Small Ops See Difficult 1999

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Monterey, Calif. -- Small cable operators face a tough time
as problems like digital must-carry, rate re-regulation and program access are looming
larger than ever, a group of independent MSO officials were warned last week.

"There are so many issues now, and each can have an
effect on your bottom line," Matt Polka, president of the Small Cable Business
Association, told members of the National Cable Television Cooperative. "And 1999 is
going to be a difficult, difficult year."

About 455 NCTC members and vendors attended the purchasing
co-op's three-day annual meeting here, up from last year's 404. The co-op, based
in Lenexa, Kan., has built a formidable constituency, equivalent to the No. 3-sized MSO,
in that it now represents cable systems with more than 9 million subscribers.

Carter Maguire, executive vice president of the Central
division for Turner Network Sales, was a first-time attendee at the co-op's gathering
this year.

During sessions at the meeting, a number of small MSOs
offered tips on how they are bringing state-of-the-art technology to America's
heartland and its rural towns, be it with digital television, via WorldGate Communications
Inc., or by providing Internet access and high-speed cable modems.

Offering new technology is not only helping these
independent, entrepreneurial operators stay competitive with direct-broadcast satellite
and the phone companies, it is boosting their bottom lines.

"The opportunity is to create a new revenue
stream," said Ron Jansonius, advanced technology manager for Classic Cable. "The
rural market is ripe and captive. Rural areas fear being left behind [on new
technology]."

Aside from dealing with competition, and combating
regulatory challenges, the cable industry's continuing consolidation was also top of
mind with some of the operators. News leaked out at the meeting that Tyler, Texas-based
Buford Television, an active NCTC member, was on the block.

The consolidation issue was so topical that two different
officials of Prestige Cable TV, a 161,000-subscriber MSO, made a point of noting that
their owners are committed to the industry long term.

"We have no plans of getting out of the
business," Seth Hopkins, Prestige's director of operations, told his audience.
"We're here for the long haul."

Although small MSOs may appear to be an endangered species,
of the 10,000 U.S. cable systems, almost 7,000 are owned and operated by small independent
operators, according to Polka.

And even though they have been deregulated, these smaller
cable systems on average have been raising rates at a clip of only 2 percent or so, far
less than giants such as TCI, Polka said.

Independent operators typically live in the communities
that their systems serve. So when they raise cable rates, they hear about it, and catch
flack firsthand. One operator told Polka that it was tough to increase rates, because he
sees his subscribers in church every Sunday.

Polka discussed the bill that Rep. Billy Tauzin (R-La.) has
introduced, which allows cities to void cable deregulation next March.

While Tauzin has said his bill would not change small
operators' deregulated status, the bill is not explicit on the matter. And it's
not clear whether the FCC could order all operators to offer "lifeline" tiers
that would be regulated.

Polka warned that hasty federal action could "roll
back the gains" of the 1996 Telecommunications Act, which removed rate regulation
from small systems and thereby helped reopen the capital and financial markets to them.

"We never want to see the 1992 Cable Act again,"
he said.

Both Polka and NCTC president Michael Pandzik said that
channel-locked small operators are also worried about the impact of any digital must-carry
for broadcasters' digital networks.

"If you don't have extra bandwidth, will you be
required to delete existing channels?" Pandzik asked.

The co-op's main function addresses another one of the
prime concerns of smaller MSOs: program access. The co-op, based on the volume of its
members' subscribers, is able to negotiate master carriage deals with programmers
that include license fee discounts similar to -- although not as steep as -- those that
major MSOs such as Tele-Communications Inc. obtain.

Pandzik said programming cost "is the
issue" with small operators. The co-op right now is not only trying to nail down
deals with ESPN and Disney Channel, it is also attempting to forge master affiliation
agreements with Internet service providers, he added.

Earlier this year, the NCTC filed suit against MTV Networks
Inc. over a hefty Nickelodeon rate increase. That action is still pending, with MTVN
expected to file answering papers later this month.

Among the programmers pitching NCTC's members at last
week's meeting was the Outdoor Life Network, which was reportedly offering $2.75 per
subscriber in launch fees to systems that roll it out by the end of September.

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