Community Video Report (Spring 1974)

(ROCKVILLE, from p. 1) Despite this “lack of a groundswell’ for CATV in Rockville, as City Manager Larry Blick puts it, the city has been studying cable for several years. As early as July, 1971, Rockville City Council created the Ad Hoc Committee to Study Cable, a citizens’ group which sought to determine CATV’s economic feasibility in Rockville. The Ad Hoc Committee included a communications lawyer, who later bought stock in telcoR, an assistant to then-FCC Commissioner Dean Burch, and a member who later resigned to become a City Councilman. Both in an interim report and in its final report, the Ad Hoc Committee supported the establishment of a Rockville CATV system. But two months before the Committee even published its March 1973 final report, telcoR had been incorporated as a profit-making organization whose aim was to win at CATV . franchise and establish a CATV system in Rockville. TelcoR boasts all its members are residents of Rockville. These include a former Rockville mayor, a newly-elected City Councilman, two past Chairmen of the Rockville Chamber of Commerce, and two members of the Rockville Black Coalition. Additionally, several leaders in Rockville’s two main nonpartisan political organizations—Citizens for Good Government (CGG) and Independents for Rockville (IfR)}—are members of telcoR. Lee G. Lovett, a long-time resident of Rockville, and a member of the Washington communications law firm of Pittman, Lovett, Ford, and Hennessey, is also a shareholder in telcoR. TelcoR’s opponents point out that similar groups of community leaders were organized into CATV corporations by Fred Ford in Arlington, Baltimore, Prince Georges, and Montgomery Counties. Ford is not a shareholder in telcoR, however. The practice of getting local citizens to sponsor CATV corporations, in an effort to appear community-based, appears common among multiple systems operators (MSOs). According to the May 2, 1973 Wall Street Journal, “the first thing any cable operator does is put together a group of locally influential people. ... You always assess a community on the basis of who’s got the muscle.”’ The article continues, ““To land a franchise, applicants figure they need much more than just technical know-how. Lots of capital is essential. Timing can be crucial—tying up a town’s best lawyers and most influential citizens quickly, perhaps by offering them a chance to buy stock. And it sometimes helps if some of the decision-makers are good friends of the applying group.” Lorenzo Ricks, telcoR Vice President for Community Relations and defeated CGG candidate for City Council, notes that over 75% of telcoR’s stock is owned by people who live or work in Rockville. “I wouldn’t say it’s outside control,’”’ he commented. Cronyism charged Conflict of interest has become a major accusation in Rockville’s CATV debate. At public hearings held July 1973 one citizen testifying asked ‘‘Are not those applying for franchise personal, social or political acquaintances or friends of the Mayor and Council?” The hearings were opened with testimony from telcoR members, including a former member of the Ad Hoc Committee to Study Cable, and a former Rockville mayor. TelcoR was also represented by Fred Ford at those hearings, as well as by a member of the consulting firm they’d hired to study cable. Although Ford told the Council that CATV “is now more profitable than ever,’”’ further testimony challenged that assertion. The Citizens for Good Government, testifying against CATV, noted that the city might be burdened with high supervisory costs, or even operating costs, should the system fail. The CGG doubted that the city could cover these expenses. TelcoR, however, claims the city can adopt an ordinance which will protect it from possible failure. Citizen testimony on cable TV at the hear ings was almost evenly split pro and con. ° However, many of those testifying in favor of going ahead with a CATV system were either members of telcoR or telcoR-connected. For example, both the Chamber of Commerce and the City’s Economic Development Council, favorable to CATV in the hearings, have members who are shareholders in telcoR. Despite initial CATV enthusiasm among some Council members, the City Council decided to defer consideration of cable. Encouraging deferment was a pessimistic forecast for Rockville CATV by the Mitre Corporation, which had contracted with the City to study cable feasibility in Rockville. The $20,000 report projected low rates of return, high costs, and low rates of penetration. TelcoR objected to Mitre’s conclusions, citing their own consultant’s study. Thecorporation sent a letter to the City Council in June, 1973, noting inaccurate data, and a lack of specific experience in ‘‘fringe’’ markets on Mitre’s part. TelcoR’s study had used date specifically from Rockville, which projected a favorable growth rate. In defense of cable, telcoR argued that distant signal importation from New York, as well as opportunities for local expression, would attract viewers. Because Rockville has no local daily newspaper or television station, “‘a medium for local expression” is necessary. According to Ed Steers, teleoR president, ‘Mitre never said it [cable] would go broke or bankrupt.” Instead, he noted, the report said cable TV in Rockville could not achieve a rate of return that would attract investment. But Steers observed that several groups have already expressed an interest in the Rockville franchise, and said “Target rate of return is in the eye of the beholder.” 