Committee chairman Pressler said the FCC's function would be
reduced to policing only operators passing through exceptionally aggressive
price hikes.
 "I think the cable fight is over," Pressler said, moments after the panel
reported the bill to the Senate. Pressler predicted competition would lead to
cable's "total deregulation within a year."
 Indeed, the bill gave MSOs a substantial break on competition. Under the
current law, regulation is lifted only if a system faces "effective"
competition from competing video services reaching at least 50 percent of a
local market and actually securing 15 percent of the areas video subscribers.
 That "50-15" rule still applies to competition from direct-broadcast
satellite, wireless cable or an overbuilder. However, the Pressler bill would
immediately deregulate a system the instant a telco enters the market no
matter how small its customer base.
 Despite the unexpected blow on prices, cable executives and lobbyists said
they generally favored the bill because it opened the doors to competition in
nearly all telecom markets, including their entry into the local telephone
business.
 "We're delighted this early in the year to have gotten a great beginning
past the Senate Commerce Committee," said Brian Roberts, president of Comcast
Corp. and a key player in cable's push into telephone services.
 "The bigger picture is more important," said another senior MSO executive.
"This is a very good day."
 The bill would ease cable's entry into the local phone business by voiding
state laws that protect monopoly phone providers. Cities couldn't use their
franchise authority to extract financial and service concessions from cable
operators offering phone service.
 In addition, the bill requires telcos to negotiate in good faith with cable
competitors that want to interconnect with their networks. It also protects
cable's access to telephone poles, ducts and conduits at proportional rates.
 Operators see one big snag there. Small independent telcos would be exempt
from the interconnection requirements, handcuffing cable operators in many
small towns to prevent them from offering telephone services.
 "If you can't interconnect in a smaller market you can't do telephony,"
Marcus said.
 In a setback for cable, telcos would not be required to first open their
networks before pushing into video, a change from earlier drafts.
 For the first year under the bill, telcos would need so-called Section 214
approval from the FCC to construct video delivery facilities. The FCC
authority sunsets starting in year two. Neither a telco nor its programming
affiliate would need a local franchise unless the telco builds a traditional
cable system.
 However, the bill contains certain safeguards. Telcos would still be
required to file rate schedules with the FCC. Also, the Baby Bells -- but not
other telcos -- would have to establish separate subsidiaries to provide video
services, a requirement the FCC can waive.
 A key provision of bill allows the seven Baby Bells to enter the long-
distance phone market immediately outside their regions. For in-region
service, the Bells need first to comply with open-network requirements and a
host of other regulatory safeguards insisted upon long-distance incumbents.
 The next step is a Senate floor vote. Pressler hopes for a vote there
"sooner rather than later" but could offer no guarantees. Majority Leader
Robert Dole (R-Kan.) is advocating broader cable rate relief than that offered
in Pressler's bill.
 Passage by the full Senate depends on peace between the Baby Bells and long-
distance giants AT&T Corp., MCI Communications Corp. and Sprint Corp. Both
sides had praise for the bill but continued to have reservations about the
ground rules for competition.
 "We have come a long way, but additional changes are needed to the
legislation to bring real competition to all telephone markets," said former
Sen. Howard Baker, a lawyer representing the AT&T-led Competitive Long
Distance Coalition.
 The Pressler bill also:
 [*] Lifts the statutory ban on cable-broadcast local station cross-ownership
and the FCC's rule banning cable MSO ownership of broadcast networks,
according to Senate and broadcasting sources.
 [*] Permits joint ventures and mergers between cable and phone companies
under traditional antitrust standards. Prior drafts limited this activity to
areas with fewer than 50,000 people. Assistant attorney general for Antitrust
Anne Bingaman said she had problems with this provision.
 [*] Calls for fines and prison terms on anyone who transmits indecent
material over telecom networks. As amended, the provision would generally hold
harmless the actual operator of computer information networks. It requires
cable operators to fully scramble voice and video of adult programming.
 [*] Gives broadcasters preferred rates on video dialtone systems but not
must-carry protection, and requires VDT network operators to make broadcast
signals available before "advertising or promotional material, or a
navigational device, guide, or menu ..."
 [*] For in-region long-distance service, the Baby Bells need first to comply
with open-network requirements and a host of other regulatory safeguards
insisted upon by long-distance incumbents.

