From: owner-cablereg-l@netcom.com Date: Tue, 10 Jan 1995 05:48:33 -0800 Reply-To: higgins@netcom.com CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 1/9/1995. Vol.2, No.2 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 HOT NEWS * FCC Against The Wall on Video Dialtone * Sprint Cable Leading Wireless Bidding * FCC Warns Cable on Digital Standards FCC READY TO SET VDT PROGRAM RULES Washington -- The Federal Communications Commission is about to accost a critical video dialtone issue that has been festering for nearly two years. The issue is this: What rules should the FCC apply when telephone companies intend to program their VDT networks? The FCC this week is planning to ask cable operators and others to suggest safeguards, if any, when telcos become programmers. "This issue is now getting teed up," an FCC source said. The FCC never had to worry about such a proposition before because federal law -- namely, the 1984 Cable Act -- expressly prohibited local phone companies from programming VDT networks in competition with the local cable company. But there's a new reality to which the FCC is only now adjusting. Since August 1993, one federal court after another has declared the telco-cable cross-ownership ban an unconstitutional infringement upon the First Amendment rights of telcos. Just last week, the Ninth U.S. Court of Appeals in San Francisco overturned the ban, paving the way for U S West Inc. to offer video programming directly to its customers in 14 states. The FCC's VDT rules clash with these court decisions. Its rules state that telcos are to act as common carriers of video programming with limited interest in network programmers. The FCC also said neither the VDT provider nor network programmers would need to obtain a local franchise or pay franchise fees, a critical distinction between VDT and cable systems. The National Cable Television Association asserts that when a telco programs its own network, it is acting like a cable operator and should be subject to the same rules as the nation's 11,000 cable systems. "The whole key to being a common carrier is not exercising an editorial function," said Daniel Brenner, NCTA's vice president of law and regulatory policy. The FCC's no-franchise requirement was upheld by a federal appeals court in Washington, D.C., last year. But the court did not address whether franchise requirements would be needed when a programmer is an affiliate of the telco. The FCC launched VDT in 1991 and produced a second draft in 1992. It revisited VDT rules last October and virtually banned telcos from being network programmers -- even as the telcos were piling up court cases. Bell Atlantic, the first telco to win in U.S. District Court and the U.S. Court of Appeals, has not gained FCC approval to be a programmer. Bell Atlantic officials have said the FCC would be in contempt of court if it continues to block the telco from programming its VDT networks. Last week, the Justice Department and NCTA filed petitions with the appeals court in Richmond, Va., asking for a rehearing. The NCTA told the court that it failed to recognize that the FCC has authority under the 1984 Cable Act to waive the cross-ownership ban upon a "showing of good cause." The court should have addressed this issue before invalidating an act of Congress, the NCTA added. The Justice Department's filing said the court misapplied a Supreme Court precedent. "It's customary [and appropriate] for the government to ask a circuit court for a rehearing," a Justice Department source said. "The granting of rehearing is not common." Bell Atlantic was not pleased to learn about the DOJ and NCTA's actions. "We can't understand why the Justice Department would file for something like this," said Bell Atlantic spokeswoman Joan Rasmussen. An FCC source last week said that the agency has a big job ahead of it. One FCC source suggested it was conceivable that the agency could rule that a telco's network was a common carrier, but its programming affiliate using the network would be regulated as a cable operator. "I would go along with that. I have pretty much argued that anyway," said John Seiver, an attorney with Cole, Raywid & Braverman, who has been handling VDT filings for regional cable associations. "I don't think we would like that concept," said a source at regional Bell company Nynex Corp., stressing that phone companies still would be required to transport the programming of unaffiliated programmers while cable operators would not. BellSouth Corp. media relations manager Lois Phillips said the telco believes no new rules are necessary. "If the FCC really wants effective competition with the incumbent cable operator, then the last thing we need is more rules," she said. A FCC source said a key question facing the Commission is how to treat Bell Atlantic prior to the adoption of safeguards. One option is to let Bell Atlantic become a programmer and require the telco to adhere to the safeguards retroactively. The whole issue could be snatched from the FCC. Congress could pass new telecommunication legislation that directs the FCC to adopt safeguards to apply to the telcos. In last year's House-passed bill, the telco would have needed to pay franchise fees -- but not obtain franchises -- and comply with must- carry rules, retransmission consent and program access provisions of the 1992 Cable Act. The bill also required establishing programming affiliates as separate subsidiaries. SPRINT GROUP LEADS PCS AUCTION The auction of wireless communications air waves took a holiday break last week after topping $1.6 billion but still falling short of government hopes. About a quarter of the high bids so far -- $426 million -- have come from WirelessCo L.P., the grouping of Sprint Corp. with cable MSOs Tele- Communications Inc., Comcast Corp. and Cox Cable Communications. The foursome