EXHIBIT II

BEFORE THE FEDERAL COMMUNICATIONS COMMISSION, WASHINGTON, D.C.

(Docket No. 20363)

In the Matter of: Amendment of part 76 of the Commission's Rules and Regulations relative to postponing or cancelling the March 31, 1977 date by which major market cable television systems existing prior to March 31, 1972, must be in compliance with section 76.251 (a) (1)-(a) (8)

COMMENTS OF WARBURG PARIBAS BECKER, INC.

In connection with the above-referenced Notice of Proposed Rulemaking soliciting comments on the March 31, 1977 deadline for compliance with the provisions of Section 76.251(a)(1)–(a) (8) of the Commission Rules, The Becker and Warburg-Paribas Group, Inc., by its Attorneys, hereby records with the Commission, its following findings of available Capital Financing for the CATV Industry, particularly concerning funds available for so called system "rebuild". The Becker and Warburg-Paribas Group, Inc. ("BWPG") and its predecessor, A. G. Becker & Co. Incorporated, has over 80 years of experience in the field of investment banking. Its activities include the granting and distribution of debt issues, the evaluation of debt and security issues for public and private clients. The firm is a member of the New York, American, Mid-West and Pacific Stock Exchanges, as well as the Chicago Board of Options Exchange and numerous regional stock exchanges. BWPG engages in international investment banking through its European partners, S. G. Warburg & Co. London and Cie Financiere de Paris and des Pays Bas in Paris. Further, Becker Communications Associates ("BCA") is an active lender to the CATV industry with approximately $20 million in loans and commitments outstanding and BCA and Warburg Paribas Becker ("WPB") (a wholly-owned subsidiary of BWPG which handles the corporate finance activities of BWPG) have five officers who specialize in CATV. In connection with their corporate finance activities in CATV, the Becker groups are in continuing contact with the lenders to the Industry and regularly compile statistics on the lending activities to the Industry In order to provide the Commission with statistics on the available capital to the Industry, particularly as it might relate to the capital requirements imposed by 76,251, they have, within the last several weeks contacted the leading lenders to the industry and have developed statistics on capital availability in 1975 and 1976. The data supplied herein, therefor, is extremely current.

As a basis for this study, WPB personnel contacted by phone or in person or compiled data from its files on 32 commercial banks, ten intermediate term lenders and 34 insurance companies. For many reasons, including the fact that many companies would not make their figures public, (being prohibited in certain instances from doing so by contractual obligations) available financing facilities from the equipment suppliers to the Industry or from equipment leasing companies are not included. The bulk of the contacts with the sampled lenders occurred in the months of January and February 1975. We believe it to be as complete a study as has been done to date and certainly the only study which has been done to our knowledge on this aspect of the CATV lending situation.

As shown in Chart 1, the lender groups had loans outstanding to CATV companies at December 31, 1974 of approximately $1 billion. This group anticipates lending approximately a further $185 million to the industry in 1975 with a range of $360 million to $74 million if the economy and available cash flow should change appreciably for the better or worse.

Impacting significantly on these general projections will be the level of deficit financing by the Federal Government. As demonstrated in 1974, during periods of tightening of available funds, CATV companies find it proportionately more difficult to get commitments for financing. Further, the emphasis of many commercial banks is to shorten the maturity of their loans which has the effect of making construction loans to new CATV systems difficult to justify economically. The institutions expect to lend slightly more funds in 1976 based, in part, on an expected improvement in the overall economy and a continued emphasis on improving reported profits within the major CATV companies.

The projections for 1975 and 1976 are generally speculation or guesstimates on the part of most institutions since they generally react to loan proposals rather than actively seeking loans. However, the most accurate predictions come from

the intermediate lenders since the bulk of these institutions have CATV specialist units and have specific CATV loan budgets for 1975 and 1976. In the same vein, the least accurate prediction comes from the banks since few have CATV specialists and a number of banks make loans to the industry through more than one lending unit or division. Finally, the widest range in the prediction comes from the insurance companies and this is a function of demand, credit and rate. Generally, CATV will be competing in insurance companies with an investment policy to upgrade their placement activities to A or Baa quality and most CATV borrowers could not qualify for such credit ratings.

