From: owner-cablereg-l@netcom.com Date: Mon, 16 Jan 1995 07:24:16 -0800 CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 1/2/1995. Vol.2, No.1 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 (higgins@dorsai.dorsai.org or 212-887-8390) For Multichannel News subscription information: 800-247-8080. A bargain at $78/year. Multichannel e-mail contacts: Marianne Paskowski, editor: Mpcable@aol.com John M. Higgins, finance editor: higgins@dorsai.dorsai.org Kent Gibbons, new media editor: kentgibb@well.com Leslie Ellis, technology editor: Ellis299@aol.com PRESSLER DRAFT PLEASES TELCOS Washington -- Cable operators and phone companies will go head-to-head after one year in draft legislation proposed last week by Senate Commerce Committee Chairman Larry Pressler (R.-S.D.) Pressler's sweeping plan, just weeks away from being introduced as legislation, calls for speedy deregulation of all telecommunication markets after the adoption of transition rules designed to ensure fair competition. Pressler's plan also calls for deregulation of expanded basic tiers and the modification of the 1992 Cable Act's "effective competition" test. The draft proposal said details of rate relief would have "to be fleshed out." Pressler wants to pass his bill within six months, concerned the effort might collapse by the intrusion of presidential politics and must-pass spending and authorization bills later this year. Pressler's draft plan invites the telcos to compete with cable much sooner than the cable industry would prefer, based on positions taken by the National Cable Television Association and other cable interests on previous legislation. "This is just the first cut," warned Stephen Effros, president of the Cable Television Association. National Cable Television Association spokesman Rich D'Amato said the group would withhold comment until "we see a bill." He said the NCTA was encouraged by pro-competition comments by Vice President Al Gore, Majority Leader Robert Dole and Pressler last week before the draft surfaced. The telcos said they liked what they saw in the Pressler staff draft. "We're particularly pleased that the plan establishes a definite time frame for opening local exchange, cable and long-distance markets," said Gary McBee, chairman of the Alliance for Competitive Communications, the Baby Bells' new joint lobbying arm. In an unexplained action, Pressler announced he had barred his committee staff from conversing with lobbyists and reporters until the bill had been introduced. Pressler's staff draft laid out clear ground rules for cable-telco competition. The plan calls for a one-year transition period during which state barriers to local phone competition would fall. At the same time, telcos would have to unbundle their networks, allowing cable firms to interconnect. "Transition rules designed to open monopoly markets to competition must be in place before certain restrictions are lifted," an outline of the draft said. Pressler's plan would allow telcos to build video transport facilities without the approval of the Federal Communications Commission. Telcos offering video dialtone would not need a franchise; they would if they function like cable operators. Cable operators would be required to offer phone service through a separate subsidiary; the same requirement would apply to telcos when offering video programming. Pressler's plan would allow telcos and cable operators to buy each other out and engage in joint ventures only in areas with fewer than 50,000 people. Release of Pressler's draft capped a busy week on the telecommunications front, which included a major speech by Gore and a Senate hearing by Pressler. In remarks to local, state and federal regulators, Gore voiced sympathy for some of cable's regulatory and legislative goals and surprisingly was disinclined to buy into Baby Bell arguments for rapid entrance into new markets. Gore indicated that he was unwilling to support policies that would allow the Baby Bells to overwhelm the cable industry in a deregulated environment. "The game should not begin on some arbitrary date without rules at all on the mistaken assumption that a calendar can replace a rulebook. Too many people and businesses have too much at stake to be subject to the vagaries of trying to play now and figure out the rules later,"~ Gore said. Gore said the telcos need to face real -- not theoretical -- competition before they are allowed to branch into cable and long-distance phone markets. He said he would support prompt removal of rate regulation if cable can demonstrate a lack of monopoly power in local markets. "If the arrival of direct-broadcast satellite and video dialtone eliminates the need