Question: Are there Video dialtone systems currently in operation?

Meredith Jones: Yes. There are some limited video dialtone systems that went into operation just before the Act passed. There's one in California. There's one in Dover Township, NJ. Many of the video dialtone systems set up prior to the Act, we've been advised by the owners of those systems that they are going to convert them to cable. I think one of the best questions that I didn't address is, will they build it? I think that is the biggest question in OVS. If I could have one more second I'll tell you what I think. I think one of the big issues is whether you can get to a switched digital system. Because I think when I listen to the people who've come before us, the people who talk about switched digital seem to have many, many fewer problems with all of these questions that I'm raising than the people who come and talk about analog systems. What we hear from the people who talk about switched digital is that if you have a switched digital system, your capacity is virtually infinite. So that all of these issues about who gets a third, are we cut back, can we make a go of it with the third, do we charge the just reasonable rates to an unaffiliated programmer - they become much less contentious. Because, for example, one major Bell operating company came in and said if we do a switched digital system for ourselves, we're confident that we will always have enough capacity for what programming we want, and we view any unaffiliated programmer coming on as somebody who is just contributing to our cost, to helping us cover the cost for the system with no marginal burden on us. And that's just a very different attitude than people who are focusing on analog systems. With analog systems there's a lot more contention.

Question: How much control do OVS operators have?

Answer: Yeah. I mean would you still have to allow people to come on? You wouldn't have the complete control that a cable operator has, which is to say I built this for myself and I'm not going to carry anybody else.

Question: When will the FCC post its final order on OVS on the Web?

Meredith Jones: No I didn't say tomorrow. I didn't mean to say tomorrow. I just meant that by the end of the month, beginning of June you can look at.... Very often I think the Commission is known for proceedings that take years and years and years, and I'm just trying to stress that this is not one of those. But it's not going to be tomorrow. I guarantee you that.

Question: What rate regulations will apply to OVS operators and will we see OVS operators in a position similar to SNET's position in offering telephone service in Connecticut?

Meredith Jones: Well, first, I'm not a business person for a telco, and I'm sure there are people on this panel who can speak a lot better to it than I could, but I will point out two things. One, Connecticut is different from many states, it's one of the unusual states in which you have a single franchise authority for the entire state. So, when SNET went in and worked with the Connecticut PSC they then got statewide coverage. And there are few states that are like that, I think four or five. But that is rare. And the other thing that I want to mention is that when you talk about the regulation of cable, the rate regulation of cable, that would not be applicable to anybody building an OVS in reality. Conceptually I guess it could be. But under the 1992 Cable Act where effective competition exists within a franchise area, there is no rate regulation. Effective competition exists when there is more than one multi-channel video programming distributor in the area. And they offer in the aggregate services - the aggregate of the multi-channel video programming distributors who are not the major multi-channel video programming distributor for the area passes 50% of the households and 15% of the households take their video service from the nondominant provider. Well, with the advent of direct broadcast satellite, which is under our rules considered a multi-channel video programming distributor for that 50-15 test though not for the new test in the Act. For the 50-15 test, that means that the 50% pass rate is met everywhere except perhaps Hawaii and parts of Alaska. So then you're really looking at the 15% take rate and since cable is taken by more than 15% of virtually every franchise area, I mean "you" really the OVS provider, for the new entrant whether they come in through cable or through OVS rate regulations is really not an issue.

Question: Is this really a problem?

Meredith Jones: Well people come in all day and tell me that's a big problem, so I don't know.

Eli Noam: Well thank you very much. So, now we have Leslie Vial the General Attorney Federal Regulatory for Bell Atlantic. And as you know Bell Atlantic has been perhaps the most active or certainly one of the most active LECs in the video field with various trials and experiments and applications.

