From: owner-cablereg-l@netcom.com Date: Sun, 5 Mar 1995 21:22:48 -0800 Reply-To: higgins@netcom.com CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 3/6/1995. Vol.2, No.10 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 "Can you believe that? I don't think it has any political significance, though." FCC chairman Reid Hundt on his car which was stolen from the FCC garage while Hundt was in Brussels at the G-7 Telecommunications Summit. CHRONICLE OKAYS $570M TCI DEAL FOR WESTERN Tele-Communications Inc. moved closer to a deal for Chronicle Publishing Corp.'s cable operations last week as the company's board approved the MSO's $570 million offer for its Western Communications unit. Sources familiar with the deal said the board approval sent Chronicle executives working with TCI to draft a definitive agreement to seal the deal. One source familiar with the negotiations said a sale could be completed "within days." However, one Chronicle executive cautioned that "there's not a deal yet." Sources said Chronicle also decided to pull its broadcast TV stations from the auction block. Western is particularly lucrative to TCI because the Englewood, Colo.-based MSO is trying to dominate the Bay Area market. For the past year, the MSO has struggled to lock up almost every cable system around San Francisco, to create one giant cable system blanketing about 85 percent of the region's cable homes. Western's systems serve about 60,000 subscribers around San Francisco. TCI already owns and operates systems serving 475,000 subscribers in the region. Last year, TCI cut a system swap deal to acquire Lenfest Communications's 110,000-subscriber systems in Oakland and Berkeley. InterMedia Partners, which has 155,000 subscribers in San Jose and Santa Clara, is already a TCI affiliate. Together, TCI and InterMedia are backing a venture to buy Viacom Cable and its 378,000 subscribers in the region. The proposed tax-free deal calls for TCI to pay about $270 million in its own share plus assume about $300 million in debt, sources said. That would give TCI 14 additional systems serving a total of 325,000 subscribers in California, Hawaii and New Mexico. The price equals about 10 times Western's projected 1995 cash flow. However, stock deals always carry a relatively low price because the seller gets tax benefits. One finance executive estimated that TCI's proposal is equivalent to 11 times cash flow for a straight cash deal. Chronicle and its advisers, Salomon Bros. and Waller Capital Corp., would not comment on the deal, and TCI only acknowledged that its talks with Western are continuing. TCI's initial proposal failed. A year ago the MSO had teamed with Rupert Murdoch's Fox Corp. in an attempt to acquire both Chronicle's cable and five- station broadcast operation, including San Francisco-flagship KRON-TV. But that created immense friction among heirs to the DeYoung family, which controls the century-old media company, including one faction that opposed selling the stations. TCI even was willing to acquire the whole company -- cable, broadcast plus the flagship San Francisco Chronicle newspaper. Dominating specific markets is a new-found mantra for TCI. For years the company was known for its bulk, controlling more than 20 percent of the nation's cable homes, rather than the local concentration MSOs that Time Warner Inc. and Cablevision Systems Corp. have emphasized. But the telephone business is changing all that. The first problem is that TCI and other operators are facing competition from telephone companies that can not only reach every home in a particular market, but generally in several contiguous states. GORE WAVES G7 TO PUSH DEREG Brussels, Belgium -- By throwing down the gauntlet to the world's other six major industrialized nations at the Group of Seven summit here, Vice President Al Gore hopes to push the global powers to deregulate their telecommunications industries soon. Otherwise, Gore warned, they won't get any more freedom to enter the lucrative U.S. market. Gore made a surprise pledge at the G7 meeting here Feb. 24-26 to loosen or eliminate the United States' 20 percent foreign ownership cap on common carrier and wireless providers this year. His administration hopes that the move will lead others to follow, resulting in bilateral agreements and possibly a multilateral agreement on global telecommunications deregulation by next year. "The talks have been going on regarding these multilateral agreements. What the vice president did was elevate them," Greg Simon, the vice president's Domestic Policy Adviser, told Multichannel News. "He put it out in front so that people couldn't ignore it and [put] a high level of support behind it: The White House. "We have certainly reached the point where protectionism is counterproductive. Our companies want to go global. They can't because a lot of other countries have far worse restrictions [than the U.S.]," Simon explained. "We have the least restrictions of any of our trading partners, with the exception of the United Kingdom." Foreign ownership "can go to 100 percent in telecommunications," Gore said at a G7 press conference, but he added that the new law would be "limited to investors from countries that have opened their own markets. The principle of reciprocity applies." "When we come to these meetings, we have been criticized because we have this one small restriction," his adviser Simon said later. "We're saying, `We'll take ours away; you take yours away. Let's do it at the same time, and let's get on with it.'" G7 participants left the conference with the feeling that Japan would continue to be the most