them as a stand-alone DBS operator. Specifically, such entities should be prohibited from cross-subsidizing the DBS operations with revenues gained from existing cable customers. In addition, such entities should be prevented from offering subscribers to the affiliated cable systems DBS service under terms and conditions different from those offered to consumers who are not subscribers to the affiliated cable systems, as well as from jointly marketing DBS and cable services. Moreover, such entities should be prevented from aggregating DBS and cable subscribers in order to obtain volume or other discounts or to extract special benefits or exclusivity from programmers, equipment suppliers or other service providers. Zoning/Covenants. We applaud the Commission's decision last week in the Meade, Kansas case, in which it overturned a local ordinance that required consumers to obtain a $5.00 permit before installing a DBS dish, regulated antenna placement, and subjected residents to a $500 per day fine for failure to comply. However, the Commission has not yet taken the full preemptive action Congress intended with respect to local government restrictions and other restrictive covenants that impair access to over-the-air reception devices. DIRECTV has urged the Commission to extend the protection of its rules to renters, as well as to both owners and renters who do not have exclusive use of areas suitable for antenna installation. With regard to the latter group, DIRECTV has urged the Commission to amend its rules to require landlords, condominium associations, and other homeowner groups to provide access to at least two multichannel video services to residents who do not have exclusive use of areas suitable for antenna installation. I do not believe Congress ever intended to discriminate against renters and other residents of multiple dwelling units (MDUs) by depriving them of the benefits of competition in the market for multichannel video services available to single-family homeowners. Inside Wiring. Competition for and within MDUs is generally far less robust than competition for individual residential subscribers. DIRECTV's subscriber rates are lower for MDU dwellers because a significant number of them do not have a lineof-sight with DIRECTV's satellites, and therefore require a rooftop-based antenna and coaxial wiring throughout the building before they can receive a DIRECTV signal. DIRECTV is engaged in an on-going effort to encourage property owners, building owners and alternative video providers to wire entire buildings so that residents may receive programming from DIRECTV, as well as from USSB. Unfortunately, the costs of wiring entire buildings have been prohibitive in many cases, in large part because access to the "home run" wiring is not permitted. DIRECTV has urged the Commission to amend its inside wiring rules to allow such access. In addition, access to MDUs is inhibited by cable exclusive contracts that prevent willing building owners from offering DIRECTV to residents. Consistent with the Congressional mandate to promote competition to the incumbent cable monopolists, DIRECTV has urged the Commission to strike down such cable exclusive arrangements. Satellite Capacity. Finally, DIRECTV last month filed an application with the FCC seeking authority to construct, launch and operate an expansion system of six direct broadcast satellites. These satellites will be used to provide additional advanced satellite broadcasting services to consumers. The expansion system will help provide a partial solution to the current BSS/DBS capacity shortage problem, and will enable delivery of an even wider variety of programming and service offerings, including more sports, movies, educational and informational programming, as well as new data and multimedia services. In addition, the expansion system will allow DIRECTV to compete more effectively with cable operators and other terrestrial delivery systems that currently possess or will soon attain the capacity to offer hundreds of digital channels via fiber or coaxial cable. In conclusion, I appreciate the opportunity to testify on these vital issues. The suggestions I have set forth are extremely important for continuing the vibrant growth of the still-emerging DBS industry: (1) continue program access and strengthen its terms; (2) make the satellite compulsory copyright license permanent, apply it to the retransmission of local broadcast channels, and modify the "white area" restriction; (3) require cable operators to offer a low-cost "local broadcast only" package; (4) prohibit cross-subsidization by entities owning both cable systems and DBS providers; (5) extend the coverage of the zoning and covenant preemption rules to all consumers; (6) improve access to MDUs by competitive providers; and (7) allow DBS system expansion. These provisions will help ensure that the DBS industry, and DIRECTV in particular, will continue to be able to advance the public interest in the development of robust video competition. Mr. TAUZIN. Thank you, sir. The Chair is now pleased to recognize for an opening statement Mr. William Reddersen, Group President-Long Distance and Video Services, BellSouth Enterprises. Mr. Reddersen. STATEMENT OF WILLIAM F. REDDERSEN Mr. REDDERSEN. Good morning. I want to start, Mr. Chairman, by thanking you for this opportunity. We at BellSouth, as has been referenced, have already purchased the