From: owner-cablereg-l@netcom.com Date: Sun, 5 Feb 1995 21:43:45 -0800 Reply-To: higgins@netcom.com CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 2/6/1995. Vol.2, No.6 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 QUOTE OF THE WEEK "I would rather see the time that RBOCs could enter other markets tied to how quickly they perform in opening up their markets to competition." MCI CEO Bert Roberts "This draft provides certainty for others, but does not provide certainty of timing for Bell companies." Gary McBee, chairman of the Bell-backed Alliance for Competitive Communications. PRESSLER BILL CALLS FOR DEREG FUTURE Washington -- All cable rates -- basic and expanded -- could be deregulated under broad telecommunications legislation unveiled last week by Senate Commerce Committee chairman Sen. Larry Pressler (R-S.D.). Pressler, who sent copies to the White House and Capitol Hill Democrats for comment, said total rate deregulation was his goal. But cable industry sources noted that the language in the proposed bill only called for deregulation of expanded basic tiers. Pressler's 82-page plan would retain the program access provisions of the 1992 Cable Act, as well as broadcasters' must-carry and retransmission consent rights. "I believe the programming portions have worked well. There have been problems in the area of rates," Pressler said. "I would not classify it as repeal of the Cable Act." But Sen. Robert Packwood (R-Ore.), the influential chairman of the Communications Subcommittee, opposes retaining the program access rules. "I would like to go back to the '84 Act," Packwood said last week. "If I can't get that, I would totally deregulate rates." Taking Pressler at his word, cable's federally controlled rate structure would vanish upon the bill's enactment. One year later, cable and local phone companies could invade each other's markets in a cross-entry scheme that could give the telcos a two-year head start. Robert Thomson, Tele-Communications Inc.'s senior vice president of communications and policy planning, voiced concern about the ground rules of cable-telco competition. Nevertheless, he called the Pressler draft "a marvelous first effort." The National Cable Television Association -- in sharp contrast to its profuse support for Democratic-sponsored legislation last year -- would not release a detailed reaction to Pressler's plan. NCTA spokesman Rich D'Amato did call it "a positive approach, a positive first step." Some in the cable industry were surprised and delighted about the bold move to lift rate regulations. "We didn't ask for it. That's the irony of that," said Stephen Effros, president of the Cable Telecommunications Association. "It's certainly a strong foundation," said Bert Carp, vice president of government affairs for Turner Broadcasting System Inc. Effros said cable might even resist inclusion of broad rate deregulation because of the political stir it could cause. Pressler's draft would lift broadcast station ownership caps and allow broadcasters to use high-definition spectrum for pay services if broadcasters compensated the government. It would lift foreign ownership restrictions of U.S. media properties under a reciprocal test. It also would allow the Baby Bells to enter long-distance and telecom equipment-making markets in one to three years, provided the seven Baby Bells have complied with rules that prescribe the terms of opening local exchanges. Willful noncompliance with the bill's interconnection mandates could cost a local phone company $1 million per offense, per day. Other noncompliance penalties could reach as high as $500 million and a six-month delay on long- distance entry. "We built in both a number or rewards and penalties into this bill," Pressler said. "There are penalties for non-compliance." Bradley Stillman, legislative counsel for the Consumer Federation of America, said the fines were all but meaningless because proving willfulness in court is difficult. The bill assigns the burden of proof to plaintiffs, not phone companies. RBOCS MOVING FAST ON DIGITAL PLATFORMS With the Federal Communications Commission set to unleash telco video across the country, the local exchange giants are on track to deploy digital TV platforms for commercial operation before the year is out. "We're at the point where we could go to market now with interactive services and have a very robust business, including all the billing and operation support software as well as the network hardware," said Ken Van Meter, president of interactive platforms for Bell Atlantic Video Services. Van Meter said the BVS system, soon to be adopted as the core platform of the new alliance taking shape with Nynex Corp. and Pacific Telesis Video Services, will be complete for full video dialtone operations by the time VDT tariffing is wrapped up, "even if we get the green light on our Section 214 applications tomorrow." Work still remains on the channel management system that will govern multiple video providers' access to analog channels. The latest indications of how rapidly digital systems are moving to commercialization came last week with a decision by GTE Telephone Operations to forego its VDT test in Manassas, Va., where it was to use prototype gear supplied by AT&T Network Systems. Instead, officials said, GTE will proceed directly to deployment of hybrid fiber/coaxial networks and interactive platforms as soon as the FCC approves the company's VDT filings. "It's good news for GTE and the industry as a whole that recent progress in commercial video server and set-top box