NCTA Seeks Reversal of Charter Dereg Order

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Washington -- The National Cable Television Association is
attempting to overturn a Federal Communications Commission action in April that denied
deregulation of Southern California cable systems owned by Charter Communications Inc.

The NCTA said the FCC's Cable Services Bureau
"abused its discretion" by refusing to deregulate Charter in the face of clear
competition from Pacific Bell Video Services, which has been operating a digital-wireless
cable service in the same market for about a year.

In that time, PBVS has signed up between 16,000 and 20,000
subscribers, but those results have not impressed PBVS' owner, SBC Communications
Inc. SBC chairman and CEO Edward Whitacre recently told a Senate subcommittee that he is
attempting to sell PBVS, saying that the service was "not a viable competitor."

The NCTA asked the five FCC commissioners to reverse the
CSB's action, claiming that it was contrary to provisions of the Telecommunications
Act of 1996.

Time Warner Cable lost a similar case regarding systems in
nearby Orange County, Calif. It also decided to ask the CSB to reconsider its decision,
based on new evidence that it submitted.

Charter filed last year for deregulation of systems serving
about 200,000 subscribers in the Los Angeles area. The company joined the NCTA in asking
the FCC commissioners to reverse the CSB order.

The CSB order said potential subscribers in Charter's
franchise area were not broadly aware of the availability of PBVS' service. The
agency also raised concerns that several-thousand PBVS subscribers were company employees.

The NCTA said the 1996 law stated that the deregulation of
a cable operator in cases where competitors like PBVS are owned by a phone company was not
to be determined based on service availability or subscriber-penetration tests.

"The bureau has taken back from cable operators the
deregulation and flexibility that Congress deemed appropriate and necessary to compete
with telco-affiliated competitors," the NCTA said in a filing last Monday.

Beginning in 1992, cable operators seeking deregulation had
to demonstrate that one multichannel competitor offered service to more than 50 percent of
the households in a franchise area, and that multichannel competitors as a group had
attained 15 percent household penetration.

That test -- adopted at a time when phone companies were
barred from competing against cable operators -- was modified by Congress in 1996, at the
same time that it removed the ban on telco entry into cable.

The new test -- which cable operators can use only when the
competitor is a phone company or a video provider using the facilities of a phone company
-- removed the availability and penetration thresholds.

Instead, Congress said, a cable operator was deregulated
when the phone company offered comparable video programming (other than direct-broadcast
satellite service) in the same franchise area as the incumbent cable operator.

Both Charter and Time Warner easily convinced the CSB that
PBVS was affiliated with a phone company, and that its programming was comparable to
theirs. (PBVS markets a digital service of 49 basic and 40 pay-per-view channels.)

But the CSB refused to agree with the cable operators'
view that PBVS "offers" the service in a manner so that potential subscribers
are "broadly aware" of the cable competitor's service.

The bureau said it needed evidence that all or nearly all
subscribers were aware of PBVS' service. It said evidence that PBVS' service was
being offered to "segments of the population that may have been specifically targeted
or hand-picked for solicitation" was insufficient to attain deregulation.

In addressing the mass-marketing issue, Time Warner
submitted to the CSB recent advertisements for PBVS in the Orange County edition of the Los
Angeles Times
and in the county's Yellow Pages business directory.

"The bureau said, 'We don't see much
mass-marketing of this service.' [The new ads are] pretty mass-media to me,"
said Arthur Harding, a cable attorney with Fleischman and Walsh, who is representing Time
Warner.

Charter told the FCC commissioners that basing deregulation
on the mass-marketing of a telco's service would allow the telco to target its
marketing at the most desirable cable subscribers.

"As long as PBVS markets its services in this fashion,
it can proceed knowing that Charter will remain subject to the rigorous restraints of
cable-rate regulation," Charter said in its FCC filing.

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