Date: Sun, 19 Mar 1995 20:29:01 -0800 Subject: Cable Regulation Digest 3/20 Reply-To: higgins@netcom.com - CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 3/20/1995. Vol.2, No.12 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 Andy Grossman, news editor andyg474@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 "Besides beaming from ear to ear, he did the gentlemanly thing: he got up and helped her out of the cake." One of 250 people attending a raucous birthday party for Comcast Corp.'s 75-year-old chairman Ralph Roberts. The woman jumping out of the cake was Ralph's wife, Suzanne. SENATE COMMITTEE PUTS VIACOM SALE IN PERIL Washington -- Viacom Inc.'s sale of its cable systems appeared doomed after the company lost a key Senate vote to preserve a tax break in its deal with a venture backed by Tele-Communications Inc. However, Viacom and TCI are studying ways to structure a new tax-free deal not involving the fading minority tax certificate program. Last Wednesday. the Senate Finance Committee voted, mostly along party lines to kill the 17-year-old tax law that permits capital gains deferral on the sale of a media properties to a minority buyer. At the same time, the panel, headed by Sen. Robert Packwood (R-Ore.) voted to make the repeal effective date Jan. 17, before Viacom signed a deal to sell its cable systems for $2.3 billion to a venture led by African-American lawyer Frank Washington and backed by TCI and InterMedia Partners. That would deny Viacom use of the tax certificate estimated to be worth up to $600 million. The deal was contingent on receiving the tax breaks. Sen. Carol Moseley-Braun (D-Ill.), the only African-American in the Senate and a Finance Committee member, said the vote was blow to affirmative action and minority ownership of broadcast and cable businesses. "All I know is that women have 3 percent of this industry [and] minorities have about 2 percent of this industry and this [vote] cements the glass ceiling," she said moments after the vote. The vote doesn't leave Viacom, TCI and InterMedia a lot of room. The companies plan to keep pushing the issue as the bill moves to a vote by the full Senate hoping that Braun and other key Democratic supporters of the tax certificates can alter the clause. "We're extremely disappointed," said InterMedia CEO Leo Hindery. "We still believe that retroactive tax policy is wrong and unfair." But no one was optimistic. "We're digging out of a hole that's really deep," said one executive lobbying for the deal. Packwood has said that he wants to bring the bill to the Senate floor by April 15 to allow self-employed workers to take health care premium deductions included in the bill and paid for by the elimination of the tax certificate program. If they lose on the Senate floor, there are other ways TCI and Viacom can work out a tax-free deal. The recent deals for TeleCable Corp. and Times Mirror Cable Inc. and Colony Communications Inc. are all tax-free through different kinds of stock swaps. But negotiations for the last deal went on for more than a year, so no one is looking forward to recutting the transaction. "The only common trait is they want to sell, we want to buy," said one executive on TCI's side. "God it's going to get tough after that." CABLE GROUP BAGS 29 PCS LICENSES Washington -- The Sprint-cable consortium walked away from the PCS auction table with the biggest pile of chips, bagging 29 broadband licenses, including the prized New York City market. But the price was huge: $2.1 billion. For the New York area license alone, the group, called WirelessCo L.P., has to shell out $443 million to serve a territory that includes 26 million people. The cable partners -- Tele-Communications Inc., Cox Enterprises Inc. and Comcast Corp. -- and Sprint Corp. won their licenses last week when the Federal Communications Commission declared the three-month auction over after 112 rounds of bidding passed and no new bids were placed. The U.S. Court of Appeals, however, has blocked a new round of bidding, aimed at awarding licenses to women, minorities, rural telcos and small businesses. The Sprint group next will write the FCC a check for about $400 million, a 20 percent down payment on the $2.1 billion. Overall, the auction grossed more than $7 billion dollars. Jerry Gaines, senior vice president of telephony services at TCI, predicted the group's talks with other potential affiliates with cable systems or with PCS licenses "will be heating up dramatically now." Some affiliates may be given equity stakes in the venture, he said. Cable affiliates probably will be announced first, he said. WirelessCo will be touting a