Cable Regulation Digest

Index

090594

  CABLE REGULATION DIGEST
SA178

  Summary of regulatory news from Multichannel News 9/05/1994. Vol.1, No.36
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.#Multichannel e-mail contacts:
Marianne Paskowski, editor: Mpcable@aol.com
John M. Higgins, finance editor: higgins@dorsai.dorsai.org

  HOT NEWS:
  * Turner Overture Behind NBC/Time Warner Talks
  * Cable Econ 101: Rate Rollbacks Boost Sub Growth
  * What's Next for Nextel?

  TURNER PART OF NBC MERGER DISCUSSIONS
  New York -- Time Warner Inc.'s deal talks with NBC revolved around a far
broader issue, a proposal to merge the broadcast network with Turner
Broadcasting System Inc.
  Three sources familiar with the tentative negotiations said that NBC
pres ident Robert Wright has been discussing a merger with Turner
intermittently for about six months. The general proposal calls for NBC
owner General Ele ctric Corp. to push the broadcast network up into Turner
in exchange for preferred stock that would give GE a sizable -- but not a
majority -- interest in the combined venture.
  One scenario calls for Wright to become CEO of an NBC/Turner combination,
while Ted Turner would remain chairman.
  A key element of the deal is GE's agreement to separate the network from its
owned-and-operated broadcast stations. Because of sizable investments in the
company by several large MSOs, federal cable/broadcast cross-ownership
restriction pretty much block Turner Broadcasting from controlling a major
station group.
  However, the rules for ownership of a stand-alone broadcast network by an
affiliate of cable operators are less constricting, so an NBC/Turner combin
ation might pass muster at the Federal Communications Commission more readily.
  Stations are generally the biggest source of profits at NBC, CBS and ABC,
but Wall Street analysts said the network-only deal could be priced so Turner
could profit.
  One source cautioned that while the discussions have been going on for a
while they are still "casual" and far from a solid deal. Another said that
"they got tolerably far along" during the spring but stumbled over the opp
osition of Time Warner, which has a major stake in Turner Broadcasting.
  A source familiar with Time Warner's position on the talks acknowledged that
the discussions got snagged by the entertainment giant's concern about "go
vernance issues." The source also cautioned that "Ted's talking to everybody,
so you can't take all this too seriously."
  Reports of merger talks between Time Warner and NBC broke last Thursday with
simultaneous leaks to The New York Times and The Wall Street Journal. NBC's
Wright told news service Reuters the reports were "grandiose."
  An NBC spokeswoman said, "We talk to a lot of different people about a lot
of different things," but one NBC executive dismissed the Turner angle saying
Turner has not only been talking to NBC, but also to CBS and ABC, and "these
talks are persistently exaggerated by outsiders."
  But when questioned about the Turner/NBC talks, neither Time Warner, NBC,
nor Turner Broadcasting would comment. "Ted has indicated all along that he
has wanted to own a network, but beyond that we don't have anything to say,"
said a Turner Broadcasting spokesman.
  But sources close to the situation said the general Turner/NBC strategy
has the seal of approval from TCI president & CEO John Malone. But the
chief obstacle is Time Warner, which has a 24 percent stake in Turner and
enough additional power to block any major deal. Time Warner has long
objected to any deal which would squeeze its position in Turner
Broadcasting down substa ntially.
  So part of the discussions with NBC center on whether Time Warner might be
willing to exit Turner by exchanging its stock for ownership of one of the
company's entertainment networks, possibly Turner Network Television or The
Cartoon Network.
  That is similar to another exit proposal discussed in March 1993, when Ted
Turner declared he wanted to break up the company in part because friction
between Time Warner and TCI limited his ability to cut mega-deals.

