From: owner-cablereg-l@netcom.com Date: Sat, 10 Dec 1994 22:58:29 -0800 Reply-To: higgins@netcom.com CABLE REGULATION DIGEST Summary of regulatory news from Multichannel News 12/12/1994. Vol.1, No.50 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 $78/year. Multichannel e-mail contacts: Marianne Paskowski, editor: Mpcable@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: Yup, that's right. You never did get an issue last week. Travel, jet lag, an interesting virus, deadlines and computer glitches all conspired to hang me up. I apologize for leaving you new free for the week. To make up for it, I've attached full-text versions of our stories this week, plus our Western Show wraps. That's about triple the normal length. L.A. was great completely aside from cable. Got to see a great band, Theoloneous Monster, break up on stage. Very odd show. Also finally got to see Assassins, a strange musical on the various folks who have tried or succeded in killing U.S. presidents. Been trying to see that for about three years. Good to be back in NYC, though. HOT NEWS: * Slow Bidding for PCS * Cable's FTC Problems May Be Resolved * DOJ May Give Breaks to Ameritech QUOTES OF THE WEEK: "Cable guys are going to look at where they've got small overbuilds and they're going to wipe them out before they have to go before the government...If you have land on which there's an endangered species, you better take a look at it and shoot the little devil before it gets you in trouble." TCI president John Malone, on the MSO's pending agreement with the FTC to resolve anti-trust objections TCI's $1.5 billion acquisition of TeleCable Corp. "Things will just be moving too fast for those retarded motherf---ers to get in our face," Cyberpunk magician Penn Jillette, on why the FCC will be irrelevant in a decade. PCS AUCTION OFF TO SLOW START Washington -- The auction for wireless communications air waves has just begun and skeptics already say the government won't hit its $10-billion target. Some of that sentiment may be wishful thinking by those bidding on the 99 licenses for new personal communications services. Joseph Cece, president of Cablevision Systems Corp.'s Cablevision Lightpath Inc. telephone subsidiary, said the first week of a possible two-month auction is "pretty meaningless." After a pause, he added, "The only thing one can look at from the bidding this early is, everyone has come to the conclusion that PCS is not a slam-dunk and maybe these licenses will go for reasonable dollars." David Roddy, vice president and senior economist at Economics and Technology Inc. in Boston, said the early rounds indicate an outcome closer to what he thinks the 30 MHz of spectrum is really worth: $5 billion to $8 billion. "The government's $40 is now looking pretty remote," Roddy said, referring to an Office of Management Budget estimate that the entire 120 MHz of PCS spectrum would take in $40 per U.S. resident. The remaining 90 MHz will be auctioned next year. Through Thursday, the fourth day of the contest in Washington, D.C., a total of $678.9 million in bids were taken. The Federal Communications Commission is selling two licenses apiece in 48 metropolitan trading areas and one license each in the New York, Los Angeles and Washington-Baltimore markets. Eighteen of the 99 licenses drew no bids at all, including ones in such markets as Minneapolis-St. Paul (pop. 6 million), Cincinnati-Dayton (4.7 million) and St. Louis ( 4.7 million). Most attention focused on the one license up for grabs in the biggest market, New York (a second New York license goes to Omnipoint Corp.). GTE Corp. and a firm backed by billionaire entrepreneur Craig McCaw have alternated as leading bidder, with McCaw's ALAACR Communications Inc. in front after Thursday with a $129.4 million offer. WirelessCo L.P., the venture of Sprint Corp., Tele-Communications Inc., Comcast Corp. and Cox Enterprises Inc., had high bids in nine markets. WirelessCo's biggest bid ($58.1 million) was for a license in the San Francisco MTA, seen as crucial because group member Cox has dibs on a Los Angeles MTA license as a technological "pioneer." Pacific Telesis Group, the Baby Bell in California, was the high bidder for the second Los Angeles license ($57.4 million), but Thursday lost the lead for the second San Francisco license to American Portable Telecommunications Inc. ($65.3 million), owned by Telephone and Data Systems. "That looks like it's a brutal fight," Cece said, adding that PacTel appears to be "putting up walls around California." PhillieCo L.P. -- the Sprint group minus Comcast -- had the high bid ($11 million) for a license in the Philadelphia market, where Comcast cannot bid because of its cellular franchise. In other MSO bidding: Cablevision Systems, in partnership with Continental Cablevision Corp., was lead bidder ($5 million) for a license in the Cleveland area, but that pairing lost the lead for a Boston area license Thursday to WirelessCo ($17 million). Continental also led bidding ($8.5 million) for a license in the Richmond-Norfolk, Va., market. Cox Cable Communications Inc. led bidding ($2.2 million) for an Omaha, Neb., MTA license. Comcast, with a bid of $6.4 million, topped an earlier bid by Continental for a Jacksonville, Fla., license. Century Communications Corp. was the high bidder ($8 million) for a Denver- area license, and its cellular affiliate, Centennial Cellular Corp., was lead bidder ($3 million) for a license in Puerto Rico and the U.S. Virgin Islands. PCS Primeco L.P., the powerful alliance of Bell Atlantic Corp., Nynex Corp., U S West Inc. and AirTouch Communications Inc., led bidding for one license in each of nine markets. They include Chicago ($13 million), Houston ($11.5 million) and Miami-Fort Lauderdale ($11.3 million). The Houston and Miami bids Thursday both topped earlier efforts by WirelessCo. McCaw's ALAACR led in five markets and AT&T Corp. led in four. When bidding kicked off Monday, there was no shortage of official optimism about, in Rep. Edward Markey (D-Mass.)'s words, "the oil strike of the information age." Vice President Al Gore, who pounded the gavel to start the auction, said he thought some of the money should be spent on making sure classrooms have wired access to high-speed data networks. (The Satellite Business and Communications Association took offense to the word "wiring," saying satellite links would be cheaper.) Bidders began submitting their offers at the Postal Square Building next to Union Station, in small private bidding booths on one side of the auditorium, or by computer or telephone link. After the first day, most bids were done by phone. There was a three-hour bidding round each day last week. This week, two rounds a day are scheduled. The auction will continue (with a two-week holiday break) until there are no bids on any of the licenses. FCC chairman Reed Hundt said the auction probably will last between two weeks and two months. FTC CLUSTERING DISPUTE RESOLVED, TCI SAYS Englewood, Colo. -- Dealmakers breathed easier last week as Tele- Communications Inc. appeared close to a settlement with anti-trust regulators threatening to block its acquisition of TeleCable Corp. over local system clustering. If true, the settlement could clear the way for other clustering-driven mergers, including InterMedia Partners L.P.'s planned acquisition of Viacom Cable Inc. and Newhouse Broadcasting Corp.'s merger into a Time Warner Cable Inc. venture. However, TCI's problems with the Federal Trade Commission are not over. The