package of wired and wireless local and long-distance calling along with cable TV services. "We think the game really is the kinds of services you offer customers and how those services are packaged and presented," said Tom Mateer, Sprint's director of wireless strategy development. The venture is 40 percent-owned by Sprint. TCI owns 30 percent, and Comcast and Cox each own 15 percent. The venture will take on debt separate from the parent companies. Mateer said when he looks at a map he sees a sea of red -- WirelessCo used red tacks to signify its high-bid areas. But there are plenty of holes in the nationwide net. He said affiliates in Houston, Tampa and Chicago are the biggest priorities. After that, in no particular order, are such markets as Atlanta; Memphis and Knoxville, Tenn.; Charlotte, N.C.; Jacksonville, Fla.; Cleveland, Cincinnati and Columbus, Ohio; and El Paso, Texas, he said. WirelessCo's nationwide strategy includes drawing affiliates from further PCS auctions. The next round is scheduled to begin in 75 days if the appeals court stay is lifted. The second-highest bidder was AT&T Corp., which paid $1.6 billion for 21 licenses. A Baby Bell partnership of Bell Atlantic Corp., Nynex Corp., AirTouch Communications (a spinoff of Pacific Telesis Group) and U S West Inc., paid $1.1 billion for 11 licenses. Cox, already awarded a license to serve 19 million people in the lower California region, is required to pay about $251 million under the formula. In the auction, Pacific Telesis Group was the high bidder for the second Los Angeles-San Diego license, paying $494 million for it. HOUSE BILL WOULD LET CONSUMERS BUY BOXES Washington -- Two senior congressmen kicked off a bipartisan effort last week to allow consumers to buy an own cable set-top boxes -- currently rented from operators in most cases -- from retail outlets. Not surprisingly, the proposed legislation rankles the cable industry, because making set-tops commercially available also means that internal descrambling parts -- necessary for operators to secure premium programs -- will be more easily compromised by would-be signal pirates. The proposal also poses an odd situation for consumers who buy a set-top, then move out of their franchise area into another cable operator's domain -- rendering the box useless. But in their proposal for new legislation, House Commerce Committee chairman Thomas Bliley (R-Va.) and Rep. Edward Markey (D-Mass.), ranking member of the telecommunications subcommittee, said the time had come to open up the market for converter boxes and other communications access devices. "Restricting consumers' ability to purchase and own cable set-top boxes and other communications interface equipment is like putting a straitjacket on technological development," Bliley said. "There's no incentive for improvement, because there's no competition -- and prices are kept artificially high." Bliley compared cable boxes to the telephones of "a generation ago" when consumers were required to rent from AT&T Corp. He said the availability of telephones on the retail level had led to innovations and reduced prices. Bliley said the bill would also make it easier for frustrated consumers to find set-top equipment that is compatible with VCRs and special options on television sets. Cable industry executives scoffed at both charges, saying that a comparison of phones to converters is like a comparison of apples to oranges. The cable industry, however, remains concerned about signal theft, according to National Cable Television Association spokesman Rich D'Amato, who couldn't comment on the specifics of the bill. D'Amato said cable theft is already a $4 billion drain on a $23 billion industry, and that taking away operators' control of set-top devices could create "a monstrous problem," not only for systems but for consumers, who must ultimately foot the bill. Geoff Roman, senior vice president of technology for General Instrument Corp., said he was concerned about maintaining network security. "It's unclear exactly what the ramifications of this [proposal] will be on set-top manufacturers," Roman said, adding that "for network operators, it could pose a real problem to secure signal transmissions." FBI NAILS EAST COAST CABLE PIRATES Newark - FBI agents bagged two cable pirates for selling hundreds of General Instrument Corp. descrambler boxes that may have been stolen from MSOs in Baltimore and Philadelphia. In a complaint filed March 6 in a U.S. District Court in New Jersey, the bureau said one of the men involved indicated that his suppliers were employees at a cable system. The man told an undercover FBI agent that the