  RE-REG CREDITED FOR HELPING SUB GAINS
  New York -- Despite the turmoil from re-regulation and looming
competition slamming cable operators this year, strong gains in basic
subscribers indicate that MSOs' core business remains surprisingly strong.
  Better marketing, a rebounding economy and surging housing growth are all
factors in a boost in annualized subscriber increases from around 2.5-3
percent last year to 3.5-4 percent so far this year.
  But as much as they hate to acknowledge it, cable and Wall Street executives
said that the Federal Communications Commission's new rate regulations
deserve part of the credit for strengthening the growth rate for the first
six months of the year. By trimming subscribers' bills an average of 8
percent since last September, the FCC may have helped relieve consumers'
hostility toward cable operators.
  The strength is not universal, with some operators reporting no particular
change in their subscriber growth this year. Further, many system managers
swamped by FCC paperwork last fall are simply playing catchup, capturing
customers who should have been connected in the fourth quarter.
  But Tele-Communications Inc. has increased its growth rate to around 4
percent annualized. Comcast Corp. said it is seeing the best connect numbers
since 1990. Cablevision Systems Corp. and Jones Intercable Inc., who have
long outperformed other MSOs, also reported strong numbers.
  While a percentage point or two of subscriber increases seems small,
internal growth is very important for operators. Higher penetration
increases the operating efficiency of a system dramatically, increasing
profit margins. A growth slowdown of about a point over the past year has
helped shave 3-4 points of growth from major MSOs' internal cash flow.
  And, subscriber growth becomes even more important when operators can no
longer freely raise rates.
  That growth is not coming close to replacing the revenue lost to the FCC's
two rounds of rate rollbacks in May and July, which has squelched cash flow
growth for most operators and trigged sharp declines for others, notably
Viacom Cable, Scripps-Howard Cable and Time Warner Cable.
  "If you look at my bottom line it's hard to give the FCC much credit for
anything," said one MSO executive.
  Nevertheless, Alan Mutter, COO for San Francisco-based InterMedia Partners
L.P. said that he sees the change in the kinds of subscriber complaints his
systems receive. Cable prices used to be at the top of the list of customer
aggravations expressed in calls and letters. But in recent months those
complains have tailed off dramatically.
  For example, Southwestern Bell Corp.'s cable systems have in the past run
flat in the first half, with 80 percent of their subscriber growth coming in
the fourth quarter. But Montgomery County Cable TV president Bob Gordon said
that the systems are growing at a 6 percent annualized rate so far this year,
double last year's growth.
  The systems -- which did not roll back any rates until July -- have seen
both a higher number of new customers and fewer disconnects.
  "There was some reduction in what we call value/price/quality churn because
there was no price increase Jan. 1," Gordon said.
  Mark Riely, partner of money manager MacDonald Grippo Riely, said the basic
subscriber turnaround is Economics 101. Cut or restrain the price and demand
increases.
  "I think the world was conditioned to believe that a cable subscription was
price insensitive, that there was a fairly inelastic demand," Riely said.

  TELCOS CHEER RULING ON VIDEO DIAL TONE
  Washington -- Telephone companies are cheering a recent U.S. Court of
Appeals decision that telcos offering video dial tone do not need a franchise.
  In its Aug. 26 ruling, the U.S Court of Appeals for the District of
Columbia Circuit agreed with the Federal Communications Commission that
telcos offering VDT were not cable operators providing cable service and
therefore not subject to the franchise requirement.
  In addition, the three-judge panel said a telephone company's customer
-programmers also were exempt from the franchise provision in the 1984 Cable
Act.
  The phone companies consider the franchise obligation a significant
regulatory hurdle to their entry into cable-like services.
  "The court's decision will result in much quicker rollout of video dial
tone. In fact, had the court gone the other way, video dial tone might well
have been crippled in many areas," said Roy Neel, president of the United
States Telephone Association.
  The FCC, which has been developing the VDT concept since 1987 and approved
the first application for Bell Atlantic Corp. in June, was also gratified
with the decision.
  "Certainly, we are pleased that the court has upheld the commission in the
face of the first legal challenge to video dial tone," said Donna Lampert,
senior policy adviser in the FCC's common carrier bureau.