for rate regulation, so much the better. I have no interest in seeing regulatory mechanisms perpetuated an instant longer than necessary," Gore said, adding that he believes a bipartisan bill will pass this year. At Pressler's telecomm hearing on Monday, Majority Leader Robert Dole (R- Kan.), who helped scuttle last year's Senate bill, said he would bring a deregulatory bill to the floor as quickly as possible. "We do hope to move ahead as quickly as we can," Dole said, cautioning that "in the Senate `quickly' is not a term we use very often." House Commerce Committee chairman Thomas Bliley (R-Va.), and House Telecommunications and Finance Subcommittee chairman Rep. Jack Fields both said the House could act by mid-year. "We going do everything we can to reach that goal in the House," Bliley said. Fields said he was unwilling to wait a long time for the long-distance companies, Baby Bells and cable to cut deals. In fact, Fields said he might write a bill that imposes a solution on the warring factions. "There is no reason for this to be prolonged," Fields said. Long-distance companies want the Bells to face "actual and demonstrable competition," or comply with other safeguards. The Bells argue that such demands will turn them into hollow monopolies. BELL ATLANTIC GETS PROGRAM NOD IN VA. Washington -- Bell Atlantic Corp. last week won the right to offer video programming in a precedent-setting action by federal regulators that immediately triggered a negative response from the cable industry and others. In two actions, the Federal Communications Commission announced that Bell Atlantic could conduct a six-month video dialtone trial in Arlington and Fairfax, Va., involving some 2,000 homes on a first-come, first-served basis. It also said Bell Atlantic could program the network, the first time the FCC has authorized such activity by a telco. Bell Atlantic plans to offer video-on-demand services using Asymmetric Digital Subscriber Line (ADSL) technology, utilizing existing copper plant for transmission, the telco said in a statement that accused the cable industry of delaying the FCC's action for a year. The telco expects the trial to begin soon. In authorizing the ADSL trial, the FCC said Bell Atlantic could be a network programmer in recognition of the telco's court triumphs striking down the 1984 Cable Act's telco-cable cross-ownership ban. The FCC's VDT rules, reaffirmed just three months ago, limit a telco's programmer ownership at less than 5 percent, but the FCC in effect said last week that the 5 percent cap will not apply to Bell Atlantic's ADSL trial. "The FCC does not need to be considering special steps to allow phone companies to deliver TV programming outside the laws and regulations established by Congress," National Cable Television Association president Decker Anstrom said in a statement. The NCTA is fighting to uphold the cross-ownership ban in federal court and expects to take the Bell Atlantic case to the Supreme Court. Two federal courts have already struck down the ban. For the trial, FCC Common Carrier Bureau chief Kathleen Wallman said neither Bell Atlantic nor its programming affiliate -- Bell Atlantic Video Services (BVS) -- would be required by the FCC to obtain local franchises. Nicholas Miller, a lawyer with the firm Miller, Canfield, Paddock & Stone, who represents Alexandria, Va., and Montgomery County, Md., said he was "very disappointed with the decision. This is a significant change in the law." Miller said cities and counties maintain that VDT operators need local franchises just like cable operators. "The Commission has obviously lined up in favor of BVS providing programming without a franchise and in favor of striking down the 5 percent limitation," Miller said. Wallman said the FCC was not permanently wedded to the no-franchise position, suggesting the Bell Atlantic trial decision was an interim step until the FCC adopts permanent rules related to telco-controlled programmers. FCC sources said the agency did not bar Arlington and Fairfax from requiring Bell Atlantic to seek franchises. She said BVS also would be subject to a host of regulatory safeguards barring Bell Atlantic from discriminating against other network programmers and from cross-subsidizing their video services with phone customer revenues. The FCC also agreed to launch a rulemaking to determine which policies it should adopt when phone companies simultaneously provide video transport facilities and control network programmers. The cable industry has insisted that when telcos mirror cable operators by being both network and program providers, they should be subject to the same cable franchise requirements under Title VI of the Communications Act. "Let's all play by the same rules. That's the bottom line here," said Stephen Effros, president of the Cable Telecommunications Association. CAI GETS N.Y. ACCESS WITH MICROBAND SALE CAI Wireless Systems Inc., an Albany, N.Y.