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

JOHN I. DAVIS

Its Attorneys.

SUMMARY OF PROJECTED AVAILABLE DEBT FUNDS FOR THE CABLE TELEVISION INDUSTRY

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

cifically been delegated power to make laws affecting interstate commerce and have done so vis-a-vis broadcasting by passage of the Communications Act. Today, the Communications Act and Copyright Act are in a state of apparent tension. I say "apparent" because the program suppliers would have you believe that the main purpose of copyright is to give authors money so that they will have incentive to write. This is simply not true. Copyright is not to reward authors, but to insure that creative works find their way to the public. The Supreme Court has pointed that out in economic terms, pointing out that copyright grants are made in "the connection that encouragement of individual effort by personal gain is the best way to advance public welfare."

Thus, the tension dissolves when it is realized that Congress has also established a Communications act and created the FCC to fulfill similar, if not identical, purposes. Those purposes being to secure the general benefits of radio and television programing to all the people of the United States and to encourage their larger and more effective use in the public interest.

In these stated purposes it is inconceivable that the FCC's own general counsel could testify before you that CATV should pay just because the argument has been around for a long time. The FCC's Mr. Hardy desires to see resolution of this issue merely for the sake of resolution. His desire can be accommodated just as well by deleting CATV from this bill.

There are other voices in and out of the CATV industry who say that "the copyright issue must be solved-it must be put behind us because until it is laid to rest, the investment community will not advance the capital required by cable to expand and grow.

We have no quarrel whatsoever with this line of reasoning, except when it is expanded to the illogical conclusion that the industry should simply pay copyright merely to expedite the removal of this uncertainty. Clearly, CATV's future is better served by the removal of CATV from copyright legislation.

And then there are voices in our industry who say, "We can afford to pay" with remarks like "What is one or two, or two and-a-half percent of our gross?" Well, let me tell you what it is.

In December 1973, CATA, at the specific request of Senator John McClellan prepared an economic study of more than 250 CATV systems, ranging upward in size to 5,800 subscribers. In that study, which we will submit for the record, CATA found, for example, that for 1 percent of gross proceeds to copyright a system of 1,000 to 1,500 subscribers we would experience a reduction of net revenues of 13.8 percent. This happens to be the equivalent, then, of 1 percent of gross. 13.801 is the number.

Frankly, the industry cannot afford to pay that, and that is the truth. Now, lest this be considered solely as a flat dollar exemption, such as the $100,000, which has been kicked around prior to my testimony, it is not. Copyright will also adversely affect larger systems, including multiple-owned systems.

We also regard as fundamental considerations the following questions which should be asked of every proponent of copyright liability for CATV:

1. Why should this industry pay?

2. Who will really pay? And,

3. Who will receive the payments?

Consider this, there are hundreds of thousands of hospital rooms around this country, offering television service at a price. Patients rent a television set and the set supplier, the hospital, and maintenance man all profit. The rates are as high as $3 a day, nationally, according to the hospital association. This is an unmolested industry, hospital television, HOTV, possibly with gross revenues exceeding cable. Why are they not in the copyright bill? Simply because, providing the service of facilitating television viewing is their job. The Supreme Court has twice held that the same rationale applies to CATV, and these cases of the Supreme Court are exceedingly instructive. First, one must lay aside the program-supplier-sponsored misconception that the cases are irrelevant-relevant, pardon me, because they dealt only with the 1909 Copyright Act. Of course, the Supreme Court was dealing with the 1909 Copyright Act, but the decision was made "with due regard to changing technology"; that is not based on 1909 concepts. In fact, the Court held:

"Mere quantative contribution cannot be the proper test to determine copyright liability in the context of television broadcasting. If it were, many people who make large contributions to television viewing might find themselves liable for copyright infringement-not only the apartment houseowner who erects a common antenna for his tenants, but the shopkeeper who sells or rents television sets, and, indeed, every television set manufacturer. Rather, resolution of the issue before us depends upon a determination of function that CATV plays in the total process of television broadcasting and reception."

The Court reasoned that television viewing was a combined activity, a combined activity of broadcasters and viewers. Broadcasters perform, viewers do not. Broadcasters are active performers, viewers passive beneficiaries. CATV "falls on the viewer's side of the line."

The Court concluded as a matter of separation of powers-not as a matter of copyright policy-that the job of accommodating "various competing considerations of copyright, communications, and antitrust" belonged to Congress. The Court did not intend that Congress, in fact, adopt CATV copyright liability.

Then came TelePrompter-CBS, where the Court was faced with microwaved, long-distance signal importation-more than 450 milesby CATV systems that also originated their own programs, also sold local advertising, and also interconnected with other systems. The Court found no copyright significance to these auxiliary activities and found that the distance the signals traveled did not "alter the function that CATV performs for its subscribers." In fact, the Court stated: The reception and rechanneling of these signals for simultaneous viewing is essentially a viewer function, irrespective of the distance between the broadcasting station and the ultimate viewer.

Mr. Chairman and members of this committee, when a television station broadcasts, the broadcast is in the public domain. The Supreme Court characterization of what CATV does is as true today as it was when the Court made its decision. What CATV does-its viewer function-is not altered by the words of the 1909 act, or H.R. 2223. Those advocating CATV liability have a high burden of persuasion because CATV does fulfill Communications act goals by making television more widely available, or often available for the first time.