MSO and partner Comcast Corp. are continuing to wrestle with the FTC over their planned takeover of QVC Inc., and one Wall Street analyst issued a report Friday contending that the deal was in trouble. TCI executives said that the FTC would not challenge its planned $1.5 billion TeleCable takeover so long as it divested one of two contiguous systems in Columbus, Ga., where TCI and TeleCable compete head-to-head in a small portion of city. TCI's system passes 28,000 homes while TeleCable passes about 45,000. The two neighboring systems overlap in just 2,800 homes. A third, independent operator -- American Cable Co. -- has overbuilt about 85 percent of TCI's operation, but serves 3,000 subscribers vs. TCI's 12,000 customers. While the settlement agreement is not yet signed, TCI treasurer Bernard Schotters called the FTC dispute "resolved." Speaking at PaineWebber Inc.'s annual media investment conference in New York last Thursday, Schotters said that other than the Columbus stipulation there are no other significant issues in the settlement agreement. TCI president John Malone told analysts at its own investor conference last Tuesday that the path will be clear for TCI to move forward on several acquisitions it has been considering. "In both the Justice Department and the Federal Trade Commission, I don't think we'll see interference with our horizontal growth," Malone said, according to a videotape of the Denver meeting. The FTC would not comment on the settlement proposal. The FTC's stance could actually have a backlash in the market, according to Malone. If tiny overbuilds are going to interfere with megadeals, operators will try to drive their competitors out of business long before pursuing an acquisition. Malone compared it to a developer whose land is the habitat of a rare, protected animal and is ensnared by the Endangered Species Act. "If you have land on which there's an endangered species, you better take a look at it and shoot the little devil before it gets you in trouble," Malone said. MSOs may have to take the same position. "Cable guys are going to look at where they've got small overbuilds and they're going to wipe them out before they have to go before the government," Malone said. The FTC's inquiry into whether clustering could be anti-competitive alarmed cable dealmakers who contend that bulking up in local markets will be crucial since invading telcos already blanket entire local market areas. Those same markets are generally fragmented among several cable operators. In recent months, the FTC has said that intensive clustering of cable systems could blunt competition, possibly by scaring off an entry by cable and telco overbuilders. However, the agency now seems to be taking a more relaxed stance, objecting only where an acquisition involved existing head-to-head rivals rather than whether it would blunt competition that might develop in the future. "As we sit right now, our understanding of the FTC position is that potential competition is not a concern," Malone told analysts, adding that, "We like the plus side, which says if there's no existing overbuild they're not going to have a problem with clustering." One Washington lawyer who has discussed the dispute with FTC officials concurred, saying that Commission staffers are now concerned primarily with immediate competition. QVC is a more contentious dispute. The FTC has been closely reviewing Comcast and TCI's takeover of the West Chester, Pa., company because TCI already has a controlling stake in rival shopping service Home Shopping Network Inc. The FTC approved TCI's 1993 purchase of the HSN stake while it already owned a 22-percent QVC stake. Nevertheless, staffers believe that increasing that stake could threaten competition in the home shopping business. Oppenheimer & Co. analyst Alan Gould issued a report Friday morning saying that deal was in trouble and would have to be "restructured" in order to clear the FTC. Schotters simply said that the discussions with the FTC were proceeding. But one source involved in the discussions said "They're probably going to have to fight on QVC. They're still on the broader issue of what is shopping." Comcast and TCI contend that the shopping channels compete with everything from K-Mart to The Limited, but the FTC is looking more narrowly on TV direct mail shopping. Comcast and TCI contended last week that they complied with all the FTC's information requests under the Hart-Scott-Rodino Act and the Commission has not formally objected within the required 30-day review period. Therefore, the companies contend they are free to pursue the $1.4-billion tender offer for the shares they don't already own. At the Commission's request, the companies said, they have agreed to give the FTC 10 days notice before commencing the tender offer. However, the FTC would not comment on the companies's contention that the 30-day clock has expired. One lawyer familiar with the discussions noted that the FTC made information requests of a number of TCI affiliates, like HSN, Bresnan Communications and InterMedia, and could contend that some of those companies have not complied. DOJ REVIEWS CHICAGO OPEN NETWORK PLAN Washington -- In a move that could bode well for cable, the Baby Bell Ameritech Corp. could offer long-distance phone service to Chicago customers under a plan being reviewed by the Justice Department's Antitrust Division. A key part of the plan would require Ameritech to open its Chicago local phone loop to competition, allowing cable-telephony competitors to utilize Ameritech's network at various points to complete their customers' calls. "The local market has got to be open first and that's a minimum," Robert Litan, Deputy Attorney General for Antitrust, said last Friday. Litan said the plan was Ameritech's, not the Justice Department's. He cautioned that the DOJ was not two weeks away from approving it as some reported last week. He said AT&T Corp., which has expressed concerns about the plan, was visiting him Thursday as would others. Any proposal would be published for public comment. He stressed that the future of the Ameritech plan was up in the air. "We have not decided whether we are going to do this," Litan said. An open local loop requirement in Chicago would dovetail with Illinois law, which is among the most favorable to cable in terms of entry into the local phone business. Other than Illinois, only a few other states permit facilities-based competition, according to cable industry records. If the plan is adopted, it would the first one since the breakup of AT&T in 1984, which resulted in the separation of its local and long-distance businesses. An Ameritech source said it was unclear when the trial would be begin and for how long it could last. The trial could be superseded by new federal legislation. DOJ's Litan said right now the trial had no termination point. The Ameritech source said it was also unclear whether the telco could offer long-distance service prior to opening its local loop -- something Litan ruled out as a possibility. "We would hope that it would be a simultaneously entry, so we'll start playing with same rules at the same time," the Ameritech source said. The DOJ plan would allow Ameritech to offer nationwide long-distance service to its Chicago customers only. The trial is significant because a large percentage of long-distance calls made in Ameritech's five-state, 12-million customer region originate in Chicago. The DOJ plan would have to be approved by U.S. District Court Judge