From: John Higgins Subject: Cable Regulation Digest 7/10 Date: Sun, 10 Jul 1994 12:25:28 -0400 (edt) CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 7/10/1994. Vol.1, No.28 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: I've heard all these great things about the Rev. Horton Heat, a Texas band best described as phsychobilly, a wild and harsh rockabilly sound. When I finally bought "The Full-Custom Gospel Sound of The Reverand Horton Heat" I was a little disappointed. Too many of the songs sounded like just another hard-rock band. Only a couple seemed to have much texture. QUOTE OF THE WEEK "There's a lot of history, some good, some bad between our companies." Viacom Inc. president Frank Biondi on settlement talks with Tele-Communications Inc. KBLCOM IN TALKS WITH TIME WARNER New York -- After a year-long search for a strategic partner, KBLCOM Inc. is working to cut a deal with Time Warner Cable, said several sources with knowledge of the proposed deal. The deal calls for the creation of a separate 2.4 million-subscriber MSO that would be a 50-50 joint venture between the two companies to be managed by Time Warner. Houston-based KBLCOM, owned by utility Houston Industries, has 611,000 wholly-owned subscribers. HI also has a 50-50 902,000-subscriber joint venture with Time Warner called Paragon Communications that Time Warner manages. Partially because KBLCOM and Time Warner are familiar with each other's operations through Paragon, the two companies have been discussing some type of merger since last fall. But several sources said the deal is now very close to being consummated. However one source involved in the talks said, "Some people may think this is a slam dunk, but it's not that close." Other sources acknowledge that HI is continuing strategic talks with a regional Bell company, BellSouth Corp. But one source involved in the deal said that Time Warner was only neck-and-neck with a second party. The proposed deal would call for a complicated asset for asset swap between the two companies that would create cable system clusters in Texas, Florida and Southern California. KBLCOM wholly owns a 249,000-subscriber system in San Antonio, Texas; a 25,000-subscriber system in Laredo, Texas; and a 90,000-subscriber system in Orange County, Calif., that fit into these clusters. KBLCOM also has systems in Minneapolis and in Portland, Ore. Sources said that as part of the deal, Time Warner would contribute some of its wholly-owned systems to the new MSO which would likely fall under the Paragon name. For example, Time Warner's 240,000-subscriber Houston system and its 165,000-subscriber Austin system will likely become part of the new entity. Paragon Cable of upper Manhattan in New York City, a 50-50 joint venture between KBLCOM and Time Warner, would become wholly-owned by Time Warner and become Time Warner Cable of New York City. BA RINGS IN FIRST WITH VIDEO SERVICE Washington -- Patience paid off for Bell Atlantic Corp. last week as it won the right to be the first phone company to offer a commercial video service to its customers. The service, to start next January in Dover Township, N.J., will likely be the first video dial tone operation in the country. Several VDT tests have been approved, but this was the first VDT commercial service approved by the Federal Communications Commission. It also was the oldest standing request, dating to December 1992, about the same time Bell Atlantic filed another VDT service request in New Jersey. The FCC said the Bell Atlantic video network "would promote the public interest," by stimulating investment in an advanced communications network, providing competition for video services and adding more video choices for consumers. Immediately, the National Cable Television Association, which has challenged the VDT rules at the FCC and in court, vowed to appeal the decision. Bell Atlantic's network would compete against Adelphia Cable Communications' Clear Television system. The New Jersey Cable Television Association said it was pleased the FCC order had provisions to try to protect phone customers from subsidizing the video venture. Cost concerns have been the biggest weapon wielded by cable operators against the VDT requests. Bill Scott, general manager of the Adelphia system in Dover, said his system is finishing up a rebuild in that area that is expanding the system to 80 channels from 36 channels. "We feel that we're poised to move in that direction [of digital technology] as soon as it becomes available." Scott said the rebuilt system offers a cable value service of more than 40 channels for $23 per month. TELEPORT-NYNEX DEAL RECEIVES MIXED REVIEWS New York -- Teleport Communications Group declared a hard-won victory last week in a deal with Nynex Corp. over exchanging calls, but other Nynex rivals said Teleport settled for too little. The agreement will let Teleport at least cut its losses on Centrex and other services for customers in its key New York City market. Both companies will lease trunk lines from the other and pay each other for calls that terminate on the other firm's network -- the first time Teleport will collect such fees from Nynex. Teleport, a Staten Island firm controlled by four cable MSOs, said it was the first such arrangement between an established local exchange company and a rival like Teleport, which competes with the LECs for business customers. Robert Atkinson, Teleport's senior vice president for legal and regulatory affairs, said the agreement will let Teleport offer a broader range of services to more customers at more competitive prices. Teleport had already offered Centrex and other switched services to customers but could not effectively compete because of its high costs. The agreement also provides that the companies mutually handle emergency 911 calls, toll-free calls and directory assistance. But other companies that also compete against Nynex in New York for both private line and "switched access" service said Teleport will end up paying Nynex too much, even though Teleport will be paying Nynex less than it does now. "That's been an offer open to us for some nine months and we've consistently rejected it," said Andrew Lipman, senior vice president at MFS Communications Co. Inc., an Oak Brook, Ill., firm that, with Teleport, is among the biggest competitive access providers. "The deal is financially unattractive and we feel it distorts the co-carrier relationship." Lipman said a better arrangement would be a "bill and keep" plan, in which two carriers assume their mutual traffic is about the same so neither carrier bills the other for interconnecting calls. He said MFS now deals with Nynex on a bill-and-keep basis, but would not