From: owner-cablereg-l@netcom.com Date: Sun, 22 Jan 1995 19:36:24 -0800 Reply-To: higgins@netcom.com CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 1/26/1995. Vol.4, 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 * No Demand For Video On Demand As Rochester Test Fails * TCI Dueling With FTC Over Shopping * PPV Channels Face Re-Reg Drops QUOTE OF THE WEEK "We're confused, we're frustrated and we're going to call the hand." TCI's Peter Barton over the FTC's opposition of its takeover of QVC "John's been waiting for the right fight, one he stands a good chance of winning and one worth fighting. This one's it." Industry exec on why TCI president John Malone is fighting back against the FTC. ROCHESTER VIDEO ON DEMAND TEST HALTED Rochester, N.Y. -- Frontier Corp. has decided there isn't enough demand for video-on-demand. The company, formerly called Rochester Telephone Corp., last week said it has halted its VOD market test in Brighton, N.Y., even though it had permission to continue the trial for another six months. What's more, Frontier, of Rochester, N.Y., said it has no plans to expand the VOD offering into a "commercial, stand-alone service." Linda Crociata, a Frontier spokeswoman, said, "It's technologically feasible but not economically viable." She said the 52-home trial showed consumers want more from a digital, interactive system than just movies and other videos. Frontier will explore various ways to provide interactive services along with VOD or possibly near- VOD, she said. But, for now, there are no plans for another trial or a commercial service. Frontier's decision could help fuel the debate over whether true VOD, which lets consumers instantly retrieve movies stored on computers, is worth the higher network costs compared with near-VOD, which forces consumers to wait until the next scheduled start time. The cancelation also is a blow to USA Video, which had pitched Frontier on expanding the trial to include business customers in addition to residential consumers. USA Video also wanted to move into commercial deployment in Rochester. Relations between the two companies -- which began with Frontier buying a $100 million stake in USA Video -- cooled amid technical problems in the trial, culminating in the decision to pull set-top boxes from the trial homes about four months ago to make repairs. Jeff Toney, USA Video's director of sales and marketing, said the company is trying to position itself now as a VOD systems integrator for cable operators, phone companies and other corporations. Crociata would not disclose buy-rates for the movies and videos, which ranged in price from 49 cents to $3.99 each. The response was not enough to make the VOD service, on its own, commercially viable -- a judgment that has become "a no-brainer in the industry," said Frontier's Russell Shipley, business service operations director. Subscribers typically had access to about 100 video titles, including movies, classic TV shows and other programs. The Brighton trial participants also had the option of subscribing to a package of broadcast, cable and pay-per-view channels provided by CAI Wireless Systems Inc. But that service merely duplicated what the residents already had through a SMATV system in their apartment complex. William Vogel, a telephone-industry analyst with NatWest Securities in New York, said Frontier chairman Ron Bittner was pressed about the trial results at a meeting with analysts last month. Bittner's reply essentially was, "the case was not compelling to go forward," Vogel said. Vogel added, "I applaud them for that." Frontier decided that the $270,000 test didn't produce results that merited going forward. "I think their point is, why deploy something now that's got dodgy economics," he said. Frontier's trial was small and there were some problems with the USA Video Corp.-supplied VOD service. The service was fully available for only about four months of the original six-month trial period, prompting Frontier to ask the Federal Communications Commission for a six-month extension. The FCC approved the extension in October. Crociata described the video quality as "variable" but said "ultimately we delivered a VCR-quality picture." Despite the limitations, both Frontier and USA Video said they felt the trial had run its course. Neither company said it was disappointed. Crociata said "it was a very useful trial from a number of perspectives." And Toney said, "We accomplished what we set out to do in the trial." COMCAST, TCI FACE OFF VS. FTC New York - Comcast Corp. and Tele-Communications Inc. moved to force a showdown with the Federal Trade Commission over their plan to take over QVC Inc. After months of wrestling with antitrust regulators, the two companies notified the Commission they would push ahead with their long-delayed tender offer for the 65 percent of QVC's stock they do not already own. However, the proposed closing date isn't until Feb. 6, giving them an opportunity to try and reach some sort of settlement with the Commission. TCI and Comcast executives expect FTC staffers to recommend that commissioners reject the deal as blunting competition because TCI already controls