From: owner-cablereg-l@netcom.com Date: Fri, 19 May 1995 14:57:48 -0700 Subject: Cable Regulation Digest 5/22 Reply-To: higgins@netcom.com - CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 5/22/1995. Vol.2, No.21 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 * CABLE ASKS JUSTICES TO UPHOLD TELCO BAN * TEXAS ENACTS LEC-FRIENDLY TELCO REFORM * FIELDS BILL CLEARS SUBCOMMITTEE * COMPLAINTS AGAINST SMALL OPS COULD DISAPPEAR * MODEST TIME WARNER ACTIONS FRUSTRATE INVESTORS * OPS SEEKING PRICE FLEXIBILITY ON HILL * SOME NETS BLAST DISNEY OVER TELCO TALKS * LIFETIME WORRIES ABOUT ACCESS TO OFF-NET SERIES CABLE ASKS JUSTICES TO UPHOLD TELCO BAN Washington -- The cable industry last week asked the Supreme Court to uphold the constitutionality of a federal law that bars phone company entry into cable. The law, a provision of the 1984 Cable Act, prevents common carriers from providing video programming directly to their telephone subscribers. It's commonly called the telco-cable crossownership ban in that it does not bar telcos from owning broadcast stations or wireless cable operators inside their regions. The ban also does not apply to telco ownership of cable systems outside their monopoly territories. In the wake of a series of federal court decisions overturning the in- region ban, the National Cable Television Association is asking the high court to take the case and uphold the ban as consistent with the First Amendment. "The sheer importance of the issue to businesses and consumers is, we believe, reason enough for not allowing the [lower court] decision to stand," the 29-page NCTA petition said. The Department of Justice filed a similar petition. Bell Atlantic Corp. was the first telco to win relief in 1993 when a U.S. District Court judge in Alexandria, Va., said the ban violated the telco's free speech rights. Bell Atlantic won on appeal. After Bell Atlantic triumphed, most of the other telcos won similar suits and injunctions in federal courts forcing the FCC not to enforce the ban. In the petition, NCTA said the ban passes constitutional muster because the law allows the FCC to grant waivers upon a showing of "good cause" -- a provision that the NCTA said that the Fourth Circuit Court of Appeals ignored when it upheld Bell Atlantic. The case could become moot amid Supreme Court consideration. Both the House and Senate are considering legislation that would repeal the cross- ownership ban. The House bill would allow telcos to obtain a cable franchise or establish a video platform, which combines elements of cable and common carrier regulation. The Senate bill contains similar but not identical options. FIELDS BILL CLEARS SUBCOMMITTEE Washington - A measure that 15 months after enactment would repeal upper tier rate regulation imposed in the 1992 Cable Act cleared a House subcommittee last week. Small operators -- defined as having 600,000 subscribers or fewer and unaffiliated with a company with more than $250 million in revenue -- would do even better. Their upper tiers would be deregulated upon enactment. But the House Telecommunications and Finance Subcommittee postponed many tough issues, including deregulation of broadcast ownership rules, telephone universal service commitments and the sequencing of Baby Bell entry into long-distance phone markets. The bipartisan bill, H.R. 1555, cleared the panel by a 24-5 vote following debate over amendments that lasted for eight hours on and off. "This is a good bill. We strongly support it. We look forward to working with Congress to enact legislation this year," said National Cable Television Association spokesman Rich D'Amato. There was one negative for cable: The bill would triple pole attachment fees. But the marathon session also left some cable issues unresolved, including a broad amendment offered by Rep. Edward Markey (R-Mass.) designed to curtail cable deregulation in the bill. Rep. Dan Schaefer (R-Colo.), who led the drafting of the bill's cable provisions, said he and Markey were quietly negotiating a possible compromise. "We're talking. I'm not about to give a lot of ground," Schaefer declared. Rep. John Dingell (DMich.), the Commerce Committee's ranking minority member and a co-sponsor of the legislation, threatened to pull his support if barriers to foreign ownership of broadcast properties were lowered too much. Dingell also wants to see the bill's cable deregulation provisions tightened to guard against a spike in rates before the telcos start to compete. "Let's put it this way. It's an important consideration," said Dingell, who at first voted against the bill but abruptly changed his vote in favor of it. The action promptly resumes this week as Commerce Committee chairman Rep. Thomas Bliley (R-Va.) promised to stage committee votes on amendments and the entire bill onWednesday or, if necessary, Thursday. "I hope that we can move right along, but we'll just have to wait and see," Bliley said. House Republicans, with the support of many Democrats, are trying to pass a 139-page bill that would deregulate cable, open