 TIME WARNER RETREATS FROM SET-TOP STANCE
 The cable industry's latest David and Goliath fracas has resulted in a
victory for the little guys.
 Time Warner Cable, after months of consumer outrage and the threat of
governmental scrutiny, has reversed course and decided not to proceed with
plans requiring customers to pay for new set-top boxes to receive channels
already in the home.
 Time Warner last year began to roll out the boxes, which range in price from
$2.49 to $4.99 a month, in several communities including Akron, Ohio, and
Champaign-Urbana, Ill. These devices met with increasing resistance from
numerous consumers, who now needed the boxes to descramble previously
unscrambled expanded-basic channels.
 Viewers also complained that scrambling interferes with some VCR functions
and advanced TV set features such as picture-in-picture.
 In addition to, and partly as a result of, increasingly vocal consumer
irritation, Time Warner also was beginning to feel the heat from the Federal
Communications Commission.
 The FCC received a petition last July from a delegation of Akron cable
subscribers, and earlier this month FCC Cable Services Bureau chief Meredith
Jones sent the MSO a letter asking for details on the rollout[']s scope and
cost.
 Last week's decision by Time Warner reflects the ongoing turmoil.
 "As we went through this process, enough customers expressed concerns about
having a converter in the home that we felt it was appropriate to revisit the
approach we were taking," said Michael Luftman, vice president of corporate
communications for Time Warner.
 Time Warner customers will now have a choice whether to take the box, with
those who refuse able to continue receiving current services. The MSO feels
confident that the vast majority of its customers will opt to take the box,
while the new policy provides more flexibility, Luftman said.
 The boxes enable subscribers to take advantage of a broad range of state-of-
the-art services, such as parental control buttons, pay-per-view programming,
home shopping, an on-screen interactive viewing guide and online services.
While many subscribers welcomed the availability of these additional services,
others wanted the option of receiving cable signals without the new devices.
 Early consumer reaction to Time Warner's decision was on the positive side.
 "It's been resolved to our complete satisfaction," said Dave Muntean,
assistant director of law for Akron and an active campaigner against Time
Warner's scrambling policy. "We consider the matter closed."
 Warner Cable took out a full-page ad in Akron's Beacon Journal last Friday,
saying its unscrambling activities would begin April 1, Muntean said. The
system will send out postcards and retrieve boxes from those subscribers who
no longer want them.
 Time Warner also intends to write a letter in response to Jones' letter,
explained Bill Johnson, deputy chief of the FCC's Cable Services Bureau. "Time
Warner is urging that we understand what they were trying to do," he said.
 The FCC also will continue its inquiry into compatibility and other issues
related to the boxes, said Cable Services Bureau spokesman Morgan Broman.
"There are a number of issues that still have to be resolved," he said.

 SENATE KILLS TAX BENEFIT FOR VIACOM
 Washington -- The Senate last Friday voted to kill the minority tax
certificate program that was the key ingredient in Viacom Inc.'s $2.3 billion
cable system sale to African-American businessman Frank Washington. The House
and Senate need to iron out their versions of the bill.