rival video retailer Home Shopping Network Inc. TCI's arguments that both networks compete directly against thousands of retailers from Wal-Mart to Macy's have been rejected. Peter Barton, president of TCI subsidiary Liberty Media Corp., acknowledged that he expects the Commission to try and block the takeover and that both sides could end up in court. He believes that the Commission staffers are wrong and are unfairly impeding the QVC deal. "We're confused, we're frustrated and we're going to call the hand," Barton said. QVC officials agree with TCI's position on the FTC challenge. "We believe that there are no real antitrust issues because QVC competes with all sorts of retail outlets," said general counsel Neil Grabell. The Commission has not publicly voiced a position on the QVC deal and an FTC spokesman would not even confirm the Commission was reviewing the deal. However, the QVC deal is just the latest in an ongoing feud between TCI and the FTC over the MSO's power in the cable industry. The dispute over QVC is the FTC's fourth challenge of a TCI acquisition since September 1993. Two cases have called for consent decrees, TCI's re-acquisition of Liberty Media Corp. and the pending takeover of TeleCable Inc., which is scheduled to close this month. A third was TCI's participation in QVC's bid for Paramount Communications Corp. The FTC forced TCI to agree to sell its stake in the retailer if QVC chairman Barry Diller succeeded in acquiring the studio. QVC ultimately lost the bidding, and never had to sell. Now that the Commission appears ready to oppose the QVC takeover, TCI chairman John Malone has decided to hold his ground. "John's been waiting for the right fight, one he stands a good chance of winning and one worth fighting," said one source familiar with the QVC deal. "This one's it." Comcast and TCI had hoped to quickly close the deal in September. But the normal antitrust review of takeovers snagged the MSOs. The key antitrust question is QVC's "relevant market." Does QVC compete only with other shopping channels? If so, TCI's ownership of large stakes in both HSN and QVC -- which collected all but $30 million of the $2.1 billion spent by home shoppers last year -- presents a conflict. But are shopping channels really just players in the $30 billion mail-order game, competing with Land's End and Eddie Bauer as well? Or should the relevant market be all hard goods retailers selling the same housewares, stereos and jewelry in strip malls across the country? FTC staffers "apparently" see shopping as a distinct market, said TCI senior vice president Robert Thomson. "To suggest that any person relies exclusively on TV shopping is ridiculous," he said. "They are even apparently unwilling to include other forms of television merchandise," like products sold through infomercials. Comcast and TCI need to move fast. The merger agreement has a drop dead date of Feb. 28, allowing either side to walk away if the deal hasn't closed. Diller has said that if this deal doesn't work out, there are other buyers who have expressed an interest in the company. TCI DROPPING PPV CHANNELS Englewood, Colo. - Capitalizing on the economic advantages of adding basic services due to the going-forward rules, Tele-Communications Inc. has switched out a number of PPV services for low-priced basic channels. Hardest hit were Playboy TV, Action PPV and Request's five channels, which lost a combined 750,000 subscribers Dec. 31 -- with only two weeks notice before being removed. While industry executives said the switchouts come at an inopportune time for the PPV networks, they do not expect other MSOs to follow suit. "We were just starting to turn the corner six months ago when we thought PPV services were going to be added and now its turned 360 degrees," said Curtis Symonds, president and COO for Action PPV, which lost approximately 215,000 subscribers. Along with Action, Playboy TV lost approximately 150,000 to 200,000 subscribers and Request Television lost upward of 350,000 across its five PPV channels. Greg DePrez, vice president of PPV for TCI, admitted the network has switched out several PPV networks for basic services as part of the going- forward rules, although he would not comment on specific numbers. "We had to make some sacrifices," DePrez said. "Look at it as baby steps until we get channel expansion necessary to add the channels back." At the heart of TCI's move is the ability to capitalize economically on the Federal Communications Commission's going-forward rules. Presented with an opportunity to add new basic services at a nominal licensing fee and net 20 cents per new basic subscriber -- compared with the less than 20 cents per basic subscriber most PPV networks are generating -- TCI went for the quick money, said a source close to the situation. Networks such as The Cable Health Club, Prime Showcase and The Learning Channel were some of the networks that benefited from the switchout, according to MSO sources. TCI has stakes in all of those services, but also owns interests in Request and Action. "Even if a [PPV] network is generating a 10 percent buy-rate, if the system isn't at least 60 percent addressable it