FCC Deregulates AT&T's Boston System

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Washington— With a stroke of a pen, the Federal Communications Commission may have opened the floodgates to total cable deregulation in some of the country's largest urban markets.

On July 20, the agency ruled that the basic tier of AT&T Broadband's cable system in Boston — a 150,000-subscriber property it acquired from Cablevision Systems Corp. — was deregulated due to competition from overbuilder RCN Corp., which has about 3,000 Boston cable subscribers.

Deregulation was granted based not on RCN Corp.'s subscriber penetration, but on its legal affiliation with at least one local telephone company. That standard would likely apply in other markets where RCN competes with AT&T and other cable incumbents th
at serve millions of subscribers, including New York, Philadelphia, Chicago, San Francisco and Washington, D.C.

The FCC acted on the petition four years after it had been filed by Cablevision in a move that caused something of a political stir with Boston Mayor Thomas Menino, a Democrat. The city government — which has the right to appeal the Boston ruling to the five FCC commissioners — is studying the decision signed by FCC Cable Services Bureau chief W. Kenneth Ferree.

"We've got to look at our options at this point," said Mike Lynch, Boston's director of cable. "We're sort of scratching our head at what's behind the decision.

Frank Lloyd, a Washington cable attorney with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, called the FCC's action one of the most important issued in recent memory.

"It gives a road map for most of the major urban markets in the country to become rate-deregulated," according to Lloyd, whose law firm filed the petition on behalf of Cablevision.

The Boston decision likely involved more cable subscribers than any other similar action by the FCC, said Lloyd. But FCC sources said more subscribers were involved in deregulation orders granted to cable incumbents in Atlanta, Houston, Orlando, Fla., and Columbus, Ohio.

In addition to deregulating the basic tier — which typically includes local TV signals and cable satellite networks added at the operator's discretion — the FCC action also lifted price caps on set-top boxes and remote controls, Lloyd said. That would allow AT&T to bundle and sell programming and equipment at a single rate throughout
the Boston market.

"You don't have to have a separate rate for equipment or
a separate rate for your basic service. You can bundle it together, like EchoStar [Communications Corp.] and DirecTV [Inc.] do," Lloyd said, referring to the two largest direct-broadcast satellite carriers.

RCN'S TELCO TIES

The Telecommunications Act of 1996 deems all tiers of cable service to be deregulated in cases where an incumbent operator competes with a phone company that also provides video service, regardless of the competitor's subscriber penetration. Under that test, the competing video provider doesn't even need to provide voice services; it must only be affiliated with a phone company or use telco facilities to provide comparable video programming.

The FCC said AT&T and Cablevision demonstrated that RCN — which offers dozen of channels of video programming in Boston — was affiliated with two local-exchange carriers, C-TEC Corp. and MFS Communications Co. FCC sources said RCN itself is providing local phone service in Boston.

In 1997, Boston's Menino claimed it was premature to deregulate because at that time, Cablevision had 130,000 subscribers to only 1,500 customers for RCN in just two of the city's 14 major neighborhoods.

Lynch argued that RCN is still serving a limited area of the city and the combined impact of RCN and DBS competition has not kept a lid on AT&T's cable rates.

"For practical purposes, RCN is in two Boston neighborhoods and people are making that choice in that two neighborhoods," Lynch said. "I don't see a lot of dishes hanging off Boston brownstones. You see a handful here and there, and that's it."

Like all large cable operators, AT&T's expanded-basic tier rates were deregulated on March 31, 1999, under the telecom law.

The FCC's order does more than deregulate basic-cable and equipment rates. AT&T is no longer required to offer uniform rates throughout the franchise area.

It's also no longer subject to agency rules that prohibit cable operators from requiring basic subscribers to buy a second tier of programming as a stepping stone to the purchase of premium networks, such as Showtime or Home Box Office.

In January, the FCC said MSOs deemed subject to effective competition, like AT&T in Boston, are no longer required to carry local TV signals on the basic tier.

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