employees covered their tracks by erasing the boxes from the company's computerized inventory system. A source familiar with the situation said the FBI may have stumbled across a network of cable employees or contractors "that were funneling hundreds of stolen converters to these people." It was not immediately clear if employees at both systems were involved. A check of GI records revealed the stolen descramblers originally had been shipped to a number of GI customers, including Tele-Communications Inc. in Baltimore, and Comcast Corp. in Philadelphia, according to the FBI filing. In its complaint, the government alleged that on three separate occasions in February, George Kanter, a.k.a. "George the Animal," and Stan Cottman, a.k.a., Stan McLeod, approached the undercover FBI agent about acting as the middleman for the sale of stolen descramblers. On Feb. 10, the agent purchased 75 new GI DPBB-7 descramblers still in the original cartons for $9,100. He purchased another 70 boxes for $7,000 on Feb. 19, and another 86 descramblers for $14,930 on Feb. 21. In all, the agent paid a total of $31,231 for the stolen descrambler boxes, or an average of $134 apiece. It was during the second transaction that Cottman allegedly told the agent the descramblers were removed by employees at the cable systems. NEW DBS PLAYER, ALPHASTAR, ENTERS CROWDING FIELD Las Vegas -- The fast-growing direct-broadcast satellite industry may have another service provider in December with the launch of the 100- channel AlphaStar, announced last week by Canadian manufacturer Tee-Comm Electronics Inc. AlphaStar would join a field already featuring DirecTv Inc., United States Satellite Broadcasting Inc. and PrimeStar Partners' services. A fourth service, EchoStar, may be under way by then, too. But because AlphaStar has relatively low satellite-leasing costs, it also has a relatively small threshold to meet in order to break even: about 500,000 subscribers. Analysts said the service should be able to hit that target, provided it has some programming that's different from its competitors. "This AlphaStar has seen an opportunity to provide some different programming that subscribers can't get on the others," said Michael Alpert, a Washington, D.C.-based DBS consultant. "If they don't see it that way, I don't think they have a business." AlphaStar's schedule depends on when AT&T Corp. is able to launch its Telstar 402R satellite. Karl Savatiel, director of sales and marketing for AT&T Skynet Satellite Services, said the company has applications before the Federal Communications Commission and expects to launch the bird this fall. AlphaStar will use 24 transponders on the satellite. Al Bahnman, chairman and CEO of Tee-Comm, which makes home satellite-dish equipment, said the high-power digital system will feature a 24-inch dish and a version of the company's Star Trak 1000 line for C-band satellite receiving. Alpert said the 24-inch dish would be a competitive disadvantage compared with the DirecTv and USSB "Digital Satellite System," made by Thomson Consumer Electronics Inc., which uses an 18-inch dish. PrimeStar's system requires a 36-inch dish. Unlike the other DBS services, which require consumers to buy the home equipment, PrimeStar provides the dish and receiver. Although Tee-Comm is a Canadian firm, the company said it would comply with U.S. regulations for beaming satellite TV into the U.S. Foreign- ownership rules that apply to broadcast services would not be a factor because the venture will use a U.S.-owned satellite, Tee-Comm said. Analysts said that probably was correct, although AlphaStar could come up against ownership rules if it builds a U.S.-based uplink facility to transmit signals to the satellite. Tee-Comm plans to use an uplink center near Toronto. Tee-Comm said the service will use the DVC Compression NetWorks architecture designed by TV/COM International of San Diego. Tee-Comm will use its MPEG-2 system in Canada this fall through ExpressVu Inc., a DBS service provider. That means Tee-Comm will have three months of experience with the digital system before the AlphaStar launch. CABLE GAINING GROUND WITH STATE TELCO REGULATORS Washington -- The cable industry's state-by-state effort to open local phone markets appears to be gaining ground. Last fall, the National Cable Television Association announced it was targeting six states in a joint lobbying effort to pry open local phone markets. The NCTA listed Florida, Georgia, North Carolina, Ohio, Texas and Virginia. One of the six -- Virginia -- has already enacted legislation that lifts the ban on phone competition and authorizes the state corporation commission