Cablevision Systems Corp. said last week that it had won a10-year franchise renewal from the city of Boston, after promising to spend $160 millionover three years to build a two-way network and to bring advanced services to subscribers,schools and other institutions.
The renewal came with the aid of a third-party facilitator-- former Continental Cablevision Inc. senior vice president and counsel Robert Sachs --months after Cablevision's original, 15-year license expired in December.
By all accounts, both the city and the MSO were pleasedwith the terms of the renewal, which call for Cablevision to upgrade every neighborhood inthe city, and for the city to impose level-playing-field provisions on any new cableentrant, meaning that potential rivals would have to meet "substantially thesame" terms and conditions as Cablevision does.
One unique provision gives Cablevision a chance to seekrelief if the operator is economically harmed by unfair competition from nonregulatedcompetitors such as direct-broadcast satellite companies, said sources familiar with thetalks.
Sheila Mahony, senior vice president at Cablevision, saidBoston is the first major city to issue such high standards for a cable franchise and toask that any new entrants abide by the same terms if they want franchises, too.
As part of the agreement, Cablevision said it will providefree high-speed Internet access to every public school and library in the city. The MSOwill also contribute $1 million to a new network fund to provide training and technologysupport to schools and other city buildings using Cablevision's network.
And Cablevision will allocate to the city about 3.5 percentof its annual gross revenues of around $63 million, as well as providing $2 million forpublic-access services and agreeing to link city buildings and agencies to the Internet.
Cablevision could start providing some of those serviceswithin a year.
Under the deal, Cablevision will be able to providehundreds of channels, while reserving capacity for such services as telephony, cablemodems and video-on-demand.
Industry observers asserted that the threat of competitionfrom RCN Corp. helped to prod Cablevision into making its promises to the city.
"We do feel that it's reactive," RCN spokesmanJim Maiella said.
RCN, which already operates an open-video system in Boston,is seeking a franchise from the city, which is likely to approve its application withinthe next several months, according to Charles Beard, special counsel for the city.
"That reality did impose complexities on thenegotiations here that would not have been present in a city simply renewing a licensewithout competition," Beard said. "It's one thing to speculate about competitionon the horizon, and another to talk about people already digging up the streets and posingdirect competition."
Sachs said that although competition from RCN can't bediscounted, he wouldn't overemphasize it, either. Since cable will soon be getting intonew services, such as telephony and Internet access, it will face competition in thoseareas, Sachs noted. Deals like this, he added, could benefit Cablevision, because citiescould become customers.
"Cablevision didn't always view the city as apotential customer," Sachs said, but the city of Boston is indeed holding itself outas a possible user of phone and Internet services.
Still, Cablevision was concerned about video competitionfrom RCN and other players, and that's why it bargained for the level-playing-fieldprovisions that it received.
"We have no problem with that," Maiella said."All that we ever asked for was a chance to compete fairly."
Sachs said new competitors won't be bound by every obligation that an incumbent up forrenewal faces.
"The city didn't want to create any artificialbarriers to competition," he said.
That's why RCN or any new entrants would have six years tobuild out a new network.
While level-playing-field restrictions for wiredcompetitors don't raise many eyebrows, some observers were surprised that the city agreedto similar provisions for unregulated competition from the likes of DBS.
"It sounds like an apples-to-oranges comparison,"said Barry Orton, professor of telecommunications for the University of Wisconsin atMadison. "That's the farthest-reaching level-playing-field clause I've heardof."
Beard said the clause allows Cablevision to seek a hearingfrom the city if the operator can show a substantial negative impact from an unregulatedmultichannel-video provider.
"The theory is that it has to be the difference inregulatory burdens that is causing the economic harm," Beard said. "It can'tjust be that DirecTv [Inc.] has a better mousetrap."
Cablevision serves about 140,000 homes in Boston.