Cable Reaches New Era in Franchise Renewals

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As the recent renewal of Cablevision Systems Corp.'s
Boston cable franchise dramatically illustrates, the telecommunications needs of
America's cities are gaining emphasis, as cable TV evolves from essentially one-way
video distributed over coaxial cable to two-way video, voice and data distributed over
broadband hybrid fiber-coaxial networks.

And unlike franchises of the 1980s -- which tended to
stress construction timetables, video-channel capacity and PEG-access (public, educational
and government) support -- urban franchises of the 21st century are more likely to
emphasize high-speed data and telecommunications applications.

Cities such as Boston are starting to recognize that cable
operators, for competitive reasons, will rebuild their networks to at least 750 megahertz,
or otherwise engineer them to meet the 160-channel-plus offerings of DirecTv Inc. and
other satellite broadcasters.

There is also a recognition that in cities including
Boston, Chicago and Detroit, cable operators already face head-to-head competition from
wireline providers such as RCN Corp. and Ameritech New Media.

Cities have not abandoned interest in PEG programming.
Rather, most cities have had 15 or more years' experience with PEG, and they have
seen successes, such as Boston's Neighborhood Network, as well as failures, resulting
in a more critical assessment of PEG relative to other municipal telecommunications needs.

Thus, a new business environment -- brought about by
advances in technology and competition, and by a reassessment of municipal
telecommunications needs -- is confronting cities and cable operators as they embark upon
renewal negotiations. The recent Boston-franchise renewal, in which I had a chance to
participate as a "mediator/facilitator," provides an excellent case-in-point.

Boston originally awarded a franchise to Cablevision in
1982 and, at the time (and still today), the system was one of the highest-capacity cable
systems in the country, offering 108 video channels to consumers over a dual-cable,
400-MHz network.

The franchise also required a separate public institutional
network, PEG facilities and operating support. Ambitious plans and bold promises
eventually clashed with marketplace realities, leading to the renegotiation of some
provisions of the 1982 franchise during the late 1980s.

But by 1997 -- with approximately 120,000 out of 240,000
Boston households subscribing to Cablevision, and with noticeable improvements in customer
service -- the city found itself directing more attention to studying how Boston
schoolchildren could gain meaningful access to computers and the Internet and how Boston
public schools and other city departments could improve internal and external
communications, resulting in more efficiency in government and enhancements in the
delivery of municipal services to Boston residents.

At the same time, the city found itself wondering whether
Cablevision would, in fact, invest tens of millions of dollars to rebuild the Boston
system, or instead accept a short-term renewal, on current terms, as it had recently done
in neighboring Brookline, Mass.

Based upon community ascertainment that it had
commissioned, in August 1997, the city issued an RFP (request for proposals) for the
renewal of Cablevision's franchise. Among other requests, the RFP called for a
750-MHz rebuild of the system, continued funding for PEG and "an improved public
institutional network for further development as a city information network."

Meanwhile, a municipal task force continued to study the
feasibility of developing a fiber optic wide-area network dedicated solely for municipal
use. In response to the city's RFP and in the face of RCN's announced intent to
seek a second cable franchise, Cablevision set to work on designing and costing out a
comprehensive rebuild of its Boston system.

However, it was not until Cablevision submitted its
application in November -- offering a $160 million, "fiber-rich," 750-MHz
rebuild, scaleable to 500-home fiber nodes -- that the city knew for sure of the
company's intentions. And although the city found Cablevision's proposal to be
responsive to many of the RFP's goals, it also found the proposal to be lacking in
critical details by which the city could determine whether the proposed rebuild would
truly meet its needs.

The parties were talking, but not communicating. And
despite visits to the company's Long Island, N.Y., headquarters, city officials came
away with different explanations from different executives about the proposed
network's capabilities and the company's plans for the Boston market.

At the same time, Cablevision was not having much success
in getting city officials to articulate more clearly how the city would utilize the new
broadband infrastructure.

From the unique vantage point that I enjoyed -- being a
Boston resident with more than two decades' experience in cable-regulatory matters --
I was hearing from both parties about the state of the negotiations.

And what I heard led me to believe that the parties were
not that far apart in their goals and objectives, but that they were having difficulty
cutting through all of the chaff that surrounded them.

I had seen the benefits of mediation in other legal
contexts, and I thought to myself that Boston and Cablevision could both benefit by having
a "third-party neutral" help them to sort through some of the issues that
seemingly divided them.

One conversation quickly led to another, and soon, I found
myself jointly retained as a "mediator/facilitator," who would go back and forth
between the parties and work together with them over the next three months in an effort to
fashion an outcome that both parties would embrace.

In the end, neither side got everything that they wanted.
But what both sides got were provisions that they felt very strongly about and that met
their objectives.

The city gained assurance that Cablevision's
broadband-network architecture would be able to accommodate municipal telecommunications
needs, obviating the need for a separate, municipally owned WAN.

Cablevision came to understand that the city viewed it not
simply as a cable licensee, but as a potential vendor of telecommunications services to
the city.

In this regard, Cablevision agreed to add a $1 million fund
that the city could draw upon in purchasing equipment and services that would facilitate
its use of Cablevision's broadband network. And Cablevision agreed to provide
broadband connections to some 300 municipal buildings and to provide Internet access at no
cost to the city's schools and libraries.

At the same time, Cablevision wanted assurance that any
other cable provider licensed by the city would be held to substantially the same license
provisions with respect to matters including construction requirements; PEG support;
franchise fees; local hiring; office hours; customer service; bonding and insurance; and
reports and hearings.

With RCN already providing cable services over an
open-video system in the city and seeking a cable-television franchise, these so-called
level-playing-field concerns were very real to Cablevision.

Wanting to promote competition, the city carefully
considered the list of conditions to which it would hold any cable licensee and, in the
end, it agreed to only those conditions that it felt would be beneficial to consumers
without impeding competition. Cablevision accepted the city's list.

While both the city and Cablevision achieved many of their
goals, the real winners of the Boston cable-franchise-renewal process were Boston
residents and businesses, who will benefit for years to come by having state-of-the-art
broadband-communications services available to them and who, as parents and taxpayers,
will benefit by having schools, libraries and other municipal offices tied together via
high-capacity, high-speed broadband networks.

Robert Sachs is a principal of Boston-based Continental
Consulting Group LLC and former senior vice president of corporate and legal affairs for
Continental Cablevision Inc. and its successor, MediaOne.

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