Street Law: The Big Picture

1. Street Law: The Big Picture Nicholas P. Miller April 7, 2003 Williamsburg, VA

2. Outline State of the Industry Projecting the Future Industry Relations with Local Governments

3. Part I: State of the Industries

4. CATV: Making Lemons Out of the Lemonade Achieving the Impossible: CATV Bankruptcies with 35% EBITD

5. Root Cause: Mortgaged the Future Sale prices of franchisees overestimated future revenue stream--Charter Big incentive to Overvalue and Defraud Stockholders--Adelphia

6. Problem for Local Governments: Subscriber Rates Are Skyrocketing only �cash flow� can reduce debt Failed Promises increased pressure to reduce capital improvements

7. What happened to the Overbuilders? CATV and Economies of Scale Debt Ratios of 70-80% CLEC collapse--no Debt $ A limited business opportunity--at best 50 subs/mile technology superior to incumbent

8. Telcos: NOT a Collapse of Competition

9. Collapsing Long Distance Competitors RBOCs have been able to restrict resale of their platform RBOCs have gotten broad release to go into long distance UNE-P rollout Scams to show revenues

10. Collapsing CLECs Like CATV--Strong Economies of Scale in Local Loops Fiber Overcapacity in Intercity Central Business Districts Several emerging from bankruptcy in next few months

11. RBOC Stock Collapse Market says-- DSL cannabilizing T-l business loss of 2d residential lines to Cable Modem loss of 1st residential line to cellular

12. Part II: Projecting the Future

13. CATV: Where Is the New Video Product? VoD challenges post-release movie distributors HDTV consumes chunks of video bandwidth No �New� Programming Product on Horizon

14. Escalating Prices Unrelenting debt pressures Both CATV and TelCos Use monopoly position to leverage other markets Restrict Content Access to Extract Monopsony prices

15. Continued Incentive for Muni Overbuilds Use economics of joint projects Bristow Blacksburg Dickenson County VA -- muni run wireless for county Without price and competition regulation--need alternative

16. Immediate Future VoD--Cox in Fairfax and Tidewater Rapid Cable Modem deployment holds line against DBS CATV/ILECs allocate broadband market CATV residential RBOCs Business core

17. Telcos: Lots of Local and Long Distance Competition Cable Modem superior to DSL Wireless limiting prices for local loops Multiple Long Distance competitors Level III AT&T 4 RBOCs

18. Wireless: A Growing �Edge� Market Cellular major price competition 3 G? No real demand and very expensive rollout still more expensive that local loops fill-in tower expenses

19. Wireless: WiFi The overbuilder of the local loop? Major data security problems Not mobile--not a cellular architecture

20. More Distant Future VoIP? Universal Service Questions. HDTV? Consumer Resistance to Tuner Costs. Wireless: mobile �narrowband� Fiber: fixed �broadband� FTTH? Muni �backbones�?

21. Part III: Industry and Local Governments

22. The Future of Adelphia What Caused the Bankruptcy? Overpaid for acquisitions Stockholder fraud--misrepresenting underlying revenue potential

23. Adelphia and Local Governments creditors for PEG/franchise fees regulators NOT subject to court juris property interest in franchise--NOT subject to court transfer When will the bankruptcy end? Should You Proceed with Renewal Now?

24. Other Cable Ops Comcast--the 500 lb guerrilla TWC--Shedding Debt and Avoiding Capital $ Cox and others--limited by the Big 2 initiatives Cable Modem Service fees and regulations

25. Telcos/CLECs Industry seeks unfettered PROW entry and free use of PROW. : State and federal legislatures. State and federal regulators. Federal and state courts.

26. Forum Shopping Industry has shifted battle to state level Michigan legislation Florida legislation NARUC study committee NARUC and NCSL co-opted? Where are the Governors? Where are the local electeds?

27. NARUC Nightmare �Big Lie� Committee Effort unfair forum ignored local comments industry drafted proposal/report Committee Report repudiated/distanced in Portland.

28. Now Back to the Federal Level FCC since 2000 Oct 16 Forum NTIA open docket Call for �best practice� communities Congress--again

29. Lesson Learned �franchise� is property interest--we win �franchise� is regulation--we loose

30. FCC Relations with Local Governments Cable Rates Cable Modem Regulation Franchise Fees Restrictions on Franchise Terms

31. Conclusion: Muni Interests Are Unchanged economic development--don�t take $ out of town Landlord--public trustee of most valuable public asset Largest User of Telco/Cable/Wireless Services Public Safety Consumer Protection

32. Questions

33. Contact Information

34. Addendum: Cable Modem Order Lessons Learned

35. Define the Issue First PROW is valuable real estate interest PROW is Not a �Free Good� PROW is protected by normal property law Media doesn�t see connection between PROW problems and this debate

36. Other Local Interests Threatened Universal Service Consumer Control of Broadband Content Public Safety Priority to spectrum and wireline

37. Cable Modem Order: Cable modem is an �interstate information service.� Cable modem is not a telecommunications service. Cable modem is not a cable service.

38. Cable Modem NPRM: �Tentatively Concludes� No ISP rights to demand access to cable modem networks. Cable franchises authorize use of PROW for cable modem service. No additional permission required to provide cable modem service. Cable Modem Service falls outside cable franchise fee.

39. Cable Modem NPRM: �Tentatively Concludes� Local governments may be required to rebate fees already collected. Local government cannot require cable modem services.

40. Halt Payment Letters Most MSO�s have stopped paying franchise fees FCC Bureau Chief told them to do so You should respond, consistent with state law

41. Response Letter Local government retains the full rights of property ownership: to control the use of its public rights-of-way to charge rent for that use 253 not applicable as limit since �not a telecomm service� The FCC Ruling does not authorize �piggyback� on a cable franchise or free PROW use

42. Response Letter Additional contract argument possible Additional state law considerations definition of PROW rights preexisting �leases� state bans on taxation of Internet service