From: [email protected]
Date: Fri, 19 May 1995 14:57:48 -0700
Subject: Cable Regulation Digest 5/22
Reply-To: [email protected]

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CABLE REGULATION DIGEST
 Summary of regulatory news from Multichannel News 5/22/1995. Vol.2, No.21
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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* CABLE ASKS JUSTICES TO UPHOLD TELCO BAN
* TEXAS ENACTS LEC-FRIENDLY TELCO REFORM
* FIELDS BILL CLEARS SUBCOMMITTEE
* COMPLAINTS AGAINST SMALL OPS COULD DISAPPEAR
* MODEST TIME WARNER ACTIONS FRUSTRATE INVESTORS
* OPS SEEKING PRICE FLEXIBILITY ON HILL
* SOME NETS BLAST DISNEY OVER TELCO TALKS
* LIFETIME WORRIES ABOUT ACCESS TO OFF-NET SERIES

 CABLE ASKS JUSTICES TO UPHOLD TELCO BAN
 Washington -- The cable industry last week asked the Supreme Court to
uphold the constitutionality of a federal law that bars phone company entry
into cable.
 The law, a provision of the 1984 Cable Act, prevents common carriers from
providing video programming directly to their telephone subscribers.
 It's commonly called the telco-cable crossownership ban in that it does
not bar telcos from owning broadcast stations or wireless cable operators
inside their regions. The ban also does not apply to telco ownership of
cable systems outside their monopoly territories.
 In the wake of a series of federal court decisions overturning the in-
region ban, the
 National Cable Television Association is asking the high court to take
the case and uphold the ban as consistent with the First Amendment.
 "The sheer importance of the issue to businesses and consumers is, we
believe, reason enough for not allowing the [lower court] decision to
stand," the 29-page NCTA petition said.
 The Department of Justice filed a similar petition. Bell Atlantic Corp.
was the first telco to win relief in 1993 when a U.S. District Court judge
in Alexandria, Va., said the ban violated the telco's free speech rights.
Bell Atlantic won on appeal.
 After Bell Atlantic triumphed, most of the other telcos won similar suits
and injunctions in federal courts forcing the FCC not to enforce the ban.
 In the petition, NCTA said the ban passes constitutional muster because
the law allows the FCC to grant waivers upon a showing of "good cause" -- a
provision that the NCTA said that the Fourth Circuit Court of Appeals
ignored when it upheld Bell Atlantic.
 The case could become moot amid Supreme Court consideration. Both the
House and Senate are considering legislation that would repeal the cross-
ownership ban. The House bill would allow telcos to obtain a cable
franchise or establish a video platform, which combines elements of cable
and common carrier regulation. The Senate bill contains similar but not
identical options.

 FIELDS BILL CLEARS SUBCOMMITTEE
 Washington  - A measure that 15 months after enactment would repeal upper
tier rate regulation imposed in the 1992 Cable Act cleared a House
subcommittee last week.
 Small operators -- defined as having 600,000 subscribers or fewer and
unaffiliated with a company with more than $250 million in revenue -- would
do even better. Their upper tiers would be deregulated upon enactment.
 But the House Telecommunications and Finance Subcommittee postponed many
tough issues, including deregulation of broadcast ownership rules,
telephone universal service commitments and the sequencing of Baby Bell
entry into long-distance phone markets.
 The bipartisan bill, H.R. 1555, cleared the panel by a 24-5 vote
following debate over amendments that lasted for eight hours on and off.
 "This is a good bill. We strongly support it. We look forward to working
with Congress to enact legislation this year," said National Cable
Television Association spokesman Rich D'Amato.
 There was one negative for cable: The bill would triple pole attachment
fees.
 But the marathon session also left some cable issues unresolved,
including a broad amendment offered by Rep. Edward Markey (R-Mass.)
designed to curtail cable deregulation in the bill.
 Rep. Dan Schaefer (R-Colo.), who led the drafting of the bill's cable
provisions, said he and Markey were quietly negotiating a possible
compromise.
 "We're talking. I'm not about to give a lot of ground," Schaefer
declared.
 Rep. John Dingell (DMich.), the Commerce Committee's ranking minority
member and a co-sponsor of the legislation, threatened to pull his support
if barriers to foreign ownership of broadcast properties were lowered too
much.
 Dingell also wants to see the bill's cable deregulation provisions
tightened to guard against a spike in rates before the telcos start to
compete.
 "Let's put it this way. It's an important consideration," said Dingell,
who at first voted against the bill but abruptly changed his vote in favor
of it.
 The action promptly resumes this week as Commerce Committee chairman Rep.
Thomas Bliley (R-Va.) promised to stage committee votes on amendments and
the entire bill onWednesday or, if necessary, Thursday.
 "I hope that we can move right along, but we'll just have to wait and
see," Bliley said.
 House Republicans, with the support of many Democrats, are trying to pass
a 139-page bill that would deregulate cable, open cable to telco
competition and allow the Baby Bells to enter long-distance phone markets
and make telecommunications equipment.
 VETO THREATS
 The bill gives telcos the option upon enactment of either becoming cable
operators or video platform providers, which would include some common
carriagetype obligations. But the video platform is not a viable option
until the Federal Communications Commission drafts rules. The FCC has 15
months after enactment to do so.
 Many of the provisions in the House bill are opposed by the Clinton
administration, which is looking to generate enough support against the
measure to lend credibility to veto threats.
 In other developments:
 [*] The panel voted 19-9 for an amendment from Rep. Michael Oxley (R-
Ohio) that would repeal the 25 percent cap on foreign ownership of
television and radio stations as well as telephone common carriers. The
current restrictions do not apply to cable systems.
 [*] Rep. Ron Klink (D-Pa.) said he planned to offer an amendment that
would require cable operators that migrate channels off of the basic tier
to lower their basic rates by the appropriate amount on a per-migrated-
channel basis.
 [*] Rep. Stearns withdrew an amendment that would have erased the TV
station-cable system cross-ownership ban and others like it.