technology will enable all of us to deliver interactive services to our customers sooner," said Robert Calafell, vice president for video services, in a statement. A spokesman said that the company expects to have VDT customers on line before the end of 1995, assuming FCC approval comes within two months. Plans call for connection to about 650,000 households in Florida, California and Hawaii by the end of 1996, she said. Van Meter's claim is no idle boast, according to parties to the efforts of a key standards body that is attempting to forge consensus around an end-to-end digital communications system in time to meet the RBOCs' schedule. A leader of the Digital Audio Visual Council, asking not to be named, said that while DAVIC, a successor to the international digital compression body known as the Moving Picture Experts Group (MPEG), wants to wrap up recommendations on the full suite of interfaces for digital distribution systems in time for testing this summer, even that early deadline is behind the RBOCs' curve. "Our goal now is to have at least the raw outline of the most likely pieces together by our March meeting," he said. "There are two broad classes of participants in this process," said Richard Green, president of Cable Television Laboratories and a member of the governing board of DAVIC. "There are those who want to discuss more advanced ideas for a platform that would be ready to implement two or three years from now, and those who want something they can use as soon as possible." While declining to specify types of companies in either group, Green added, "The process is really accelerating as a result of the force of interests who want to get started early, so the structure doesn't really allow an outlet for more advanced ideas." AT&T officials said they had decided not to offer prototype gear at this stage, given that they are readying first-generation commercial set-tops and servers for deployment later this year in conjunction with the Interactive Digital Services partnership with Silicon Graphics Inc. David Robinson, product management director for AT&T Network Systems, said demand from telcos was pushing his company toward rollout of first generation gear at a furious clip. "Our first customer is a cable company [Cablevision Systems Corp.], so it's not just the LECs [local exchange carriers]," he said, "but I think you'll see some telephone customers in the list of initial buyers fairly quickly." PCS BIDS TOP $4.5B AS FCC RAISES STAKES Washington, D.C. -- Bidding on new wireless-service licenses should enter the final stage this week after nearing $4.5 billion in slow growth. The Federal Communications Commission said it expected today to increase the amount bidders must commit in order to remain eligible. The leading bidder by far is WirelessCo L.P., the group of Sprint Corp. and MSOs Comcast Corp., Cox Enterprises Inc. and Tele-Communications Inc. The group had high bids of about $1.2 billion in 24 markets through the first of two rounds last Friday. Few new high bids were recorded last week. The auction total rose about $300 million during the week. The FCC is auctioning 99 30-MHz licenses in 51 markets. TCI SET TO CLOSE QVC DEAL Tele-Communications Inc. moved closer to winning its latest showdown with antitrust regulators, with the Federal Trade Commission apparently leaning toward approving a TCI-backed takeover of shopping network QVC Inc. Executives familiar with the negotiations between TCI and FTC officials said that commissioners are taking a softer stance than members of the FTC staff on whether TCI should be able to partner with MSO Comcast Corp. in taking over the network. TCI and Comcast were prepared to force the issue at 5 p.m. Monday (Feb. 6, 1995), scheduling the commencement of their $46 per share tender offer for the $1.4 billion worth of QVC stock they do not already own. Sources familiar with the FTC's review of the deal predicted commissioners would overrule the objections of staffers reviewing the deal and sign off on the takeover. "It looks very good at this point," said one industry executive familiar with discussions. TCI and Comcast already have sizable stakes in QVC, stakes acquired when they backed the startup of the shopping network in 1986. However, FTC staffers have objected to a buyout of QVC's public shareholders because TCI also controls rival channel Home Shopping Network Inc. Staff lawyers fear that allowing TCI too much control of the home shopping industry could blunt the emergence of competing shopping networks. After a series of extensions of their tender offer, TCI and Comcast decided to force the issue three weeks ago by announcing they would push ahead with the deal, essentially daring the FTC to go to court to block it. Forcing the issue was important to TCI president and CEO John Malone, who has become a lightning rod for antitrust regulators and has had to tangle with the FTC on three other deals in the past 16 months. However, in separate meetings with FTC commissioners last week, TCI's lawyers pressed the case that the home shopping business is not the "relevant market" by which to assess competition. With combined sales of $2 billion, the two shopping networks compete directly with department stores, discount stores and catalog companies. Monday's showdown comes as other shopping ventures are being hurt by the difficulty of obtaining carriage. Just last week, Time Warner Inc. and Spiegel Inc. shelved their Catalog 1 startup network, retreating to focus on developing services for interactive video networks. Fingerhut Inc. scrapped