From: [email protected]
Date: Fri, 31 Mar 1995 13:21:50 -0800
Subject: Cable Regulation Digest 4/3
Reply-To: [email protected]

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CABLE REGULATION DIGEST
 Summary of regulatory news from Multichannel News 4/3/1995. Vol.2, No.14
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.
 Listserver, Gopher, FTP info attached at bottom.
 Refer questions to John Higgins ([email protected] or
212-887-8390)
 For Multichannel News subscription information: 800-247-8080. A bargain
at $78/year.

 Multichannel e-mail contacts:
Marianne Paskowski, editor: [email protected]
Andy Grossman, news editor [email protected]
John M. Higgins, finance editor: [email protected]
Kent Gibbons, new media editor: [email protected]
Leslie Ellis, technology editor: [email protected]

 EDITOR'S NOTE: We're early this week, but we'll be late next week, cuz
I'm outta here. Off on vacation for a week jamming on cherry blossoms and
flamingos (though not in the same place). Travelling WITHOUT a computer
(yea!) so you won't get the next issue until the afternoon of April 10 at
the earliest.

 QUOTE OF THE WEEK
 "I don't think you're going to have a program survive...if out of all the
options, the director picks something that shows them tugging their ear, or
I think picking their nose was one of the major charges this week."
    Newt Gingrich on C-SPAN's first week using reaction shots of
    Congressmen while covering the House of Representatives.

 WIRELESS OP GETS BABY BELL BACKING
 The wireless cable industry's ship came in last week.
 The deal that the wireless cable industry has longed for arrived as Bell
Atlantic Corp. and Nynex Corp. agreed to invest up to $100 million in CAI
Wireless Systems Inc.
 The deal charged up the stocks of cash-hungry wireless operators and
gives the two Baby Bells a new way to rapidly enter markets with video
services. By the middle of next year, both regional Bell companies may be
offering branded video programming via digital wireless cable systems in
many parts of their phone territories.
 The deal, rumored for weeks, was complex, involving CAI's acquisition of
wireless operator ACS Enterprises Inc. and other wireless channels acquired
from two other operators. Bell Atlantic and Nynex will buy up to 45 percent
of the enlarged CAI.
 The venture will give the two telcos a hold on existing systems in New
York City and Philadelphia, licenses to build operations in Washington,
Baltimore and Pittsburgh and access to a mix of smaller markets where CAI
already operates.
 David Pacholczyk, a Bell Atlantic spokesman, said the deal creates a kind
of mirror image of the telco's video dialtone system in Dover Township,
N.J. In Dover, Bell Atlantic is building a system to carry other companies'
programming.
 "With CAI, they have the network and we will provide the programming,"
the spokesman said. Bell Atlantic and Nynex are developing programming with
partner Pacific Telesis Group in a venture led by ex-CBS executive Howard
Stringer.
 Alan Sonnenberg, CEO of ACS (and soon to become CAI's president), said
wireless offers "immediate entry" into video services and blunts the
efforts of cable companies to take away telephone customers while the Bells
build out their networks.
 He said CAI and ACS bring more to the Bells than just spectrum. "We both
bring respective talents in terms of operational expertise. We know how to
put subscribers on and we're doing it," he said.
 Under the terms of the deal -- which will be detailed later when
financial statements are filed -- Bell Atlantic and Nynex will supply the
digital converter boxes, pay for marketing and provide service to wireless
customers in CAI territories. CAI would earn fees for providing the
microwave transmission. That arrangement would be at the Bells' option. In
other cases, CAI would acquire and retain the subscribers.
 William Deatherage, a phone industry analyst with S.G. Warburg in New
York, said the Bells may choose to let digital wireless cable replace
hybrid fiber/coaxial cable systems as an interim distribution method. They
may decide to offer wireless TV until it is more cost-effective to build
fiber-to-the-curb networks throughout their regions, he said.
 "If they truly believe switched-digital video [via fiber] is better, than
with HFC they'd be deploying an inferior technology," Deatherage said.
 Wireless' advantage over both HFC and fiber-to-the-curb is it can be much
more rapidly deployed than wired networks, especially if operators are as
well-financed as phone companies.
 Wireless cable also is free of the pesky antitrust-decree terms that
prevent Bells from widely distributing video.
 "Here is an opportunity to provide video services that cross state
boundaries and LATA lines," said Colin Watson, managing director of
worldwide operations at Nynex. LATA lines divide local calling areas.
 The holdup at the moment is digital wireless. Bell Atlantic and Nynex
officials said they will wait for digital technology before distributing
their branded wireless services.
 Digital technology, through data compression, will expand the limited
number of wireless channels by a factor of three to six and will greatly
expand the penetration capabilities of the wireless signals through trees
and other obstructions, according to experts.
 But converter makers have been slow to produce digital converter boxes
for cable operators and telcos, and wireless cable is far lower on the
priority list.
 Several industry leaders said they hoped the Bells' buying clout will
make a difference. "There's more pressure on the General Instruments and
the Zeniths and the Scientific-Atlantas to get our boxes out the door now,"
said Michael Whalen, vice president of acquisitions and finance at People's
Choice TV Corp., another wireless cable MSO.

