From: owner-cablereg-l@netcom.com Date: Fri, 31 Mar 1995 13:21:50 -0800 Subject: Cable Regulation Digest 4/3 Reply-To: higgins@netcom.com - CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 4/3/1995. Vol.2, No.14 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 EDITOR'S NOTE: We're early this week, but we'll be late next week, cuz I'm outta here. Off on vacation for a week jamming on cherry blossoms and flamingos (though not in the same place). Travelling WITHOUT a computer (yea!) so you won't get the next issue until the afternoon of April 10 at the earliest. QUOTE OF THE WEEK "I don't think you're going to have a program survive...if out of all the options, the director picks something that shows them tugging their ear, or I think picking their nose was one of the major charges this week." Newt Gingrich on C-SPAN's first week using reaction shots of Congressmen while covering the House of Representatives. WIRELESS OP GETS BABY BELL BACKING The wireless cable industry's ship came in last week. The deal that the wireless cable industry has longed for arrived as Bell Atlantic Corp. and Nynex Corp. agreed to invest up to $100 million in CAI Wireless Systems Inc. The deal charged up the stocks of cash-hungry wireless operators and gives the two Baby Bells a new way to rapidly enter markets with video services. By the middle of next year, both regional Bell companies may be offering branded video programming via digital wireless cable systems in many parts of their phone territories. The deal, rumored for weeks, was complex, involving CAI's acquisition of wireless operator ACS Enterprises Inc. and other wireless channels acquired from two other operators. Bell Atlantic and Nynex will buy up to 45 percent of the enlarged CAI. The venture will give the two telcos a hold on existing systems in New York City and Philadelphia, licenses to build operations in Washington, Baltimore and Pittsburgh and access to a mix of smaller markets where CAI already operates. David Pacholczyk, a Bell Atlantic spokesman, said the deal creates a kind of mirror image of the telco's video dialtone system in Dover Township, N.J. In Dover, Bell Atlantic is building a system to carry other companies' programming. "With CAI, they have the network and we will provide the programming," the spokesman said. Bell Atlantic and Nynex are developing programming with partner Pacific Telesis Group in a venture led by ex-CBS executive Howard Stringer. Alan Sonnenberg, CEO of ACS (and soon to become CAI's president), said wireless offers "immediate entry" into video services and blunts the efforts of cable companies to take away telephone customers while the Bells build out their networks. He said CAI and ACS bring more to the Bells than just spectrum. "We both bring respective talents in terms of operational expertise. We know how to put subscribers on and we're doing it," he said. Under the terms of the deal -- which will be detailed later when financial statements are filed -- Bell Atlantic and Nynex will supply the digital converter boxes, pay for marketing and provide service to wireless customers in CAI territories. CAI would earn fees for providing the microwave transmission. That arrangement would be at the Bells' option. In other cases, CAI would acquire and retain the subscribers. William Deatherage, a phone industry analyst with S.G. Warburg in New York, said the Bells may choose to let digital wireless cable replace hybrid fiber/coaxial cable systems as an interim distribution method. They may decide to offer wireless TV until it is more cost-effective to build fiber-to-the-curb networks throughout their regions, he said. "If they truly believe switched-digital video [via fiber] is better, than with HFC they'd be deploying an inferior technology," Deatherage said. Wireless' advantage over both HFC and fiber-to-the-curb is it can be much more rapidly deployed than wired networks, especially if operators are as well-financed as phone companies. Wireless cable also is free of the pesky antitrust-decree terms that prevent Bells from widely distributing video. "Here is an opportunity to provide video services that cross state boundaries and LATA lines," said Colin Watson, managing director of worldwide operations at Nynex. LATA lines divide local calling areas. The holdup at the moment is digital wireless. Bell Atlantic and Nynex officials said they will wait for digital technology before distributing their branded wireless services. Digital technology, through data compression, will expand the limited number of wireless channels by a factor of three to six and will greatly expand the penetration capabilities of the wireless signals through trees and other obstructions, according to experts. But converter makers have been slow to produce digital converter boxes for cable operators and telcos, and wireless cable is far lower on the priority list. Several industry leaders said they hoped the Bells' buying clout will make a difference. "There's more pressure on the General Instruments and the Zeniths and the Scientific-Atlantas to get our boxes out the door now," said Michael Whalen, vice president of acquisitions and finance at People's Choice TV Corp., another wireless cable MSO. SPRINT CABLE WILL SPEND $4.4 BILLION Kansas City, Mo. -- The Sprint Cable group firmed up the wireline portion of its wireline and wireless telephone venture last week and committed to put $4.4 billion in cash into the venture over the next three years. Debt and vendor financing will add billions more, possibly as much as the cash, to buildout costs over several years, Sprint officials said. The group also named Ronald LeMay, 49, to head the venture, whose main equity partners are Sprint