cable to telco competition and allow the Baby Bells to enter long-distance phone markets and make telecommunications equipment. VETO THREATS The bill gives telcos the option upon enactment of either becoming cable operators or video platform providers, which would include some common carriagetype obligations. But the video platform is not a viable option until the Federal Communications Commission drafts rules. The FCC has 15 months after enactment to do so. Many of the provisions in the House bill are opposed by the Clinton administration, which is looking to generate enough support against the measure to lend credibility to veto threats. In other developments: [*] The panel voted 19-9 for an amendment from Rep. Michael Oxley (R- Ohio) that would repeal the 25 percent cap on foreign ownership of television and radio stations as well as telephone common carriers. The current restrictions do not apply to cable systems. [*] Rep. Ron Klink (D-Pa.) said he planned to offer an amendment that would require cable operators that migrate channels off of the basic tier to lower their basic rates by the appropriate amount on a per-migrated- channel basis. [*] Rep. Stearns withdrew an amendment that would have erased the TV station-cable system cross-ownership ban and others like it. TEXAS ENACTS LEC-FRIENDLY TELCO REFORM Texas lawmakers passed a telecom reform bill last week that some called a thinly veiled attempt to make Southwestern Bell Telephone Co. an unregulated monopoly. The "facilities-based" law opens the local telephone exchange to all comers, provided they have an existing network capable of offering telephone service, or millions to invest in building a separate system that will compete with SW Bell. The cable industry, with networks already in place, was less critical of the act, while long-distance carriers were outraged over a bill they say locks the LDCs out of the market. "It's an interesting bill," said Bill Magness, an attorney with Bickerstaff, Heath & Smiley, a legal firm that represents Texas cable operators. "It contains many pro-competitive provisions that are dealt with in great detail. "But when you look at it closely, many competitors are really hamstrung." The LDCs called the requirement that they build their own separate networks "ludicrous," and a blueprint for making SW Bell an unregulated monopoly. MCI Corp. spokesman Alfred Herrera said it would cost $750 million to build a second phone network in Austin, while AT&T spokesman Larry Norwood said the cost of such a network in Houston would approach $1 billion. "The bill is testimony to Southwestern Bell's clout," Herrera said. "It ensures that there will be a disincentive to compete against the LEC [local exchange carrier] in Texas by making it incredibly hard, if not impossible, to compete." Texas Gov. George W. Bush is expected to sign the bill. Any chances of altering the bill will be hampered by the fact that the Texas legislature -- which adjourns this week -- will not reconvene until 1997. Under a "built-out" provision in the law, new entrants into the market can select areas where they want to offer service, but they must expand their networks to include every business and residential customer within a 27square-mile area -- even if the consumer doesn't want the company's service. "They can't just pick a building in downtown Austin and only offer their service there," said SW Bell spokesman Glen Smith. Moreover, competitors must place 60 percent of their new network within six years. The remaining 40 percent can be offered as resale time purchased from an incumbent carrier like SW Bell. "Southwestern Bell spent a lot of money to get a bill, and they got the one they wanted," said Janee Briefemeister, senior policy analyst with Consumers Union, a watchdog group that publishes Consumer Reports magazine. If so, it is the second victory for SW Bell. The Texas-based Baby Bell managed to scuttle telecom reform legislation in Missouri a few weeks earlier. COMPLAINTS AGAINST SMALL OPS COULD DISAPPEAR Washington -- The Federal Communications Commission is considering effectively wiping out pending rate complaints against small cable systems and operators who meet the agency's new size standard. Under an order announced May 5, the FCC said small systems with 15,000 subscribers or fewer and controlled by MSOs with no more than 400,000 subscribers could charge up to $1.24 per channel with the understanding that rate would be deemed reasonable. Operators who meet the definition -- approximately 67 percent of all cable systems, which serve about 7 million subscribers -- are entitled to use a simple four-part form to justify rate increases. But the FCC is struggling with this question: What happens to the rate complaints filed against small systems prior to the adoption of the new size standard? According to FCC and cable industry sources, the FCC probably will allow small operators with pending complaints to use the new formula, which, in effect, will make the complaints moot. By allowing the use of the new formula, the FCC could