 TEXAS ENACTS LEC-FRIENDLY TELCO REFORM
 Texas lawmakers passed a telecom reform bill last week that some called a
thinly veiled attempt to make Southwestern Bell Telephone Co. an
unregulated monopoly.
 The "facilities-based" law opens the local telephone exchange to all
comers, provided they have an existing network capable of offering
telephone service, or millions to invest in building a separate system that
will compete with SW Bell.
 The cable industry, with networks already in place, was less critical of
the act, while long-distance carriers were outraged over a bill they say
locks the LDCs out of the market.
 "It's an interesting bill," said Bill Magness, an attorney with
Bickerstaff, Heath & Smiley, a legal firm that represents Texas cable
operators. "It contains many pro-competitive provisions that are dealt with
in great detail.
 "But when you look at it closely, many competitors are really hamstrung."
 The LDCs called the requirement that they build their own separate
networks "ludicrous," and a blueprint for making SW Bell an unregulated
monopoly.
 MCI Corp. spokesman Alfred Herrera said it would cost $750 million to
build a second phone network in Austin, while AT&T spokesman Larry Norwood
said the cost of such a network in Houston would approach $1 billion.
 "The bill is testimony to Southwestern Bell's clout," Herrera said. "It
ensures that there will be a disincentive to compete against the LEC [local
exchange carrier] in Texas by making it incredibly hard, if not impossible,
to compete."
 Texas Gov. George W. Bush is expected to sign the bill.
 Any chances of altering the bill will be hampered by the fact that the
Texas legislature -- which adjourns this week -- will not reconvene until
1997.
 Under a "built-out" provision in the law, new entrants into the market
can select areas where they want to offer service, but they must expand
their networks to include every business and residential customer within a
27square-mile area -- even if the consumer doesn't want the company's
service.
 "They can't just pick a building in downtown Austin and only offer their
service there," said SW Bell spokesman Glen Smith.
 Moreover, competitors must place 60 percent of their new network within
six years. The remaining 40 percent can be offered as resale time purchased
from an incumbent carrier like SW Bell.
 "Southwestern Bell spent a lot of money to get a bill, and they got the
one they wanted," said Janee Briefemeister, senior policy analyst with
Consumers Union, a watchdog group that publishes Consumer Reports magazine.
 If so, it is the second victory for SW Bell. The Texas-based Baby Bell
managed to scuttle telecom reform legislation in Missouri a few weeks
earlier.

