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Report blames Verizon for cable TV problems

(Published February 11, 2002)

By KATHRYN SINZINGER

Staff Writer

A "political" deal that was quietly consummated with Chesapeake & Potomac Telephone Co., as part of initial negotiations for bringing cable television to the District, is now being blamed for many of the technological problems that continue to prevent the cable system from satisfying consumers’ demands.

Details of the deal between C&P Telephone – the local Bell Atlantic affiliate in the 1980s that has since become part of Verizon – and a "poorly financed [franchisee selected by local officials that] was unable to secure financing for construction or start-up of the system" are contained in a 300-page report recently prepared as part of the D.C. Office of Cable Television and Telecommunications’ efforts to negotiate a new cable TV franchise agreement.

"This arrangement was in large part designed to secure [the telephone company’s] political help in obtaining the franchise for [District Cablevision Inc.]," a company founded by D.C. "entrepreneurs with an opportunity to gain entry into the cable business," according to the report. Among DCI’s original investors was Robert Johnson, who founded Black Entertainment Television.

Under the arrangement C&P "was given the right to design, construct, and own the system’s distribution facilities," was paid $55 million to construct the system and continues to collect leasing fees from the cable franchise operator, according to the report. The arrangement between C&P and a reorganized District Cablevision Limited Partnership – which the report says was "effectively controlled" by the nation’s largest cable television company at the time, Tele-Communications Inc. (TCI), after TCI provided local investors with the financial backing they needed – was incorporated into the franchise agreement with the D.C. government.

"The cost of this arrangement to both the District and [the cable franchisee] was and continues to be high," the report says. The agreement gave the phone company "no incentive to provide a high-quality system and a disincentive to provide an institutional network" which the District government could use "as a low- or no-cost alternative to paying millions of dollars to Verizon/DC for similar service," the report notes.

In addition, the report notes that Verizon would be handing Comcast the ability to compete for Verizon’s telephone customers if the phone company upgraded the cable system’s distribution facilities to be state-of-the-art. Starpower, which began offering cable TV service in the District about two years ago, is creating a state-of-the-art fiber-optic system that allows the company to also provide telephone and cable-modem services in competition with Verizon.

"To this day, Comcast/DC does not own most of the cable system’s distribution facilities and has no clear-cut right to upgrade the system without Verizon/DC’s consent or to provide the improvements in service expected by District residents and, in fact, has no right to use the existing facilities once a determination is made that the ‘technological useful life’ of these dated facilities has run its course," the report says.

The report concludes that "District residents have suffered for many years as a result of the District’s mishandling of the [cable TV] franchise process in the early 1980s. ...Adverse consequences for District residents have included customer service problems, franchise violations, limited access channel services, no institutional network, and a dated and obsolete infrastructure with high rates and limited choice in programming.

"To a significant extent, these problems can be traced to misguided experiments with local ownership and with a partnership with the local telephone company," the report says.

A spokeswoman for Verizon said the phone company was unaware of the report until it was brought to her attention. She declined to comment until company officials can review the report.

The D.C. City Council Committee on Economic Development is scheduled to review the status of cable franchise negotiations during a Feb. 12 public hearing, at which the committee also will consider a proposed complete overhaul of the city’s cable television laws. The current franchise agreement with Comcast expires March 14.

Donald Fishman, general counsel for the Office of Cable Television and Telecommunications (OCTT), said his office has nearly completed negotiations with Comcast and is "in the early stages" of negotiating a cable franchise agreement with Starpower.

Fishman said Comcast has agreed to upgrade the city’s entire cable TV system over the next three years under terms of the new franchise agreement. "There will be no conditions on use of the system. Comcast will own the system," he said.

OCTT has proposed repealing the existing cable TV statute and replacing it to update procedures for review and regulation of the cable industry and procedures for applying for a cable TV franchise in the District.

"The old act was done when there was only one applicant," Fishman said. "No one contemplated that you could have two franchises operating in the city."

City officials also are creating customer service regulations for cable franchisees in hopes of eliminating many of the day-to-day complaints OCTT receives from consumers, Fishman said. The regulations, which Fishman called "critical and far-reaching," are expected to dictate minimum customer service requirements such as hours of operation, installation appointment procedures and the process for providing customer refunds. Fishman said the regulations will impose penalties on franchise operators for non-compliance.

Copyright 2002, The Common Denominator