 BABY BELLS SCORE AGAIN IN COURT
 Two Baby Bells scored another win in their legal maneuvering to build and
program broadband cable networks.
 U.S. District Judge Harold H. Greene, whose court oversees the decree that
broke up the Bell System, gave Bell Atlantic Corp. and Pacific Telesis Group
permission to transmit video signals across the local calling boundaries that
crisscross their territories. They also can receive video signals delivered by
satellite from outside their regions.
 Bell companies cannot transmit signals across local-calling lines -- also
known as LATA lines --  under terms of the 1984 decree that broke up the Bell
System. Calls outside those boundaries are considered long-distance calls.
 Greene's orders mean that Bell Atlantic can transmit video programming
throughout the country from its Reston, Va., digital production studio.
Otherwise, it might have had to place separate video storage computers in each
calling area where it had subscribers.
 Bell Atlantic's victory was broader than PacTel's. Bell Atlantic won two
waivers, one covering its telephone region and another covering cable systems
outside its region. But a PacTel spokesman said his company believes it can
distribute programming inside and outside its region.
 Other regional Bells have already applied for or expect to seek similar
waivers from Greene.
 The rulings were widely reported but Wall Street analysts and cable industry
spokesmen said they were expected and had little practical effect in the near
term.
 Bell Atlantic still needs Section 214 construction permits from the Federal
Communications Commission before it can build the networks needed to offer
video services to its phone customers. John Thorne, vice president and
associate general counsel at the Philadelphia-based regional telco, said
nothing in Greene's actions removed that barrier. "That's the thing we're
still slugging out now at the FCC," he said.
 But when new programming comes out of the Howard Stringer-led Platco venture
with PacTel and Nynex Corp., Bell Atlantic will be free to distribute it to
other networks, including cable or private-cable systems, Thorne said.
 "This will let us put programming up for anyone to receive," he said.
 George Reed-Dellinger, of NatWest Washington Analysis, said the waivers give
Bell Atlantic and PacTel some "marginal flexibility" in distributing video.
But, he added, the telcos do not have the distribution systems in place yet
nor do they have programming to distribute. He said the rulings give an
"incremental" boost to the Bells' threat to cable operators.
 Thorne cited at least one direct outcome. If Bell Atlantic wanted to, it
could transmit video programming from Reston to subscriber homes in Dover
Township, N.J., without having to put a separate headend in that community, he
said.
 Bell Atlantic is building a 38,000-home digital video dialtone system in
Dover.
 The FCC has said Bell Atlantic cannot directly provide programming to Dover
subscribers. Thorne said the company believes that prohibition violates court
orders won by Bell Atlantic in challenges to the cross-ownership ban in the
1984 Cable Act. But he said Bell Atlantic has no current plans to provide
programming to Dover.
 Torie Clarke of the National Cable Television Association said the NCTA did
not oppose the Bell Atlantic request.
 John Seiver, a partner at the Washington law firm Cole, Raywid & Braverman,
which represented the New Jersey Cable Television Association in opposing the
waiver request, said the cable industry would have no problem with telcos
transporting video as long as they obtain cable franchises.
 "For a franchised cable system, we've got no argument" with the waiver, he
said.
 Dr. Jim Vanderweide, a telecommunications expert and professor at Duke
University's Fuqua School of Business, said the waiver was important but "not
nearly as important as being able to carry inter-exchange voice calls." The
Bells' biggest target is the $64 billion long-distance market, not the $23
billion cable market, he said.