Leslie Vial: Thank you. Just to answer one question that was raised earlier. The first commercial video dialtone system is in Dover Township, NJ, which is Bell Atlantic's system. And maybe we have a few hundred, maybe a couple thousand customers up in Dover Township right now on the video dialtone system. OVS is actually one of four - I hate to correct my the previous speakers but - four options for telephone companies. It may seem unlikely that anybody would choose common carriage, but that is a fourth option in addition to cable, OVS, and the radio broadcast. One thing that I think is clear about OVS is that we don't know what it is going to look like. It is new; there are lots of issues. As late as this morning I was having a debate internally in the company as to how we are going to do particular aspects of this. And we believe that as a result we really need some market experience, some trial and error to find out whether this is going to work and how to make it work. But we do believe that we will offer OVS and we'll use that as an entry vehicle into video, and I know Meredith has heard this before, if the rules come out right. We see two big differences between OVS and cable, and they've been mentioned before. One is of course is that OVS is open. It's not common carrier. The second is that it brings with it reduced regulation. The primary one of those, as Meredith has mentioned, is no franchise obligation, although we do pay the franchise equivalent fee. It also means no Title II regulation, and having gone through some experience in video dialtone, that is significant to us. There is a question on how these aspects of regulated but not regulated square. There is a question of how we will make sure that it is open. We do have an obligation to be non- discriminatory. We also have the ability to offer or to carry programmers with rates that are not unjustly or unreasonably discriminatory. From our viewpoint, we are the new entrant entering a market that has one and maybe two multi-channel video program distributors in it already. And as a result, we need to be able to meet the expectations of the customers, and in this context, the customer is the programmer who wants carriage on the system. If we are required to do things, have uniform rates, have public contracts that other vehicles are not required to have, we think it is likely we will be disadvantaged in the market. We also think that this makes a viable program for independent programmers who in many instances are foreclosed from the market right now. It may be obvious from what I've said, but we are one of the companies that is talking switched-digital video and moving in that direction. The system in Dover Township is the first generation of that. So we agreed with Meredith; we don't see that we face all of the same issues that I know others think they face. As the platform for independent programmers, however, if we can't make a go of this, there is no platform, and therefore, I think that there is a balance that the FCC - the FCC recognized the question and we hope that they will come out in the right place on the balance between competition between an OVS system and the incumbent cable operator or incumbent DBS system and intra-system competition - competition among the programmers who are on the OVS system. In our view, if you let the competition, the intra-system competition, be the primary driving force, you will make that system not a viable competitor to the cable system, and you will lose the benefits of it. We have argued that what the FCC should do is enact simple rules, not try to decide everything upfront, since we don't know how this is going to work out; if you try to figure it out now without any real experience, you might get it wrong. You put yourself in the position of dictating technology, maybe inadvertently, but nevertheless, technology and markets. We recognize that there may be complaints, questions, and the FCC has proposed and we have suggested in our draft rules that we submitted, that the complaint process with real concrete facts in front of the FCC is the way to resolve that. I guess I would like to address a couple of the questions that have come up just in reasonable rates. I think, at least we view "just and reasonable" as an old Title to a common carrier concept, and because the Act says that the Title II regulation is not what should do for OVS, we think that "just and reasonable" has to get away from all of the baggage that came with Title II. The market, we think, will set just and reasonable rates. I guess I would say with Professor Price, that if you can get to the right price, that should be just and reasonable. With respect to PEG must carry, the way that we have suggested that that happen, is that that be the OVS operator's obligation, but that whichever programming provider a customer takes should have the obligation to include those programs with that package. We don't call it a tier by-through, but I assume that it functions more or less the same way, and I would assume that if must carry is not constitutional for cable, it's not constitutional for us, either. I see that I'm coming to the end of my time, I will perhaps just stop and have people ask questions.

Question: What rules regulate the current VDT system?

Leslie Vial: Our system, the Dover Township system, was authorized under the Commission's video dialtone rules. When the Act passed, it eliminated the video dialtone rules but said this should not be construed as requiring the termination of systems that are currently authorized. So we're currently operating just as a common carrier system. Once we see how the rules come out, we intend to make a judgement as to which option we want to proceed under for that system.