say if that was a formal agreement. Nynex and Teleport each will connect a trunk line to the other firm's network, paying either $1,800 or $4,800 per month depending on whether the connection occurs at an end office or a tandem switch. Generally, payments from one to the other will be based on how many calls terminate on each network; the network that terminates the most calls gets paid the most. Atkinson said, based on two years' experience in New York, the traffic will be weighted heavily toward Nynex. For Nynex, the agreement appears to bolster competition in the New York market while the Bell company negotiates with the state Public Service Commission for a new regulatory policy that would cap prices instead of profits. TCI SETTLEMENT TALKS STILL ON, BIONDI SAYS New York -- Negotiations to merge Viacom Inc.'s cable and pay TV operations with Tele-Communications Inc. are on track but Viacom Inc. president Frank Biondi said he could not predict whether a deal would actually be cut. The discussions are part of a proposed settlement of the caustic anti-trust suit Viacom filed against TCI last October. The two companies have proposed to create a joint venture that would fold in Viacom's systems with neighboring properties owned by TCI and its affiliate InterMedia Partners. The other major component -- and the one sources said is the biggest obstacle -- is merging TCI and Liberty Media Corp.'s Encore and Starz pay TV ventures into Viacom's Showtime Networks Inc. unit. His comments came Friday during a presentation by Biondi and chairman Sumner Redstone at the American Stock Exchange to kick off the first day of trading following the completion of Viacom's acquisition of Paramount Communications Inc. After five months of settlement negotiations, Biondi said, "I can't tell you whether they will come to fruition. What we're talking about makes a good deal of strategic sense, I think, for both sides, but they are very large, [and] involve sizable assets." He added, however, "Whether we can accomplish that is a very interesting and complicated issue. There's a lot of history, some good, some bad, between our companies." The real challenge is merging Encore and Starz into Showtime. Sources familiar with the talks said Viacom and TCI disagree over the valuation of Encore, which has little distribution beyond systems owned at least partly by TCI. Biondi would not detail the obstacles presented by merging Encore and Starz into Showtime, but acknowledged that "meshing them together is not easy. There is not a business on the TCI side yet." Sources said the two companies have pretty much agreed on how to structure a joint venture that would subsume and operate Viacom's cable systems. Viacom's systems would be merged into the joint venture, with TCI or InterMedia taking over operations. Viacom would be able to first leverage up the properties and take the cash out before the swap, much as Times Mirror Corp. is doing in the sale of its cable systems to Cox Enterprises Inc. That allows Viacom to take out cash without the big tax hit a straight-out sale would generate. A deal would create some enormous clusters and give TCI tremendous presence in some key markets. Viacom and TCI both operate clusters around San Francisco and Seattle. Viacom also serves 125,000 subscribers in Nashville, Tenn., where TCI and InterMedia each serve 50,000 subscribers. A combined operation would serve almost 1 million subscribers in the San Francisco market and 880,000 around Seattle. NCTA LOBBIES ON PRODUCTIVITY Washington -- The cable industry last week asked the Federal Communications Commission to drop a proposal that calls for a 2 percent cut in cable revenues to offset industry productivity gains. The so-called productivity offset is not high on the FCC's agenda, as both FCC Chairman Reed Hundt and Commissioner James Quello have said they do not support the concept. But in a filing last week, the National Cable Television Association urged the FCC to give the plan a proper burial by approving an order that removes it from any possible consideration. As originally conceived, the productivity offset would constitute an annual reduction in operator revenues to account for productivity gains and declining costs. At the May National Show convention in New Orleans, Hundt said the productivity offset was a concept applied to regulated utilities. Hundt added that it should not applied to cable because cable television was not a utility. As part of the same filing, NCTA urged the FCC to overhaul its interim cost-of-service rules, particularly parts that limit an operator's ability to include all accumulated losses in the rate base. It also said the uniform 11.25 percent was inappropriate as it failed to reflect the risk associated with cable systems. NYNEX ASKS FOR MASS., R.I. OKAY Washington, D.C. -- Nynex Corp. said Friday it has asked the FCC for permission to build video dial tone networks in eastern Massachusetts and Rhode Island to serve a total of 390,000 homes. Following through on plans announced this spring, Nynex said it wants to build a network capable of 400 to 800 digital channels in areas in and around Boston and Providence. Nynex said it wants to start building in late 1994 or early 1995, to reach 330,000 homes in Massachusetts and 60,000 in Rhode Island. -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-And Finally-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- FOOD FIGHT ERUPTS IN NEW YORK CITY Forget July 4th. The real fireworks between TV Food Net and Time Warner Cable of New York City went off three days earlier. TV Foodies were already annoyed that the July 4 America's Talking launch would bump them from a 24-hour channel to an overnight slot. But they were horrified to discover Time Warner's Manhattan systems made the switch on July 1. TVFN had heavily promoted that night's primetime episode of Talking Food, guested by first ladies Donna Hanover, wife of New York City Mayor Rudy Giuliani, and Matilda Cuomo, wife of New York Gov. Mario Cuomo. TVFN president Reese Schonfeld quickly called a press conference to announce a lawsuit against Time Warner for breach of contract. But he canceled when TVFN was put back on. "They were apologetic," said Schonfeld. Time Warner New York City president Richard Aurelio said TVFN was notified two months earlier by certified mail that the switch would be on July 1. "They were hysterical, so we put it back on," said Aurelio. "They called their lawyers and didn't look in their files. They were embarrassed by it." ----------------------------------------------------------------------- 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). 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