 SPRINT CABLE WILL SPEND $4.4 BILLION
 Kansas City, Mo. -- The Sprint Cable group firmed up the wireline portion
of its wireline and wireless telephone venture last week and committed to
put $4.4 billion in cash into the venture over the next three years.
 Debt and vendor financing will add billions more, possibly as much as the
cash, to buildout costs over several years, Sprint officials said.
 The group also named Ronald LeMay, 49, to head the venture, whose main
equity partners are Sprint Corp., Tele-Communications Inc., Comcast Corp.
and Cox Enterprises Inc.
 LeMay formerly ran Sprint's $6.8 billion long-distance division. The
venture will be based here. Gary Forsee, who was interim CEO of the joint
venture, replaces LeMay in the long-distance division.
 Like the wireless venture, which recently won 29 broadband communications
licenses at a cost of $2.1 billion in a government auction, the wireline
venture will have these ownership shares: Sprint, 40 percent; TCI, 30
percent; and Comcast and Cox, 15 percent each. Teleport Communications
Group, the telephone services company owned by TCI, Comcast, Cox and
Continental Cablevision Inc., also will contribute to the venture.
 Including affiliates, the wireless venture will reach a potential
population of 182 million.
 On the wireline side, the cable partners will spend billions upgrading
their own systems and helping cable affiliates upgrade their systems to
offer telephony.
 David Woodrow, senior vice president at Cox Communications, at a Kagan
Seminar Inc. conference last week in New York said the group plans a "very
disciplined rollout schedule" of systems with capacities between 550 MHz
and 750 MHz. Sprint-cable officials have said other wireline affiliates may
be named soon.
 Lyndon Daniels, president of Pacific Telesis Mobile Services, which will
compete against the Sprint group in California, said the Sprint-cable
venture is taking on a huge task and may find that concentrating on
wireless, wired, local, long-distance and cable video at the same time may
cause the group to fall short in some of those areas.
 "I wish them well," he said.