Question: Will the product be very different, or is this going to be just like cable from a viewer's perspective?

Leslie Vial: This is one example that we have from Dover Township that, unfortunately, didn't become a reality, but we believe is one of the opportunities for OVS, is that we were approached by the Korean cooking channel. This is something that is not likely to get carriage on the cable system, but that person, that entity, thought that there was a niche market and thought they could make a go of it on an open system. The hangup there was that under the Title II common carrier rules, we were not able to assist them with marketing and various other things that they thought they needed help from us or from somebody to make a go of it. When we couldn't do that, they thought it was not viable for them.

Question: What is happening with TelQuest and FutureVision?

Leslie Vial: I can't comment on very much. TelQuest is not part of Bell Atlantic, first of all. TelQuest has agreed to purchase FutureVision which was the initial programmer on the Dover Township video dialtone system. And I know that there are issues with trying to get a slot on the Canadian satellite, and you've now exhausted my knowledge on the subject.

Question: Is the open-video system in Magnavox switched digital video likely to be a viable business prospect simpler to administer. And if that's true, do you think that moves you towards fulfilling your goals?

Leslie Vial: To answer the second one first, yes, we think it moves us towards offering advanced telecommunications. And the first one - is switched digital video simpler? It's a new technology, and new technologies are never simple. But a number of the problems that people who're doing analog or analog digital hybrid systems see, I think we do not see; people have commented that a fully digital system, or a switched digital system has unlimited capacity. That's true, but it's not without cost. The electronics - all the things that you need to do to increase capacity - come at a cost, and there are certainly business judgements and trade-offs that have to be made. Nevertheless, we do think it's a more flexible technology and that's one of the reasons we're going in that direction. In OVS, we don't know what the rules are yet. And there is a requirement in the Act that if the operator has a gateway system, some kind of a menu system, or makes information about programming available, it needs to make information available about all the programmers in a non-discriminatory way. There's a distinction, I didn't get into this - we can later if you want - but we see a distinction in some ways between the system itself and perhaps our affiliate who would be offering the programming, and in some ways we have sort of thought that responsibilities would divide differently among those two.

Eli Noam: Thank you very much. We now have John Urban, Vice President Government Relations, Cablevision. This system's one of the largest cable companies in the country and certainly in the metropolitan area of New York.

