Open Video System Operator To Challenge TCI in Washington State

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Washington -- An open video system operator is preparing to
compete with Tele-Communications Inc. in a small city in Washington state, after getting
approval from the Federal Communications Commission earlier this month.

The FCC granted Black Rock Cable's application to
operate an open video system (OVS) in the city of Bellingham, Wash., and the surrounding
areas. Currently, the city gets its cable

service from TCI Cable.

Black Rock plans to build a 550-megahertz system capable of
offering 60 analog channels, leaving 17 channels for digital use. Formerly a small cable
company, Black Rock ran a system in Washington state until 1996. The company also owned
cable systems in Nevada until 1989.

"We wanted to get into a larger market, but the rural
market has been zapped by the DBS [digital-broadcast satellite] guys," said John J.
Kehres, Black Rock Cable's president and only current employee. The company's
open video system in Bellingham is still in the planning stages, but Kehres hopes to begin
service by the fall of 1999.

Anticipating difficulties with the local government and
incumbent cable provider over constructing an affordable franchise agreement, Kehres
decided an open video system would prove less of a regulatory burden.

Created by Congress as part of the 1996 Telecommunications
Act, the OVS was conceived as a way to get local phone companies to begin offering
multichannel video services.

The OVS regulations are written to streamline the
bureaucratic process: Applications for an OVS must be approved by the FCC within 10 days.
Also, OVS operators do not have to negotiate a franchise agreement with a local
government, although they do pay some franchise fees.

The downside of the OVS regulatory setup is that OVS
operators do not control all their programming. In markets where demand exists for a
system's channel space, the operator must set aside two-thirds of the channel
capacity for programmers to buy space at a reasonable price.

This restriction, observers said, is one reason the phone
companies have rejected the OVS format. When they have challenged incumbent cable
providers, phone companies have opted to negotiate franchise agreements with local
governments, so that they have all the rights and privileges as an incumbent.

But Kehres isn't opposed to the idea of programmers
buying space on Black Rock Cable's OVS system. In fact, he said he wouldn't be
opposed to renting his system to a separate cable company or a company interested in
providing advanced telecommunications services, such as high-speed data transmission. If
an outside company is not interested in using Kehres' "pipeline," he said
he will provide 60 channels of cable

programming.

First, though, the company still has to build its network,
Kehres said. Black Rock Cable has enough capital to build a system to service most of
Bellingham's 46,000 households, he said.

States News Service

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