-based wireless cable operator, entered the huge New York City market last week by paying $39 million for the assets of moribund Microband Wireless Cable Corp. The purchase, with cash, stock and a short-term notes, gives CAI access to 2.5 million line-of-sight households, the biggest wireless cable market in the country. CAI has wireless cable systems in Albany and Rochester and in Virginia Beach, Va., and controls channel rights in Buffalo, Syracuse and Long Island, N.Y., Hartford, Conn., and Boston. Microband, operating mostly in uncabled areas of Brooklyn and the Bronx, has dwindled to about 24,000 subscribers from a one-time level of about 60,000. It had about $15 million in revenue last year. Hampered by an inability to secure programming, the company filed for Chapter 11 bankruptcy protection in December 1989. It now offers 17 cable channels and 11 to 13 broadcast stations. CAI was the high bidder for Microband's assets at a bankruptcy court hearing in New York on Dec. 22. The same day, CAI announced that president and COO Greg Bicket had resigned to pursue an opportunity in international telecommunications. CAI may be best known for supplying programming to telephone company video dialtone trials. CAI provides programming to Frontier Corp. (formerly Rochester Telephone Corp.) in Rochester, N.Y., and to Southern New England Telecommunications Corp. in West Hartford, Conn. MO. PANEL URGES END TO COMPETITION BAN A special commission appointed to study telecommunication policy in Missouri has urged state lawmakers to scuttle the ban against competition in the local telephone market. The Commission on Informational Technology last week submitted a report to Gov. Mel Carnahan that called for opening Missouri's local telephone market to competition from cable operators, long-distance carriers and smaller telephone companies. In exchange, Southwestern Bell Telephone Co., the local regional Bell operating company, would be freed from virtually all state regulations after the year 2000, but only if safeguards protecting competition are in place and local regulators have determined that "effective" competition is present on an exchange-by-exchange basis. Among the safeguards included to protect against a move by SW Bell to block competition are number portability, accessibility to the RBOC's network and a definition of what constitutes actual competition. "The reason for the safeguards is because right now everything flows through Southwestern Bell and they could bottleneck [competition]," said Jeremiah Finnegan, an attorney representing the Missouri Cable Telecommunications Association. "And it has to be effective competition, not just some competitor in any one of the exchanges." Predictably, SW Bell -- a unit of SBC Communications Corp. -- was the only one of the Commission's 15 members that refused to sign off on the agreement. In a one-page response, SW Bell representative Richard Taylor called the proposal "outrageous," saying it would allow long-distance carriers and cable operators to selectively enter the RBOC's markets, while SW Bell would not be allowed to enter the long-distance or cable business. The CIT proposal also would allow competitors to concentrate on large population centers and ignore high-cost rural areas, Taylor concluded. However, some industry watchers touted the plan as a virtual blueprint for opening any local telephone market to competition. CABLEVISION WINS $3.9M PIRACY AWARD Cablevision Systems Corp. last week scored the biggest victory yet over cable television piracy, winning a $3.9 million damage award in a lawsuit against two New York-based distributors of illegal set-top decoder boxes. In the largest such financial award in cable history, a U.S. District Court judge in New York slapped defendants Jon Neyir and Rita DeGirmenci with $10,000 fines, in each instance involving the sale of 390 illegal set-top decoder boxes. "This is a big win for cable and for its million of honest customers," said Cablevision vice president of security Robert Astarita in a prepared statement. Judge Raymond Dearie found the pair guilty under Section 605 of The Communications Act of 1934, which allows for individual fines of $10,000 for each sale of illegal cable devices. Industry officials believe that the court meant to deliver a clear message to cable pirates. "If you can only be fined $10,000 for selling these decoders, some people will say that's just a cost of doing