Harold Greene, who oversees the 1984 AT&T breakup decree that bars long-distance service by Ameritech and the six other Bells. Because Ameritech does not have long-distance lines nationwide, it would have to lease capacity from incumbent long-distance carriers. The plan would allow Ameritech to transmit toll-free 800 calls. COMCAST DISPUTES REFUND ORDER Washington -- Comcast Corp., ordered to refund Baltimore subscribers an estimated $300,000 by the Federal Communications Commission, is disputing the FCC's calculations and might appeal the action. Last month, the FCC issued its first refunds orders under the 1992 Cable Act, announcing that Comcast and Viacom Cable owed $500,000 combined in three markets. At the time, an FCC spokesman said Comcast's share was approximately $300,000, adding that the MSO had 21 days to file a refund plan for its Baltimore subscribers. In a response filed Nov. 30, Comcast calculated that using the FCC's methodology, it owed $410,000, including interest. However, Comcast disputes whether the FCC correctly computed the refund liability because it claims the Commission misunderstood Comcast's offering of certain pay-per-view and satellite channels. Comcast also said it was unclear how it was to determine its liability under a two-month refund deferral period. In the event Comcast is required to refund subscribers, the MSO wants authority to postpone payment until the FCC has determined Comcast's refund liability, if any, under the second round of rate cuts. COMCAST PLOTS BOLD ON-LINE STRATEGY Philadelphia-area customers within Comcast Corp.'s boundaries will soon be able to connect their home PCs to the MSO's hybrid fiber/coax plant for warp- speed access to online and community data services, through a plan announced last week. By the end of next year, Comcast plans to nationally roll out "Comcast PC Connect," in conjunction with an aggressive upgrade strategy. The national rollout will start with Comcast's largest markets, which in addition to Philadelphia include Baltimore, West Palm Beach, Fla., and southeastern portions of Michigan. "With the exploding population of PCs in American homes, we believe there is a growing demand for this product," said Comcast president Brian Roberts, in a statement. Roberts said he hopes to make the service competitive with the prices telcos charge for a second phone line -- which in the Philadelphia area is about $9 per month. The PC Connect plan will initially support about 300 homes within Philadelphia, Lower Merion and Willow Grove, Pa., and augment tests conducted there over the past year of cable modem technology developed by Intel Corp. and Hybrid Networks Inc. Services will include access to America On-line, the Internet and Prodigy, as well as local community information. Comcast joins at least half a dozen other MSOs bullish on high-speed data applications. Tele-Communications Inc. is sampling broadband PC applications in its Seattle and Mount Prospect, Ill. systems, as is Cox Cable Communications in San Diego; Jones Intercable in Tampa, Fla.; Continental Cablevision in Cambridge, Mass.; Media General Cable in Fairfax, Va.; Viacom Cable in Castro Valley, Calif.; and Cablevision Systems Corp. in Yonkers and Long Island, N.Y. In Canada, Rogers Cablesystems is also enthusiastic about on-line services. According to David Masotti, vice president of business development for Rogers, the MSO expects to take in half of its revenue from PC services by the turn of the century. "The people that buy [PCs] are just dying to interact with them," Masotti said during a Western Show panel session two weeks ago. Masotti said Rogers has had good luck so far with Zenith Electronics Corp. modems, and expects to have 800 online test homes in Toronto and Ottowa by the first quarter of next year. Rogers also plans to put its network to use linking workers within IBM Canada Ltd. from the homes to the IBM office. To support the growing online market, Comcast outfitted a "server and router farm," separate from its headend, with off-the-shelf data servers to house the guts of the residential local area network (LAN) effort, said Steve Craddock, vice president of new media development for Comcast. Modems connected to the servers will initially run at 10 megabits per second (Mbps) from the server to the home PC, and at 128 kilobits per second in the opposite direction. Those specifications stomp the performance of existing telephone modems, which at best run 50 times slower than the Intel/Hybrid Networks device. And, by the time Comcast expands the scope of its PC Connect service to all of its 3.3 million customers, Intel will have upped the downstream speeds to about 30 Mbps, shared between users "but still really screaming from the server to the customer without slowdowns," said Charlie Cerino, director of technical operations for Comcast. At participating homes, a splitter routes analog video signals down one coaxial leg to the television, and sends a second broadband feed to the cable modem. To combat signal leakage, the cable modem is outfitted with a bandpass filter to keep interference originating within the home out of the upstream modem path to the data servers. The bandpass filter coupled with "an intense attention to the reverse path" will render the 5- to 30-MHz upstream path usable, said Cerino. "It's not so much the modulation we use as it is good RF practice," he said, adding that the development of advanced spectrum management systems that constantly monitor and reroute moving data will also fortify communications. Both Craddock and Cerino say they're getting weary of telco accusations of cable unreliability. "Yes, we've had reliability problems -- back in the days when there were 50 amplifiers in cascade. Now, that number is down to five or fewer," said Cerino. The cable modem, in turn, connects with an Ethernet card -- which enables PCs talk to other PCs over local area networks -- which Comcast staffers will install into PCs. While some engineers are wary of ripping open a customer's PC for fear of warranty violation or other potential damages, Comcast executives aren't overly concerned. "We think the benefits outweigh the pitfalls," said Cerino, adding that Comcast has installed the boards, modems and associated software in about 20 to 30 PCs "with basically no problems." Software resident on the data servers quickens and simplifies installation, explained Craddock. "The idea is to click on a starter kit, download it and have it automatically install, so that the customer can get on with sampling the [online] information." NYNEX WINS COURT CASE ON VIDEO White Plains, N.Y. -- Nynex Corp. said Friday that a U.S. District Court judge in Portland, Maine, ruled in favor of letting the Baby Bell provide cable TV services within the Nynex region. The Nynex suit, filed last November, was similar to suits won earlier by Ameritech Corp., Bell Atlantic Corp., BellSouth Corp., and U S West Inc. Bell Atlantic also won an appeal of its ruling. Several other cases are pending. BELL ATLANTIC SENDS VIDEO OVER PHONE Arlington, Va. -- Bell Atlantic Corp. said it has transmitted movies, games and other interactive video between company sites in Arlington, Va., and Charleston, W. Va., in a test sending full-motion, encoded video in real time over conventional phone lines. Bell Atlantic sent the digital video and audio over T-1 (1.544 megabit per second) phone lines using off-the-shelf computers and routing equipment and StarWorks software supplied by Starlight Networks Inc. of