 COMPLAINTS AGAINST SMALL OPS COULD DISAPPEAR
 Washington -- The Federal Communications Commission is considering
effectively wiping out pending rate complaints against small cable systems
and operators who meet the agency's new size standard.
 Under an order announced May 5, the FCC said small systems with 15,000
subscribers or fewer and controlled by MSOs with no more than 400,000
subscribers could charge up to $1.24 per channel with the understanding
that rate would be deemed reasonable.
 Operators who meet the definition -- approximately 67 percent of all
cable systems, which serve about 7 million subscribers -- are entitled to
use a simple four-part form to justify rate increases.
 But the FCC is struggling with this question: What happens to the rate
complaints filed against small systems prior to the adoption of the new
size standard?
 According to FCC and cable industry sources, the FCC probably will allow
small operators with pending complaints to use the new formula, which, in
effect, will make the complaints moot.
 By allowing the use of the new formula, the FCC could avoid the problem
of ordering a small operator to refund subscribers, only to have the
operator recover the refund in short order by raising rates under the new
small system rate rules.
 "It will speed resolution of many rate complaints before the Commission.
It helps them clear the decks, too," said Eric Breisach, an attorney with
Howard & Howard in Kalamazoo, Mich.
 Breisach, who represents the 350-member Small Business Cable Association,
confirmed that he was in discussions with the FCC about handling pending
rate complaints.
 At the National Show in Dallas two weeks ago, Cable Services Bureau
deputy chief Greg Vogt said the agency could not directly dismiss the
pending complaints because of a prohibition on retroactive rule making.
 The FCC also is weighing the concerns of local franchising authorities,
many of whom have spent considerable sums to press complaints against cable
operators.

 MODEST TIME WARNER ACTIONS FRUSTRATE INVESTORS
 New York -- It was a week of half steps at Time Warner Inc. as
chairman Gerry Levin gave frustrated investors only part of what they
wanted.
 At a time when Wall Street is awaiting serious financial restructuring,
progress in the telephone business and evidence that interactivity can be a
business, Time Warner offered investors three deals.
 The company confirmed that is was talking to AT&T Corp. about teaming up
to offer local and long-distance telephone services to Time Warner Cable
subscribers. But the discussions are less than hoped for, limited to a
joint marketing deal, rather than a large direct investment that sent Time
Warner's stock running up 10 days ago.
 The company also disclosed deals to sell off cable systems that don't fit
into its regional clusters and help shave its $10 billion in debt. But the
deals covered mostly rural systems serving 144,000 subscribers and will
 fetch around $263 million, just a fraction of the $2 billion to $3
billion in assets that the company has promised to shed.
 Finally, Time Warner Cable is laying plans to develop its own online
service, aimed to put some content in the industry's plan to offer high-
capacity access to cable subscribers for such services as America Online,
Prodigy and the Internet.
 But investors left the company's annual shareholder meeting last Thursday
here underwhelmed, shaving the company's stock by $1 to $39.25.
 Major issues -- like the future of U S West Inc. in Time Warner
Entertainment Corp. and the disposition of Seagram Corp.'s 15 percent stake
in the company -- remain unresolved.
 One investment banker called Time Warner's recent moves "extremely
underwhelming." To indicate the pace at which things are moving at the
company, the banker noted that talks on some of the system sales began two
years ago.
 Even a long-term bull on Time Warner's stock sees the company's steps as
small ones.
 "I think what the investors are demanding is that they would love to see
someone fork over $2 billion to the company and take down that debt," said
NatWest Securities analyst Paul Marsh, who recently put a new buy
recommendation on Time Warner's stock. "They want a major cash infusion or
a major asset sale."
 Levin seemed to be on the defensive during the shareholder meeting here,
as he fielded questions about the stock's depressed price and his own
compensation and made a lengthy response regarding the protest about Time
Warner's rap recordings.
 The only times he seemed to muster much enthusiasm was when he introduced
a flashy demonstration on the new online service, which makes use of Time
Inc.'s stable of magazines, and when the session closed with a trailer of
Warner Bros.' new Batman movie.

