From: John Higgins Subject: Cable Regulation Digest 7/04 Date: Mon, 4 Jul 1994 09:24:25 -0400 (edt) CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 7/04/1994. Vol.1, No.27 Copyright 1994 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 $65/year. CABLE REGULATION SOUNDTRACK: Combustible Edison is an odd jazz group fronted by a woman singer oozing with an unusual edgy, delivery. Sort of mid-60s retro, Combustible Edison also has an odd, haunting delivery. The lastest CD "I, Swinger" is interestingly tasty. Can't say the same for the Combustible Edison Cocktail, whose recepie is listed on the jacket (Campari, lots of lemon juice on ice. Then add warmed, flaming brandy into the glass). QUOTE OF THE WEEK "In short, the must-carry provisions are not designed to favor or disadvantage speech of any particular content. Rather, they are meant to protect broadcast television from what Congress determined to be unfair competition by cable systems." Supreme Court decision upholding constitutionality of must-carry, but remanding case to lower court. "We've sold everything we've got." Chris Sasser, manager, Video Concepts, Jackson, Miss., one of the first retailers to sell DirecTV receivers and dishes. "We've had only two disconnects or downgrades that we can definitely identify as having come because of the DBS launch," McMahon said. Steve McMahon, president of the Jackson/Monroe Division of Time Warner Cable. NEW THREAT FACES MSOS: THEMSELVES NEW YORK -- Amidst MSOs efforts to present a uniform front in the coming wars with telephone companies, a defiant challenge by Cablevision Systems Corp. chairman Charles Dolan has reignited questions about whether the clubby cable brethren will turn on each other. Dolan's vocal stance that he wants to pursue the customers of other operators either actually overbuilding other franchises or piggybacking on the wires of a telco's video systems has raised the image of operators' going head-to-head by invading each others' territory. There's little evidence of MSOs seriously planning to either overbuild or to "surf" telco plant in order to get into other operators' franchises. But telco executives said they've had many conversations with operators about leasing out video capacity that would compete with incumbent systems. Dolan's comments two weeks ago in a speech at the Museum of Television and Radio in New York has certainly shaken up senior ranks in the industry. "People are furious," said one CEO. "We can't figure out what he's trying to accomplish." James Cullen, president of Bell Atlantic Corp. said the telco's plans to build broadband networks in six markets over the next three years has attracted some interest from MSOs wanting access to towns outside their franchise areas. According to Cullen, the MSOs say "off the record" that the old barriers that kept operators from competing against each other are coming down. "This is going to be a matter of survival for them," he added. Other than Dolan, no cable executive contacted would publicly admit to even studying the issue. But a number agreed that some MSOs will take the plunge. "Somebody's going to do it," said Century Communications Corp. president Bernard Gallagher, adding that "the world is a little more hostile these days." COURT ORDERS NEW MUST-CARRY REVIEW Washington -- The cable industry had hoped for a wide-ranging desision from the Supreme Court last week striking down must-carry and broadening its First Amendment rights. Cable got half a loaf. While the high court overturned a lower court's decision that upheld broadcasters' must-carry rights featured in the 1992 Cable Act, it is still the law of the land. The court remanded the case -- Turner Broadcasting System Inc. v. the Federal Communications Commission -- to the special three-judge U.S. District Court panel for further fact-finding and a new ruling. With appeals, the case will drag on for at least another year. Must-carry remains in effect because the high court vacated only the lower court's ruling, leaving the underlying statute untouched. In a 5-4 decision, the high court majority substantially ruled that must-carry is constitutional in the context of the First Amendment, finding it both narrowly drawn and content-neutral. The 1992 law said cable operators had to reserve up to a third of their capacity for local broadcast stations. However, the court refused to explicitly uphold must-carry because justices felt the lower court's record did not demonstratively show actual harm to broadcasters that could not demand cable ca iage. The split decision gave both broadcasters and cable something to cheer about. Broadcasters came away pleased that their must-carry rights were left intact, while cable emerged with newly won constitutional protections that place MSOs and programmers in the middle of a First Amendment continuum in which newspapers are the most protected and broadcasters are the least protected from government intrusion. Still, the decision dealt a blow to the cable industry's hopes of gaining the First Amendment protection afforded the print media known as "strict scrutiny." "Our review of the [1992 Cable] Act and its various findings persuades us that Congress' overriding objective in enacting must-carry was not to favor programming of a particular subject matter, viewpoint or format, but rather to preserve access to free television programming to the 40 percent of Americans without cable," Kennedy explained. But after seeming to uphold must-carry, Kennedy's opinion took a late detour. The justice concluded by saying that for must-carry to survive, the FCC had to demonstrate not only that "a large number of broadcast stations would be dropped or