maintained the highest bid --$221 million -- for the largest available market, New York, when the 20th round of bidding ended on Dec. 21. It had high bids for 30-MHz licenses in 18 markets, including Boston- Providence, R.I., ($52.7 million), Chicago ($42.8 million), and Dallas-Fort Worth ($27.2 million). "Sprint's playing an extremely aggressive game, much more so than I would have dreamed," said Barry Goodstadt, director of wireless industry consulting for EDS Corp. in Washington, D.C. Goodstadt said he was guessing the auction of 99 (30-MHz) licenses in 51 metropolitan areas might generate about $3 billion. He said it was unlikely that later auctions of an additional 60 MHz would bring in as much, so the federal government might not make its revenue target of $10 billion. While treasury minders might be disappointed, Goodstadt said the results so far are good for the wireless industry. The leading bidders are winnowing down to a core of well-financed companies and groups, including AT&T Corp., GTE Corp. and Pacific Telesis Group, which are likely to follow through and build competing systems after winning licenses. "Given the nature of the players who are showing up there, it's guaranteed that at least two players are going to be built out in every market," Goodstadt said. That means competition to existing cellular duopolies, he said. Spending less than expected for licenses also means those new players will have more money to spend on building and marketing the new "personal communications services," Goodstadt said. Here are the latest bids in other markets: * PhillieCo L.P., the Sprint group minus cellular owner Comcast, led bidding for a Philadelphia license with $38.8 million. * Continental Cablevision led bidding for a license in the Richmond-Norfolk, Va., market with a $20.6 million offer. * Cox had the high bid for a license in the Omaha, Neb., market at $2.2 million. * Centennial Cellular Corp., mostly owned by MSO Century Communications Corp., led bidding for a Puerto Rico and U.S. Virgin Islands license at $16.4 million. AT&T Wireless PCS Inc. led bidding on 18 licenses, with total high bids of about $225 million. PCS PrimeCo L.P., the grouping of Bell Atlantic Corp., Nynex Corp., U S West Inc. and AirTouch Communications Inc., led bidding for 11 licenses with total bids of about $215 million. Pacific Telesis Mobile Services led bidding on three West Coast licenses and one in the Phoenix, Ariz., market, with total bids of about $177 million. And GTE Macro Communications Corp. had high bids on six licenses at a total of $91 million. The auction resumes Wednesday. FCC OFFICIAL WARNS CABLE OVER '95 DIGITAL ADVANCES Orlando, Fla. -- Operators considering rollout of digital services to subscriber homes should pay close attention to the Federal Communications Commission's standardization moves in that area, according to Richard Smith, senior engineer for the Commission's Office of Engineering and Technology. "I would caution those parties planning to implement digital services [to the home] anytime soon," Smith said during a luncheon address to the SCTE's Emerging Technologies conference here. Smith noted his awareness of cable operators planning third-quarter 1995 digital deployments. "Those [operators] need to pay close attention to our actions in the area of digital standards," he said. He also said that the FCC is considering extending its compatibility rules to set-top boxes. If there is one issue your industry needs to be concerned with, this is it," Smith said, adding that "we will soon decide whether to extend the cable-ready rules to set-top boxes." The FCC last April ruled on the compatibility of consumer devices, such as televisions and VCRs, with cable converter, through a decoder interface device. "We now have a draft specification [of the decoder interface], and will soon issue a Further Notice of Proposed Rulemaking related to compatibility," Smith said. Walter Ciciora, former Time Warner Cable executive, and consultant and recognized industry expert on the consumer interface, said afterwards that any extension of the cable-ready rules to set-top boxes or mandated digital standards are "very scary propositions." "Does that mean the industry deploys set-top boxes with plugs?" Ciciora asked, adding: "If so, that's a real threat to innovation." Ciciora also was dismayed with the possibility of FCC-mandated digital standards, which Smith described to include both compression and encryption measures. Other likely FCC initiatives this year will include early work on cable telephone and "several other actions," Smith said. Saying that the FCC wants to "promote the growth of the information highway and competition," Smith said he foresees a future in which cable operators will be able to offer services traditionally provided by telco common carriers -- and vice versa. "At the Commission, we're relying on the [cable] operators as a part of this new structure," Smith noted. VIACOM HIT WITH $450K REFUND ORDER Washington -- The Federal Communications Commission last Thursday ordered Viacom Cable Services to pay about $450,000 in refunds to 211,000 cable subscribers in three northern California communities. In a separate decision, the FCC determined that cable operator King Videocable Company had overcharged subscribers in Valley Springs and Jackson, Calif., but the refund amount was viewed as being so small that the agency decided no refund was necessary. According to an FCC source, the King Videocable case was the first time the agency ruled that it was not in the public interest to order refunds. The FCC said the Viacom decision resolved 22 complaints against the MSO's rates in Contra Costa, Redding and San Francisco. The agency found that Viacom overcharged for expanded basic service. Under the 1992 Cable Act, the FCC is responsible for determining