Mountain View, Calif. "We're bidirectional over two T-1 lines," said Walter Perkowski, director of the Bell Atlantic Interactive Demonstration Center in Arlington. "The big news here is we eliminated the multiplexer," which means a large potential savings to customers, he said. Perkowski said Bell Atlantic envisions a business-to-business service. For example, a retailer with several hundred outlets could place interactive kiosks in every location and have up-to-the-minute product information available to customers. CONSULTANT QUITS AFTER CABLESOUTH SUES ALA. CITY Municon Corp., hired by the city of Albertville, Ala., to scrutinize CableSouth Inc.'s local operations, last week abruptly canceled its contract with the city. The announcement came within hours of the news that CableSouth had expanded a lawsuit against the town of Albertville to include Florida-based Municon. CableSouth was suing Albertville and Municon on grounds that the city had hired Municon to trump up violations of the company's franchise in an attempt to force the operator into signing a more lucrative deal. Michael Hunt, Municon president and counsel, said the contract was terminated because there would not be time for a complete analysis of CableSouth before its franchise was transferred to Charter Communications III L.P., which has agreed to acquire all nine CableSouth cable systems in northern Alabama. "We had notified the city in September that time was a concern," Hunt said. "And, quite frankly, the company was not very receptive to us. The company had not wanted Municon to be part of the [renewal] process." Paul Mass, COO for CableSouth, which services 5,500 Albertville residents under a 15-year franchise that extends until the year 2003, said the company had provided "voluminous" amounts of information on Oct. 24, including eight years worth of revenue reports. "I hope this provides CableSouth with an opportunity to return to a normal, realistic relationship with the city of Albertville," Mass said. "That's what we've wanted from the beginning." Mass said it was not clear what effect news of the terminated contract would have on CableSouth's lawsuit, adding that he had instructed his general manager to meet with Albertville mayor Larry Hillsman. It was also not clear whether the city would retain a new consultant. Calls to the mayor's office requesting comment were not returned. In its lawsuit, CableSouth alleged that the city had hired Municon to ferret out violations of the franchise agreement in order to force a "premature renegotiation of the present franchise agreement," and "extort" higher franchise fees form the company, a violation of Alabama's "bounty hunter" law. Alabama law prohibits a city from entering into an agreement to examine a taxpayer's books, if part of the compensation paid to a third party is contingent on the amount of fees, taxes, court costs or penalties assessed. According to the filing, Albertville scrapped its original deal with the consultant on Nov. 14, replacing it with a deal that would pay Municon 25 percent of what it recovered from any historic violations by CableSouth of the franchise agreement with the city, as well as 20 percent of any first-year increase in revenues. According to its pitch letter, Municon assured the city that it always managed to find violations by the cable operator; it had never found a cable company that wasn't under-paying its franchise fees; and would turn up enough violations in the first six months to cover the cost of its services. PRODIGY LAYS OFF 17% OF WORK FORCE White Plains, N.Y. - Prodigy Services Co. in a reorganization last week laid off 118 people, or 17 percent of its work force, but claimed content providers will have an easier time developing applications for the online service. The reason: Prodigy will accept content made using the Internet standard instead of Prodigy's proprietary standard. Prodigy, jointly owned by IBM Corp. and Sears Roebuck and Co., also said it has created a new division to provide network and back-office services to companies that want to create stand-alone, separately branded content. Scott Kurnit, executive vice president of consumer products, marketing and development for Prodigy, said the changes meant more content development can be done outside Prodigy, so less staff is needed. Also, Prodigy has been shifting its focus away from merchandise sales to communication services such as electronic mail, Kurnit said. "Communications takes a lot less management of content because the subscribers manage it all by themselves," he said. Kurnit said two of the 118 jobs eliminated were people working directly with cable-industry content providers. Despite those losses and layoffs among technical support staff, the Internet standard adoption and other changes should make it easier for content providers to get on the system, he said. Analysts who follow the online industry say it is too difficult for content providers to find a place on Prodigy and other online services, because of proprietary standards and bureaucracies. By contrast, there has been an explosion of new "home pages" on the Internet because of the relative ease of access. One analyst, Gerald O'Connell of Modem Media Inc., said the most significant aspect of Microsoft Corp.'s recent online strategy was the promise of technical support to content firms. Kurnit said Prodigy had created content using the North American Presentation Level Protocol Standard. In future, new features will be based on the Hyper Text Markup Language used worldwide for Internet services. FIBERVISION WINS ANOTHER ROUND TO COMPETE VS. TCI Hartford, Conn. -- FiberVision Corp. won state permission to compete against Tele-Communications Inc. for cable subscribers in the New Britain area of Connecticut, the second such tentative franchise award for FiberVision. But FiberVision faces another legal challenge to its earlier franchise award, for the Hartford area. A State Superior Court had dismissed an administrative appeal filed by TCI Cablevision of Central Connecticut in October, but the state Supreme Court agreed to hear a further appeal, FiberVision vice president of marketing and public affairs Karen Jarmon said. Because of the TCI court appeal, the state granted FiberVision an extension of the deadline to submit detailed information about its financing from mid- April to mid-October, Jarmon said. FiberVision cannot sign any contracts to build its planned cable systems until the Department of Public Utility Control approves the financing plan, Jarmon said. FiberVision hopes to build four franchise areas of the state, at a total cost of about $94 million, Jarmon said. She said the DPUC had indicated it also might get at least one other franchise approved at the same time as the New Britain go-ahead. The Nov. 23 decision only covered the New Britain application. FiberVision also wants to build in the New Haven and Bridgeport markets, passing a total of more than 450,000 homes in the four regions. FCC CLEARS OPS ON A LA CARTE PACKAGES Washington -- The Federal Communications Commission last week cleared a group of cable operators investigated for alleged violation of rate rules by offering a la carte packages between April 1, 1993, and Sept. 30, 1994. In 11 decisions released Dec. 2, the FCC cleared three Comcast Corp. systems in Michigan cities and four Century Cable TV systems in Arizona, Indiana, West Virginia and Kentucky. The MSOs migrated between four and five channels to a la carte, which the FCC said was