to approve service by new entrants. "In just two months into 1995, we're making some real progress in those states," NCTA president Decker Anstrom told reporters last week. "In Virginia, we appear to have a clear victory." Utah and Wyoming have joined Virginia in passing new laws in the first quarter. Nationwide, 14 states have competition laws on the books; of these, seven have actually authorized a competitor to take on the incumbent phone company. Anstrom said later this year Time Warner Cable would likely be the first MSO to derive revenue from local phone service. Time Warner Inc. is gearing up to go head-to-head against Frontier Corp. in Rochester, N.Y., the country's 13th-largest local exchange carrier. Cablevision Systems Corp., Anstrom said, was planning to offer local phone service next year on Long Island, N.Y., having recently reached an interconnection agreement with Nynex Corp., the state's dominant local carrier. "The tide for competition in telephony is irreversible and the telcos can't stop it. Not surprisingly, however, they are resisting these efforts in a number of states," Anstrom said. Anstrom pointed to Ohio where the right for cable operators to compete against Ameritech Corp., a Baby Bell, won't be easy. Time Warner has filed petitions with the Public Utility Commission (PUC) to compete in 37 counties. "Ameritech has now challenged the PUC's authority to allow a second carrier into any of these markets, and indeed, has told the state that competition for competition's sake should not be the state's policy," Anstrom said. Anstrom said the NCTA decided to add two more states to the list -- Missouri and Arizona -- because deregulatory legislation appears to be moving forward. A Missouri bill has cleared committees in the House and Senate (see story below). The cable industry, in concert with long-distance carriers like AT&T Corp., competitive access providers, newspapers and consumer groups, was forced to adopt a state-by-state strategy because Congress failed to pass telecommunications reform legislation last year. Last September, legislation died on Capitol Hill that would have swept away local laws prohibiting local phone competition. A few of the Baby Bells opposed the legislation because they disliked provisions dealing with their entry into long distance, among other things. "Obviously, the RBOCs in particular are the single greatest barrier to competition in telecommunications," Anstrom said. TCI CONTRACTOR TRIGGERS GAS EXPLOSION Denver -- A TCI of Colorado subcontractor was blamed last week for an explosion that leveled two homes and severely damaged three others in an upscale subdivision north of Denver. Developers Cable Construction Inc. was using a "Ditch Witch," an underground drilling tool, to bore a 900-foot path for television cable when it sliced an 11-inch section out of a natural gas line that runs beneath the affluent Stratford Lakes subdivision. The gas seeped into two nearby homes, where it was ignited by an electrical spark, flattening both residences and causing severe fire damage to three others. Two of those homes will have to be condemned and torn down, the Denver Post reported. Only minor injuries were reported, although there were some close calls. A woman on the second floor of one of the homes that exploded was thrown clear by the blast. The only serious injury was to a three-month-old child in a nearby residence who suffered a broken collarbone. Mark Stutz, a spokesman for Public Service Co. of Colorado, said this was not the first time a subcontractor working for a cable company had severed one of the utility's gas lines. "We've had some problems with subcontractors for cable companies, but I couldn't give you an exact number," Stutz said. Steve Santamaria, general manager of TCI's cable operations in metro Denver, said the subcontractor had been suspended from doing any more work for TCI pending an investigation. However, Santamaria said Developers Cable Construction had done 120 miles of underground drilling for TCI of Colorado in the last two years, "and they hadn't had an incident during that time." Santamaria headed a TCI response team that visited the site two days later, offering assistance with lodging, food and clothing. NEW NETS STILL STRUGGLING New York - Continued channel shortages and delays in fundraising have prompted several aspiring new cable networks to push back their launch dates, but they're still planning to debut by the end of the year. World African Network, Booknet, The Military Channel and the four new networks announced by Discovery Networks -- Animal Planet, Living, Quark and Time Traveler -- all said they