business," said Cablevision spokesman Norman Fein. "But if it's $10,000 for each case of cable theft, then it becomes uneconomical." Fein said the company has evidence involving the sale of another 2,219 decoder boxes by Neyir and DeGirmenci that it intends to pursue in courts. At $10,000 apiece, those cases could produce another $22.1 million in damages. Meanwhile, attorneys for the cable industry were even more enthused by the part of Dearie's order that enjoined the pair from ever engaging in any cable- related businesses in the future. If this precedent is followed by other courts, it would make it easier to bring contempt proceedings against recidivists. Without such an order, cable operators often have to launch a whole new investigation against cable pirates who set up shop elsewhere. The ruling in the Cablevision case represents recognition by the federal courts that higher fines and penalties are necessary to curb the piracy problem, said attorney Daniel Lefkowitz, whose firm represents several top MSOs, including Cablevision. It also should positively affect state and federal cases pending in California, Florida, New York and Minnesota, attorneys said. In each of these cases, operators are seeking large financial penalties in order to deny the cable pirates the capital to set up new operations. Dearie's ruling was the industry's second major victory against cable pirates in as many months. In December, an Arkansas court sentenced Jan Gregory Manzer -- the first person ever extradited from a foreign country for cable piracy -- to 46 months in jail, and ordered him to pay $2.7 million in restitution for selling modified satellite descramblers. DBS COS.: WE'RE WALKING THE WALK Las Vegas -- Cable television's "death star" seems to be burning bright. Direct-broadcast satellite backers are doing more than talking big about 1994 results -- they're pumping millions of dollars into the industry to prove their faith. Thomson Consumer Electronics Inc. announced at the recent Consumer Electronics Show here that it will spend about $40 million on a third production line in Juarez, Mexico, to build the RCA-brand decoder needed to receive the GM Hughes Electronics Corp.'s DirecTv and Hubbard Broadcasting Inc.'s U.S. Satellite Broadcasting (USSB) services. The companies said more than 352,000 subscribers signed up for DBS last year. Thomson produced exactly 590,398 DBS decoder boxes last year -- fewer than the 700,000 Thomson had predicted because of early delays but more than twice the number of VCRs (209,000) sold in the debut year of 1977. Thomson expects to build between 1.2 million and 1.5 million boxes this year and possibly churn out more than 2 million in 1996. DirecTv expects to be at around 1.5 million subscribers by the end of the year and is "well on the way to hit 3 million" by the second half of 1996, DirecTv president Eddy Hartenstein said. According to Hartenstein, 3 million is DirecTv's break-even point. As for subscribers' monthly bills, Hartenstein said more than 98 percent of DirecTv viewers take the $29.95 Total Choice package. He would not disclose buy-rates for sports packages or pay-per-view movies ($2.99 each), although he said PPV buy-rates were far above cable's. USSB, which has the premium services, says about 55 percent of its subscribers take the highest-priced, $34.95 Entertainment Plus package. So those subscribers are paying about $65 a month plus sports and PPV. Elements of the cable industry are betting on DBS' success, too. PrimeStar Partners L.P., including six cable MSOs, has committed this year to buy 1 million DigiCipher I signal decoders (at $500 apiece) from General Instrument Corp. year for the PrimeStar nationwide DBS service. In addition to that $500 million purchase order, PrimeStar will boost spending on marketing to about $100 million in 1995, from $55 million in 1994, CEO John Cusick said. PrimeStar even will run a commercial during the Super Bowl, Cusick said at CES. PrimeStar ended last year with about 250,000 subscribers and expects to hit a million this year. "We are going to drive like hell to get to that million-subscriber point," Cusick said, predicting PrimeStar could overtake DirecTv and USSB after PrimeStar switches over to higher-powered satellites next year. On top of those efforts, a third DBS provider, EchoStar Communications Corp., said it is on pace to launch the first of two satellites sometime this year. And around May, Sony Corp. will introduce its versions of the receivers now being built solely by Thomson for the DirecTv and USSB services. Other manufacturers for those receivers will come online sometime in 1996, Hartenstein said. He said DirecTv will announce