permissible under its rules during the period involved. The FCC said the MSOs would be allowed to retain their a la carte packages as unregulated new-product tiers created by the FCC's going-forward rules. The FCC cleared four other cable operators on the same day: Time Warner Cable in three Massachusetts towns; Southwestern Cable TV in San Diego; Multivision Cable TV in Prince George's County, Md.; and CableVision in Hernando County, Fla. The FCC issued its first la carte decisions on Nov. 18. It permitted Comcast and Time Warner Cable to migrate four channels to new-product tiers, but determined that Adelphia Communications Corp., because it collapsed a 32- channel tier, violated its rules and would be required to convert the a la carte package to regulated status. Under the going-forward rules, the unregulated a la carte packages that fall outside rules governing new-product tiers are not allowed. PRESSLER WANTS FEW SHACKLES ON BELLS Washington -- Sen. Larry Pressler (R-S.D.) is starting to get specific. Pressler, set to become the next Senate Commerce Committee Chairman in January, signaled last week that he will push legislation that will emphasize de-regulation over complex "transition rules" designed to foster gradual competition. In a speech to the Federal Communications Bar Association, Pressler said he doubts the Baby Bells should be required to establish separate subsidiaries for their cable affiliates. "Do we really need four different sets of separate subsidiary requirements depending upon whether a [Baby Bell] is engaged in manufacturing, providing electronic publishing, long-distance telephone service or cable television? I don't think so," Pressler said. Pressler said he also will oppose domestic content and facilities requirements when the Baby Bells engage in telecommunications equipment manufacturing. The cable industry has a large lobbying task ahead because it supported the separate subsidiary requirement that Pressler hopes to exclude from his bill. Separate subsidiaries forced to keep their own records help in tracking whether telcos are using phone ratepayer revenues to cross-subsidize their video ventures. In an atmosphere in which cable-telco competition is a virtual certainty, cable and telco sources acknowledged last week that the two sides had begun to explore ways to reach a compromise that could be inserted into Pressler's bill when introduced next year. "I have been told that there are talks to find out the lay of the land. But they should not be characterized as negotiations," said National Cable Television Association spokesman Rich D'Amato. D'Amato said NCTA president Decker Anstrom has been making the rounds on Capitol Hill discussing the legislation. Bell South spokesman Bill McCloskey said the sides "were talking about talking" but not bargaining. "You and I know these things move faster if they can be worked out," McCloskey said. Raymond Smith, chairman and CEO of Bell Atlantic Corp., said he was pleased to hear Pressler wanted to scrap the separate subsidiary requirement. He said Bell Atlantic went along with domestic content rules only as a political compromise. "It didn't make sense to take one particular industry and apply a domestic content provision and not do it on its major competitors like AT&T and others," Smith said. In remarks to the same FCBA audience, Smith said legislation next year should include a provision that eliminates the FCC's 214 process, which requires telcos to file applications projecting the costs to upgrade their networks for voice and video services. "This archaic provision was crafted in the mid-1930s by a Congress concerned with protecting the telegraph industry. It has nothing whatsoever to do with today's reality and it certainly can't accommodate the pace of technological change in today's world," Smith said. Smith accused the cable industry of abusing the 214 process to throw "sand in the gas tank" of telcos hoping to compete against cable. Pressler wasn't the only lawmaker talking up telecommunications legislation last week. Sen. Hank Brown (R-Colo.,) and Sen. Ben Nighthorse Campbell (D- Colo.) both said they would support new legislation. Brown said he expected quick passage of a measure that emphasized competition. In his speech, Pressler not only outlined a few provisions he plans to support but also described the weaknesses he saw in House and Senate legislation strongly supported by NCTA earlier in the year. "Conceptually, the primary flaw with both the Senate and House legislation is that they focused on transition rules -- how to get from here to there -- without a clear vision of the final goal," Pressler said. Pressler said the Hollings bill, S. 1822, was loaded with regulatory red tape and Federal Communications Commission proceedings that delayed rather than advanced competition in the cable, local telephone and long-distance telephone markets. "S. 1822 was criticized for requiring between 37 and 50 new rulemaking proceedings at the FCC. This criticism was justified. Certainly we can streamline and consolidate the process," Pressler said. Some FCC proceedings would have been critical to cable, including new rules requiring the Baby Bells to unbundle their networks before they could begin offering competitive video programming services. The Baby Bells backed an alternative measure sponsored by Sen. Robert Packwood (R-Ore.) and Sen. John Breaux (D-La.) that called for opening up the cable market one year after enactment. Pressler said that he understood by emphasizing deregulation, he would be interpreted as being pro-Baby Bell. But he insisted the deck would not be stacked against cable. "I can assure you that neither I nor my Republican colleagues or the Commerce Committee want to be labeled as pro-[Baby Bell] or anti-[Baby Bell]. We want a balanced bill," Pressler said. In that contest, Pressler said a few transition rules would be needed but "must be carefully crafted" so that competition is not postponed. "They must not be left to linger as impediments to future growth in the industry. There needs to be a way out from regulation." Pressler said current laws that bar competition were outdated. "This scheme might best be described as regulatory apartheid -- each technology has its own native homeland. These once neat separations and distinctions between the media no longer make sense," he said. As Commerce chairman, Pressler said he will not hold a lot of hearings. "All these hearings I am not very excited about," he said. He wants to pass a bill in the first six months next year but had no date in mind for a committee vote. NAPLES SUES COLONY OVER EXTENDING FRANCHISE Naples, Fla. -- The city of Naples, Fla., has gone to court in its fight to renegotiate a franchise agreement with a local cable operator that only acquired the 14,000-subscriber system two years ago. In its filing in a U.S. District Court last month, the city asked the court to rule on whether a franchise extension granted to Palmer Communications -- the previous operator of the Naples system -- applies to Colony Communications Inc., which acquired the system in 1992. Palmer Communications exercised its option to extend its franchise through the year 2004, just weeks before its sold out. "The city is saying that the renewal option is not valid," said Ken Fuchs, general manager of Colony Cable, which services 130,000 subscribers in southwest Florida. "As far as we're concerned, the agreement is valid and we have no intention of disrupting service to our customers." City officials contend that the previous agreement does not apply to Colony, and wants to negotiate a new deal that will reflect recent technological developments. Calls to Mayor Paul Muenzer's office were not immediately returned. The city council last month authorized Muenzer to send a letter informing Colony that its franchise agreement had ended, and requesting a six-month extension in which to negotiate a new one. However, the city's fight with Colony is not a unanimous one. Councilman Peter Vans Arsdale said he has been repeatedly voted down 6-1 each time he has raised concerns about imposing regulatory restraints on a "dynamic and changing industry." "We're trying to nail down a target that is moving pretty quickly," Van Arsdale said. "It's a waste of time. We're spending more of the citizen's money than we'll ever save on any rate regulation. "The issue is that we need to be more realistic." Van Arsdale did say that the city's suggested franchise renewal agreement was the same as the one it recently signed with Interactive Cablevision Inc., a Tampa-Fla.