had adjusted their launch plans. All the services insisted they would launch. "We found that there's a lot more work than we anticipated," said Eugene Jackson, chairman and CEO of WAN, a premium service that now plans to launch in the fourth quarter of 1995. "We certainly wouldn't be hiring all this staff if we weren't going to get on the air." At the Military Channel, "Our challenge is to get our launch capital in place," said Lt. Col. Steven Titunik, president. Discovery Networks had initially announced its four new channels would launch in the second quarter of this year, perhaps as early as April. A Discovery spokesman said president and COO Greg Moyer was not available to discuss the delays, but he insisted the four channels will launch by the end of the year. The spokesman attributed the holdup to the lack of channel space currently available. A Discovery Networks source said the delays, estimated at 9 to 12 months, would give network executives time to rethink business plans for the spinoffs. The source said the services -- originally designed for new product tiers -- might achieve more distribution than expected if Congress deregulates cable rates. When Discovery announced the new networks in mid-1994, government deregulation was not considered a realistic possibility. Cable operators said they had not been pitched on the new Discovery networks lately. Aside from pushing back WAN's launch date, Jackson said the channel was proceeding according to its original business plan. He said the network had already spent $3 million, adding that WAN expects it will take an investment of $20 million to $30 million to break even. Jackson said he expected the $9.95 service to attract 100,000 subscribers after its first year of operation, 250,000 after two years and 400,000 -- the break-even point -- after three years. "We've had a much longer pre-operation period than we thought, but it's been beneficial to us in some ways," said Jackson. "It's given us more time to do research and get ready to launch." Jackson said the Atlanta-based WAN, which currently has 20 employees, will hire 20 to 30 additional people by the end of this summer. The network has not yet leased a satellite transponder. WAN's programming schedule will include Hollywood and independent movies, two-and-a-half hours of news a day, African films and "historical" sports shows. Titunik said The Military Channel, which runs some of its programming on Tele-Communications Inc.'s tv! Network, needs $15 million to $20 million in funding to launch the channel. He said the channel was in talks with several investors, but˙20no deal had been struck yet. "Everything is keyed to the funding coming in," said Titunik. "We can launch a product 120 days post funding." The Louisville, Ky.-based programmer has 18 employees and has secured a satellite transponder. Titunik said the service will launch with eight hours of daily programming. The Military Channel, which has a version of the network in front of 1.5 million cable homes in Taiwan, will feature movies, documentaries, call-in shows with military leaders and sports from military colleges. Booknet, the brainchild of author E.L. Doctorow, had hoped to launch in summer 1994, but funding issues and lack of channel capacity have pushed the launch date back to somewhere between September 1995 and January 1996, said a spokes-man. "It's taking longer than we thought it would," he said. The network aims to create a 24-hour schedule with programming about books, documentaries about authors, news about the publishing industry, children's programming and home shopping for books. -=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=- Would Jones Intercable leave Denver? Well, it's not moving its Englewood, Colo. HQ but the MSO might part with its suburban Denver cable systems. Smurfs say that Jones is talking with TCI, but only about swapping for other systems, not a straight sale. TCI has been striving to dominate metro Denver and currently serves 349,000 customers -- 76 percent of the market's cable homes. It's not clear what TCI is willing to give up in return, but the MSOs overlap in two areas important to Jones: Maryland and Arizona. Both companies issued a big "no comment" on the talks. The Jones systems serve around 40,000 customers and are worth around $80 million. ------------------------------------------------------------------------- HOW TO GET THE CABLE REGULATION DIGEST: E-MAIL - To: listserv@netcom.com Subject: Ignored Body: subscribe cablereg-l FTP - ftp.vortex.com/tv-film-video/cable-reg GOPHER - gopher.vortex.com/*** TV/Film/Video*** WWW - http://www.vortex.com/pn/cable1.html *--30--*