 PRODIGY EXEC'S DEFECTION CRIMPS CABLE NETS
 MCI's gain is Prodigy's loss -- and cable's loss, too.
 Scott Kurnit, who left Prodigy Services Co. as executive vice president
last week to oversee MCI Communications Corp.'s foray into Internet
consumer services, was largely responsible for forging Prodigy's close ties
to the cable industry.
 More than three dozen cable networks provide content to Prodigy. And
Prodigy is involved in more trials with broadband cable distribution than
other online services.
 Prodigy's top two media-content providers said last week they would stay
with Prodigy -- for now.
 "For me, Scott was Prodigy," said George Schweitzer, executive vice
president of marketing and communications at CBS Inc. He said CBS, which
launched its own site on the Internet's World Wide Web partly on Kurnit's
advice, would stick with the service.
 Richard Glover, senior vice president at ESPN Enterprises, said his first
reaction, as a friend, was elation for his fellow cable veteran. "The
second reaction was as a Prodigy content provider, and there there's
disappointment, because I think Scott has made a major impact and would
continue to," he said.
 ESPN's exclusive contract expired Friday but Glover said ESPN plans to
remain while looking at "any and all opportunities" to get the widest
possible distribution.
 Other media-content providers said they were rethinking their position on
Prodigy even before Kurnit left. They had been frustrated by a lack of
resources at Prodigy, due partly to cutbacks, partly to internal politics
and partly to resources being directed toward CBS or ESPN. They said Kurnit
shared that frustration and believed he was not headed toward the top job
at Prodigy.
 Many analysts assume Kurnit will not be the last key Prodigy executive to
leave. IBM Corp., co-owners of the service with Sears, Roebuck & Co., is
believed to want to replace Prodigy CEO Ross Glatzer.
 (Former VH1 president Ed Bennett, who like Kurnit is a Showtime alumnus,
is in the running to succeed Glatzer.)
 Though the service has been profitable the last few months, aided by new
revenue from the Web service and by savings from layoffs, Prodigy has cost
the owners more than $1 billion over the last decade.
 "I think it's pretty much an indication that there's going to be a second
shakeup there," said Michael Rinzell, an analyst at Jupiter Communications
LLC.

 CABLE DID BETTER ON HILL LAST TIME
 Washington -- The cable industry was happier with last year's Senate bill
than the Republican-sponsored measure voted out of committee two weeks ago.
 On March 23, the Senate Commerce Committee voted 17-2 for a bill that
would, among other things, open cable and the local telephone industries to
competition.
 Senate legislation last year delayed phone company entry into cable until
the telcos have complied with competitive safeguards. This year's bill lets
all telcos, including the gigantic Baby Bell monopolies, into cable from
day one.
 "As we've been pretty clear, we think the kind of approach that came out
of the Senate committee bill last year was a preferable one," National
Cable Television Association president Decker Anstrom said last week.
 Despite that observation, Anstrom said he did not believe the bill
discriminated against the cable industry. "We do not see it as balanced
against cable," he said. "I think it's a framework that we can work with."
 The bill, sponsored by Commerce Committee chairman Larry Pressler (R-
S.D.), moves next to the Senate floor. But according to several sources
tracking the bill, Senate consideration is at least a few weeks away.
 Over in the House, lawmakers' staff continued to work on a draft bill.
 "My prediction is that it will look a lot like the Markey-Fields bill
passed in the House last year by a very convincing vote of 425-5," Rep.
Rick Boucher (D-Va.), a member of the House Telecommunications and Finance
Subcommittee, said last week at a Media Institute forum here.
 Although silent on cable rate regulation, the Markey-Fields bill stalled
telco entry into cable until the telcos were in full compliance with
competitive safeguards, such as interconnection. Boucher said the entry
delay could have lasted five years under the bill.
 This year's House bill, he said, should be different.
 "What should not be a part of the legislation is any unreasonable delay
on telephone company entry into the provision of cable TV service," Boucher
said. He said House staff was actively discussing the sequencing of telco
entry into cable.
 Boucher said the likely scenario was that the subcommittee would take up
the bill in "late spring or early summer," followed by House passage also
in the summer. House and Senate lawmakers would meet to craft a unified
version in the "later part of this year."
 He said Pressler's goal of enacting a new law by July 4 was "somewhat
ambitious and perhaps a little optimistic."
 Boucher said the key to the legislation's success was an agreement
between the Baby Bells and the long-distance companies. If either party is
dissatisfied, either could "kill the legislation," Boucher said.