resistant to opening its telecommunications market, and that Gore's message on reciprocity was particularly aimed at France and Germany, which are considered slow-moving deregulators. U.S. officials are likely to reject a proposed 20 percent investment in Sprint Corp. by Deutsche Telekom and France Telecom, based on the issue of reciprocity, even if it makes it past European regulators, which is considered unlikely. Asked what countries need to be pushed most to change their rules, Simon said, "I don't want to answer that question." But he declared that "the inertia is set up against those who oppose it to justify why." The G7 members include: the United States, Britain, Japan, Germany, France, Italy and Canada. The proposed U.S. foreign ownership limit change would not apply to cable systems ownership, which is not restricted by foreign ownership rules, or broadcasting, which is restricted. U.S. officials say the change will be made either through the telecommunications legislation currently being debated or through action by the Federal Communications Commission, if the new bills get bogged down in Congress. The Clinton administration has the power to sign a multilateral telecommunications agreement with the G7 countries, with or without legislation, but then Congress would decide whether to approve it, as it did in the GATT world trade talks. CLINTON OFFICIAL MAKES PUSH VS. RELAXING RATES Washington -- Cable rate regulation is a matter of principle, not politics. That was the message last week delivered by a Clinton administration official, who flatly refused to endorse a Senate Republican plan that would repeal all cable rate regulations one year after the new law took effect. Speaking Thursday at a Senate hearing on pending telecom legislation, Assistant Commerce Secretary Larry Irving spelled out administration policy on cable and other issues saying cable deregulation under the GOP plan would harm the public interest. "We cannot and will not ... support deregulation of monopolies before the arrival of actual competition. As long as monopolies continue to exist, consumers must be protected," he said. But Irving said he wasn't issuing veto threats over cable and agreed to search for a compromise but would not provide many details. "The administration has indicated a willingness to work with Congress and [the cable] industry to minimize the burden of government regulation," Irving told the Senate Commerce Committee. In a related development last week, a top Department of Justice official said the government would try to push its own telephone competition plan if it seemed that reform legislation was bogged down in Congress. But the plan would take years to implement because so much of it depends on the willingness on state legislatures to rewrite their laws that protect local phone companies from competition, conceded Anne Bingaman, the chief of the Justice Department's Antitrust Division. Speaking at the National Press Club on Wednesday, Bingaman said the DOJ's plan would permit Baby Bell entry into long-distance phone markets but not before the Bells themselves face competition in their local markets. The next day, Irving clashed with GOP's broad deregulatory approach backed by Commerce Committee chairman Larry Pressler (R-S.D.). Pressler held the first hearing on his proposal March 2 in keeping his plan to send the White House a bill by July 4. In an interview, Irving said cable "was a thriving industry." He said the administration had in mind helping small cable operators but "effectively deregulating basic or enhanced basic is not something the administration in favor of." Irving's approach was slightly more flexible than the Senate Democrats' plan, which would leave current law untouched and require cable operators to lose 15 percent of their customers before deregulation occurs. Irving said he was trying to avoid the experience of the 1984 Cable Act when cable operators raised rates after Congress approved sweeping deregulation. Over in the House, a bill or a draft of one has yet to emerge. House Telecommunications and Finance Subcommittee chairman Rep. Jack Fields (R-Texas) said last week he and Rep. Edward Markey (D-Mass.) were still negotiating the terms of a bipartisan bill. Fields has said he wants some form of cable rate relief to be included when consensus legislation is introduced. The National Cable Television Association is seeking rate relief for upper programming tiers when telcos can compete and direct-broadcast satellite subscribership reaches unspecified levels. The NCTA also wants to check the Federal Communications Commission's authority to block rate increases. In a speech last week to the CableLabs Convergence Meeting in Santa Barbara, Calif., NCTA president Decker Anstrom stressed the need for cable rate deregulation. "Cable companies are the only likely source of competition to the phone industry's $100 billion monopoly -- but our task is a truly monumental one," Anstrom said. Before the Senate Commerce Committee, Irving said lifting cable regulations would hurt consumers because DBS had not matured into a viable service. By contrast, Anstrom said DBS was "signing up customers by the thousands, adding that the combination of video dialtone and DBS would ensure that cable rates "remain reasonable under a revised definition of effective competition." MICROSOFT, TCI LIMIT TRIAL FOCUS Englewood, Colo. -- Tele-Communications Inc. and Microsoft Corp., which are jointly testing an interactive television system in Seattle, will target all of their combined focus there rather than in Denver, as originally planned. "We already had a good