Corp., Tele-Communications Inc., Comcast Corp. and Cox Enterprises Inc. LeMay formerly ran Sprint's $6.8 billion long-distance division. The venture will be based here. Gary Forsee, who was interim CEO of the joint venture, replaces LeMay in the long-distance division. Like the wireless venture, which recently won 29 broadband communications licenses at a cost of $2.1 billion in a government auction, the wireline venture will have these ownership shares: Sprint, 40 percent; TCI, 30 percent; and Comcast and Cox, 15 percent each. Teleport Communications Group, the telephone services company owned by TCI, Comcast, Cox and Continental Cablevision Inc., also will contribute to the venture. Including affiliates, the wireless venture will reach a potential population of 182 million. On the wireline side, the cable partners will spend billions upgrading their own systems and helping cable affiliates upgrade their systems to offer telephony. David Woodrow, senior vice president at Cox Communications, at a Kagan Seminar Inc. conference last week in New York said the group plans a "very disciplined rollout schedule" of systems with capacities between 550 MHz and 750 MHz. Sprint-cable officials have said other wireline affiliates may be named soon. Lyndon Daniels, president of Pacific Telesis Mobile Services, which will compete against the Sprint group in California, said the Sprint-cable venture is taking on a huge task and may find that concentrating on wireless, wired, local, long-distance and cable video at the same time may cause the group to fall short in some of those areas. "I wish them well," he said. PRODIGY EXEC'S DEFECTION CRIMPS CABLE NETS MCI's gain is Prodigy's loss -- and cable's loss, too. Scott Kurnit, who left Prodigy Services Co. as executive vice president last week to oversee MCI Communications Corp.'s foray into Internet consumer services, was largely responsible for forging Prodigy's close ties to the cable industry. More than three dozen cable networks provide content to Prodigy. And Prodigy is involved in more trials with broadband cable distribution than other online services. Prodigy's top two media-content providers said last week they would stay with Prodigy -- for now. "For me, Scott was Prodigy," said George Schweitzer, executive vice president of marketing and communications at CBS Inc. He said CBS, which launched its own site on the Internet's World Wide Web partly on Kurnit's advice, would stick with the service. Richard Glover, senior vice president at ESPN Enterprises, said his first reaction, as a friend, was elation for his fellow cable veteran. "The second reaction was as a Prodigy content provider, and there there's disappointment, because I think Scott has made a major impact and would continue to," he said. ESPN's exclusive contract expired Friday but Glover said ESPN plans to remain while looking at "any and all opportunities" to get the widest possible distribution. Other media-content providers said they were rethinking their position on Prodigy even before Kurnit left. They had been frustrated by a lack of resources at Prodigy, due partly to cutbacks, partly to internal politics and partly to resources being directed toward CBS or ESPN. They said Kurnit shared that frustration and believed he was not headed toward the top job at Prodigy. Many analysts assume Kurnit will not be the last key Prodigy executive to leave. IBM Corp., co-owners of the service with Sears, Roebuck & Co., is believed to want to replace Prodigy CEO Ross Glatzer. (Former VH1 president Ed Bennett, who like Kurnit is a Showtime alumnus, is in the running to succeed Glatzer.) Though the service has been profitable the last few months, aided by new revenue from the Web service and by savings from layoffs, Prodigy has cost the owners more than $1 billion over the last decade. "I think it's pretty much an indication that there's going to be a second shakeup there," said Michael Rinzell, an analyst at Jupiter Communications LLC. CABLE DID BETTER ON HILL LAST TIME Washington -- The cable industry was happier with last year's Senate bill than the Republican-sponsored measure voted out of committee two weeks ago. On March 23, the Senate Commerce Committee voted 17-2 for a bill that would, among other things, open cable and the local telephone industries to competition. Senate legislation last year delayed phone company entry into cable until the telcos have complied with competitive safeguards. This year's bill lets all telcos, including the gigantic Baby Bell monopolies, into cable from day one. "As we've been pretty clear, we think the kind of approach that came out of the Senate committee bill last year was a preferable one," National Cable Television Association president Decker Anstrom said last week. Despite that observation, Anstrom said he did not believe the bill discriminated against the cable industry. "We do not see it as balanced against cable," he said. "I think it's a framework that we can work with." The bill, sponsored by Commerce Committee chairman Larry Pressler (R- S.D.), moves next to the Senate floor. But according to several sources tracking the bill, Senate consideration is at least a few weeks away. Over in the House, lawmakers' staff continued to work on a draft bill. "My prediction is that it will look a lot like the Markey-Fields bill passed in the House last year by a very convincing vote of 425-5," Rep. Rick Boucher (D-Va.), a member of the House Telecommunications and Finance Subcommittee, said last week at a Media Institute forum here. Although silent on cable rate regulation, the Markey-Fields bill stalled telco entry into cable until the telcos were in full compliance with competitive safeguards, such as