can't come close to that," said the source. VIACOM DEAL GETS HILL SCRUTINY InterMedia Partners was on the cusp of finally cutting its deal to buy Viacom Inc.'s cable systems for $2.4 billion Friday, but a key congressman called hearings to review the sale even before the contracts were signed. House Ways and Means Committee chairman Rep. Bill Archer (R-Texas) scheduled a hearing for this Thursday to review a minority-tax certificate, which would allow Viacom to defer about $400 million in taxes on profits. Viacom is eligible for the certificate because the systems are being acquired by two partnerships controlled by African-American lawyer Frank Washington, with the backing of InterMedia Partners and Tele-Communications Inc. Sources said that Viacom, InterMedia and TCI were reviewing final contracts for the sale plus the settlement of Viacom's antitrust suit against TCI. But those agreements have been in the "final" stages for weeks, with the companies repeatedly arguing over snags. Sources cautioned that further glitches could emerge. But the tax break is drawing political heat. Federal benefits for minorities have always been a hot issue and the size of the Viacom deal has attracted scrutiny by newly-empowered Republican critics on Capitol Hill. Archer has no immediate plans to draft legislation altering the terms of the tax breaks. But the hearings could persuade him to change his mind and move a bill that would block the Federal Communications Commission from issuing the tax certificate to Viacom, Capitol Hill sources said last week. Archer's Oversight Subcommittee, headed by Rep. Nancy Johnson, (R-Conn.), had not disclosed a witness list by Friday, but officials from the FCC, the Treasury Department and the Internal Revenue Service were expected to testify. Both Viacom and InterMedia said that a denial of the tax certificate would scuttle the deal. InterMedia CEO Leo Hindery said the deal was carefully formed to meet all the standards required by Congress and the FCC. "It is not surprising that these types of transactions would invite scrutiny," Hindery said. "We're confident that the structure we've chosen is completely in line with the requirements." WIRELESSCO KEEPS UP PCS PACE Washington, D.C. -- WirelessCo L.P. likes the Chicago market so much it briefly was high bidder last week for both of that market's 30-MHz wireless licenses in the current government auction. The problem is, WirelessCo, the consortium of Sprint Corp. and three cable MSOs, or any other bidder can only own one 30-MHz license in any of the 51 markets. AT&T Wireless PCS Inc. made the point moot by topping WirelessCo with a $242 million bid for one of the Chicago licenses Friday morning. WirelessCo took the lead for both Chicago licenses in bidding round 42 last Thursday, with bids of $220 million and $211 million respectively. Federal Communications Commission officials overseeing the auctions said any bidder that ended up with both licenses in a market would have to give up one license and pay a penalty. Total high bids topped $3.7 billion through 43 auction rounds Friday. WirelessCo, whose MSO partners are Comcast Corp., Cox Enterprises Inc. and Tele-Communications Inc., had high bids for 21 licenses. Its total high bids after the Friday morning round totaled about $650 million. After Thursday, WirelessCo had led in 25 markets and its high bids (including the two in Chicago) topped the $1 billion mark. High bids for the single licenses available in the top two markets, New York and Los Angeles, held steady all week at about $330 million each. ALAACR Communications Inc., owned by Craig McCaw, led in New York, and Pacific Telesis Mobile Services led in Los Angeles. Only one license is available in those markets because of "pioneer preference" licenses previously issued to Cox Enterprises in Los Angeles and Omnipoint Corp. in New York. AT&T Wireless PCS Inc. submitted a new high bid in the Washington, D.C.- Baltimore market during the second round on Thursday, offering $110 million. GTE Macro Communications Corp. had taken the lead there a round earlier. The Washington market also has a pioneer license-holder: American Personal Communications L.P., a WirelessCo affiliate. New high bids were posted for 12 of the 99 licenses in round 43. FCC DROPS CHARGES AGAINST TWO MSOS Washington -- The Federal Communications Commission last week dropped negative option billing charges against Time Warner and Comcast Corp. The FCC found that the MSOs did not violate agency rules when they enrolled subscribers in four-channel a la carte packages. Time Warner was cleared of wrongdoing in Milwaukee, Wis., and Comcast in Tallahassee, Fla. FCC OFFERS LOOPHOLE ON COMPETITION RULES Washington -- The Federal Communications Commission stated Friday that it would be willing to deregulate expanded basic cable rates even though the cable operator is not subject to effective competition under the 1992 Cable Act. In a ruling last week, the FCC declared that if a cable operator could demonstrate that its rates were not "unreasonable" due to the presence of multichannel competition, the agency would considering liberating the operator from rate regulation. "In