-based start-up company that wants to overbuild the Colony system. Interactive, which hopes to have its system up-and-running sometime next year, had until this week to supply Naples city officials with documents detailing how it planned to finance the project. TECH TALK AT SHOW TURNS TO COST TALK Anaheim, Calif. -- The "Gee, whiz" excitement of the past two years has given way to "Yeah, so how much?" as cable executives focused more intently on when -- or whether -- new services will pay for the pricey tech toys on display at last week's Western Show here. At the same time, equipment vendors showed that the technology itself is beginning to work, after months of snags. The exhibition floor was filled with functioning video file servers, real-time MPEG-2 encoders for compressed signals and a broader supply of cable modems enabling consumers to access online services at tremendous speeds. But even executives crowding into the numerous technology demos couldn't take their minds off pressing programming and regulation issues. New networks scrambled mightily for the six services regulators will allow systems to add to basic tiers in the coming months, fearing that they would be shut out if they didn't get on quickly. MALONE QUESTIONS VOD Tele-Communications Inc. chairman John Malone set the tone by questioning whether video-on-demand services will generate enough revenues to cover the heavy cost of sophisticated file servers and set-top converters. Malone said that TCI's testing indicates that operators might be more satisfied with a cheaper scheme, near-video-on-demand -- 20 or more channels of Pay-per-view allowing systems to start a movie every half hour. NVOD could generate $8 to $10 per month in new revenues, he estimated. But research on truly interactive VOD systems -- costing several hundred dollars per home for sophisticated file servers and set-top converters -- indicates that they won't necessarily generate any additional cash. "Customers would prefer it, but in our tests they didn't spend any more money on it," Malone said. "Their choice was broader, and [customers] bought more library titles, but they didn't necessarily spend any more money." Proponents of VOD argue that the business will boom once consumers become accustomed to the systems, but Malone said he doesn't know the answer. "Right now the jury is out on whether the economics, if video-on-demand is all you're going to do, are going to support the infrastructure to provide it," he said. U S WEST DISAGREES Richard McCormick, chairman of U S West Inc., which owns 25.5 percent of leading VOD advocate Time Warner Cable Inc., countered that the equipment prices will come down. "I think there's plenty of evidence that all of the little piece parts that are in play are coming down very nicely," he said, adding that "we think economics are there, or are going to be there, in a two- to three-year timeframe." Malone agreed that the cost problem is one of timing. "In the long run, I'm a believer it will happen," he said. But Malone is frustrated over his experience with technology over the past year, where expected declines in costs failed to materialize. "So boxes that you were going to buy that were going to cost you $60, cost you $150," he said. "In the short run, I don't think you can sit here and predict exactly what this stuff is going to cost or when it's going to be available." WHAT MALONE LIKED Still, walking the floor later, Malone was impressed by some items. He said he was particularly enthusiastic about Unisys Corp.'s spread-spectrum transmission scheme for putting voice and data on cable, adapting military communications technology to avoid jamming by foreign countries to resolve snags poised by noisy coax systems. Also, Malone liked Northern Telecom Ltd.'s personal communications service phones using pre-paid smart cards, easing both security and billing snags. Tech demonstrations drew so much attention on the show floor that cable executives didn't even face the typical long lines for autographs from porno starlets at adult pay-per-view nets' booths. But, as always, vendors spent a lot of time educating other vendors. At a Thursday afternoon demonstration of Microsoft Corp.'s Tiger multimedia system, 20 executives were straining for details. But only one of them sported a name tag that actually identifed them as an actual MSO executive. CABLENET JAMMED Still, the hardware community overwhelmingly lauded booth traffic this year, citing jammed demonstrations and attendees with pin-pointed, in-depth questions. That's borne out by the attendance figures. The California Cable TV Association reports a record 21,567 people attended the show, compared with 15,800 a year ago. "The only thing I may have underestimated is the number of representatives in the booth," said Al Kernes, vice president of sales for Philips Broadband Networks Inc. "Because of the amount and depth of questions this year, I could certainly have put a few more people to work here." Traffic was also heavy at the CableNET '94 exhibit, with attendees showing up as early as an hour before it opened each day, and "we had to run them out at the end of each day," said Claude Baggett, director of customer premises equipment projects for Cable Television Laboratories, who with the California Cable TV Association, integrated the 5,000-square-foot technology exhibit. At CableNet, Baggett said operators wanted to know three things: What do I have to buy, how much does it cost and what are the problems to be expected? "The answer to the first question depends on what part of the exhibit they were looking at, but the answers to the other two are a lot more than anyone should have to know, and which nobody yet knows," said Baggett, who added that he agreed with TCI's Malone that because cable doesn't have a regulated rate base, it can't afford to pay an arm and a leg for hardware. "We don't need for [telephony and interactive TV gear] to be platinum- plated, or for [equipment] to be able to last 50 years," said Baggett. "It all comes back to the dollar bill -- to the economics. We don't know which are businesses yet and which aren't, so it's logical that operators don't want to spend an arm and a leg to make those discoveries." WHAT'S AFFORDABLE? Joe Majczak, senior vice president of engineering for NewChannels Corp., said that equipment costs topped his list of Western Show concerns. "What I've seen is real impressive, but how much can you