interconnection. Boucher said the entry delay could have lasted five years under the bill. This year's House bill, he said, should be different. "What should not be a part of the legislation is any unreasonable delay on telephone company entry into the provision of cable TV service," Boucher said. He said House staff was actively discussing the sequencing of telco entry into cable. Boucher said the likely scenario was that the subcommittee would take up the bill in "late spring or early summer," followed by House passage also in the summer. House and Senate lawmakers would meet to craft a unified version in the "later part of this year." He said Pressler's goal of enacting a new law by July 4 was "somewhat ambitious and perhaps a little optimistic." Boucher said the key to the legislation's success was an agreement between the Baby Bells and the long-distance companies. If either party is dissatisfied, either could "kill the legislation," Boucher said. CLINTON STILL OPEN ON TAX BREAK VETO Washington -- President Clinton has not decided whether to veto legislation that kills Viacom Inc.'s tax break needed to complete the $2.3 billion cable system sale to a venture that includes black entrepreneur Frank Washington. Clinton does not support the elimination of the tax break but does favor the health care tax deduction for self-employed workers also contained in the legislation, White House spokeswoman Peggy Lewis said Friday. Capitol Hill sources said they doubted Clinton will try to block a bill that was passed overwhelmingly in the House and by voice vote in the Senate. But the White House was keeping its options open because a provision Democrats could rally around was dropped from the bill. The Republican- controlled Congress excluded a provision that would have required wealthy Americans who give up their citizenship for tax purposes to pay an estimated $3.6 billion in tax over 10 years on their assets. Final passage in the Senate was still pending as of Friday afternoon. To pay for the tax break, the bill eliminates from the tax code a provision that allows the Federal Communications Commission to dispense tax certificates to entities that sell media properties such as broadcast stations and cable systems to members of minority groups. Sacramento, Calif.-based Washington heads a partnership that includes InterMedia Partners and Tele-Communications Inc. With an FCC certificate, Viacom could defer paying $640 million in capital gains taxes. Viacom has said the deal with Washington's group is dead without the tax certificate. When House and Senate lawmakers met last week to iron out differences in their versions of the bill, they said the FCC's tax certificate program was dead as of Jan. 16, 1995, unless binding contracts were in effect on that date. The Viacom-Washington deal concluded a few days after Jan. 16. Sources said Viacom officials were crying foul beacause the bill kills its deal with Washington but preserves a deal in which Tribune Co. and its partner, black record producer Quincy Jones, are buying television stations in Atlanta and New Orleans from Fox Broadcasting Co. and Time Warner Inc., respectively. House and Senate lawmakers agreed to let the Jones-Tribune deal go through. The bill would allow the FCC to consider pending deals before Jan. 16 if the purchase price does not change by more than 10 percent because of the involvement of the tax certificate. The Jones-Tribune deal with Fox and Time Warner has a 7.7 percent price difference. NEVADA PREPPING FOR TELECOM COMPETITION Nevada regulators are poised to adopt a regulatory package later this month that will immediately lift the ban on competition in the local telephone exchange. The state's Public Service Commission will vote April 24 on proposed rules and regulations drafted during marathon hearings held on March 7-10, which apparently satisfy the state's 15 local exchange carriers and expected entrants into the market. The plan allows cable and long-distance companies to immediately begin competing for local phone customers, while giving the LECs an alternate method of price regulation. For cable operators, the package enacts a streamlined certification process, while guaranteeing interconnection with the local telephone network and number portability. "If a cable company wants to start offering telephone service, they can do it," said Terry Page, head of the PSC staff whose recommendations formed the blueprint for the final regulations. Moreover, the cable operators' rates for telephone service would not be subject to PSC price regulations. A major addition to the package of rules and regulations was language allowing cable operators to refuse to connect a telco to their systems in areas not already serviced by the phone company. OPS SEEING STRONG BASIC SUB GROWTH Mild weather wasn't the only reason Richard Aurelio enjoyed winter this year. The winter quarter is usually slow in the Northeast, but after strong subscriber growth in 1994, the huge New York City Time Warner Cable Group optimistically budgeted to add 3,000 basic subscribers. The actual tally when the quarter closed last Friday: 13,000 new customers. "Much stronger than we expected," said Aurelio, president of the 1 million subscriber cluster. While quadrupling budget targets is hardly common, operators around the country are continuing to see strong subscriber growth. Thanks to the Federal Communications Commission, advertising by DirecTv, tightening system operations -- perhaps even the prosecution of O.J. Simpson -- internal basic subscriber growth is surging. As major MSOs wrapped up financial reports last Friday, reported subscriber growth jumped from around 3 percent in 1993 to 4.5 percent last year, with