3 Steers claims telcoR is willing to take the risk. “‘We’d be fools to go into this without financial backing,” he says. TelcoR has already invested money in its own feasibility study. As a result, Steers notes that lenders have made a commitment to telcoR. “It’s a risk we’re willing to take,’ declares Lorenzo ’ Ricks. But Roald Schrack, a Rockville citizen activist and member of the Citizens’ Advisory Committee on Cable for Montgomery County, disagrees with telcoR’s financial analysis. “They have no money,” he claims, saying that it would take approximately 1.5 million dollars to establish CATV in Rockville. Schrack feels telcoR will sell stock to outsiders in order to acquire necessary financing, as other CATV companies have done. City, county or state? Conflicting views exist as to whether or not a CATV system is inevitable in Rockville. Both telcoR members and telcoR opponents feel Rockville will eventually have some sort of system. But citizen Schrack feels the immediate future is not very bright for cable. Despite Schrack’s pessimism, passage of a city ordinance regulating the franchising and operation of a cable system appears imminent. Part of the pressure comes from widespread fear of county or state pre-emption of Rockville’s franchising authority. Montgomery County is currently studying cable options and there is pressure to pass an ordinance before the County elections this November. This spring, the Maryland statehouse considered several bills to give the State franchising authority. The bills died in committee, and a two-year study was commissioned instead. Currently municipalities have authority to grant cable franchises based on their regulation of rights-of-way permits. Several states have pased laws giving states that authority. The state role has been limited to technical assistance, interconnection policy, and cable capability. TelcoR members are particularly wary of pre-emption. “‘The city could take steps to protect its authority,” says telcoR President Steers. Real antagonism between the city and county exists, although Rockville is the county seat. Thus, the city would naturally be an important part of any county cable system. TelcoR’s Lorenzo Rick’s asks ‘““‘Where does one prefer control to rest,’”’ with the city or county government? But Schrack feels city vs. county control is a moot point. He expects that the city will retain control of any CATV system operating in Rockville. The pre-emption issue, Schrack believes, is one designed to push through favorable CATV legislation by appealing to city loyalty. A county franchise might be “less valuable” to other CATV companies, according to Schrack, if a franchise were awarded in Rockville first. A cable company affiliated with the Rockville company, on the other hand, would benefit most from the county franchise. A group involving Fred Ford appears interested in the county franchise. cable franchising:15 SS eS SS EES SS SSS ee (Baltimore County awarded a cable franchise to another Ford group, CALTEC. It has been challenged by citizens’ groups, and Baltimore TV stations. One charge is that “Baltimore County did not comply with [Federal Communications] Commission rules when they awarded the franchise to Caltec,’’ says David Fleming, FCC officer studying the challenge. Another Ford group, ARTEC, was also awarded a franchise for Arlington County. That franchise has been challenged by Washington television stations. A review should be out in a month, and the full Commission should decide upon granting a certificate of compliance in two months, according to the FCC officer reviewing the ARTEC case.) With the argument that possible pre FORMER FCC Chairman Fred Ford emption would be avoided, Rockville Councilman Robert Bryan introduced an ordinance drafted by a telcoR member this March, one month prior to the city elections. When the question of possible conflict of interest was raised by other council members, Bryan noted that he could have used the Baltimore County ordinance instead. The franchise application of the Baltimore County ordinance is nearly identical with the ordinance Bryan introduced. It differs in two important respects, however: 1) requirements for planned rate schedules and proposed additional services and fees are excluded, and 2) the part stating how the cable company plans to pay the city for the franchise is deleted. But because precedent often inhibits innovation—as in the case of television station license renewals, which are virtually automatic—many in Rockville are reluctant to go ahead and pass an ordinance. The past city council decided to postpone consideration of a cable ordinance until the new council came in. Supporting public hearings on the ordinance prior to the election were Bryan, and Councilman William Hanna, then running for mayor, who had been critical of CATV at last summer’s hearings. One Councilman, George Northway, who had originally supported public hearings, changed his mind on the issue. It was charged that the mayor, a supporter of CATV who became a critic during the summer hearings, had lobbied Northway over the telephone, in violation