Of particular importance to the review of the 1977 deadline, virtually no lender surveyed felt that they were in a position to help fund a significant portion of the more than $400 million required capital projected by the ("NCTA") to bring systems into compliance. Adversely impacting on the ability or desire of these institutions to supply such funds is the fact that most CATV borrowers are now judged by lenders to be fully leveraged based on their current subscriber and cash flow levels. Accordingly, new credit extensions must be based on projected increases in subscriber levels, additional revenue producing services and/ or other cash flow generating sources not for replacement of equipment The projections of available financing in Chart 1 are for new builds or extensions to existing systems, refinancing of existing systems to longer maturities and/or acquisition loans. The basic assumption of the lenders is that the proceeds of their loan will be used to build plant in front of potential subscribers at a low enough cost that the actual operating cash flow will be sufficient to amortize their loan over a fixed period at a given interest rate.

Specific examples of lender comments might be helpful. First, a number of insurance companies who lend to one of the top 10 public CATV Multiple Systems Operator companies ("MSO's") have informed the president of that MSO, that in their judgment the company is fully leveraged and that they will not be able to lend any funds for 1977 compliance without an increase in unleveraged subscribers, an increase in cash flow and/or an increase in revenue producing services. Second, a mid-west bank reported that they had found that they could not lend as much as their borrowers requested when compliance was a factor because many of the rules did not have an economic justification-that is insufficient potential revenue to cover the costs. Finally, an intermediate lender reported that they were concerned about their ability to continue serving their CATV clients because these clients were being forced to borrow additional funds to comply with 1977 when the lender actually needed to see these same clients reduce their outstanding balances in accordance with their note agreement.

An example of the impact in increased cost on the debt capacity of a system might be the following. Assuming a system in a 100,000 home community at an industry standard of 100 homes per mile and an average cost of overhead plant of $7,000 per mile, the plant cost would be $7,000,000.00. Assuming the franchise holder borrowed this sum and achieved 30% penetration of the 100,000 homes, he would have debt per subscriber of $233. The ability to borrow on this system will be shown by the following. Assuming a 10 year loan at 10% interest and a $6.00 monthly subscriber rate with operating costs of 40% resulting in an operating monthly cash flow level of $3.50 would amortize $266 of debt per subscriber. (Source: Bond Tables based on $3.50 available cash flow 10 year maturity and 10% interest). Based on current standards, this would be a very difficult loan to finance as most lenders would want to have a margin of safety greater than the $33 difference between $266 and $233. Consequently, most lenders would probably not loan more than $200 per subscriber.

If for FCC rule compliance purposes the franchise holder is in the same situation and had to increase his costs per mile from $7,000 to $8,000 with all other factors held constant, the debt per subscriber would become $267. Assuming that this increased cost would not result in increased subscribers so the monthly cash flow would be held constant and support $266 of debt, the franchise holder would not be able to borrow sufficient funds. For purposes of this analysis, we have not considered the infusion of equity capital from the franchise holder as this would be offset in part by the need to borrow the initial operating losses.

In summary, based upon WPB's survey of traditional lenders to the CATV industry, it does not appear that these sources will be able to fund any meaningful portion of the capital requirement generated by the 1977 rebuild requirements. We therefore urge the Commission to suspend the 1977 compliance date. Absent such a suspension, capital investment, if available at all, will be needlessly

diverted from construction of new systems and the attainment of a subscriber and revenue base needed to support the growth and development of the industry. Respectfully submitted,

WARBURG PARIBAS BECKER, INC.
By JOHN D. MATTHEWS

1. 1975:

JOHN I. DAVIS

Its Attorneys.

SUMMARY OF PROJECTED AVAILABLE DEBT FUNDS FOR THE CABLE TELEVISION INDUSTRY

IN 1975 AND 1976
[Dollar amounts in millions]

Commercial banks.
Intermediate lenders
Insurance companies.

Total__...

2. 1976:

Commercial banks..