avoid the problem of ordering a small operator to refund subscribers, only to have the operator recover the refund in short order by raising rates under the new small system rate rules. "It will speed resolution of many rate complaints before the Commission. It helps them clear the decks, too," said Eric Breisach, an attorney with Howard & Howard in Kalamazoo, Mich. Breisach, who represents the 350-member Small Business Cable Association, confirmed that he was in discussions with the FCC about handling pending rate complaints. At the National Show in Dallas two weeks ago, Cable Services Bureau deputy chief Greg Vogt said the agency could not directly dismiss the pending complaints because of a prohibition on retroactive rule making. The FCC also is weighing the concerns of local franchising authorities, many of whom have spent considerable sums to press complaints against cable operators. MODEST TIME WARNER ACTIONS FRUSTRATE INVESTORS New York -- It was a week of half steps at Time Warner Inc. as chairman Gerry Levin gave frustrated investors only part of what they wanted. At a time when Wall Street is awaiting serious financial restructuring, progress in the telephone business and evidence that interactivity can be a business, Time Warner offered investors three deals. The company confirmed that is was talking to AT&T Corp. about teaming up to offer local and long-distance telephone services to Time Warner Cable subscribers. But the discussions are less than hoped for, limited to a joint marketing deal, rather than a large direct investment that sent Time Warner's stock running up 10 days ago. The company also disclosed deals to sell off cable systems that don't fit into its regional clusters and help shave its $10 billion in debt. But the deals covered mostly rural systems serving 144,000 subscribers and will fetch around $263 million, just a fraction of the $2 billion to $3 billion in assets that the company has promised to shed. Finally, Time Warner Cable is laying plans to develop its own online service, aimed to put some content in the industry's plan to offer high- capacity access to cable subscribers for such services as America Online, Prodigy and the Internet. But investors left the company's annual shareholder meeting last Thursday here underwhelmed, shaving the company's stock by $1 to $39.25. Major issues -- like the future of U S West Inc. in Time Warner Entertainment Corp. and the disposition of Seagram Corp.'s 15 percent stake in the company -- remain unresolved. One investment banker called Time Warner's recent moves "extremely underwhelming." To indicate the pace at which things are moving at the company, the banker noted that talks on some of the system sales began two years ago. Even a long-term bull on Time Warner's stock sees the company's steps as small ones. "I think what the investors are demanding is that they would love to see someone fork over $2 billion to the company and take down that debt," said NatWest Securities analyst Paul Marsh, who recently put a new buy recommendation on Time Warner's stock. "They want a major cash infusion or a major asset sale." Levin seemed to be on the defensive during the shareholder meeting here, as he fielded questions about the stock's depressed price and his own compensation and made a lengthy response regarding the protest about Time Warner's rap recordings. The only times he seemed to muster much enthusiasm was when he introduced a flashy demonstration on the new online service, which makes use of Time Inc.'s stable of magazines, and when the session closed with a trailer of Warner Bros.' new Batman movie. OPS SEEKING PRICE FLEXIBILITY ON HILL Washington -- Cable operators are turning to Capitol Hill for new freedom to price programming, equipment and installation service. But the industry is battling a broad range of opponents, including the consumer groups, the Clinton administration, Federal Communications Commission chairman Reed Hundt and Rep. Edward Markey (D-Mass.), a key drafter of the 1992 Cable Act. Recent additions to the list of foes include wireless cable and SMATV operators, who are vocally opposed to lawmakers' giving cable the pricing flexibility that it wants. Since passage of the 1992 Cable Act, cable operators have been forced to offer uniform rates throughout a franchise area even if the operator's rates are not capped by a local franchising authority or the FCC. Under pending House legislation, the uniform pricing mandate would disappear for all programming services except basic. The provision has not garnered much attention until recently. "It's [the] poison pill of the House bill, tucked away in the back," said Peter Price, president of Liberty Cable Television, a SMATV operator that competes against Time Warner Cable in Manhattan. Last Wednesday, Markey offered an amendment designed to kill the pricing flexibility provision, but he eventually withdrew it. The House bill, sponsored by Reps. Thomas Bliley (R-Va.), Jack Fields (R- Texas) and John Dingell (D-Mich.), would impose no pricing restrictions