Md. County Makes Digital Demands

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Digital spectrum set-asides for localities to use as
PEG-access (public, educational and government) channels are becoming an increasing part
of the franchising landscape.

The latest illustration is occurring in Montgomery County,
Md., where officials have hammered out a deal to transfer the cable system there from SBC
Media Ventures L.P. to Prime Communications Potomac LLC.

The agreement calls for Prime to set aside 10 percent of
the system's future digital downstream capacity -- up to 25 channels -- for the
county's use. That comes on top of the usual demands for a system upgrade to 750
megahertz (200 MHz to be digital), which will cost Prime $140 million,

The agreement is still subject to public hearings and
approval of the County Council, but, as now written, it also gives the county $500,000 in
capital support for such uses as buying digital boxes for schools and other narrowcasting
projects.

Currently, SBC -- a division of telco SBC Communications
Inc. -- pays 6.5 percent of its gross revenues to the county (a 5 percent franchise fee,
and the balance in support of PEG-access channels).

Prime, which now manages the system for SBC, will pay 8
percent of its gross as owner, including increases in digital and institutional-network
(I-net) support, according to Nick Miller of Miller and Van Eaton, attorney to the county.

Jane Lawton, cable administrator for Montgomery County,
said the set-aside is strictly for PEG usage, and not commercial usage. The system has an
active access community -- the current franchise calls for an analog set-aside of 13
channels, 11 of which are in use, she noted.

During focus groups held to determine programming interest
for the improved system, participants expressed special interest in public-access channels
on the digital platform, Lawton said.

The franchise element will only burn 3 MHz to 6 MHz, said
Keith Haller, a spokesman for Prime, adding that the operator will retain use of the
bandwidth until the county needs the capacity.

Haller denied that the set-aside will establish a
precedent, saying that it is a local matter: an acknowledgment by the county of changing
technology.

But other cable executives and attorneys disagreed, noting
that other communities, either during transfers or refranchise negotiations, have begun
making demands for anticipated digital capacity.

For instance, King County, Wash., negotiated a potential
deal with then-operator Viacom Cable, franchise-watchers said, but the requirement fell
out when Tele-Communications Inc. bought out Viacom.

In a more recent example, a bandwidth set-aside was part of
the concessions when Charter Communications Inc. bought Cablevision Industries' Long
Beach, Calif., system. The city will have use of a single digital channel, about 6 MHz, to
transmit voice and data between public buildings, said Trudi Foushee, vice president,
senior counsel for Charter. The city will pay for the switching.

The agreement bars Long Beach from commercial,
revenue-generating use of the spectrum without approval from Charter, Foushee said. The
set-aside is in addition to an I-net, over which the city has control, she added.

It doesn't take long for an element in one franchise
to become a trend, noted Joe Camicia, director of government and public relations for
Marcus Cable.

"Lately, everyone's requesting dark fiber. They
don't know why -- they just know that somebody else got it," he said.

Camicia added that MSO representatives hope to get on the
agenda for the next meeting of the National Association of Telecommunications Officers and
Administrators to try to negotiate some standards for dark-fiber requests.

"There'll be less controversy if we talk in
advance," Camicia said.

Miller said he and engineering and franchising consultants
now advise clients to seek digital set-asides. PEG could lose viewer access if it remains
on an analog platform as transmission technology moves to digital, he said.

Movement into the digital realm will allow PEG programmers
greater narrowcasting capability, such as homework channels. For instance, Miller
suggested that the capital support for digital PEG in the Montgomery County franchise
could allow a district to buy digital set-tops to loan out to nondigital subscribers so
that they can do schoolwork at home.

Montgomery County plans hearings on the franchise proposal
this week, after which the council has up to 60 days to accept or amend the deal.

If approved as proposed, Prime Communications will get a
15-year-franchise to rebuild the 800,000-homes-passed system. Prime must rebuild during
the next four years, and the project is guaranteed by the seller, SBC, according to the
franchise.

The new owner is a partnership of Prime Management L.P., an
affiliate of Prime Communications, and The Carlyle Group, a Washington, D.C.-based
investment firm.

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