 CLINTON STILL OPEN ON TAX BREAK VETO
 Washington -- President Clinton has not decided whether to veto
legislation that kills Viacom Inc.'s tax break needed to complete the $2.3
billion cable system sale to a venture that includes black entrepreneur
Frank Washington.
 Clinton does not support the elimination of the tax break but does favor
the health care tax deduction for self-employed workers also contained in
the legislation, White House spokeswoman Peggy Lewis said Friday.
 Capitol Hill sources said they doubted Clinton will try to block a bill
that was passed overwhelmingly in the House and by voice vote in the
Senate.
 But the White House was keeping its options open because a provision
Democrats could rally around was dropped from the bill. The Republican-
controlled Congress excluded a provision that would have required wealthy
Americans who give up their citizenship for tax purposes to pay an
estimated $3.6 billion in tax over 10 years on their assets.
 Final passage in the Senate was still pending as of Friday afternoon.
 To pay for the tax break, the bill eliminates from the tax code a
provision that allows the Federal Communications Commission to dispense tax
certificates to entities that sell media properties such as broadcast
stations and cable systems to members of minority groups.
 Sacramento, Calif.-based Washington heads a partnership that includes
InterMedia Partners and Tele-Communications Inc. With an FCC certificate,
Viacom could defer paying $640 million in capital gains taxes.
 Viacom has said the deal with Washington's group is dead without the tax
certificate.
 When House and Senate lawmakers met last week to iron out differences in
their versions of the bill, they said the FCC's tax certificate program was
dead as of Jan. 16, 1995, unless binding contracts were in effect on that
date. The Viacom-Washington deal concluded a few days after Jan. 16.
 Sources said Viacom officials were crying foul beacause the bill
 kills its deal with Washington but preserves a deal in which Tribune Co.
and its partner, black record producer Quincy Jones, are buying television
stations in Atlanta and New Orleans from Fox Broadcasting Co. and Time
Warner Inc., respectively.
 House and Senate lawmakers agreed to let the Jones-Tribune deal go
through. The bill would allow the FCC to consider pending deals before Jan.
16 if the purchase price does not change by more than 10 percent because of
the involvement of the tax certificate. The Jones-Tribune deal with Fox and
Time Warner has a 7.7 percent price difference.

 NEVADA PREPPING FOR TELECOM COMPETITION
 Nevada regulators are poised to adopt a regulatory package later this
month that will immediately lift the ban on competition in the local
telephone exchange.
 The state's Public Service Commission will vote April 24 on proposed
rules and regulations drafted during marathon hearings held on March 7-10,
which apparently satisfy the state's 15 local exchange carriers and
expected entrants into the market.
 The plan allows cable and long-distance companies to immediately begin
competing for local phone customers, while giving the LECs an alternate
method of price regulation.
 For cable operators, the package enacts a streamlined certification
process, while guaranteeing interconnection with the local telephone
network and number portability.
 "If a cable company wants to start offering telephone service, they can
do it," said Terry Page, head of the PSC staff whose recommendations formed
the blueprint for the final regulations.
 Moreover, the cable operators' rates for telephone service would not be
subject to PSC price regulations.
 A major addition to the package of rules and regulations was language
allowing cable operators to refuse to connect a telco to their systems in
areas not already serviced by the phone company.