those manufacturers in two to three months. Cable MSOs have taken notice. In recent months, Tele-Communications Inc. and Comcast Corp. (two of the PrimeStar partners) have aired attack advertisements and the Cable Telecommunications Association has distributed anti-DBS literature. Hartenstein and Stanley E. Hubbard, USSB's president and COO, said those efforts have had little effect, except that new subscribers now ask about such issues as "rain fade." TELEPORT REJECTS AMERITECH PAY PLAN Ameritech Corp. has offered mutual compensation to competitors who want to offer local calling in Illinois, but Teleport Communications Group slammed the offer as unfair and "anti-competitive." Another rival, MFS Communications Co. Inc. of Oak Brook, Ill., was more receptive to Ameritech's proposal. MFS spokesman Steve Ingish called it "a step in the right direction." The Illinois Commerce Commission is in the process of deciding what conditions should govern competition for local phone service, now dominated by Chicago- based Ameritech, one of the seven Baby Bells. A year ago, Ameritech offered to let competitors breach that monopoly if Ameritech, in turn, were allowed to carry long-distance calls. Since then, rivals such as cable MSO-owned Teleport and MFS have accused Ameritech of obstructing their entry into the Chicago local-calling market. Illinois Commerce Commission staff has supported MFS, which has co-carrier status in Illinois, by saying Ameritech has improperly refused to negotiate interconnection terms with MFS. Last month, a hearing examiner for the Commission issued a proposed order telling Ameritech to honor MFS Intelenet Inc.'s status as a local exchange carrier. Last Monday, Ameritech said it would negotiate reciprocal compensation agreements with Illinois rivals that want to connect with Ameritech's local network. Ameritech would pay rivals, on a per-minute basis, for accepting calls that originate on Ameritech's network. In return, Ameritech would expect payments for completing calls that began on rivals' networks. Rivals also would be able to buy directory assistance, operator service, 911 database access and billing and collection services from Ameritech. "Once again, we are demonstrating, in concrete terms, Ameritech's commitment to full and fair competition," Ameritech executive vice president and general counsel Thomas Hester said in a statement. Teleport disagreed. In a dueling press release, Stephen Renne, vice president and general manager of Teleport's Chicago network, said, "The problem with Ameritech's approach is that it is not just unfair -- it's anti-competitive and will make local exchange competition impossible." Roger Cawley, a Teleport spokesman, said the problem with Ameritech's proposal is that Ameritech would charge "inflated prices" for completing calls. Teleport would be hurt under such an arrangement because, as the newer and smaller competitor, the overwhelming volume of calls (and payments) would flow to Ameritech from Teleport. "We would have to pay Ameritech enormous sums of money" and could not afford to compete, Cawley said. Renne said Teleport would prefer a "bill-and-keep" formula. In that case, the two companies would assume the volume of traffic would be roughly equal and therefore neither company would charge the other. -=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=- Just when you thought PPV couldn't get any worse ... Even PPV executives cringed at the prospect of some sort of event featuring O.J. Simpson and denied that one was in the works. Vanity Fair's February issue reported that murder suspect O.J. is negotiating a PPV deal that could net him $10 million. Not so, said execs with PPV distributors. Furthermore, they said if a deal were to happen -- only if O.J. were acquitted, the mag said -- nobody in the industry would guarantee that kind of dough to one person. "Anybody who thinks PPV would pay O.J. $10 million doesn't know very much about the PPV industry," said one plugged-in executive. Now, Mike Tyson, there's a jailbird worth that kind of money ... Interest in Senate Commerce Chairman Larry Pressler's (R-S.D.) first telecommunications hearing of the year was high indeed as the line of people waiting to get in covered two flights of steps. A courier holding a place in line for one lobbyist arrived at the Senate Russell Office Building at 4 a.m. -- three hours before Capitol Hill police opened the building to the public. Once inside, the courier waited near a bank of elevators outside the hearing room until 3:30 p.m. "If you want to draw a crowd in this town, you ... have a hearing on telecommunications," said Sen. 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