on bulk discounts to apartment buildings -- prime locations for MMDS and SMATV operators to sign up subscribers. "I would call this an invitation to predation. I think it's an insult to the American consumer," said Liberty's Price. "It doesn't pass the smell test," said Robert Schmidt, president of Wireless Cable Association International Inc., which represents the MMDS industry. A Clinton administration official, who asked not to be identified, attacked repeal of the uniform rate rule as an attempt to put Liberty Cable out of business. Rich D'Amato, spokesman for the National Cable Television Association, said cable operators should be able to vary their rate cards. "We, like everyone else, need that pricing flexibility to compete ... in order to go into those high-rise apartments and compete on a fair basis with these providers," D'Amato said. SOME NETS BLAST DISNEY OVER TELCO TALKS Several cable networks severely criticized the unnamed joint venture between The Walt Disney Co., Ameritech Corp., BellSouth Corp. and SBC Communications Inc. for using The Disney Channel's affiliate staff to negotiate programming contacts for the entity. Both premium and basic network executives called the arrangement a conflict of interest for The Disney Channel. A dozen networks said they had been approached by Mark Handler, senior vice president of sales and affiliate marketing for The Disney Channel, about cutting programming deals with the unnamed telco consortium, which serves 50 million customers in 19 states. "Why would I want to tell a competitor of mine what my deals are?" asked John Sie, chairman and CEO of Encore Media Corp. "And if Disney is not an owner of Ameritech, then I don't want to do a deal with them anyway. We don't want to deal with a subdistributor. On both fronts, I look at it suspiciously." Sie said he hadn't talked directly to Handler, but he told John Cooke, executive vice president of Walt Disney Co. and exiting president of The Disney Channel, that the strategy "didn't make sense to us." Cooke confirmed that The Disney Channel people had made calls on behalf of the consortium, but he emphasized that this was a temporary arrangement. "We are in the process of establishing a team of people who will negotiate these programming licensing deals, and they will not in any way be associated with The Disney Channel," said Cooke. "There will be a wall that precludes any exchange of information or any kind of data with anyone inside the channel." However, the many cable network affiliate sales heads contacted by Handler and his staff did not yet have the impression that The Disney Channel people would disappear once the negotiations were down to the stage of hammering out the contracts. "I don't know anyone that wasn't livid," said a head of affiliate sales for a programmer, about being asked to negotiate with The Disney Channel for telco distribution. "Every network's contract is proprietary between the network and the client." "There is a Chinese wall between one network's contracts and a competing network's knowledge of what's in that contract," said the head of affiliate sales for a midsized network. "It's the standard in the industry and it's remarkable that one hasn't been constructed." The source added that the network would "do a deal with The Disney Channel over my dead body. I'm not laying my contract on them." Affiliate sales sources said network contracts contain up to two pages of confidential information, including the rate card, who gets vertical blanking interval (VBI) rights to use for interactivity, what type of most- favored-nation clause is being offered, length of contracts, number of years free (if applicable) and marketing incentives. "We're not going to let The Disney Channel get any leverage over us," said a CEO from another network. While several basic network executives complained bitterly about the prospect of negotiating a contract with The Disney Channel, sources -- including some from the premium networks -- said it was most awkward for a pay channel to negotiate with a direct competitor of The Disney Channel. The majority of networks said they were dead against dealing with Handler and his staff, but at a few networks -- generally small to midsized ones -- some said they had no problem negotiating with Disney. LIFETIME WORRIES ABOUT ACCESS TO OFF-NET SERIES New York -- One week after fX acquired NYPD Blue from its sister company, Twentieth Television, Lifetime Television, which was eager to purchase the ABC drama, said it was worried about being locked out of future attractive off-network deals. "The thing that concerns me is our ability to buy in the marketplace," said Judy Girard, senior vice president of programming and production for Lifetime. "This is not sour grapes. I'm concerned about the people who own the distribution. Will all of MCA and Paramount product now go to their networks without anyone bidding on it?" USA Network has run an abundance of off-network MCA and Paramount series such as Major Dad, Miami Vice and Quantum Leap. While many industry