 OPS SEEING STRONG BASIC SUB GROWTH
 Mild weather wasn't the only reason Richard Aurelio enjoyed winter this
year.
 The winter quarter is usually slow in the Northeast, but after strong
subscriber growth in 1994, the huge New York City Time Warner Cable Group
optimistically budgeted to add 3,000 basic subscribers.
 The actual tally when the quarter closed last Friday: 13,000 new
customers. "Much stronger than we expected," said Aurelio, president of the
1 million subscriber cluster.
 While quadrupling budget targets is hardly common, operators around the
country are continuing to see strong subscriber growth. Thanks to the
Federal Communications Commission, advertising by DirecTv, tightening
system operations -- perhaps even the prosecution of O.J. Simpson --
internal basic subscriber growth is surging.
 As major MSOs wrapped up financial reports last Friday, reported
subscriber growth jumped from around 3 percent in 1993 to 4.5 percent last
year, with giant Tele-Communications Inc. reporting a stunning fourth
quarter -- 12 percent annualized growth -- and a 6.5 percent increase for
the full year. Comcast Corp. was up 4 percent annualized.
 Further, initial reports for the first quarter indicate that the trend is
continuing. Jones Intercable Inc., for example, said during January and
February internal subscriber growth increased at an annualized rate of 6
percent. Jones, however, has long-generated significantly better subscriber
growth than other MSOs.
 "We're ahead of budget on our basic," said Fran Zeuli, general manager of
Continental Cablevision Inc.'s St. Paul, Minn., system. Zeuli also expected
growth to be flat during the quarter, but wound up adding 1,000
subscribers, increasing at an annualized rate of 6 percent.
 Time Warner's 530,000-subscriber Orlando, Fla., operation always gets a
surge from "snow birds," retirees escaping northern winters. But this
year's first quarter was even better than expected: 6 percent annualized
growth vs. 3.6 percent the system had budgeted.
 "We came out of last year with the strongest year we've ever had and
springboarded right into the first part of this year," said Jim Rozier,
Orlando's vice president of marketing and business development.
 The spike came as the system stopped advertising on broadcast TV to limit
in-bound calls as it was installing new billing and phone systems. Instead,
Time Warner beefed up door-to-door and telemarketing sales.
 Even though it pains them, many cable executives concede that federally
mandated rate rollbacks are driving part of the growth. While basic rates
alone have not dropped much during the two rounds of price reductions, the
reduction of fees for second-set hookups and remote controls combined to
reduce an average subscriber's total bill by 8 percent.
 Even in homes where rates didn't drop dramatically, subscriber growth may
have picked up because of an overall perception that rates had declined.
Further, subscribers are not seeing the typical winter rate hikes.
 "I will buy the argument that people didn't see the rate increase and saw
their bills go down," said one MSO executive. "There's a big piece of your
analysis."
 Looming competition has helped in two other ways, industry executives
said. One is that direct-broadcast satellite service DirecTv is spending
heavily on national TV advertising to promote many of the same services
available on cable.
 That's key, insists Char Beales, president of the Cable Television
Administration and Marketing Society. "When you pump $50 million bucks into
marketing -- and remember it's the same product -- it's going to work."
 So while DirecTv is stealing some customers from cable, it also may be
driving some people toward cable, particularly consumers scared off by the
DBS service's heavy upfront equipment costs.

 BOTH SIDES HAPPY IN FLA. TELECOM REFORM
 Lawmakers in Florida appear to have accomplished a rarity this
legislative season: telecom reform proposals that both cable- and
telephone-industry lobbyists say they can accept.
 The state's House and Senate are drafting their own versions with
different start dates for competition. But the House version also details
stopgap solutions for some of the stickiest points facing open competitive
markets, including number portability and defining universal access.
 Florida could lose its status as one of the 17 states with statutory
barriers to local exchange competition as early as this July, if the House
bill passes. The Senate version currently calls for a Jan. 1, 1997, launch
of competition. Cable and telco forces are both pushing for the earlier
date.
 "It's still early in the process. There are many details still to be
worked out, but a number of the legislators don't want to see us fall
back... This could be a very active marketplace very soon," said Steve
Wilkerson, executive director of the Florida Cable Television Association.
 Lobbyists attribute the comprehensiveness of the bill's drafts to self-
education by the legislators. Many officials have spent the last year
visiting sites such as a GTE Corp. Business Solutions Lab in Tampa and Time
Warner Cable's Full Service Network in Orlando to learn firsthand about
technological advances and competitive issues, according to Susan Langston,
executive director for the Florida Telephone Association.
 The legislators also pushed the potential competitors to submit joint,
rather than individual, competitive plans.
 The result, at least in the House version, is a proposal that would open
local exchanges under price-cap regulation for the large incumbent
telephone companies. Basic rates for homes and single-line business users
will be frozen for three years, at which point they may be adjusted for
inflation, minus 1 percent.
 Small telcos can be protected from competition for up to five years if
they agree to remain under rate-of-return legislation. Cable and other
competitors must stay out of their areas unless the small telco moves into
video delivery first.
 For four years after the House version goes into effect, a competitor
will be deemed as providing universal service if it's connecting through a
larger company that previously satisfied that requirement.
 Incumbents and competitors will have 60 days to negotiate interconnection
charges. If no agreement is reached, the Public Services Commission will be
the final arbiter.
 The telcos would get the pricing flexibility that they sought on non-
essential services such as call waiting and call forwarding, while
competitors get number portability until a "national standard" develops for
handling this issue.

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