  NEXTEL PONDERS NEXT STEP AFTER MCI DEFECTS
  New York -- Nextel Communications Inc. is rethinking its strategic options,
possibly including a play in long-distance service of some kind, in the wake
of MCI Communications Inc.'s decision to back away from a partnership with
the specialized mobile radio (SMR) operator.
  "We're now free to look around the globe for additional strategic partners,"
said Nextel chairman Morgan O'Brien in a phone conference with analysts last
Friday. With termination of a "standstill" agreement on negotiations with
other parties, Nextel will take a "new look at what the role of a nationwide
provider might be," he said, noting that such a role doesn't necessarily
require an alliance with some other long-distance carrier.
  "We're building an infrastructure that looks a heck of a lot like a long
-distance network," O'Brien said, noting that Nextel brought in Japan's NTT as
an investor and strategic consultant some time ago. "You might expect from us
an unconventional approach to the issue" of national interconnectivity of
Nextel's local SMR holdings, he added.
  Nextel officials vowed to forge ahead with no major disruptions in rollout
of nationwide wireless voice services, which will use its SMR holdings in the
800 MHz spectrum region. These holdings now cover approximately 85 percent of
the nation's population in bandwidth slices ranging from 10 to 15 MHz per
market.
  O'Brien said the company's initial focus would continue to be creation of a
combined cellular, paging and dispatch single-vendor solution for its
commercial customer base, with marketing of consumer cellular services
employing lighter weight handsets to get under way nationwide in mid-1995.
  MCI and Nextel said Motorola Inc., which acquired veto power over the
MCI/Nextel deal with its own recently negotiated 22 percent stake in Nextel,
declined to go with terms acceptable to MCI as the long-distance carrier a
ttempted to renegotiate the deal it had struck in late February. That
agreement called for MCI to invest $1.36 billion in Nextel in return for a 17
percent share of the company. Motorola's investment, all in stock exchanges
for its own SMR properties, is calculated at about $1.7 billion.
  With Nextel stock at $25.25 as of Thursday, MCI wanted to pay less than the
approximately $36 per share it had originally agreed to, the companies said.
And, O'Brien noted, MCI wanted to factor in what it brought to the table in
marketing and operational clout as part of its payment, which further compl
icated matters.
  The collapse of the deal left MCI without a clear strategy for pursuing its
ambitions in wireless.
  "MCI is 100 percent committed to providing a branded wireless service
nationwide," said Kevin Inda, spokesman for MCI, adding that the company has
"other options" besides the link with Nextel. He noted the company has made
no secret of its interest in forging alliances with cable interests, though
"whether this includes wireless remains to be seen."

  N.J. OPS TRY TO BLOCK BELL ATLANTIC
  Washington -- The New Jersey Cable Television Association moved last week to
block Bell Atlantic Corp. from providing its own programming over the telco's
video dial tone system in Dover Township, N.J.
  The NJCTA said that allowing Bell Atlantic to do so would violate the
Federal Communications Commission's VDT rules separating network owners
from programmers.
  Bell Atlantic won the right to offer VDT in July. A request to offer its
own programming to complement other non-affiliated program offerings is
pending at the FCC.
  Were the FCC to approve Bell Atlantic's request, the NJCTA said the agency
would effectively be allowing the telco to become a cable operator without
having to secure local franchises.
  "Bell Atlantic has no interest in providing common carrier 'transmission'
service for other programmers. Rather, Bell Atlantic appears to have sought
from the outset to use the video dial tone proceeding as a vehicle for Bell
Atlantic to begin construction of a broadband system that could easily be
converted into a Bell Atlantic cable system," the NJCTA said in 18-page
filing.
  A Bell Atlantic spokeswoman said the telco would, as a common carrier, be
required to give its programming arm and unaffiliated programmers equal
treatment under terms approved by the FCC. She said the telco's common
-carrier status, combined with its federal court victory permitting it to
deliver video programming, means Bell Atlantic is not required to obtain a
local franchise as are cable operators, who are not common carriers.