 OPS SEEKING PRICE FLEXIBILITY ON HILL
 Washington -- Cable operators are turning to Capitol Hill for new freedom
to price programming, equipment and installation service.
 But the industry is battling a broad range of opponents, including the
consumer groups, the Clinton administration, Federal Communications
Commission chairman Reed Hundt and Rep. Edward Markey (D-Mass.), a key
drafter of the 1992 Cable Act.
 Recent additions to the list of foes include wireless cable and SMATV
operators, who are vocally opposed to lawmakers' giving cable the pricing
flexibility that it wants.
 Since passage of the 1992 Cable Act, cable operators have been forced to
offer uniform rates throughout a franchise area even if the operator's
rates are not capped by a local franchising authority or the FCC.
 Under pending House legislation, the uniform pricing mandate would
disappear for all programming services except basic. The provision has not
garnered much attention until recently.
 "It's [the] poison pill of the House bill, tucked away in the back," said
Peter Price, president of Liberty Cable Television, a SMATV operator that
competes against Time Warner Cable in Manhattan.
 Last Wednesday, Markey offered an amendment designed to kill the pricing
flexibility provision, but he eventually withdrew it.
 The House bill, sponsored by Reps. Thomas Bliley (R-Va.), Jack Fields (R-
Texas) and John Dingell (D-Mich.), would impose no pricing restrictions on
bulk discounts to apartment buildings -- prime locations for MMDS and SMATV
operators to sign up subscribers.
 "I would call this an invitation to predation. I think it's an insult to
the American consumer," said Liberty's Price.
 "It doesn't pass the smell test," said Robert Schmidt, president of
Wireless Cable Association International Inc., which represents the MMDS
industry.
 A Clinton administration official, who asked not to be identified,
attacked repeal of the uniform rate rule as an attempt to put Liberty Cable
out of business.
 Rich D'Amato, spokesman for the National Cable Television Association,
said cable operators should be able to vary their rate cards.
 "We, like everyone else, need that pricing flexibility to compete ... in
order to go into those high-rise apartments and compete on a fair basis
with these providers," D'Amato said.

 SOME NETS BLAST DISNEY OVER TELCO TALKS
 Several cable networks severely criticized the unnamed joint venture
between The Walt Disney Co., Ameritech Corp., BellSouth Corp. and SBC
Communications Inc. for using The Disney Channel's affiliate staff to
negotiate programming contacts for the entity.
 Both premium and basic network executives called the arrangement a
conflict of interest for The Disney Channel.
 A dozen networks said they had been approached by Mark Handler, senior
vice president of sales and affiliate marketing for The Disney Channel,
about cutting programming deals with the unnamed telco consortium, which
serves 50 million customers in 19 states.
 "Why would I want to tell a competitor of mine what my deals are?" asked
John Sie, chairman and CEO of Encore Media Corp. "And if Disney is not an
owner of Ameritech, then I don't want to do a deal with them anyway. We
don't want to deal with a subdistributor. On both fronts, I look at it
suspiciously."
 Sie said he hadn't talked directly to Handler,
 but he told John Cooke, executive vice president of Walt Disney Co. and
exiting president of The Disney Channel, that the strategy "didn't make
sense to us."
 Cooke confirmed that The Disney Channel people had made calls on behalf
of the consortium, but he emphasized that this was a temporary arrangement.
 "We are in the process of establishing a team of people who will
negotiate these programming licensing deals, and they will not in any way
be associated with The Disney Channel," said Cooke. "There will be a wall
that precludes any exchange of information or any kind of data with anyone
inside the channel."
 However, the many cable network affiliate sales heads contacted by
Handler and his staff did not yet have the impression that The Disney
Channel people would disappear once the negotiations were down to the stage
of hammering out the contracts.
 "I don't know anyone that wasn't livid," said a head of affiliate sales
for a programmer, about being asked to negotiate with The Disney Channel
for telco distribution. "Every network's contract is proprietary between
the network and the client."
 "There is a Chinese wall between one network's contracts and a competing
network's knowledge of what's in that contract," said the head of affiliate
sales for a midsized network. "It's the standard in the industry and it's
remarkable that one hasn't been constructed."
 The source added that the network would "do a deal with The Disney
Channel over my dead body. I'm not laying my contract on them."
 Affiliate sales sources said network contracts contain up to two pages of
confidential information, including the rate card, who gets vertical
blanking interval (VBI) rights to use for interactivity, what type of most-
favored-nation clause is being offered, length of contracts, number of
years free (if applicable) and marketing incentives.
 "We're not going to let The Disney Channel get any leverage over us,"
said a CEO from another network.
 While several basic network executives complained bitterly about the
prospect of negotiating a contract with The Disney Channel, sources --
including some from the premium networks -- said it was most awkward for a
pay channel to negotiate with a direct competitor of The Disney Channel.
 The majority of networks said they were dead against dealing with Handler
and his staff, but at a few networks -- generally small to midsized ones --
some said they had no problem negotiating with Disney.