sampling of the kinds of demographic purchasing behaviors in Denver through our Viewer Controlled Television [VCTV] test here," said Bruce Ravenel, senior vice president and chief operating officer of TCI Technology Ventures. Further, said Ravenel, the companies decided to focus their attention on a full 2,000 homes in Seattle, rather than split the trial up into 1,000 homes in each location. OVERBUILDER FPL FINALLY SELLS OUT Once-ambitious overbuilder FPL Group finally brought its cable operations to an end, agreeing to merge its Florida systems into a unit of Adelphia Communications Corp. FPL will merge its Telesat operation into Adelphia's Olympus Communications partnership, which owns most of Adelphia's systems in south Florida. FPL will receive $112.5 million worth of preferred equity in Olympus plus 1 million Adelphia shares currently worth $11 million. Waller Capital Corp. represented FPL in the deal. Separately, Century Communications Corp. agreed to pay $98 million in cash and stock for nine systems owned by Rock Associates. The properties serve 47,000 subscribers in Coeur d'Alene, Moscow, and Bonners Ferry, Idaho; Libby, Mont.; Friday Harbor, Wash.; Gunnison and Telluride, Colo.; and Susanville and Burney, Calif. Century president Bernard Gallagher called the Rock properties "nice, middle-market systems" and was particularly interested in the operation on the Washington-Idaho border. In the Adelphia deal, FPL's Telesat unit was one of the most aggressive overbuilders, embarking on an aggressive plan to compete head-on with operators in developing parts of the state. Other operators accused Telesat of being a "greenmailer," sparking price wars in order to force incumbent systems to buy out Telesat. That strategy was partly successful as Telesat coaxed some competitors to buy or partner with its systems. Terry Bienstock, a Miami lawyer who represented cable operators in a number of disputes with Telesat, said Continental Cablevision Inc., Adelphia, Colony Communications Inc. and Storer Cable Inc. all cut deals with FPL systems. However, that exit was closed by the Federal Trade Commission, which in 1991 began blocking the sale of overbuild systems to incumbent operators, including a proposed sale of Telesat to Time Warner Inc. FPL was left with systems serving 50,000 subscribers in central and western Florida, primarily competing with Time Warner operations. The power utility put the properties up for a straight sale two years ago, but the systems languished on the market. The good news for heavily leveraged Adelphia is that the Telesat operation carries just $7 million of debt and $20 million in cash. That will reduce Olympus' leverage from six times cash flow to five times cash flow, according to Salomon Bros. Inc. analyst Oren Cohen. Olympus currently controls systems serving 252,000 of Adelphia's 1.4 million subscribers nationwide. Overall, Adelphia's debt is running at a huge 10 times cash flow, the highest leverage of any major operator. UTAH DEREGULATES TELCO INDUSTRY Salt Lake City - Utah lawmakers voted last week to abolish the state's telephone monopoly, setting the stage for an invasion of the local exchange by cable television operators and long-distance carriers. The Senate voted 25-0 to approve the Telecommunications Reform Act that passed the House of Representatives on an equally overwhelming 73-0 vote the previous week. "We didn't leave anything to chance," joked David Spatafore, spokesman for the Utah Cable Television Association. "Our legal counsel is reviewing it now and we're very encouraged." The law guarantees any telecommunications company certified by the Public Service Commission the right to interconnect with U S West Communication's local telephone network. Moreover, it ensures number portability, a provision crucial to competition because it allows consumers to switch local carriers without having to surrender their current telephone number. With 80 percent of the Utah cable market, Englewood, Colo.-based Tele- Communications Inc. stands to reap the biggest benefits from the new law. Sources indicated that a member of the Utah Department of Public Utilities immediately contacted TCI to inquire how soon the company would be ready to enter the market. Vickie Hansen, a spokeswoman for TCI in Utah, said the company's rebuild of its 26,000-subscriber Salt Lake City system is expected to be completed by year's end. "So the ability [to provide telephone service] will be there," Hansen said. "As well as other telecommunications services." As for U S West, the law stipulates that on May 1, 1997, the state will substitute price cap regulation for its existing rate-of-return method of regulating the company. It also empowers the PSC to designate areas in the state where competition has emerged, and grants U S West full price flexibility to respond to competition in those zones. In the interim, U S West will submit a rate case to the PSC that will set basic telephone rates in non-competitive areas. Those rates will be frozen for three years, unless effective competition enters an area. At the end of three years, the PSC is expected to have devised a formula for determining how much telephone rates can increase in non-competitive zones. Crucial to passage of the law was a last-minute amendment giving the PSC the right to determine how much of an estimated $39 million investment in the local telephone infrastructure U S West will be allowed to recover through higher rates. "You can talk to any of the parties involved, and I think you'll find that nobody got everything they wanted," said U S West spokesman Duane Cook. "But in the end, I think