afford? That's the real question," Majczak said, adding that he heard estimates of costs between $8,000 and $10,000 per subscriber, including all the network components needed to provide interactive television, telephony and entertainment services. "The key in all of this is the trials," said Majczak, who last week participated in an announcement with Tellabs Operations Inc. to test telephone services over its Greater Syracuse, N.Y., system. "We need to find out which services will make the equipment investments worthwhile, and there's only one way to find out -- by doing it," said Majczak. CABLE GETS ROLLING Notwithstanding Malone's warnings in press interviews that a two-wire universe might not be feasible, the good news for cable wasn't so much that it was positioned to stomp the telcos, but that the pace of technical advances suggested the industry would have what it takes to open new revenue streams sooner rather than later, keeping pace with competition on its core turf without having to wait for regulatory and technical implementation of telephony over cable. With PC-based services getting under way in some markets, MSOs will soon have a broader supply of cable modems to choose from, including new models from Hewlett-Packard Corp., Zenith Corp. and Digital Equipment Corp. At the same time, DEC, Scientific-Atlanta Inc., Northern Telecom and AT&T Network Systems unveiled new approaches to digital TV designed to make end-to-end connectivity cost effective in 1995. "We're extremely confident the equipment will be available within AT&T's time frame," said Wilt Hildenbrand, vice president of technology for Cablevision Systems Corp., which plans to launch digital TV service by mid- year. "They were right on time with the first trial units, and the second batch may even be a few days ahead of schedule." Along with putting digital TV into play, Cablevision also is using cable modems to launch PC communications next year. "It's time to take the technology we have at hand and get these services rolling," Hildenbrand said. With C-Cube Microsystems and DiviCom demonstrating real-time MPEG-2 encoders, the moment also represents a turning point in the preparations for media to run over digital networks. For example, DEC's new digital studio in Tarrytown, N.Y., is designed to support continuously updated feeds of material into servers and the distribution pipelines of network operators, said Phil Corman, manager of the Tarrytown center. "This is a new type of facility where data isn't static in the way it is in traditional multimedia such as CD-ROM," Corman said. "As network customers access CNN news files from the server, CNN can be feeding new information into the data base, which then goes out through multiple networks to end-users with no disruption in the flow." With digital media becoming ripe for exploitation by cable and telephone companies alike, the biggest question facing players is the feasibility of two-wire competition in an environment that also includes direct-broadcast satellite and wireless systems. While cable executives look back to the horrors of living through overbuilds and wonder, telcos have less cause to think twice. "The days of any single company dominating the market are going away," said Gregory Brown, vice president of video and interactive services for Ameritech Corp. "Certainly, with our call for open competition in our core business, our market plan isn't built on any intention to be the dominant facilities provider." NEW NETS GET NOTICED, BUT NOT SUBSCRIBERS Anaheim, Calif. -- While the record 21,600 attendees at last week's Western Show certainly generated booth traffic for the aspiring cable networks exhibiting at the show, operators said they generally hadn't made decisions about which or how many new networks to add. Frank Intiso, president and COO of Falcon Cable Group, found standing at a pool table in The Independent Film Channel booth, said the MSO hasn't yet made decisions about which networks it will launch or whether to add networks to regulated expanded-basic or unregulated new-product tiers. Intiso said that while Falcon wasn't cutting many programming deals at the show, the MSO was closely evaluating the programming quality and bottom-line implications of many new networks. "We're looking at networks that would have audience appeal not in the existing programming mix," said Intiso. "We don't want more of the same." Of the new network offerings, Intiso said he liked the Rainbow Programming Holdings Networks, such as the IFC and Romance Classics, The History Channel, The Learning Channel, and the new niche spin-off networks from Discovery Communications Inc. Intiso said he also was hot on The Sega Channel -- whose booth always was crowded during the show with attendees playing video games -- but was put off by the $150 to $175 price tag of the adapter needed for each Sega subscriber. "I don't know if spending $175 on one channel makes sense," said Intiso. In addition to Sega, many other new network booths drew crowds, especially ones with special attractions. For example, the Golf Channel had people in lines waiting to take a few puts to win prizes, and The Outdoor Life Channel drew climbers to its rock wall. "It's easy to get traffic when you do stuff like that," said Jay Levin, president of Planet Central, whose booth within Tele-Communications Inc.'s Vision Group Inc. booth generated only moderate traffic. Levin, however, was upbeat about Planet Central's progress at the show. "I had no expectations going into the show because the cable operators are just getting focused on what the going-forward rules mean," said Levin. "But our conversations and meetings are going better than expected." In contrast to the optimism among the new networks on the convention floor, the show's panel discussions tended more toward doom and gloom for channel startups. "I don't see anything positive that's happened [from the going-forward rules]," said Jack Clifford, chairman of Colony Communications, whose parent company, Providence Journal Co., is starting the TV Food Network. "It's a very hard time to start a new channel." Brian Bedol, president and CEO of Classic Sports Network, said that in order to survive, new networks need lots of financing or investments from large MSOs or established cable networks. Also roaming the floors of the three large exhibit halls, Don Mathison, senior vice president of marketing for Media General Cable, said he was looking for new channels with whom his company could form working partnerships. "We're looking at arrangements that are larger than merely carriage agreements," said Mathison. For example, Mathison said he's had discussions with several networks about Media General using its production facilities to act as a sort of Washington, D.C., bureau for the networks. He would not name the networks. Asked whether many of the new networks appearing at the Western Show would still be around for next year's show, Mathison said, "It depends on their staying power. They have to be prepared for a one- to two-year dry period." To determine which new networks to launch, Mathison said he's been giving new networks 8-month-long tryouts on his Fairfax, Va., system to gauge consumer feedback. After about 12 networks have been tested, subscribers will be asked to vote on which ones should be added. OPS GET LITTLE HOPE ON UPGRADE INCENTIVES Anaheim, Calif.