its S: The Shopping Channel two months ago and TV Macy's fizzled after making a splashy announcement for a shopping network. Other players buzzing around the business have balked. The only significant remaining player is ValueVision International Inc., which did around $40 million in sales last year. Chairman Robert Johander said that while he would have liked the FTC to put some limits on TCI, ValueVision did not aggressively protest the QVC takeover. "We don't much care about a transaction (the QVC takeover) except it doesn't help our prospects with TCI," Johander said, noting that TCI is likely to favor its own shopping services. He said that ValueVision is carried by TCI systems serving fewer than 300,000 subscribers down from a peak of 1 million subscribers. Comcast's distribution of ValueVision is "nearly zero", Johander said. TARIFFS SET STAGE FOR VDT BATTLE Washington - Bell Atlantic Corp. has taken a crucial step toward commencing the nation's first commercial video dialtone system last week by filing a tariff with federal regulators. By filing the tariff, the Philadelphia-based phone company kicked off a renewed battle over whether phone customers will pay an undue share of the costs of building video networks to compete against cable operators. The tariff, filed Jan. 27, provides details about how much video information providers (who lease space on the network to supply programming to subscribers) will be charged to use the Bell Atlantic system in Dover Township, N.J. Bell Atlantic won permission to build the 38,000-home network last July but, as a common carrier, needs tariff approval to begin offering VDT services. Bell Atlantic also filed a tariff for the telco's upcoming 2,000-home VDT market trial in northern Virginia. The telco's own programming unit will be the biggest video supplier there. Last October, the Federal Communications Commission, in reaffirming the VDT concept, said the tariff stage was the right time to debate many of the cost- allocation issues. The Dover tariff is the first to be filed since then -- and is the first tariff ever to apply to a commercial VDT system. Cable interests opposed to Bell Atlantic's VDT plans spoke cautiously last week. They said they needed time to run the numbers in the tariffs before commenting. But John Seiver, partner at Cole, Raywid & Braverman, the Washington, D.C., lawfirm representing cable operators in Bell Atlantic's region, said the cable industry is likely to raise long-standing arguments about how telcos propose to pay for VDT networks. "I'd be surprised if this tariff doesn't have an element of cross- subsidization," he said. Given the importance the FCC has attached to weighing cost issues at the tariff stage, the Commission is almost obligated to investigate the tariff, Seiver said. Normally tariffs are acted on within 120 days but the FCC can suspend tariffs for up to five months for an investigation, according to an FCC handout. Cole, Raywid hired consultants at Economics and Technology Inc. in Boston to examine the tariffs. Patricia Kravtin, senior economist at ETI, said her early reaction was consistent with what she has seen in other VDT applications. "The costs they are allocating to video are extremely low," she said. Joan Rasmussen, a Bell Atlantic spokeswoman, replied: "We think the filing is fair and reasonable and there is supporting documentation to show that video dialtone will pay for itself." The Dover tariff appeared to please FutureVision of America Corp., the small software company that, so far, is the only firm signed up to provide programming for the all-digital VDT system in Dover. CNN, COURT TV CLAIM O.J. VICTORY New York - While the three cable networks carrying live coverage of the O.J. Simpson trial all got huge ratings bumps from opening arguments in the case, both Cable News Network and Courtroom Television Network claimed victory in O.J. coverage. CNN was the first to tout its ratings dominance, while Court TV and E! Entertainment Television declined to release actual ratings of their trial coverage. But as various ratings information about Court TV and E! leaked out, both networks relented. Nielsen Media Research confirmed that from Jan. 24-26, CNN averaged a 4.5 rating in the network's coverage area from 12 p.m.-3 p.m. (ET), and a 5.1 from 4:30 p.m.-6 p.m. Nielsen also confirmed that in those same time periods Court TV averaged a 2.6 and 3.7, respectively, in its universe. Steven Brill, president and CEO of Court TV, who said he has a policy of not revealing ratings for individual trials, nevertheless released some numbers in an attempt to clarify what he believed to be misleading information in the press. Complicating matters is Nielsen Media Research's policy of only confirming, but not releasing cable ratings data. While Brill didn't dispute the Nielsen ratings that CNN had first released, he contended that comparing CNN ratings in its coverage area to Court TV's rating was not an accurate comparison because two-thirds of CNN households do not have access to Court TV. Brill said that the only fair ratings comparison between CNN and Court TV could be found by correlating the two network's ratings in Court TV's universe, where all the CNN households have access to Court TV. Brill said that during the 5 p.m.-8 p.m. (ET) time period on Jan. 26, in Court TV's universe, the network scored a 4.2 rating; CNN had a 3.3 and E! nabbed a 0.8. While Brill was still reluctant to issue further ratings, he allowed Multichannel News to look at Court TV's Nielsen reports to verify that the three-hour window he discussed was not an aberrant time period. According to Nielsen data supplied by Court TV, in Court TV's universe, from 12 p.m.