giant Tele-Communications Inc. reporting a stunning fourth quarter -- 12 percent annualized growth -- and a 6.5 percent increase for the full year. Comcast Corp. was up 4 percent annualized. Further, initial reports for the first quarter indicate that the trend is continuing. Jones Intercable Inc., for example, said during January and February internal subscriber growth increased at an annualized rate of 6 percent. Jones, however, has long-generated significantly better subscriber growth than other MSOs. "We're ahead of budget on our basic," said Fran Zeuli, general manager of Continental Cablevision Inc.'s St. Paul, Minn., system. Zeuli also expected growth to be flat during the quarter, but wound up adding 1,000 subscribers, increasing at an annualized rate of 6 percent. Time Warner's 530,000-subscriber Orlando, Fla., operation always gets a surge from "snow birds," retirees escaping northern winters. But this year's first quarter was even better than expected: 6 percent annualized growth vs. 3.6 percent the system had budgeted. "We came out of last year with the strongest year we've ever had and springboarded right into the first part of this year," said Jim Rozier, Orlando's vice president of marketing and business development. The spike came as the system stopped advertising on broadcast TV to limit in-bound calls as it was installing new billing and phone systems. Instead, Time Warner beefed up door-to-door and telemarketing sales. Even though it pains them, many cable executives concede that federally mandated rate rollbacks are driving part of the growth. While basic rates alone have not dropped much during the two rounds of price reductions, the reduction of fees for second-set hookups and remote controls combined to reduce an average subscriber's total bill by 8 percent. Even in homes where rates didn't drop dramatically, subscriber growth may have picked up because of an overall perception that rates had declined. Further, subscribers are not seeing the typical winter rate hikes. "I will buy the argument that people didn't see the rate increase and saw their bills go down," said one MSO executive. "There's a big piece of your analysis." Looming competition has helped in two other ways, industry executives said. One is that direct-broadcast satellite service DirecTv is spending heavily on national TV advertising to promote many of the same services available on cable. That's key, insists Char Beales, president of the Cable Television Administration and Marketing Society. "When you pump $50 million bucks into marketing -- and remember it's the same product -- it's going to work." So while DirecTv is stealing some customers from cable, it also may be driving some people toward cable, particularly consumers scared off by the DBS service's heavy upfront equipment costs. BOTH SIDES HAPPY IN FLA. TELECOM REFORM Lawmakers in Florida appear to have accomplished a rarity this legislative season: telecom reform proposals that both cable- and telephone-industry lobbyists say they can accept. The state's House and Senate are drafting their own versions with different start dates for competition. But the House version also details stopgap solutions for some of the stickiest points facing open competitive markets, including number portability and defining universal access. Florida could lose its status as one of the 17 states with statutory barriers to local exchange competition as early as this July, if the House bill passes. The Senate version currently calls for a Jan. 1, 1997, launch of competition. Cable and telco forces are both pushing for the earlier date. "It's still early in the process. There are many details still to be worked out, but a number of the legislators don't want to see us fall back... This could be a very active marketplace very soon," said Steve Wilkerson, executive director of the Florida Cable Television Association. Lobbyists attribute the comprehensiveness of the bill's drafts to self- education by the legislators. Many officials have spent the last year visiting sites such as a GTE Corp. Business Solutions Lab in Tampa and Time Warner Cable's Full Service Network in Orlando to learn firsthand about technological advances and competitive issues, according to Susan Langston, executive director for the Florida Telephone Association. The legislators also pushed the potential competitors to submit joint, rather than individual, competitive plans. The result, at least in the House version, is a proposal that would open local exchanges under price-cap regulation for the large incumbent telephone companies. Basic rates for homes and single-line business users will be frozen for three years, at which point they may be adjusted for inflation, minus 1 percent. Small telcos can be protected from competition for up to five years if they agree to remain under rate-of-return legislation. Cable and other competitors must stay out of their areas unless the small telco moves into video delivery first. For four years after the House version goes into effect, a competitor will be deemed as providing universal service if it's connecting through a larger company that previously satisfied that requirement. Incumbents and competitors will have 60 days to negotiate interconnection charges. If no agreement is reached, the Public Services Commission will be the final arbiter. The telcos would get the pricing flexibility that they sought on non- essential services such as call waiting and call forwarding, while competitors get number portability until a "national standard" develops for handling this issue. ------------------------------------------------------------------------- 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--*