rights to serve some 4 million potential customers with wireless TV service which we will complement in selected areas by wired cable. Our objective is to bring video choice to millions of consumers versus the thousands we currently serve. Our first wireless launch, Mr. Chairman, is currently planned for New Orleans later this year, and I hope you will be able to join us for that occasion, your schedule permitting. You have called this hearing to focus on what else needs to be done to ensure video competition. I submit to you that the best way to ensure video competition today is to strengthen a fundamental principal that you established in the 1992 act; that is, open access to programming on equal terms and conditions. That access, without any doubt, is the No. 1 risk element to anyone planning or implementing competition to cable. But without open access to programming for without open access to programming, there is no service. For these reasons, programming access reform is the No. 1 legislative priority for our video business. Let me explain. The Telecommunications Act of 1996, passed through your leadership, is designed to open both telephone and cable markets. The 1996 act relies heavily on mandatory resale and equal interconnection of local telephone networks to accelerate economic entry by telephone competitors. However, there are no comparable provisions to lower the investment levels for new video competitors. Entry into cable markets, whether as franchised cable operator, as a wireless cable operator, or as a satellite service provider, requires a large up-front investment in an alternative distribution network. BellSouth has committed to invest millions of dollars to bring millions of consumers that service. The success of that investment depends in very large part on open access to programming. From the consumer's point of view, which is ultimately the only one that counts, the video business is access to programming at competitive prices. You can build the best networks in the world, but if you don't have the right programming, you will fail. Your investment will be worthless and consumers will lose. Since 1992, a number of disturbing trends affecting programming access have arisen that are of serious concern to potential competitors. I would ask you to stop these trends now before they become major barriers to competition. The first trend is the emergence of exclusive programming deals between incumbent cable operators and programmers not subject to current programming access rules. The continued consolidation of cable households demands more open programming access than was required in 1992. Programmers, regardless of their affiliation, are increasingly dependent for carriage on these very large incumbent operators. All programmers must have access to sufficient number of households to support the introduction and success of their programming, and cable operators use this to their advantage. These facts create an environment which stimulates exclusive deals. Exclusivity, which limits access by new entrants, is a small price programmers are either willing or forced to pay for carriage. Since new entrants have yet to establish a substantial customer base, they are left totally vulnerable. Examples of these exclusive deals have already been mentioned by Ms. Lenart and others. Second, some cable companies appear to be using alternative delivery technologies other than satellites such as fiber and microwave. One effect of such approaches is to avoid program access requirements. BellSouth has already encountered this problem in New Orleans and Orlando and it has been widely reported in the press that Cablevision and Comcast are planning such moves in New York and Philadelphia on key sports programming. Third, some local broadcasters have demanded that new entrants carry affiliated programming as a condition of generating retransmission consent for their local stations. NBC and CNBC is just one example of this. These loopholes in the programming access rules can be plugged with two simple changes to today's rules. First, Congress can extend the existing rules to all programmers and broadcast stations regardless of whether they are vertically integrated or regardless of how they are delivered. Second, you can prohibit cable programmers and television stations from requiring a forced bundling of multiple programs as a condition for granting retransmission consent or having access to more popular programming. You saw this lack of programming access limit the evolution of satellite and wireless video services for years. You also saw a recent example of the tremendous economic pressure the cable industry wields over non-affiliated programmers when Mr. Murdock abandoned his plans to build an alternative video delivery system in favor of a cable partnership. You may not be able to unbundle cable facilities to stimulate competition as in telephony, but you can ensure open access to programming. In summary, I would say that the cable industry clearly knows that their customer service and their prices are not sufficient weapons to block competitive entry. When they say let open markets take care of the programming exclusivity issue, what they are really saying is let us use programming exclusivity as the weapon to ensure a closed market. Mr. Chairman, open access to programming is the fundamental prerequisite to ensure that the customer always wins. [The