-3 p.m. on Jan. 24-26, CNN averaged a 2.6 to tie Court TV. In the 4:30 p.m.-8 p.m. block, CNN lagged behind Court TV's 3.7 with a 2.6. Combining these two time periods in the entire cable universe, CNN averaged 3 million viewers for the three days compared to 515,000 for Court TV. Nielsen pegs the total cable universe at 60.5 million. Bob Sieber, vice president of audience development for Turner Broadcasting System Inc., said TBS didn't purchase the data, referred to as "competitive buckets," to determine CNN's rating in Court TV's universe. Dale Hopkins, senior vice president of marketing for E!, said the network's average from Jan. 23-Jan. 31 in the noon-8 p.m. (ET) time period was 0.5, a figure that Nielsen confirmed. E! usually earns a 0.2 in that time period. Interestingly, both Court TV and E! are partially owned and managed by Time Warner. E!, Court TV and CNN reported that the O.J. phenomenon was also boosting sampling and ratings in non-trial dayparts. SHOP NET CATALOG 1 PULLS BACK TO INTERACTIVITY New York -- The shopping channel wars claimed another victim as Catalog 1 shelved its shopping network plans to focus on developing products for interactive networks. Crunched by the high cost and scarcity of distribution on cable systems, the network -- a venture between Time Warner Inc. and catalog merchant Spiegel -- joins the cluster of shopping networks that have hit the wall amidst the hype about the advent of home shopping. Catalog 1 dropped its satellite feed last month. Until March, the company will simply deliver videotapes of shopping programming to several Time Warner systems carrying its programming. A handful of UHF stations and an low power network that were carrying Catalog 1's programs have also been dropped. Catalog 1's TV exposure will be reduced to two Saturday-morning shows on WILG, a Long Island, N.Y., UHF station and Bay TV, a local cable service owned by Chronicle Broadcasting Co., which runs San Francisco broadcaster KRON. By largely retreating from "analog" services, the venture will concentrate on its other mission, creating digital interactive services to sell merchandise to consumers. Catalog 1 has long been planned as a core feature of Time Warner's Full Service Network in Orlando, Fla., and the venture also expects to offer its service on the Internet. "We've tacked," Catalog 1 general manager Rod Parker said. "The wind shifted. We didn't see the opportunity in analog in the near term." The Catalog 1 executives have acknowledged for weeks the cable network was likely to go dark. Like other shopping startups -- TV Macy's, Fingerhut Inc.'s S: The Shopping Channel and Home Shopping Network's TV Shopping Mall -- Catalog 1 was crunched by the drought of channel space on cable systems. TV Macy's and S are dead, while TV Shopping Mall is set to launch this summer. Only Q2 currently has prospects for significant carriage -- bought and paid for by offering systems launch fees of $3 to $5 per subscriber, an offer that could ultimately cost QVC Inc. $80 million. Catalog 1 could not afford to pay those fees. QVC and HSN are retailers; they buy goods, mark up the prices to consumers, ship them off and average about 40 percent gross profit on each sale. Catalog 1, however, merely handled production for its participating merchants. Hence, the network's take was around 15 percent of sales. After paying operators commissions of at least 5 percent, Catalog 1 would have to generate hundreds of millions in sales to cover the kind of fees Q2 was offering. However, Catalog 1 officials insist that in the long run the demise of the cable network will be seen as a minor stumble on the road to a much bigger business: interactive shopping. -=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=- GTE EMPLOYEES HEAR TELCO'S TRUE VOICE Dial-a-quote ... Last week AT&T scrapped a long-planned video trial in Manassas, Va., with telco GTE saying technology advances made the trial pointless. In the press release, GTE exec Robert Calafell accentuated the positive: "It's good news for GTE and the industry as a whole that recent progress in commercial video-server and set-top box technology will enable all of us to deliver interactive services to our customers sooner." But the release omitted another Calafell quote, which was in a bulletin to GTE employees, some of whom worked on trial preparations: "We are disappointed with AT&T's decision to discontinue use of the prototype equipment." GTE will announce its own set-top and server vendors soon, Calafell said. Kiss and telecom ... With important telecom legislation pending before Congress, Newt Gingrich's statement last week about his family ties caused The Wire to raise an eyebrow. "I have a particular interest in cellular telecommunications because my daughter worked for Sterling Cellular and now works for Bell South ... so I followed the growth and evolution of the industry. I'm well aware we're at an enormous turning point," Gingrich said in a speech to a cellular confab in New Orleans. Conflict of interest? No way, said Allan Lipsett, Gingrich's spokesman in Marietta, Ga. "His daughter's employment has no relation with telecommunications legislation. He may know something about cellular companies a bit more [than most people], [but] as for any conflict of interest," there is none, Lipsett said. ------------------------------------------------------------------------- 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--*