whether expanded basic rates are reasonable under a benchmark formula that is intended to approximate what cable rates would be in a competitive market. The largest order so far was a $1.2 million penalty against Times Mirror Cable Television in November. The FCC said Viacom had 30 days to submit a refund schedule for 14,500 subscribers in Contra Costa, 26,000 in Redding and 171,000 in San Francisco. The agency said the refund totals were $8,270 in Contra Costa, $26,000 in Redding and $420,544 in San Francisco plus interest covering a five-month period after Sept. 1, 1993. The FCC said that although the refund amount would vary from subscriber to subscriber, the average payout would be 55 cents in Contra Costa, $1 in Redding and $2.45 in San Francisco. In November, Viacom was ordered to refund subscribers in Nashville and Goodlettsville, Tenn., about $200,000. Viacom is appealing the action, a company spokeswoman said. NEB. CITIES DITCH CABLE PLAN The League of Nebraska Municipalities has seemingly abandoned plans to pursue legislation that would have allowed cities to build and operate their own cable systems. A league official last week said League members apparently believe the advent of direct-broadcast satellite television -- an understandably attractive service in predominantly rural Nebraska -- will make city-owned cable systems a bad investment. "They feel like cable may not be around in a few years," said League spokesman Lash Chaffin. "I guess over Christmas everybody saw those ads for the RCA 18-inch dishes." Originally, municipalities envisioned the law as providing leverage over cable operators who allowed their systems to decay, while at the same time pushing for double-digit rate hikes. The League has blamed the failure of previous bills on well-orchestrated lobbying campaigns by the state's cable industry. The League's apparent decision not to pursue legislation when lawmakers reconvened last week was welcome news for Nebraska cable operators, who have beat back four separate attempts to pass such a law in the last 10 years. Similar legislation was narrowly defeated in 1990, followed by another attempt in 1993 that failed to get out of committee. "At this point, it's unlikely that we'll re-introduce the legislation," Chaffin said. "Not unless there's a real groundswell from the membership, and that doesn't seem to be coming." "That's good news for me," said Dick Bates, president of the Nebraska Cable Communications Association. "But I wonder how much of that is their previous record on this, and how much of it is [pending] federal legislation that will allow the telephone companies to get into the [cable] business." Bates said the association can now turn its attention to urging its members to seek certification from the Nebraska Public Service Commission to provide telephony service in the state. "At some point in time, they're going to need that certification, so we're going to be urging them to put themselves in a position to get it," Bates said. APPEALS COURT RULES FOR TELCO The telcos kept their winning streak going in court, as U S West Inc. won a Dec. 30 appeals court panel ruling upholding a June victory in U.S. District Court. Pacific Telesis Group claimed a share of the same appeals ruling, in the San Francisco-based Ninth Circuit Court of Appeals, because it has a cross- ownership ban challenge pending in a district court under the appeals court's jurisdiction. Robert Stewart, a PacTel spokesman, said the company would continue to await Federal Communications Commission construction approvals before building video dialtone networks -- despite the court victory and despite separate agreements that PacTel is negotiating in California communities. "I think we'll do what everybody is doing, which is proceed with plans," before the FCC, Stewart said. Five regional Bell companies now have won district court orders declaring the cross-ownership ban illegal, and three (including Bell Atlantic Corp.) can claim appeals court wins. NINTENDO, GTE TEAM UP Las Vegas -- GTE Interactive Media, part of the same GTE Corp. planning broadband television systems, last week said it has teamed with powerhouse Nintendo Co. Ltd. to produce and develop games for interactive TV. The two companies are expected to contribute games to GTE's planned interactive TV trial, with AT&T Corp., in 1,000 homes in Manassas, Va., later this year (pending federal approval of the trial). Their aim is to create networked games, which would let players compete against each other via broadband telephone lines. Nintendo's main rival, Sega Enterprises Ltd., is working with Tele- Communications Inc. and Time Warner Inc. on the Sega Channel for cable systems. That service launched Dec. 12. The first joint effort by GTE and Nintendo is FX Fighter, a three- dimensional software game for the Super Nintendo Entertainment System. The 16- bit game is the first one Nintendo had ever co-published. It was on display at the Winter Consumer Electronics Show here last Friday. Patrick Ferrell, who heads up International Data Group's interactive software unit, said the deal helps both companies by giving GTE access to Nintendo's huge retail distribution channel and lets Nintendo ride on GTE's development of interactive TV systems. FX Fighter is expected to be released this fall with a retail price of about $70. It will use the Nintendo FX2 graphics enhancement chip. GTE Interactive also will help develop games for the planned Nintendo Ultra 64, a 64-bit game platform. *----------------------------------------------------------------------* HOW TO GET THE CABLE REGULATION DIGEST: E-MAIL - To: listserv@netcom.com Subject: Ignored Body: subscribe cablereg-l FINGER - higgins@dorsai.dorsai.org FTP - ftp.vortex.com/tv-film-video/cable-reg GOPHER - gopher.vortex.com/*** TV/Film/Video*** WWW - www.vortex.com *--30--*