prepared statement of William F. Reddersen follows:] PREPARED STATEMENT OF WILLIAM F. REDDERSEN, GROUP PRESIDENT-LONG Good morning. I want to start, Mr. Chairman, by thanking you for this opportunity to appear before you. As the one primarily responsible for developing and im plementing BellSouth's video business, the challenge of creating more video competition is a subject near and dear to my heart. We at BellSouth have already begun to deploy digital wireless cable services, complemented in selected areas by wired cable service, to bring video choice and competition to millions of consumers. BellSouth has already purchased the rights to serve some 4 million households with digital wireless television. Our first launch of this wireless digital TV, Mr. Chairman, is currently planned for New Orleans late this year and I hope you will be able to join us for that occasion, schedule permitting. You have called this hearing to focus on what else needs to be done legislatively to encourage video competition. I submit to you Mr. Chairman and the distinguished members of this panel that the best way to ensure video competition today is to continue to strengthen a fundamental public policy principal you established in the 1992 Cable Act Amendments: that is, open access to programming services on equal terms and conditions. Open access to programming on nondiscriminatory terms is the number one risk element to anyone thinking about, planning or implementing competition to cable. Technology, marketing, sales and service can all be managed. Without open access to programming there is no service. For these reasons, programming access reform is the number one legislative priority for BellSouth's video business. Let me explain. The Telecommunications Act of 1996, passed through your leadership last year, is designed to open both telephone and cable markets to new competitors. The 96 act relies heavily on mandatory resale and unbundling of local telephone networks to accelerate economical entry by local telephone competitors. Because of the nature of the service and technology, however, there are no comparable unbundling or resale provisions in the 96 act to lower the initial investment levels and entry costs for new video competitors. Entry into cable markets, whether as a franchised cable operator, as a wireless cable operator, or as a satellite service provider, requires a large upfront investment in an alternative distribution network-and that's just the start. Going operational means developing an entirely new business. At BellSouth, we have committed to invest millions of dollars to bring millions of consumers a competitive choice of video services. The success of that investment depends in very large part on open and equitable access to programming services. If access to programming is cut off or even limited in key areas, we are out of business and our investment is worthless. From the customers' point of view, which ultimately is the only one that counts, the video business is access to programming at competitive prices. You can build the best networks in the world, but if you don't have the right programming, you will fail and your investment will be worthless. Since the 1992 act, a number of disturbing trends affecting programming access have arisen that are of serious concern to bellsouth and others beginning to compete against incumbent cable operators. I would ask this subcommittee and this congress to pass legislation to stop these trends now before they become major barriers to video investment and competitive entry. Let me discuss each one briefly: The first trend is the emergence of exclusive programming deals between incumbent cable operators and programmers not currently subject to the federal programming access rules. Only vertically integrated programming is covered by today's rules. The continued consolidation of cable incumbents and cable's share of video households necessitates far more programming access protection than existed in 1992. Programmers, regardless of whether they are affiliated with a cable operator, are increasingly dependent upon carriage by incumbent operators, particularly large MSOS. These programmers must have access to a sufficient number of households to support the introduction and ongoing success of their programming products. These two facts create an environment which stimulates exclusive deals. Exclusivity which limits access by new entrants, is a small price programmers are either willing or being forced to pay for such carriage when the new entrants have yet to establish a substantial presence in the video marketplace. Examples of such exclusive deals include TV land (owned by VIACOM), FX and Fox News (owned by News Corp.), MSNBC (owned by NBC and Microsoft) and Eye on People (owned by CBS). Second-some incumbent cable companies are starting to use delivery technologies other than satellites, such as fiber and terrestrial microwave, to avoid open program access requirements. BellSouth has already encountered this problem with Time Warner in its Orlando market and it has been recently reported in the press that Cablevision and Comcast were planning a similar move to distribute popular sports programming on an exclusive basis in the New York and Philadelphia markets. Third-some local broadcasters have demanded that new entrants carry other affiliated programming as a condition of granting retransmission consent for their |