John Urban: Thank you. I'd just like to pick up on a comment that Meredith made because she said that when people come in to visit with the Bureau and they're talking about switched systems, there's a lot less contention. And I think that you meant that from a contention, as far as business contention, but I think that word's important because it's also contention from the standpoint of network contention. I mean, that's why there's contention and the FCC, because you have a network where you have a number of potential programmers that can't get access to the network unless it's either a switched digital network or an HFC network that has digital capacity so it has channel capacity to the level that there's not contention to get on the network. So I think that contention is an important word that has multiple meanings. Cablevision is interested in OVS for a number of reasons. We're interested in it because we are a cable provider, and OVS is a potential competitor to us or interested from a standpoint of parity. We are also a programmer and Cablevision has been a niche programmer. In addition to American Movie Classics and Bravo and things like that, we have a very niche-oriented programming. We feel that if OVS is a viable platform, that it would be a special interest to us because we specialize in niche programming. My involvement in OVS goes back to some involvement in video dialtone. Originally, when I was a state cable regulator, and I was involved in the commenting phase of video dialtone, and at that time, I was very intrigued in video dialtone. I remember the rulemaking that came out said that the concept was something that was analogous to the public switched network, although it would offer you to transmit video. And I think that that's very intriguing because it not only allows for niche programmers to program, but that concept really allows for individuals to program. And perhaps is something like what the Net will eventually be if there's more capacity on the Net. So that concept of an open system that not only businesses can get access to program, but also small businesses or individuals can get access to program on, to me is very interesting. The problem going forward and implementing video dialtone was, A: the slow development of switched video and B: the slow development of digital boxes for an HFC platform. So you have this concept of non-discriminatory access to a network, however you had networks limited in channel capacity and you got that contention problem. The interest in starting video dialtone was really two-fold. One was that kind of theoretical interest in creating that platform that would be open, that would be common carrier. There had been a lot of concerns in the past about the fact that cable controls its content and you have a lot of other programmers that want to get access to communicate, and they don't have that opportunity. So there was that interest in sparking video dialtone, but there was also an interest in using video dialtone as a method for telephone companies to get into the video business because the 1984 Act had a restriction limiting the ability for telephone companies to get into the business. With the lifting of that restriction, you now have a situation where the interest in video dialtone should be very pure, and the pure interest should be in this concept of a common carriage basis of delivering video. However, there still remain concerns about cost allocations, and I think later we're going to hear a little bit about that. Because when you have this common carrier network, if that network is also carrying telephone traffic then you have questions about how are you going to determine the cost allocations and who's going to pay for what. Are telephone repairs going to be paying for the development of this new service? The FCC is on its way in developing regulations. We heard an interest in making sure that OVS doesn't become front-loaded with regulations. But I'd like to share with you a couple of experiences that we had with video dialtone and experiences that I got involved in and without pointing fingers or naming names and I'll even say that no one on this platform, or no one on the panel is named. But let me just go through an experience that Rainbow, our programming company, had with video dialtone. In January of 1995, Rainbow sought capacity on a LEC's video dialtone platform. We had actually sought access to I think virtually every video dialtone platform. Again, this is the programming side of the company. On April 27th of that year, the LEC responded to Rainbow's request for capacity, informing Rainbow that a formal request was necessary to secure platform capacity. The very next day, that LEC received a request from its unregulated subsidiary to secure the rest of the channels that were available on the platform. So Rainbow asked for a request on the platform. We were told that a formal request would be needed, and the very next day, an unregulated subsidiary of the telephone company that owned the platform said, "Well, we want the rest of the channels." In May of that year, Rainbow followed up and formally requested the channels, and the LEC notified the Commission that it had a capacity shortfall, and then finally it went to the State and the State said that there was a shortfall problem and that they didn't foresee the ability to remedy that shortfall problem. That experience could well be replicated with OVS, and that's really the concern, I think. If there is the alleviation of a contention problem, if there is such capacity that you get non-discriminatory access, then I think we'll all be in good shape. But if there isn't non-discriminatory access, and if there aren't protections to make sure that non- affiliated programs can get access to the platform, then we're going to end up, not with an open platform that has non-discriminatory access, but we're going to just end up with the same kind of platform that we currently have. So to answer the question, is this real or hypothetical, I don't think that we know the answer today because I think that the answer is somewhat dependent upon the development of technology as far as switched video and as far as compression for digital carriage. But I do think that it's very important that the FCC not feel compelled to create OVS, and feel compelled to make sure that this system works. I think that the FCC should develop regulations, put it out there, and if it works, it works; perhaps it won't initially work but it will over time. But I think that there is a general concern that there not be an interest in handicapping the system, or restructuring regulation so that it's somehow insured to work. Because if it's insured to work, I don't think that it's going to. Unless we have the promise of technology, I don't think it's going to fulfill its non- discriminatory requirements.

Question: Are you, as a cable operator, complaining that the telephone companies are acting like cable companies?

John Urban: No, I think what we're saying is that if you want to be a cable operator, you now have the ability to be a cable operator. The restriction that was in the '84 Act has been removed, and if you want to be a cable operator, fine. There's a regulatory structure for that, and in fact, in Ohio, we're facing that situation with Ameritech where they're franchising in areas where we're serving, and we will be competing with SNET in Connecticut. SNET is franchising and we'll be competing with SNET. As far as OVS, if it's a different platform, then it should be a different platform; it shouldn't be cable.

Question: As far as public access to the OVS platform?

Answer: The statute says that if the local franchising operator requires public access as authorized under the '84 act, then it'll be required for the OVS operator. There are a lot of complications because these are cross-jurisdictions and it's unclear what public access provision would apply. And it's not clear that the city gets to enforce it. I don't know if the city enforces it, but it's a curious but interesting aspect of the rules.