observers said networks with studios for parent companies really did not have an advantage in getting their studios' off- network series over other networks, some, including Girard, believe that networks without studio partners may be at a disadvantage. fX Networks chairman and CEO Anne Sweeney maintained that fX offered sister division Twentieth Television a deal the distributor couldn't refuse, so NYPD Blue was sold to fX. Sources said fX also purchased Picket Fences, in which Lifetime was also interested, from Twentieth, but fX declined to comment. "fX was the highest bidder, this was not about Fox product," agreed Janeen Bjork, vice president/director of programming for broadcast sales rep Seltel. "fX offered the more favorable deal." Turner Network Television and USA also said they had preliminary conversations about NYPD Blue and Picket Fences with Twentieth, according to the two networks. However, Girard said she wasn't given the opportunity to close a deal for the Steven Bochco series. Girard said Lifetime had the first serious conversations with Twentieth about NYPD Blue. "We talked money, we talked terms and they were going to respond to that when all of a sudden there was a preemptive bid from fX," said Girard. "They clearly had an active market and they decided to service their own network instead of the buying market." Directly, off-network series have provided important anchors for several basic cable networks' schedules. For example, Lifetime garnered solid ratings with L.A. Law and USA Network continues to score with Murder She Wrote. "Acquired series help support the originals," said Girard. "They are produced at very high dollars and they bring a lot of viewership to the networks. Hopefully, they bring viewers to your originals and other things you control on the network. Producing everything originally is very, very difficult." Brad Siegel, president of TNT, said even though his network does not rely on expensive off-network series, he agrees that networks with studio parents have an advantage. "If a studio owns a cable network, it will go there first," said Siegel. "If the network is willing to pay the price or come close, the studio would be stupid to shop it elsewhere." Other industry observers disagree with Siegel's assessment. "It's not in the studios' best interests to do it that way," said Gary Lico, president of programming sales firm Cable Ready. "Do you think Steven Bochco is going to stand for a mediocre deal when he can get a better deal somewhere else?" "I don't think there's any real advantage," said Richard Kurlander, vice president/director of programming for Petry Television. "They have your basic fiduciary responsibilities." "There may be an advantage in certain cases, but overall, there isn't much advantage," said Steve Aurbach, president of media buying firm Aurbach & Co. "Everyone wants to maximize their revenues. If Twentieth didn't get top dollar, that might be the last show Bochco distributes through them." Aurbach and other sources point out that Lifetime also has seemingly benefited from co-parent Capital Cities/ABC (owners of this newspaper). Lifetime currently snares strong 1.2 Nielsen ratings with ABC Productions' The Commish and also does fairly well with Barbara Walters' Interviews of a Lifetime, courtesy of ABC. Girard was careful to say that losing NYPD Blue and Picket Fences would not adversely affect the network. But she added that Lifetime was hot on the two Twentieth shows because of the dearth of one-hour shows -- which are a mainstay for Lifetime -- coming off the networks. -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=...And Finally=-=-=-=-=-=-=-=-=-=-=-=-=-=- Hollywood's abuzz that Columbia Pictures paid $750,000 for a script from a first-time screenwriter. Why should this interest the cable industry, you may ask? Well, the script is called The Cable Guy and was written by a former member of the L.A. District Attorney's office. (We wonder which of the 14 Los Angeles franchise areas he calls home?) The protagonist -- scheduled to be portrayed by Saturday Night Live star Chris Farley -- is described as a bumbler who torments a subscriber but finally brings romance into her life. Now that's what we call customer service. Ever notice how boring Court TV can get? No, no, we don't mean the lawyers pontificating, but the jackhammers boring into the floors. The sounds of renovations have occasionally bled onto the air since Court TV began renovating truly spartan Manhattan offices. Annoyed staffers endure drilling and hammering contractors who are separated from the rest of the floor only by thick black curtains. Network honcho Steve Brill says the renovations are needed because Court TV's syndicated show is going daily and parent American Lawyer's online service is expanding. But he promises not to violate a sacred tradition: "We are not going to have what you would call `nice' offices," Brill said. ------------------------------------------------------------------------- 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--*