  LIBERTY CABLE FACES STATE ACTION
  New York -- Upstart competitor Liberty Cable faces action from the New York
State Cable Commission for allegedly operating as a cable system without a
franchise.
  Time Warner's New York cable group had complained to the commission that
Liberty, an aggressive wireless SMATV operator, was using a single receiver
to serve several condominium buildings on Manhattan's ritzy Upper East Side,
linking them with coaxial cable. Wireless and SMATV operators that do not
physically cross public rights-of-way are not required to secure a franchise
from the city. But generally, stringing a piece of cable between two
buildings is considered a cable system
  That's how the commission sees it and has issued a "show cause" order asking
Liberty to demonstrate why its wiring scheme does not constitute a cable
system. Commission staffers said they clearly observed Liberty's coax links
crossing alleyways.
  Liberty president Peter Price said that traditionally the city of New York
has objected only if the wires crossed city streets, not alleys.
  Some of the buildings in question are adjacent to each other and Liberty
simply bored through a common wall.
  "Our position is, well, if we have to we'll just disconnect the six
buildings and put in receivers," Price said. He added that it would cost
around $10,000 per building, Price said, and the expense could force
Liberty to stop serving some smaller condo buildings with just 20 or so
units.

  CABLELABS EXTENDS TELEPHONY RFP.
  Denver -- Cable Television Laboratories is extending to Oct. 7, from Sept.
23, the deadline for responding to its recent request for proposals for cable
telephony gear, CableLabs spokesman Mike Schwartz said. Schwartz said the
two-week extension will give vendors more time to sift through the complex
RFP. He said no formal announcement of the extension was planned but vendors
have been told as they call in for information. CableLabs issued the RFP in
late July on behalf of six major MSOs, which are considering offering tel
ephone service over their cable plants.

  GI OBTAINS ORDER VS. DESCRAMBLER FIRM
  Columbus, Ohio -- General Instrument Corp. has obtained a temporary
restraining order here against FSK Products, a hardware distributor accused
of advertising a descrambler for GI's set-tops. GI is pursuing permanent
protection against distribution of the device by FSK through a suit in U.S.
District Court for the Southern District of Ohio.

  BARDEN LOSES FCC RATE CASE
  Washington  -- Barden Cablevision last week lost its case at the Federal
Communications Commission, which ruled the Detroit cable operator was subject
to rate regulation.
  Barden asked the FCC to block Detroit from certifying, arguing it was
subject to effective competition because it did not serve more than 30 percent
of the market.
  The FCC said that under its rules, Barden had under-reported its subscriber
totals and over-reported the number of dwelling units in its franchise areas.
  The FCC determined that Barden served more than 30 percent of the households
in its franchise area and was subject to basic service regulation.

  FCC PROBES INTERACTIVE LICENSES
  Washington -- The Federal Communications Commission is investigating whether
some private companies abused bidding rules in the July auction of 594
interactive video and data service (IVDS) licenses.
After two days of bidding in late July, the FCC was promised $214 million from
IVDS winning bidders. But last week, FCC sources disclosed that at least two
companies defaulted on their multimillion dollar down payments and may have
misrepresented the nature of their ownership.
Although down payments totaling $21.7 million were due on Aug. 8, the FCC, in
fact, collected $13 million, with about $8 million in default.
About $5 million of the $8 million in default was the responsibility of two
firms, Commercial Realty St. Pete Inc. of Florida and Interactive America of
Sun Valley, Calif., FCC sources said.
In a statement, the FCC said it was probing whether the defaulters engaged in
"gross misconduct, misrepresentation, or bad faith," including the po
ssibility that some bidders wrongly stated that they were small businesses,
and female- or minority-owned. The FCC crafted auction rules designed to help
such "designated entities" secure IVDS licenses.
Commercial Realty president James Hartley was unavailable for comment late
last week. Hartley, in a statement, alluded to concerns among some bidders
that IVDS technology might not be ready in time to meet the FCC's build-out
requirements. The IVDS equipment developer, Eon Corp. of Reston, Va., has
disputed this claim.