 TELCOS WILL SLUG IT OUT IN GEORGIA
 The second Siege of Atlanta may well begin July 1.
 The metro Atlanta area is the apparent battleground in the first-ever fight
for local telephone customers between two competing regional Bell operating
companies.
 BellSouth Corp. and U S West Communications -- through its new cable
subsidiary -- could be vying for local phone customers in Atlanta and
neighboring communities by next fall, thanks to telecom reform legislation
Georgia adopted on March 17.
 "It's not a slam dunk, but this figures to be the first time two RBOCS will
compete for local wireline customers," said U S West spokesman Steve Lang.
 Theoretically, the local loop opens to cable and long-distance companies
next July 1, the date new entrants can apply for certification by the Georgia
Public Service Commission, but the reality is competition will probably come
later.
 U S West, through its Southern Multimedia Communications unit, enters the
market with plans to offer telephone service to 497,000 Atlanta cable
subscribers, or 65 percent of the homes in the nation's ninth largest market.
 It acquired its Atlanta cable presence last year by purchasing Wometco and
Georgia Cable Television for $1.2 billion in cash and stock, and is already
well into a $336 million rebuild of the Atlanta systems.
 However, full-blown competition in the local exchange could still be on hold
months after July 1 if U S West and BellSouth can't negotiate an agreement on
the thorny issues of interconnection and the reselling by U S West of air time
purchased from BellSouth.
 If no agreement is reached, the matter falls to the state Public Service
Commission, which already faces some unruly hearings on another portion of the
new law that designates any new entrant into the market with less than 2
million access lines statewide as a Tier 2 "non-dominant carrier."
 The shouting will begin when U S West begins pressing the Commission for
"less rigorous" regulatory treatment for those non-dominant carriers.
 "The rationale is that we're not the incumbent, which already has 100
percent of the local market," said Bruce Posey, vice president of public
policy at Southern Multimedia Communications.
 "We shouldn't have to do things like cap our local rates, because we don't
have any local rates. We're not a traditional local exchange carrier, because
there's never been another local exchange carrier in the history of Georgia,"
Posey said.
 The notion of less restrictive regulation of non-dominant carriers
unquestionably will produce some contentious PSC hearings, according BellSouth
officials, who complain that U S West is portraying itself as a "Mom and Pop
outfit."
 "U S West is coming in here with what, 460,000 or 470,000 cable subscribers?
I hardly see that as a non-dominant carrier," said Jim Newman, BellSouth vice
president of public affairs for Georgia.
 "If anything, because of their ability to joint market cable and telephone
service, they have a leg up on us. Maybe we should apply for non-dominant
carrier status."
 Instead, BellSouth will ask the PSC to adhere to the letter of the new law,
which states "all local exchange carriers certified by the Commission shall be
subject to the same rules and regulations."
 U S West will make its pitch based on another provision that allows the PSC
to "adopt rules and regulations for local exchange carriers certified after
July 1, which vary from other rules and regulations..."
 It also will argue that BellSouth gained significantly under
telecommunications reform. Despite having to freeze basic phone rates for five
years, the company gets to substitute price regulation for traditional rate-
of-return regulation.

 TCI GROUP GETS OTHER HALF OF SAMMONS
 Tele-Communications Inc. didn't get all it wanted, but two affiliates of the
MSO locked down an agreement to acquire Sammons Communications Inc.'s
remaining cable systems for $800 million.
 Sources familiar with the deal said Sammons agreed to sell its 430,000-
subscriber New Jersey and Pennsylvania systems to Lenfest Communications Inc.
and TKR Cable Inc. TCI owns a majority stake in both companies. Sources said
Lenfest will buy systems serving 294,000 Sammons customers and TKR will buy
127,000 subscribers. TCI itself is expected to pick up a small 7,300-
subscriber property serving Oil City, Penn.
 The deal means Sammons will receive $1.8 billion for its 1.1 million-
subscriber operation, or just $1,600 per subscriber.
 Sammons and TCI would not comment on the deal, while executives with Lenfest
and TKR did not return calls seeking comment.
 The agreement signed last Wednesday night ends a fractious auction. A seven-
MSO consortium led by TCI protested when Sammons changed the rules, awarding
the bulk of its systems to Marcus Cable even though the Dallas-based MSO's
couldn't come up with an offer for the whole company.