repositioned in the absence of must-carry," but also show that without it, they would be harmed financially. Must-carry opponents on the court could garner only four votes. In a dissenting opinion, Justice Sandra Day O'Connor slammed must-carry as flagrantly content-based, favoring one class of speakers over another and determining the editorial freedom of cable operators. She said Congress had a host of options to select besides must-carry to promote over-the-air broadcasting, including direct subsidization. FCC SETS ASIDE WIRELESS SPECTRUM SPACE Washington -- With commissioners calling it "momentous" and "one of the most important events in the economic history of the U.S.," the Federal Communications Commission last Wednesday adopted a plan aimed at giving "designated entities" a fair shot at bidding for licenses for wireless telephones. "For the first time in our nation's history, the federal government is creating opportunities in a new industry in which all Americans will have a fair chance to compete from day one," said FCC Chairman Reed E. Hundt. Under the terms of the new rules, rural telephone companies, small businesses and those owned by women and minorities will receive benefits aimed at allowing them to compete with larger telecommunications companies when licenses are auctioned later this year. The licenses are assigned to specific blocks on the broadband personal communication spectrum -- the segment of the electromagnetic spectrum designated for wireless telephone service. Named the "Competitive Opportunity Plan," the guidelines set aside frequency blocks "C" at 30 MHz and "F" at 10 MHz as "entrepreneurs' blocks." These blocks can be bid on only by designated entities. Only companies whose gross revenues of the last two years fall below $125 million and whose assets do not exceed $500 million will be allowed to compete for licenses in the entrepreneurs' block. BELL SOUTH ENTERS VIDEO ARENA NEAR ATLANTA BellSouth Corp. last week joined the crowd of regional telephone companies asking permission to sell video services to its customers -- using a cable operator as a partner. BellSouth said it wants to wire 12,000 homes in an Atlanta suburb, under both video dial tone rules and older rules that let a cable operator lease capacity from a phone company. That way, BellSouth will be sure of having a 60-channel basic cable package that can compete with Scripps Howard Cable Services systems in the Chamblee, Ga., area, Bell officials said. If the Federal Communications Commission approves, BellSouth will launch its 18 month market and technology trial by mid-1995. GTE Corp. and all regional Bells except Southwestern Bell Corp. have requests for market trials or commercial rollouts pending at the FCC. On top of the 60-channel offering, BellSouth will provide a platform for 300 channels of digital services, including movies on demand, games, shopping and personal computer services like electronic mail. BellSouth said it figured to spend $900 to $1,000 per home passed, or $10.8 million to $12 million, including costs for a hybrid fiber and coaxial cable system, digital video servers and set-top converters. Those figures are higher than what other phone companies have estimated in their applications to the FCC for construction permits. But Mark Roberts, a telephone industry analyst with Alex. Brown & Sons in Baltimore, said that was in line with what other phone companies have told him they'll spend. BellSouth, the largest of seven regional Bell companies (measured by revenue), has long advocated use of fiber optics throughout its networks. It also was an early dabbler in video trials, using fiber networks in Hunter's Creek, Fla., and Heathrow, Fla., in 1986. William Reddersen, BellSouth's senior vice president for broadband strategy, said later segments of the Atlanta area trial will feature fiber-to-the-curb technology for delivering both telephone and video services. For now, telephone services will be carried by existing copper wires. COURT REFUSES PREFERRED CASE APPEALS Washington -- The U.S. Supreme Court last week acted for the second time on the industry's longest-running challenge of franchising authority. The high court refused appeals from both the city of Los Angeles and a potential cable system builder, Preferred Communications Inc. When the dispute began nine years ago, the city had a "one area, one operator" policy, asserting that power poles only had room for one cable plant. As the litigation progressed, the city retreated, saying there is room for more than one operator. However, arguing that adding multiple operators can cause safety hazards and limit future utility growth, city attorneys asked the court to reaffirm the city's right to control the use of public property. Attorneys for Preferred challenged many of the requirements in the franchising procedure as prior restraint on the press. Cable should be treated like other businesses and allowed to operate after receiving a business license, its attorneys argued. The refusal lets stand a ruling of the 9th U.S. Circuit Court of Appeals which ordered Los Angeles in 1993 to accept applications for cable competitors. The court left the door open to Preferred to challenge individual requirements of franchising item by item if it fails to gain access to South Central Los Angeles. STORES REPORT STRONG DBS SALES High-powered direct broadcast satellite service moves into its fifth market this week, with retailers still saying they can't stock enough of the $700 to $900 receiver gear. "We've sold everything we've got," said Chris Sasser, manager at the Video Concepts electronics store in Jackson, Miss., the first market to receive the backyard satellite