-- Federal Communications Commission officials ventured West last week to defend the new going-forward rules and promise prompt, but not speedy, consideration of the telcos' video dial tone applications. As cable completes its second year under re-regulation, the industry is struggling for the certainty it needs to grow and cope with coast-to-coast competition from direct-broadcast satellite and from regional telephone companies that will not be required to obtain local franchises. Blair Levin, FCC chairman Reed Hundt's chief of staff and one of the most powerful players inside the agency, briefed a cable audience on the going- forward rules and expressed concern about cable's hope of getting basic and expanded-basic customers to bear some of the costs to upgrade plant for telephony and broadband interactive services. With the aid of an overhead projector, Levin demonstrated that the going- forward rules were fair and simple. But some in the audience were not so sure. Levin was interrupted once by someone who blurted out: "Can you talk to my bank?" Under going-forward, operators can add six channels to incumbent tiers under a $1.50 price cap over the next two years. Operators also may create new product tiers for which they can charge any amount they want as long as they preserve their regulated offerings. "The new-product tier is not an end-run to new regulation," he said. Levin said the rules had "no regulatory barrier" to offering new services at any price, adding that he and Hundt wanted the "market to determine" cable's future. Levin said the FCC would not price-regulate new-product tiers because the prices of new programming would be restrained by programming services offered on regulated tiers. But he could not guarantee that FCC forbearance would exist forever, saying cable would face "political risk" and "political forces could come in" and disturb the FCC's model when cable bills rise. Merrill Spiegel, Hundt's top cable aide, told the same audience that if a cable subscriber files a complaint about prices on a new-product tier, the complaint will be dismissed if the operator has adhered to the few guidelines that relate to that tier, the anti-migration prohibition chief among them. In comments to a reporter later, Levin said he was worried about a marketing dynamic in which operators offer new-product tiers for free in introductory trials and then steadily raise their prices. Levin apparently was suggesting that such a scenario would upset cable customers. Levin also expressed doubt about whether cable operators can upgrade their facilities by allocating costs to upgrade networks for voice telephony and interactive services. He said "a surcharge idea" on basic and expanded-basic subscribers would be a transfer of "several billions" from consumers to the cable industry. "Consumers would not be happy about the price increase," Levin said. Levin said the cable industry has expressed views that it, in fact, might not want to see realized, such as regulatory parity with local telephone companies. Levin said telco's regulations are five times thicker than cable's and include such things as the "productivity offset," which the FCC refused to apply to cable. "Productivity offset? You want that?" Levin said. Levin said the cable industry had yet to come forward with an upgrade plan that took into account the new going-forward rules. "This is a discussion worth having," he said. Other FCC officials said video dial tone will dominate the FCC's agenda in the months ahead, including questions related to Bell Atlantic Corp.'s right to program its own VDT networks. The FCC has approved just one commercial VDT application -- for Bell Atlantic Corp in Dover Township, N.J. -- and has more than two dozen filed by the nation's largest local phone companies awaiting approval. Bell Atlantic is pressing the FCC to allow it to be a VDT programmer despite FCC rules limiting telco ownership of a network programmer at less than 5 percent. But Bell Atlantic has a federal appeals court ruling that it says allows it to provide video programming directly to its phone customers. James Casserly, senior legal adviser to FCC commissioner Susan Ness, said the agency was only beginning to explore the impact of Bell Atlantic's victory on VDT rules. He predicted the FCC would seek public comment on how to proceed. "There are other ways to read it and it's very possible that telephone companies will become customer programmers on the video dial tone platform. But the commission has reached no decision on any of that," Casserly said. FCC Chief Economist Michael Katz said he would "be shocked" if the FCC allowed Bell Atlantic to undermine VDT's common carrier principles by seeking to use all or nearly all network capacity as a programmer. "That's not going to fly ..." Katz said. "We will take a look at that." James Coltharp, a special adviser to FCC commissioner Andrew Barrett, said because several VDT issues were "largely still unresolved," it was unclear what VDT would end up looking like. He said, although the FCC has rejected the telcos' "anchor programmer" concept, the FCC will look at channel-sharing proposals designed to preserve capacity. The FCC adopted new VDT rules in October, putting the final touches on a plan developed in 1992 as a way to promote telco competition even though the 1984 Cable Act prohibits telcos from providing video programming directly to their phone customers. Cable's biggest concern about VDT is cost allocation. The FCC claims that VDT's direct costs will be borne by VDT customers, not by phone ratepayers who do not take the service. Because VDT network architectures will vary, the FCC declined to use a formula for assigning joint and common costs. Katz said there was no way to use such a formula when common costs are involved. "I hope the Commission never does," he said. -=-=-=-=-=-=-=-=-=-=-=-=-=-=And Finally...-=-=-=-=-=-=-=-=-=-=-=-=- NEXT TIME BARTON SHOULD TRY DEBATING TELLER There were some tense moments between TCI's Peter Barton and cyberpunk magician Penn Jillette as the Western Show was closing. Before the convention's final session, discussing content on the infohighway, Barton remarked that he expected to handle the issues while Jillette did his "schtick." Jillette, the talking half of magic team Penn & Teller and a fairly serious student and commentator in the multimedia world, angrily advised Barton to perform a sex act still illegal in several states. But they kissed and made up during the free-wheeling session when Jillette -- sporting a leather jacket plus a t-shirt marked "Team Satan 666" -- berated the FCC, saying the agency acts so slowly that it would become insignificant in 10 years. "Things will just be moving too fast for those retarded motherf---ers to get in our face," Jillette said, leaving the crowd howling. Barton's response: He jokingly offered Jillette a seat on TCI's board. Calling Tulsa ... Four days into the over-hyped PCS auction, the best bargain so far may be the second license for the Tulsa market (pop. 1.1 million). To bid there, a company had to plunk down $658,000 in refundable deposits. Southwestern Bell had the high bid for one Tulsa license, at $734,583. The other high bid: $10, by Micro Lithography Inc. Looks like they'll get some of their deposit back. ------------------------------------------------------------------------- HOW TO GET THE CABLE REGULATION DIGEST: E-MAIL - To: listserv@netcom.com Subject: Ignored Body: subscribe cablereg-l FINGER - higgins@dorsai.org FTP - ftp.vortex.com/tv-film-video/cable-reg GOPHER - gopher.vortex.com/*** TV/Film/Video*** WWW - www.vortex.com *--30--*