  CELLULARVISION PARTNERS FACE S&L CIVIL CHARGES
  New York -- Two of the three founding partners in CellularVision, the
purveyor of 28 GHz wireless technology and services, are battling federal
charges of wrongful receipt of bank funds and other misdeeds in an S&L civil
suit.
  The case, which has gone unnoticed by the press, was filed in U.S. District
Court for New Jersey in late January by the Resolution Trust Corp. against
Vahak and Shant Hovnanian and other former officers of Riverside Federal
Savings Bank, a Freehold, N.J.-based institution that collapsed in late 1990.
  In its suit, the RTC claims that Vahak and Shant Hovnanian, father and son
and former bank chairman and president, respectively, are responsible, along
with other bank directors, for $23 million in losses and as yet untabulated
damages that were incurred with the failure of the institution. The
defendants have filed motions for dismissal of the case.
  "We believe this case is totally without merit," said Shant Hovnanian's
attorney, Rob Kipnees of Greenbaum, Rowe, Smith, Raven & Davis. "We fully e
xpect we will prevail."
  CellularVision CEO Shant Hovnanian declined to comment on the case, other
than to say that the matter is having no impact on CV's operations, which he
said are progressing well. The firm has launched a 49-channel TV service in
Brooklyn, N.Y., with plans to expand throughout metropolitan New York under a
special license granted by the FCC.
  Hovnanian said the company, which is in partnerships with Bell Atlantic
Corp. and Philips N.V., will soon add new sections of Brooklyn to its service
area and, by late fall, will be able to reach approximately one million
households, including a large segment of Manhattan's East Side.
  The RTC is charging the Riverside Bank directors with five counts, ranging
from negligence and gross negligence to self dealing and wrongful receipt of
funds over a period of four years following the Hovnanians' purchase of the
institution in 1985. The RTC says the defendants "used bank funds improperly
to benefit closely held corporations owned by the bank's owners" and "caused
the bank to pay for improper and excessive personal expenses unrelated to
bank business."
  These improper payments included "expenses associated with development costs
of real estate projects owned by the bank's owners but not by the bank," the
filing says.
  According to the court filing, the bank was located in the same suite of
offices as other V.S. Hovnanian Group entities, which included Hovbilt, a
developer of residential real estate in Monmouth and Ocean Counties. "The
bank's board of directors was ... largely from Hovbilt and treated the bank
as another real estate development company rather than as an independent
state-chartered financial institution," RTC says.

  INTERACTIVE STARTUP GETS CASH
  Mountain View, Calif. -- Interactive Network Inc., badly in need of cash,
said last week that backers Tele-Communications Inc. and NBC and new ally
Motorola Inc. have agreed in principle to put up about $20 million in a
secured, convertible loan.
  I-N said the $20 million includes a $1 million advance -- $500,000 from TCI
and $250,000 each from NBC and Motorola. It also includes a previously a
nnounced $3.5 million advance from TCI and a previously announced $250,000 a
dvance from NBC.
  I-N said Motorola will get rights of last refusal and first negotiation to
be involved in making future I-N hardware, except for set-top cable boxes.
Robert Growney, executive vice president of Motorola, will join I-N's board
of directors after the financing is done.
  TCI also agreed to promote I-N's service on TCI's Liberty Media Corp.-owned
regional sports channels. I-N agreed to issue warrants for TCI to buy 10
percent of I-N's common stock, which can be exercised after the promotion has
run.
  Last month, I-N warned investors that it would have to find more money or
"significantly curtail or cease its operation." The company had raised $30
million since April 1993 and spent almost all of it.

  -=-=-=-=-=-=-=-=-=-=-=-=-=-And Finally...-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
  TIME WARNER CRAPPING OUT IN MEMPHIS CASINO BOOM
  Pole spikes with a matching cumberbund? ... Time Warner's Memphis, Tenn.,
system is facing a mass exodus of techs and installers trading in their tool
belts for tuxedos. The problem is that casino gambling was recently legalized
and gaming operators pay a lot more than cable operators. System officials
couldn't be reached, but one smurf said the situation is bad enough that
Memphis-area systems may hold a technical job fair in the Atlanta area to a
ttract technical talent.

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--30--


Submitted by: BUBL Administrator  (cijs27@vaxb.strathclyde.ac.uk)
               Tue, 06 Sep 1994 13:59:45 EDT