dish and related gear from Thomson Consumer Electronics Inc. The programming is coming from GM Hughes Electronics Inc.'s DirecTv service and Hubbard Broadcasting Inc.'s United States Satellite Broadcasting service, Sasser said his store got 10 units, which it sold within two days of the June 17 debut. Sam Kimbrell, a salesman at Cowboy Maloney's Electric City in Jackson, said Thursday his store "got in 50 this morning and they're gone now. We can't get enough of them." In two weeks, Kimbrell said, the store sold about 200 of the Direct Satellite Systems, including an 18-inch-diameter backyard dish, set-top converter and remote. Following Jackson into the DBS market were Shreveport, La., Little Rock, Ark., and Tulsa, Okla., with Albuquerque, N.M., scheduled for this week, Thomson spokesman James Harper said. Another five to 10 markets are scheduled to launch this month, with a nationwide rollout planned for August or September. Retailers continue to say demand is strong for the more expensive set, priced at $900, because it can be connected to two television sets while the $700 model can only wire a single set. Con Maloney, chairman of Cowboy Maloney's, said that early on consumers chose the more expensive model by about 2-to-1. "Now they're buying whatever they can get," he added. Store managers interviewed said most customers came from rural areas not served by cable. According to Grant Spencer, owner of Advanced Systems Inc., a dish-dealer in Jackson: "A couple of them [customers] said they could not get a C-Band dish," a bigger, traditional backyard dish, because of trees in the yard. Spencer said he had sold about a dozen DSS units and had a couple in stock, adding that he could not afford to advertise because he was not sure how many Thomson would send him. He said had been doing installations for other dealers, and said several customers were abandoning cable. ROCHESTER TEL STARTS VDT TRIAL Rochester, N.Y. -- Rochester Telephone Corp. will turn on its video dial tone network in 100 apartments in Brighton, N.Y., this week, as the Federal Communications Commission last Thursday approved a Rochester Tel tariff. The trial, of videos on demand using fiber-optic and coaxial cable and Asymmetric Digital Subscriber Line over copper wires, was to start June 5 but was delayed because MCI Communications Corp. objected to the tariff, or proposed customer pricing, Rochester Tel submitted to the FCC. MCI argued that Rochester Tel hadn't proved the trial was being paid totally by shareholders and not by telephone customers. MCI also claimed Rochester Tel's cost and demand estimates were unrealistic. The FCC ruled MCI had not proved the tariff was "patently unlawful" or should be suspended and investigated. Linda Crociata, a Rochester Tel spokeswoman, said USA Video Corp., a video information provider partly owned by the Rochester, N.Y., phone company, has "a long list of studios" that have agreed to supply programming for the trial. So far, USA Video has only identified Paramount Pictures, Warner Brothers and New Line Cinema as video suppliers. The trial in the Rochester suburb will run for six months. TIME WARNER AXS GETS NYC RULING New York -- Time Warner Inc.'s competitive access subsidiary, Time Warner AxS, won permission from New York state's Public Service Commission last Wednesday to provide local phone service in New York City. The ruling, similar to ones won by Time Warner in Albany and Rochester, N.Y., paves the way for Time Warner to offer switched telecommunications services to businesses in the city, including linking customers directly to long-distance providers. Time Warner would have to negotiate an interconnection agreement with Nynex Corp., similar to the one reached with Rochester Telephone Corp., in order to use the ruling as a springboard for offering local residential phone service, company spokesman Michael Luftman said. He said he hoped the Rochester model could be followed in New York, where Time Warner has more than 800,000 cable subscribers in Manhattan and Brooklyn. -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-And Finally-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- AMC, TURNER CLASSIC MOVIES WAR HEATS UP American Movie Classics last week was readying its cannons to fight being dropped from three Prime Cable systems, but didn't have to fire. Faced with the possibility of being switched out for Turner Classic Movies, AMC was prepping to generate local press coverage and ads advising viewers to protest the Prime decision in Las Vegas, Chicago and Houston, sources said inside and outside AMC. The scare proved to be unwarranted because last Wednesday Prime decided to stay with AMC. In a June 3 letter to AMC, Prime stated that it had agreed to a new contract, with a rate card kicking in at 17-18 cents a year and increasing a penny a year. Turner reps had no comment about the company's talks with Prime. Kate McEnroe, general manager and senior vice president of AMC, denied the planning of any special ads or press tactics, and said the Prime situation "was getting blown totally out of proportion." ----------------------------------------------------------------------- HOW TO GET IT: The best way to obtain CABLE REGULATION DIGEST each week is subscribing to the TELECOMREG mailing list (listserver@relay.adp.wisc.edu, SUBSCRIBE TELECOMREG YOUR NAME). Available by finger with the command: FINGER higgins@dorsai.dorsai.org. Anonymous FTP and Gopher archives are now graciously made available at Vortex Technology. To FTP, head for ftp.vortex.com, change directories to "/tv-film-video/cable-reg". By Gopher, head for gopher.vortex.com and select the "*** TV/Film/Video ***" menu item. --30--