ICTA NOTES

When the FCC finalized the Inside Wiring Rulemaking in October of 1997, additional critical issues were part of the same regulatory process, namely Exclusive and Perpetual Contracts. Cable Services Bureau (CSB) staff indicated that at some point these issues would be taken up - apparently, now is the time. CSB staff also indicated they plan to address state mandatory access statutes as a part of this complex of issues. These are the central regulatory issues to the future of the PCO industry. This is a bet-the-farm battle.

The CSB procedure will be to have an initial round of meetings with all interested parties which will be followed by subsequent conversations and meetings after which they will prepare a draft regulation for CSB Chief Deborah Lathen. They also indicate that it is their intention to have a proposed rulemaking ready to submit to the Commissioners in late Summer or early Fall.

CSB staff have requested that ICTA respond to numerous questions they have prepared about ICTA's views. (see attachment) These questions relate primarily to the economic rationale we see for an unlimited term or lengthy specific term for exclusive contracts and why we see perpetuals as different than such treatment for exclusives.

It is clear from recent conversations and these questions that staff do not understand the economics of a challenger to franchised cable providing video service in the MDU market. ICTA Executive Committee, comprised of John Norcutt, Michael Katzenstein, Anne Walker, and Bob Pallé, intend to meet with CSB staff in the next week or two to address these questions. We also need to address the issues of whether to hire outside counsel to assist us in this lobbying effort and when to enlist the support of Dr. Michael Whinston from Harvard who prepared the ICTA economic analysis which was submitted to the FCC last year.

We have communicated with SBCA and the housing organizations, primarily National Multihousing Housing Council, hoping to build a coalition that will lobby for the same positions and exert political influence at the FCC to demonstrate that PCOs, system operators and the housing industry do provide real competition to the franchised cable industry and do provide the best service feasible to MDU tenant-viewers.

Our lobbying campaign will include the collection of anecdotal stories about how mandatory access statutes retard competition, how exclusive contracts are essential if we are to compete and how the elimination of perpetual contracts would be the most significant step to enhance competition that the FCC could take. Also, we must gather data to paint a realistic picture to buttress the anecdotal information.

These are the ingredients of a significant lobbying campaign and you are the force to gather the anecdotal information and the data to accomplish the above. Without your involvement this can not be done.

Another facet of the campaign will be the need for money from ICTA members, in addition to your dues, to pay for the campaign. We have some funds available for this purpose but not an adequate amount. We also will work through our new alliance with SBCA and every indication thus far is that many of their members are willing to be participants in this effort. Although the housing organizations are somewhat reluctant to join in coalitions we hope they will see the merit and the necessity of doing so in this instance.

Another significant way in which we hope you will be involved is, at the appropriate time, to write letters to your Congressman, your Senators, and to the FCC Commissioners. If we work vigorously and in conjunction with the above groups we should be able to generate a considerable amount of visibility through such a letter writing campaign.

We will endeavor to keep you well informed. Please do not hesitate to call for additional information. According to everything we have heard over the past 2 years, these issues are critical to your future success and your involvement will be critical to our lobbying campaign.

FCC ON CABLE PRICES

Congress requires the FCC to publish annually a statistical report that compares the prices charged by cable systems facing effective competition with prices charged by those systems not facing effective competition. The report which compares 1998 over 1997 includes the following findings:

The gap in average monthly rates between competitive and noncompetitive operators has widened. The average monthly rate charged by cable operators facing effective competition was $27.15 and $28.71 as of July 1, 1997 and 1998, respectively, ($0.55 and $0.57 on a per channel basis). For those not facing effective competition, the average monthly rate was $28.56 and $30.53, respectively, during the same time period ($0.64 and $0.65 on a per channel basis). This represents a differential of 5.2% and 6.3%, respectively, in average monthly rates between the competitive and the noncompetitive. Further, the average monthly rates charged by systems facing head-to-head competition (i.e., systems within the competitive group that meet the overbuild test or the LEC test) was 14% less than the average monthly rate charged by noncompetitive systems.