Intermediate lenders.

Insurance companies_

Total....

Mr. KASTENMEIER. Our next witness this morning is Mr. Robert Cooper, Executive Secretary of Community Antenna Television Association. Mr. Cooper, you have a statement. You may proceed, and perhaps you would like to introduce your associates.

TESTIMONY OF ROBERT COOPER, EXECUTIVE SECRETARY OF COMMUNITY ANTENNA TELEVISION ASSOCIATION

Mr. COOPER. Mr. Chairman, I would like to introduce the gentlemen here with me. The gentleman on my left is Mr. Peter Athanas, general manager of Southern Wisconsin Cable. The gentleman on my right is Mr. Kyle Moore, the president of the Oklahoma City CATV Association. The gentleman on my near left is Mr. Richard L. Brown, the general counsel for CATA.

Mr. Chairman and members of the subcommittee, I am Robert Cooper, executive director of CATA.

CATA, or the Community Antenna Television Association is a trade association organized in 1973 that today has as members some 400 CATV systems throughout the United States. Originally organized to focus on proposed copyright legislation, CATA has broadened its membership and scope of activities to include such matters as participating in FCC proceedings. Generally stated, CATA's philosophy recognizes that the roots of CATV lie within the community-hence our name, a name abandoned in the 1960's by the NCTA.

We are not here to pull punches or present diplomatic truths, we are here to present real truths, nor will we play a lengthy numbers game. You should know, I believe, however, that there are by our count

some 25 state and regional associations that have voted against the NCTA position that was previously testified to. I think you can count by the fingers of one hand the remaining State and regional associations that still give unqualified support to the NCTA position.

Furthermore, the Pennsylvania State Association and the NCTA's largest single member company, TelePrompter, have requested and received time on their own to present views contrary to NCTA. TelePrompter and the Pennsylvania systems, it might be noted, serve some 2 million homes between them, which is approximately 20 percent of the entire cable industry. Now, these statistics reveal only conclusions, not reasons; and that is perhaps what we will address in our testimony, too.

We submit that the only reason CATV copyright presently has any support is not because the copyright-supporting splinter of the industry believes that CATV should pay, but because, as you can determine from testimony before you, it is politically expedient to do so and because of something called the Consensus Agreement, The NCTA, NAB, and MPAA can try to explain the agreement to you. For our part, we will concentrate on the merits as we see them, of the copyright issue.

CATA is here today because its membership does not believe that the motion picture industry is entitled to place its hands in the pockets of CATV operators or CATV subscribers. We reject the joint copyright position of NCTA, NAB, MPAA, that CATV owes something called "reasonable copyright."

The imposition of copyright on CATV is, in part, a tax-if you will allow the word-on the viewing public. We also believe it to be a deception to an American television-viewing public which has been told time and time again of the benevolence of broadcasters and broadcasters who delivered "free television."

As we all know, it is not a free system--it is an advertiser-supported system which means we all pay once for the programs we watch by paying higher prices for television-advertised products. Additionally, approximately 10 million households must also pay a second time by subscribing to CATV. Now, through copyright legislation, 10 millionplus cable homes will be asked to pay yet a third time.

Remember that probably CATV would have never come into existence if the FCC had fastidiously followed the Congressional mandate of Section One of the Communications Act "to make available, so far as possible, to all the people of the United States, a rapid, efficient, nationwide and world-wide wire and radiocommunications service."

Yet, in our view, some 25 years after the FCC commenced fumbling with television allocations, 2 million households, or 3 percent of all homes, receive absolutely no over-the-air television signals today. In fact, it is estimated that over 3 million homes, or some 15 percent of the total population, still do not receive the three national network signals off the air. It is CATV, however, that over the last 25 years has filled gaps in the FCC's allocation voids and, incidentally, lent a boost to your congressionally passed all channel receiver law.

It is antithetical, then, to your Communications Act purposes to saddle CATV, and through it the American television-viewing public with a tax for the privilege of watching.

Now, copyright is a creation of the legislature under a constitutionally delegated power. Also under the Constitution, you have spe