John Urban: But I think there is an interesting question about the public access because in the definition of franchise, public access works its way in there. For example, I'm familiar with Massachusetts, where you have a very low franchise fee that goes to the regulators. However, the fee between the state-mandated fee and the 5% federal fee is taken up usually with monies that go to public access. So the monies that are with OVS, the monies that are in lieu of franchise fees would be public access monies. I'm not sure exactly how those are dispersed in that particular state. I'm not sure how that's going to be addressed.

Question: In the situation that you related to us, how many channels did that system have?

Answer: Maybe I could ask Leslie Vial to tell us how many channels Bell Atlantic envisions an OVS having. There's sort of a sense of how OVS provides limitless capacity, yet I'm wondering if it's any different from VDT where you had obviously some capacity...

Leslie Vial: Dover Township has 384 channels. FutureVision is offering about 70 right now. And actually, Rainbow has reserved channels there that are not currently in service.

John Urban: In the particular case that I was talking about, the initial representation was that there would be 80 analog channels and 200 digital channels. The final outcome of this before it failed, was that it was going to be 76 analog channels, kind of a plain old cable television system. I think that the Dover experience is substantially different because it does have the high capacity; it is much more of a real platform.

Question: What program access rules will apply?

Answer: Program access is a real dilemma with this because you have programmers out there, and if there are program access rules, then all of a sudden, that means that the owner of the platform, rather than the platform provider can take that programming. So then there's no one left to access the platform in a non-discriminatory way. So I think that there's probably a need in the reality of it. I think that there's probably a need to, over time, make sure that the programmers don't play regulatory games, and just withdraw programming completely and sink the concept of OVS. However, personally, I think that, straight out of the box, to use program access really defeats the whole purpose, because then you won't have a non-discriminatory access platform because all the programming's going to be grabbed by someone who's going to control it. You're not going to have the opportunity for the programmers that are out there to really access the platform on their own.

Eli Noam: Thank you very much. I should also tell the panelists that you can also respond to the questions as long as you want to respond. Jeffrey Hops is the Director of Government Relations for the Alliance for Community Media, a public-interest group involved in telecommunications law and policy. He has also been staff to our own Congressman Jerrold Nadler.