 CABLEVISION TO EXPAND LOCAL NEWS IN N.Y. MARKET
 Cablevision Systems Corp. said it plans to emulate its local Long Island
News 12 operation in the MSO's other systems in the New York metropolitan
region.
 Beginning with Cablevision's system in Fairfield County, Conn., the company
plans to launch local news services under the name News 12 in its New York DMA
systems 24 hours a day, seven days a week.
 Norm Fein, who was promoted to vice president of news development from vice
president of press relations, said the Fairfield news operation will begin
sometime this June. The Fairfield system currently produces a half-hour
newscast five days a week.
 Fein said in contrast to Time Warner Cable's New York 1 News, which covers
news from all of New York City's five boroughs, the new News 12 operations
will concentrate news coverage more locally.
 Fein wouldn't specify when full-time newscasts would begin on Cablevision's
other New York area systems, but he said the logical order of expansion would
be Yonkers, N.Y., in Westchester County, followed by New Jersey. He said News
12 will seek carriage on non-Cablevision systems in these areas.
 Fein said the company was "still evaluating" whether it will start a news
channel in its Bronx and Brooklyn systems, both of which carry New York 1.
 Fein said Cablevision will continue to carry New York 1 in its Bronx and
Brooklyn systems.
 New York 1, "is doing a good job. My view is the more proprietary
programming we have the better it will be for our customers and us," said
Irene Tripodi, general manger of Cablevision in the Bronx.
 Larry Fischer, president of Time Warner City Cable Advertising, which sells
New York 1, said he didn't believe News 12 would become a competitor to New
York 1.
 "It's not an issue of replacing New York 1, but rather augmenting what we do
in a more local fashion," said Fischer.
 Fischer said he would welcome any special borough reports produced by News
12 in the Bronx or Brooklyn to run on New York 1.
 Fein said Cablevision was expanding its local news coverage to strengthen
its exclusive programming and to boost ad sales revenue.
 "Chuck [Dolan, chairman of Cablevision] has said for some time that one of
cable's competitive strengths is regional and local proprietary programming,
of which news is a significant part," said Fein. "Another key region is
certainly the enhanced potential advertising market."
 Cablevision is facing competitive pressures from direct-broadcast satellite
services that do not provide local news.
 Fein acknowledged that News 12 Long Island, the country's first regional
cable new service launched in 1986, had not yet reached operational break-
even, but he said that packaging Long Island with other local News 12s had the
potential to boost ad sales.
 Patrick Dolan, who has been promoted to vice president of news from news
director of News 12 Long Island, will oversee for all of Cablevision's news
operations.

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

 FLY THE FRIENDLY SKIES OF SAMMONS
 Did Sammons Enterprises' courtesies to Jeff Marcus include the corporate
jet? That's what members of the losing consortium are grousing about.
Consortium execs have complained that the Sammons sale was a "Dallas Mafia"
deal rigged to favor Marcus Cable and Hicks, Muse from the start. Members of
the TCI-led consortium found that while they were stuck playing commercial
airline gymnastics to reach Sammons' numerous small-town systems, Marcus execs
had Sammons' company plane. Sounds whiny? You try to find a non-stop to
Pascagoula, Miss. However, Sammons dismissed Marcus' travel accommodations as
a coincidence. Marcus' plane was in the shop, so he rented a plane from the
same local firm Dallas neighbor Sammons uses. By chance Marcus ended up with
the jet Sammons folks usually use. "They didn't even know it was the Sammons
plane," said one Sammons exec.

 Are y'all sure you want to be in the telephone business? Because the
consensus among cable folks attending last week's big telco trade show
SuperComm was, b-o-r-i-n-g. Cable hardware dudes joining the 22,000 telco kids
were dismayed at the ultra-conservatism of the Bellhead crew: no music on the
floor, let alone the rented models, cartoon celebrities and glitzy parties.
Compared to the Western Cable Show held at the same place each December,
SuperComm was darned sleepy. But one Bellhead had some interesting thoughts
about cable vendors: "They're much ... looser than the telco hardware vendors,
that's for sure," the telco exec said. Cable execs generally find hardware
vendors pretty staid, but the Bellhead found the Scientific-Atlanta crowd a
"group of really wild guys." And the General Instrument crew? "Gutter
material," the Bellhead laughed.


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