of the principle of public Council meetings. Pre-emption by the state, which was considering CATV legislation at the time, was actually a false issue, since the proposed bills would only exempt CATV systems with headends already in operation. As Rockville had no CATV system, it would have fallen under state jurisdiction, had the measures passed. Although it was an issue within the City Council, cable was not a major campaign issue in the City Council election this fall. ‘I .wish it had been an issue,” said telcoR President Ed Steers, since it would have given CATV public exposure. But because “members of both political parties were involved in telcoR,” discussion of CATV was precluded, since telcoR members ‘“‘had to remain neutral.” Roald Schrack feels that this was exactly the problem. ‘‘Cable could never surface as an issue” because of telcoR’s participation in both Citizens for Good Government and Independents for Rockville. ‘“‘This effectively prevented telcoR from being an issue,”’ he says, because “‘the pot couldn’t call the kettle black.” A telcoR member was, in fact, elected to the city council. But because he is a member, auizeBey bu f eOpeosg :0}OUd “I can’t make any decisions now,’ John Freeland declared. It would be “‘unethical for me to promote telcoR.’”’ Freeland plans to physically remove himself from tne Council when CATV is discussed. He noted that he has not attended a telcoR board meeting since he declared himself a candidate for city council. However, telcoR opponents think Freeland is likely to be influential behind the scenes. Although Freeland will not vote on CATV issues, his mere presence on the City Council is viewed as a threat. The fact that candidates from telcoR ran on both parties’ slates is seen as a sign of the importance of a City Council seat to telcoR. “Cable cuts across party lines,” says defeated CGG candidate Frank Gospodarek. He observed that six members of telcoR are also members of the CGG executive board, ‘All are the key to elections in this town,” he remarked. He said that in the one district where cable was explained as an issue to city residents, the CGG won. This was the only district CGG carried. Despite his success in that district, Gospodarek admits ‘‘cable was never a public issue in this campaign.” The direction the new City Councilwill go is unclear. County pressure may encourage the City Council to hold further public hearings and pass an ordinance on cable. Additionally, the city may present testimony at county hearings in the very near future. Cable as an issue isn’t likely to fade any, however, particularly because the Washington area is a communications center. Already a center for printing and publishing, Wash ; ington could prove highly lucrative to the cable industry. Communications specialist Stan Klein notes that predictions for 1990 are that the cable industry will be as important, and as influential, as the phone company. Facts, not funnies The reason for this growth is not expanded “home entertainment,” but rather the transmission of information. In the next ten years, Klein comments, industry predicts that 80% of all cable will be for data transmission, while only 15 to 20% will be for entertainment. For example, Klein says, domestic satellites will need CATV as a local distribution system for satellite programs. Data communication via CATV “will result in a huge windfall profit to whoever owns the right to develop the system at that time. That ‘right’ is basically the CATV franchise. All a CATV franchise holder would need to do is to hang on for S years while the technology develops and then tide the technology trend into very substantial profits.” The reason, cable is so attractive is that the frequency spectrum is running out. The airways are already crowded, as they are on a narrow frequency. “Cable permits you to re-use the spectrum,” Klein observes, by utilizing a switched network, like the phone company. z The fact that Western Union announced the launching of DOMSAT, its domestic communications satellite, this past month, emphasizes the need for on-the-ground distributing systems of satellite communications. The World Football League, for example, currently has no network options, and could choose to broadcast via satellite. CATV systems would be necessary to receive WEL games. TelcoR members are largely silent on the issue of data transmission. Freeland admits that cable is not restricted to entertainment: the possibility for ‘‘all kinds of local involvement” is present. ‘‘One of the reasons we are so high on cable in Rockville,” says Steers, is “there is obviously a whole field of activities.” But the issue of cable television has been lost in the controversy surrounding telcoR. The participation of telecoR members in the very processes of Rockville’s government and political system raise doubts as to whether telcoR is actually acting in the best interests of the public. Former FCC Commissioner Fred Ford’s involvement with the group also creates suspicion of telcoR, as Ford-connected CATV companies appear to be gobbling up Washington area cable franchises. The vast potential uses cable television companies once promised local communities are finally. being tempered by practical considerations. The fruit of the controversy in Rockville may give us a foretaste of things to come.