such instances, the public interest may be served by relying on the market forces instead of our rate rules to ensure that the operator's rates are not unreasonable," the FCC said in an action by the Cable Services Bureau. In a statement, Cable Bureau chief Meredith Jones said, "In cases where the operators are price-restrained by market forces, the bureau will examine the whole picture of competition in the franchise area. "As the Commission noted in its video dialtone ruling and its ruling on new product tiers, and as [FCC] chairman Hundt reiterated in his speech to the [Washington] Metropolitan Cable Club last month, where competition assures us that prices will note be `unreasonable,' we don't necessarily have to set prices by rate regulation," Jones said. The FCC declaration was buried in a case involving Tel-Com Inc., a West Virginia operator that claimed a second cable operator, Triax Communications Corp., was competing against it and therefore Tel-Com should be deregulated. The FCC rejected Tel-Com's petition. For cable, the FCC's declaration is significant because current law requires operators to lose 15 percent of their customers before the FCC, by law, surrenders jurisdiction to regulate rates. The FCC said its comments in the Tel-Com decision related to the regulation of expanded basic tiers only. The National Cable Television Association is lobbying Congress to repeal the law's effective competition test, calling it an arbitrary measure of competition. CABLE UNVEILS '95 TELECOM STRATEGY Washington -- The cable industry is asking Congress to overhaul the 1992 Cable Act's rate rules and prohibit telcos from cable markets until monopoly telephone networks are readily accessible to competing providers. The National Cable Television Association recently unveiled its legislative strategy in a 33-page battle plan transmitted to Capitol Hill lawmakers and Clinton administration officials. Although the NCTA declined to release the full text to the media, the 17- point plan that calls for deregulation of expanded basic tiers leaked out almost instantly. Bradley Stillman, legislative counsel for the Consumer Federation of America, blasted the NCTA's platform, saying the industry was attempting to escape from key provisions of the 1992 re-regulation law. He said the plan was a "bald-faced attempt to get what they can ... They really want to rollback all the benefits cable customers have received." One portion of the plan would overhaul the rate complaint process. It would deny the FCC the right to consider an operator's rate increase unless the city files a complaint or at least 5 percent of the subscribers complain individually within 90 days. NCTA spokesman Rich D'Amato said the plan was limited in that the industry was not requesting changes to regulated basic tiers. Honoring its pact with broadcasters, the NCTA is not seeking repeal of must-carry or retransmission consent, he said. Cable's plan surfaced during an active week on the telecommunications front in Washington. A coalition headed by AT&T Corp. and MCI Communications Corp. announced that retired Sen. Howard Baker (R-Tenn.), a former Majority Leader and White House chief of staff under President Reagan, would serve as the group's chairman. Baker's group, the Competitive Long Distance Coalition, is trying to keep the Baby Bells out of long-distance markets until local phone service is competitive. The regional Bell companies earlier this month formed their own lobbying group, the Alliance for Competitive Communications -- a successor to the MFJ Task Force -- and named former Pacific Telesis vice president Gary McBee to head it. D'Amato said the NCTA was not searching for a big name Republican to lobby for cable in the GOP-controlled Congress. Also, House Commerce Chairman Rep. Thomas Bliley (R-Va.) and Telecommunications and Finance Subcommittee Chairman Rep. Jack Fields (R-Texas), encountered criticism for staging closed meetings with cable, broadcast, satellite, local and long-distance company executives on Capitol Hill. Cable executives that were invited were Ted Turner, president of Turner Broadcasting System Inc.; Brian Roberts, president of Comcast Corp.; Gerald Levin, chairman of Time Warner; and John Hendricks, chairman of Discovery Communications Inc., sources said. Rep. John Dingell (D-Mich.), the Commerce panel's ranking member, said the meetings seemed "to be the functional equivalent of a committee hearing" and thus inconsistent with new GOP-backed rules on openness. House Speaker Newt Gingrich defended the private sessions as appropriate, promising public hearings in short order. -=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=- Quiz Show(time) ... Robert Redford believes in synergy, and clearly had an eye on Viacom's other assets when agreeing to team with Viacom's Showtime to launch the Sundance Film Channel. In announcing the deal, Redford told Showtime's Tony Cox that he had some new terms in mind. "If this works out I'd like to be assured of my own shelf at Blockbuster, O.K.?" Redford joked. ------------------------------------------------------------------------- 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--*