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FCC OKs RCN in Philly, S.F.

6/21/1998 8:00 PM Eastern

Washington -- RCN Corp. won approval last week to challenge
cable operators in Philadelphia and its suburbs -- the fourth major Atlantic coast market
that it plans to invade at some point with phone, video and Internet services in a single
package.

Along with the Philadelphia application, the Federal
Communications Commission also endorsed RCN's companion request to be an
open-video-system operator in major portions of San Francisco.

RCN's plans are ambitious: Its FCC applications call
for offering service in 109 Pennsylvania and 33 Northern California communities, many of
them affluent neighborhoods. It told the FCC that it will provide 330 analog
video-programming channels, keeping 110 for itself and 220 for unaffiliated programmers.

In this round of OVS filings -- RCN already has approvals
for Boston, New York and Washington, D.C. -- the cable industry once again urged the FCC
to carefully examine what RCN is promising or to reject the applications outright as
misleading. But the FCC has routinely rejected cable's complaints while considering
OVS applications under the mandatory 10-day review period.

Cable operators also called into question whether RCN is
using the OVS process in a legitimate way, claiming that the company is improperly relying
on OVS approval as leverage when it decides to seek cable franchises in OVS-covered
communities.

The California Cable Television Association and the
Pennsylvania Cable & Telecommunications Association used RCN's latest batch of
OVS filings to question the company's motives.

For example, the PCTA accused RCN of having no intention of
offering 330 analog channels. It pointed to Securities and Exchange Commission submissions
where RCN said it was building 750-megahertz networks, saying that amount of bandwidth is
incapable of supporting 330 analog channels.

Scott Burnside, RCN's vice president of governmental
and regulatory affairs, said RCN's OVS applications were truthful with regard to
channel capacity.

He said RCN is building 110-channel networks. Unaffiliated
programmers, he added, are invited to provide service over RCN's network if they are
willing to foot the bill to expand bandwidth to accommodate 330 analog channels.

"What we are doing is perfect legitimate and perfectly
legal," he said.

Under FCC rules, the OVS operator is restricted to
one-third of the channels when demand for OVS channels exceeds supply.

The PCTA accused RCN of using its OVS certifications as
leverage when RCN sits down with local-government officials to negotiate cable franchises.
RCN obtained cable franchises in four Massachusetts communities after gaining OVS approval
in those communities from the FCC.

Burnside said RCN agreed to seek franchises at the
insistence of the local governments.

"The reason why we prefer OVS is because we can get to
the market quicker," Burnside said, adding that franchise talks can last 18 to 24
months.

He added that RCN's OVS approvals were not an
advantage in the negotiations, and the franchise agreements that it has signed have not
produced lopsided results at the expense of incumbent cable operators.

Referring to RCN's franchise agreement with the town
of Somerville, Mass., Burnside said, "I don't know how close it is [to Time
Warner Cable's franchise]. It meets all of the level-playing-field
requirements."

California cable operators said the FCC should reject
RCN's San Francisco application, claiming that the company has no intention of
serving all of the communities that it listed, and that it is targeting only affluent,
high-density properties. The CCTA called it "cream-skimming" and economic
"redlining."

"They appear to be MDU-rich [multiple-dwelling unit]
communities, as opposed to single-home, lower-density communities," said Jerry
Yanowitz, the CCTA's vice president of federal affairs.

Burnside said that because RCN has to build its network
from scratch, a strategy of attacking high-density properties first was appropriate.

"I don't think that you can take us to task for
that," Burnside said, adding that RCN has pledged to serve entire communities
eventually.

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