Jeffrey Hops: I'm going to, first of all, give you three things. First, I was going to give you the short description of the Alliance for Community Media and what it does. Then move to the Seven Deadly Sins of OVS. And third, tell you about how the Alliance perceives the reality of OVS. First of all, the Alliance for Community Media, is, in the most standard sense, primarily a trade association for public educational governmental here and after PEG channels on cable TV. For Manhattanites, that would be Manhattan Neighborhood Network; that would be the All-City Council channel, the Board of Ed channel, and so on. We consider ourselves to be a public-interest group. Multichannel News, a trade paper, called us this week, a "so-called" public-interest group. So if you would like, we are a "so-called" public-interest group. We consider ourselves a public-interest group and therefore, I consider it my role here to spice up things a bit, and if I don't have at least half of the panelists here ready to have my blood by the end of my six minutes, I haven't done my job. We're very interested in First Amendment rights in the electronic media, and because the content of access comes so much into money, surprisingly, it brings us into consumer issues, as well. So that being said, I want to tell you from the Alliance's point of view, what our concerns are about OVS. We came up with seven major concerns, so we're going to call them the Seven Deadly Sins of OVS. First of all, OVS is not a new technology. Nowhere in the statute are any technological standards required. So we don't want to get into the trap thinking that there's a demand that there's a switched digital requirement in here. It's not there. It's an undefined regulatory paradigm, which may or may not use new technologies. No hardware change is necessary at all, and as I'll get into, one of our concerns is that, in our worst case scenario, a cable operator will become an OVS operator with a simple change nomenclature. There's no switched network requirement. So that's number one: OVS is not a new technology. Number two: OVS does not absolutely require any third party access. As our other panelists have noted, what it does say is that two-thirds of the system may be made available to unaffiliated programmers, if, and only if demand is made. Now what is demand? Well, demand is not specified in the statute. If the price to get on the system, is $1000 per hour per sub, there probably won't be any demand and the OVS operator could take all the programming for itself. And when you read the regional Bells' unified comments, you will see that the flexibility that the regional Bells ask for in shaping who can get on under a "so- called" non-discriminatory circumstances, is so flexible as to create a possible situation where we're concerned that there will be no meaningful third-party access. Third, OVS will not bring new entrants into the provision of video conduits. There's no requirement that OVS be a second system, either geographically or in other competition matters in a competitive manner. OVS is not required to be in a place where cable is already. It can be cable systems themselves. When you look at, for instance, US WEST's purchase of Continental Cablevision, we realize that RBOCs are already in the business of providing video services. So there's the question which I'll get to in a second about what the rationale is. RBOCs are already providing video services. We don't see that they need a new impetus to get them to do stuff they're already doing. Fourth, OVS will not create competition between wireline providers in the same geographical market. There is no requirement that a system overbuild to get OVS, the assumed beneficial deregulation of OVS status. As I alluded to before, a simple nomenclature change after a buyout can create an instantaneous OVS system which will be a monopoly in its market. So there's been an attempt by, again by the unified Bells and some other parties to say, well, we really need all this deregulation so we can compete against an incoming cable company. Well, it's not required by the statute, and the statute currently could conceivably allow a nomenclatural change upon a buyout. That is, as I mentioned, our nightmare scenario. Fifthly, we have had some talk about intra-system competition. Intra-system competition, if it is allowed to exist, which we're very skeptical about, will not drive down the cost of access for exactly the reasons that Professor Noam alluded. The market will find its level, and given that there is an additional, in addition to the market finding its level, a very strong impetus for the operator to maintain complete editorial controll, ee don't see the monopolistic interests in competition as really offering anything. And again, as Mr. Urban acknowledged, the rationale that the Bells are bringing into this, regarding the ability or the desire of the developist to pick up their capitalization cost, in the case of VDT for Rainbow programming is just clearly not so. Sixth, is corporate advocates want to substitute adjudicatory processes for brightline regulation. The unified comments of the Bells were very strong about saying let's not, and as Ms. Vial commented, let's not write any rules right now; let's wait and let the adjudicatory process take its course. Adjudicatory processes are great if you have money. And public-interest groups like myself, very small operations like the Korean cooking channel, do not have the resources to bring to an adjudicatory proceding. It's like going after a hydrogen bomb with a squirt gun as far as the justice of the system rights is concerned. And finally, I think I just want to reiterate the seventh deadly sin, is simply a repetition of what Mr. Urban pointed out, which was that, the seventh deadly sin is that this is being promulgated as something that has to succeed against cable. This point has been made already, so I'll just say that it's clear that there are four ways RBOCs can get into video programming. They're already, it's not really clear why OVS needs to succeed for a business that, indeed, RBOCs are already in. The realities for us are as follows: there is no requirement for competition for entry as an OVS operator. A OVS operator can be a monopolistic. For us, our big nightmare is this avoids to franchise requirements in local control. VDT was supposed to provide entry for the telcos but 19 of the 1996 law. Of course, gives them the right to enter outright, so it's not clear what their rationale is. Finally, what we have been stressing before the Commission is that the one important public policy rationale for OVS is the openness of the system. It should be a clear quid-pro-quo, where we have pretty much complete openness in exchange for deregulation. But we are very, very pessimistic about the outcome of this because we are concerned that the unified commenters will have their cake and eat it too. So in conclusion, I just want to say that the Alliance for Community Media, a "so-called" non-profit group has no objection to making OVS profitable. Business people are in business to make a profit, but profit is not definitionally the public interest. If OVS is to serve public interest it has to reach qualifications that go beyond the mere the bottom line. That's it. Any questions?