we came up with a true compromise." RBOC CHIDES CABLE ON FILINGS Washington -- Bell Atlantic Corp. last week said the cable industry had only itself to blame for having to incur a growing share of regulatory fees imposed by the Federal Communications Commission. In an FCC filing, Bell Atlantic said the cable industry has added to the FCC's costs by flooding the agency "with filings that seek to avoid the congressional mandate of rate regulation." The Baby Bell, which should be among the first to offer video dialtone, also said the cable industry has filed "often frivolous filings made in an effort to prevent competition from telephone companies." Finally, Bell Atlantic said cable's proposed share of the fee payment pie "is disproportionately low because the cost of those filings are included as part of the cost of regulation of telephone companies and not cable." Under orders from Congress, the FCC is planning to collect $116.4 million in user fees to cover a portion of its $185.2 million budget. Cable's share would be about $30 million or 25 percent. THREE BABY BELLS ISSUE SET-TOP RFP The three-member Baby Bell consortium known as Platco last week issued a request for proposals on the 4 million "digital entertainment terminals" and related network components it needs to build video networks. Bell Atlantic, Nynex Corp. and Pacific Telesis, which enjoy a combined customer base of more than 30 million homes, hope to bring down the costs of the terminals through bulk purchasing and economies of scale, so that they can be "the absolute low-cost provider" of video dialtone services, according to the RFP. "By agreeing on basic functionality and combining our orders for set-top boxes, we expect that manufacturers will be able to produce the high- performance equipment our customers want at a significantly lower cost," said Walter Silvia, vice president of broadband marketing and implementation for Nynex, in a statement. Platco's target price for a digital box falls in the $250- to $350-range, according to one executive affiliated with the request. Specifically, the regional bell companies are seeking proposals for digital entertainment terminals, network interface modules (NIMs), analog set-tops, and associated software so that customers equipped with the terminals can receive and decode video signals and interact with their respective video entertainment providers. Notably, manufacturers General Instrument Corp. and Scientific-Atlanta Inc. are named in the RFP as providing technology with which other respondents must conform. The exact language of the document asks respondents to propose a price that "includes the GI price for sub-assembled or fully-assembled network interface modules (NIMs), plus any applicable licensing fees." NIMs are slide-in circuit boards. Respondents may also be required to acquire NIMs from Scientific-Atlanta, according to the RFP. Approximately 30 set-top manufacturers received the bulky RFP, which one vendor described as "about an inch thick," on Feb. 24. Responses are due on April 3, and Platco executives hope to make vendor selections in May. SEGA WILL SELL NEW TITLES DAILY The Sega Channel will launch a new, daily "transactional" service this summer that will allow monthly subscribers to access newly released titles. The yet-to-be titled service will provide subscribers with the opportunity to download a game within the same window as the title's home video release, said Katherine Lewis, general manager of the service. Currently, Sega offers video games approximately three to four months after their commercial releases in home video stores. Lewis, who recently joined Sega after serving as vice president of PPV for Time Warner's New York City Cable Group, said subscribers will pay a premium -- around $3 -- on top of the $12.95 to $14.95 monthly charge the channel costs them for the new titles. "If you're a Sega subscriber you'll have the opportunity to rent and play a brand new game day and date with the video store," said Lewis. "It also gives the industry a chance to be truly competitive with the home video." The amount of time the subscriber has to access the game has not been determined, but it would not be longer than 24 hours, Lewis said. She added the new service will not effect Sega's monthly premium service, nor its "test drive" service that provides early previews of upcoming titles. In other Sega Channel developments, the network has a "tentative" June launch date on Time Warner Cable's Paragon Cable system in Manhattan, N.Y., said a Sega channel spokeswoman. She added the service currently has close to 60 system affiliates representing approximately 2 million households. -=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=- New Paris, Ind., does not want its MTV. Or its VH1. When Quality Cablevision Inc. ran a consumer survey of its 1,173 subscribers to see which channels they preferred, MTV came in dead last, with VH1 not much higher. So, on March 1, the system dropped both Viacom channels to add The History Channel and MOR Music, which might be replaced with MuchMusic. System general manager Mark Grady said only 69 of the 600 survey respondents watched MTV often, and many wrote negative comments about its content. Weirdly enough, one-third of Grady's coverage area competes directly with the neighboring TCI system, which carries MTV. "Two people called to say they would change to TCI," said Grady. "But we've had four calls from people that said they would come over because we took it off." ------------------------------------------------------------------------- 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--*