Ops Have Mixed Success with Rate Hikes

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With the passage of the Cable Act of 1992, Congress
embraced a vision for the future that would bring competition to the cable-television
industry.

But several weeks ago, the Federal Communications
Commission released its study on competition, which reported that progress on this front
has been slow. Meanwhile, some lawmakers on Capitol Hill are talking about delaying the
scheduled termination of expanded-basic cable-rate regulations in March 1999.

In this context, are cable operators having much success
convincing subscribers and the cities that the rate increases are necessary? In this tale
of three cities where operators raised rates last year, the results are mixed.

Even as MediaOne is seeking to back out of its agreement to
sell its St. Paul, Minn., system to Charter Communications Inc., that action has generated
as little interest as MediaOne did when it raised its equipment rates last summer.

MediaOne currently offers a $35.92-per-month standard
service to its 52,000 St. Paul subscribers, part of a Twin Cities-area customer base of
about 300,000.

'I don't know that cable is a real hot consumer
issue in St. Paul,' said Holly Hansen, the city's cable communications officer.
'We haven't had huge rate issues here. We have had a couple of complaints with
the equipment hikes. I don't think [that customers] care, as long as they get good
service that's reasonable and courteous people on the phone. I don't think that
the city cares, provided that we get good quality and good service.'

Hansen said the city's arms are tied because of the
so-called social contract that MediaOne's predecessor, Continental Cablevision Inc.,
signed with the FCC. Only the FCC can review certain rates, and that agency is so backed
up, she said, that 'they haven't reviewed last year's rate hike, let alone
this year's.'

Although Continental refused to give up the financial
information that the city had requested, Hansen said, 'Our frustration is with the
FCC' and its backlog.

'We're prohibited by the social contract from
[reviewing rates], so nobody does it. That, to me, is not a good solution,' she said.

The bigger hurdle in the franchise-renewal process is the
disposition of a franchise-required institutional network, which currently provides about
70 schools and 30 other institutions with a closed loop for data and video transmissions.

In Minneapolis, the operator is different, and the
situation is far from identical. Paragon Communications, a Time Warner Cable company,
serves about 190,000 customers in Minneapolis and its environs. Its rates have increased
about 45 percent since January 1996, with standard service now priced at $35.45.

But the increasing rates have not soured Paragon's
relations with its subscribers, perhaps because the company coupled the increase with new
services and a system upgrade. Paragon's former 'Added Value Package' --
which included ESPN2, The History Channel, Turner Classic Movies and Cartoon Network, and
which sold for an additional $1.95 per month -- is now part of its standard service. The
operator has just completed a plant upgrade to 750 megahertz in five southwestern suburbs,
and it is proposing similar upgrades in its discussions with other franchising
authorities. said Kim Roden, Paragon's vice president of public affairs.

'We feel more comfortable making the size of
investment for upgrades because there's some recognition that we can be competitive
with others,' Roden said.

Most of the cities recognize that if they want
state-of-the-art cable technology, there's a price that has to be paid.

'They want to maintain the goose that's laying
the golden egg,' Roden said about cable's payment of franchise fees.

One factor in the relatively amicable relations is the
presence of what Paragon calls viable competitors. Although the local-exchange provider
does not offer video service, wireless cable and direct-broadcast satellite are legitimate
competitors in the area, the cable company insisted.

As of December, Roden estimated that competitors have
plucked off 20,000 customers in the Minneapolis market. She said the company has seen an
increase in its percentage of basic-service-only customers -- a possible indication that a
growing number of full-service subscribers are switching to DBS and maintaining basic
cable only.

All of this has helped Paragon to persuade its communities
to retreat from onerous franchise requirements -- which have included 30 public-access
channels, 120 customer channels and studio equipment and a $275,000 annual fee for public
access -- and to work as partners for a competitive future.

Such is the case in the five southwestern suburbs -- Edina,
Eden Prairie, Hopkins, Richfield and Minnetonka -- encompassing 60,000 customers, where a
joint cable commission and Paragon hammered out a new, 15-year franchise agreement last
year.

In exchange for a system upgrade, the communities will
allow Paragon to consolidate all public-access operations in a single facility in Eden
Prairie, to dramatically reduce its annual fee for public access and to turn over
operation of a public-access van to the communities.

The agreement also contains a most-favored-nation clause:
If a franchise with another provider doesn't require it, Paragon won't have to
do it.

Adrian Herbst of law firm Fredrikson & Byron, who
serves as franchise administrator, noted that the commission agreed to the new franchise
only after studying Paragon's proposal at length.

Herbst praised Paragon for its cooperation and willingness
to rebuild the system 'at an early date.' He said relations between Paragon and
the cities are good.

'People do have concerns about rates. You're
always going to have people react to a rate change. For the most part, the amount of
complaints is very little, and the cable company is very willing to discuss these things
with the cable commission,' Herbst said.

While regulators in the Minneapolis area are marching with
their operator to the drums of a competitive future, in Providence, R.I., John A. Notte
III is listening to music of another kind -- the cacophony of customer complaints about a
rate hike that Cox Communications Inc. pushed through last year.

Cox implemented its rate changes -- which raised the
expanded-basic rate by nearly 5 percent, to $27.91 per month -- in November. Reaction may
have been intensified by simultaneous changes in channel lineups and the relocation of
broadcasters 'on channel' -- activities that, whatever their ultimate benefit to
customers, tend to generate confusion.

'It's ruffled a lot of subscribers'
feathers,' said Notte, whose formal title is associate administrator of the Division
of Public Utilities. He said he will file a complaint with the FCC on the increase.

Part of the confusion may stem from the multiplicity of
systems and channel lineups in the state. While Cox is the dominant provider, serving 92
percent of the state, it operates five separate channel lineups for systems with varying
capabilities.

In Cranston, where Cox is rebuilding the plant to 750 MHz,
it introduced an expanded channel lineup. In northern and southern systems acquired by Cox
from Tele-Communications Inc., it offered no new channels at the time.

'I think that it's important to put this in
context,' said John Wolfe, Cox's vice president of government and public affairs
for New England. 'It used to be that when a Rhode Island cable operator changed
prices, it would affect a small area, because there were seven or eight operators. Now,
because we have 92 percent of the state, you're going to see significantly higher
[complaint] volume, because more people are affected on the same day.'

To minimize confusion about the multiplicity of rates and
channel lineups, Cox 'used just about every communications vehicle,' Wolfe said,
including newspaper articles, local television, on-air spots, infomercials and
'transactional messages.'

In Minneapolis, active and effective competition is serving
as a catalyst for cooperation between the regulators and the regulated. In Providence, the
competitive threat appears much further down the road.

The local-exchange provider, Bell Atlantic Corp., has no
immediate plans for video delivery, while DBS providers, according to Notte, have made
what appear to be modest inroads.

'I don't see any great exodus at this
stage,' Notte said about cable subscribers to DBS.

Cox's Rhode Island customer total grew by about 3.6
percent, to 264,665, over the first three quarters of 1997. However, Notte did not
interpret this as a measure of customer satisfaction or of the effectiveness of the Cable
Act of 1992.

'You have groups screaming for a freeze or a
moratorium on rates, and you've got a congressman who introduced a bill to do
that,' Notte said. 'I'm assuming that they're getting the same kind of
reactions across the country. You may see some action on that. Our U.S. congressman,
[Sen.] Jack Reed [D-R.I.], is in touch with us a couple times a week.'

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