 LIFETIME WORRIES ABOUT ACCESS TO OFF-NET SERIES
 New York -- One week after fX acquired NYPD Blue from its sister company,
Twentieth Television, Lifetime Television, which was eager to purchase the
ABC drama, said it was worried about being locked out of future attractive
off-network deals.
 "The thing that concerns me is our ability to buy in the marketplace,"
said Judy Girard, senior vice president of programming and production for
Lifetime. "This is not sour grapes. I'm concerned about the people who own
the distribution. Will all of MCA and Paramount product now go to their
networks without anyone bidding on it?"
 USA Network has run an abundance of off-network MCA and Paramount series
such as Major Dad, Miami Vice and Quantum Leap.
 While many industry observers said networks with studios for parent
companies really did not have an advantage in getting their studios' off-
network series over other networks, some, including Girard, believe that
networks without studio partners may be at a disadvantage.
 fX Networks chairman and CEO Anne Sweeney maintained that fX offered
sister division Twentieth Television a deal the distributor couldn't
refuse, so NYPD Blue was sold to fX. Sources said fX also purchased Picket
Fences, in which Lifetime was also interested, from Twentieth, but fX
declined to comment.
 "fX was the highest bidder, this was not about Fox product," agreed
Janeen Bjork, vice president/director of programming for broadcast sales
rep Seltel. "fX offered the more favorable deal."
 Turner Network Television and USA also said they had preliminary
conversations about NYPD Blue and Picket Fences with Twentieth, according
to the two networks.
 However, Girard said she wasn't given the opportunity to close a deal for
the Steven Bochco series. Girard said Lifetime had the first serious
conversations with Twentieth about NYPD Blue.
 "We talked money, we talked terms and they were going to respond to that
when all of a sudden there was a preemptive bid from fX," said Girard.
"They clearly had an active market and they decided to service their own
network instead of the buying market."
 Directly, off-network series have provided important anchors for several
basic cable networks' schedules. For example, Lifetime garnered solid
ratings with L.A. Law and USA Network continues to score with Murder She
Wrote.
 "Acquired series help support the originals," said Girard. "They are
produced at very high dollars and they bring a lot of viewership to the
networks. Hopefully, they bring viewers to your originals and other things
you control on the network. Producing everything originally is very, very
difficult."
 Brad Siegel, president of TNT, said even though his network does not rely
on expensive off-network series, he agrees that networks with studio
parents have an advantage.
 "If a studio owns a cable network, it will go there first," said Siegel.
"If the network is willing to pay the price or come close, the studio would
be stupid to shop it elsewhere."
 Other industry observers disagree with Siegel's assessment.
 "It's not in the studios' best interests to do it that way," said Gary
Lico, president of programming sales firm Cable Ready. "Do you think Steven
Bochco is going to stand for a mediocre deal when he can get a better deal
somewhere else?"
 "I don't think there's any real advantage," said Richard Kurlander, vice
president/director of programming for Petry Television. "They have your
basic fiduciary responsibilities."
 "There may be an advantage in certain cases, but overall, there isn't
much advantage," said Steve Aurbach, president of media buying firm Aurbach
& Co. "Everyone wants to maximize their revenues. If Twentieth didn't get
top dollar, that might be the last show Bochco distributes through them."
 Aurbach and other sources point out that Lifetime also has seemingly
benefited from co-parent Capital Cities/ABC (owners of this newspaper).
 Lifetime currently snares strong 1.2 Nielsen ratings with ABC
Productions' The Commish and also does fairly well with Barbara Walters'
Interviews of a Lifetime, courtesy of ABC.
 Girard was careful to say that losing NYPD Blue and Picket Fences would
not adversely affect the network. But she added that Lifetime was hot on
the two Twentieth shows because of the dearth of one-hour shows -- which
are a mainstay for Lifetime -- coming off the networks.

 -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=...And Finally=-=-=-=-=-=-=-=-=-=-=-=-=-=-
 Hollywood's abuzz that Columbia Pictures paid $750,000 for a script from a
first-time screenwriter. Why should this interest the cable industry, you
may ask? Well, the script is called The Cable Guy and was written by a
former member of the L.A. District Attorney's office. (We wonder which of
the 14 Los Angeles franchise areas he calls home?) The protagonist --
scheduled to be portrayed by Saturday Night Live star Chris Farley -- is
described as a bumbler who torments a subscriber but finally brings romance
into her life. Now that's what we call customer service.

 Ever notice how boring Court TV can get? No, no, we don't mean the lawyers
pontificating, but the jackhammers boring into the floors. The sounds of
renovations have occasionally bled onto the air since Court TV began
renovating truly spartan Manhattan offices. Annoyed staffers endure
drilling and hammering contractors who are separated from the rest of the
floor only by thick black curtains. Network honcho Steve Brill says the
renovations are needed because Court TV's syndicated show is going daily
and parent American Lawyer's online service is expanding. But he promises
not to violate a sacred tradition: "We are not going to have what you would
call `nice' offices," Brill said.

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