Average monthly rates have continued to rise within each group as well. Specifically, average monthly rates charged by competitive operators rose by 6.8% during the 12 months ending July 1, 1997 and 5.8% during the 12 months ending July 1, 1998. Per channel rates decreased by 5.2% in 1997 and increased by 3.6% as of July 1, 1998. During the same time periods, the average monthly rates charged by noncompetitive operators rose by 8.9% and 6.9%, respectively. Per channel rates of noncompetitive operators rose by 3.2% and 1.6%, respectively. As a result, average monthly rates and per channel rates as well as the rate of increase in rates is greater for the noncompetitive group than for the competitive group. However, the pace of those increases slowed in 1998.

Survey results show that almost 50% of operators surveyed have increased their systems' capacity to 550 MHz or more. This typically has resulted in additional channels of service and may result in improved signal reliability. The competitive group reported a 1.5% increase and the noncompetitive group a 4.6% increase, in the average number of channels provided for the 12 months ending July 1, 1998. This brought the competitive group to an average of 54 channels and the noncompetitive group to an average of 50.1 channels as of July 1, 1998.

The Survey requested information on the provision of digital services and found that of 444 responses to a question on the availability of digital tiers, 128 operators (or 29%) offered that service. Of 709 responses to a question about Internet access, 137 operators (or 19%) reported that they offered Internet access service, and of the 678 responses to a question about telephony service, 25 operators (or 4%) report that they offered telephony service as of July 1, 1998.

COLLECTION OF DATA

Some of the difficulties we have encountered in lobbying for the PCO industry have been the lack of reliable data about the size of our industry and the scope of service in the MDU community. Not knowing basics such as how many PCOs there are, how many passings how many subscribers and in what geographical locations (particularly relevant to the mandatory access issues) has impeded our efforts to convince legislators and regulators that we are a significant force in competing with franchised cable.

One of the objectives of our Alliance with SBCA is to gather data relevant to these issues and to put it into a format which will be useful for our political and media purposes. Evie Haskell of Media Business Corp. has done a marvelous job in collecting data for the DBS industry and is now viewed as the reliable source of information about that industry. She has agreed to work with us endeavoring to gather and format comparable information.

At the present time we are assessing what information we need, what information is readily available and how to organize it. It is believed that the single best sources for this information are the program aggregators led by WSNet, by far the largest aggregator serving the PCO industry. Cary Ferchill and Mark Sherman are working to organize their data system and work with Evie to glean from it information for the above purposes. This is a very important project for our industry.

MARKETING SUPPORT

Marc Cohen, VP Sales and Marketing for Mid-Atlantic Communications, has volunteered to begin a new ICTA project. If his counterparts in other ICTA members are interested, he will lead a group to share ideas and information about how to improve PCO sales and marketing in MDUs. He envisions periodic conference calls, sharing of written materials, etc. He also would like the group to meet at the July MDU/Multihousing Conference in Las Vegas.

If you or your company's appropriate personnel are interested, please call Marc at (301) 618-4871, or the ICTA office.

CAN YOU ANSWER THE FOLLOWING QUESTIONS?

• How do I make money in today's competitive market?
• What are the financial realities of C-band, L-band and hybrids?
• What can stand in the way of a PCO and an MDU working together?
• How do you package video and High-speed Internet for a synergistic offering?
• Is there value in strategic alliances?
• Are traditional cable services enough or is direct-to-home inevitable for MDUs, or both?
• Who owns these subscribers anyway?
• Of the three technology platforms available to PCOs for the delivery of High-speed Internet which makes the most sense for different types of MDU properties?
• What are the technology, service, and competitive weaknesses and strengths perceived by MDU owners when evaluating private cable versus franchise cable?
• Just how imperative is it for PCOs to develop a DBS transport model (or other DBS solutions) to remain competitive?
• How much revenue sharing can the average PCO afford to pay?
• The view points of the providers; will they accommodate those of the gatekeepers?
• What type of agreement language and training programs regarding marketing efforts by both the operator and owner are considered to be "meeting half way?"
• What laws and regulations affect your contracting, operations and profits?
• What are some of the most effective techniques in selling video and telecommunications products in the MDU environment?

To learn the answers to these and many more plan to attend the MDU/Multihousing Conference. The first of its kind! The best of its kind! Register today and participate in the First Multihousing/MDU Conference at the SBCA '99 Convention scheduled for July 19 - 21, at the Las Vegas Hilton and Convention Center. For room reservations please call the Las Vegas Hilton at 702 / 732 -5111. For additional program information contact the ICTA office.