Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of:                | * | CSR 5497-Z                   |
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| Liberty Cablevision of Puerto    | ) |                              |
| Rico, Inc.                       | * |                              |
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| Petition for Waiver of Section   |   |                              |
| 76.630(a)                        | * |                              |
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| Basic Tier Scrambling            | ) |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted: August 11, 2000 Released: August 15, 2000**

By the Chief, Cable Services Bureau:

# INTRODUCTION

1.  In the above-captioned proceeding, Liberty Cablevision of Puerto
    Rico, Inc. ("Liberty"),[^1] filed a petition for special relief
    requesting waiver of Section 76.630(a) of the Commission's rules.
    Section 76.630(a) provides that \"\[c\]able systems shall not
    scramble or otherwise encrypt signals carried on the basic service
    tier."[^2] The instant waiver request is based upon petitioner\'s
    contentions of both thefts of basic tier service, and financial and
    administrative difficulties caused by an unusually high degree of
    subscriber disconnection due to non-payment of cable bills. Four
    Liberty subscribers filed comments regarding the waiver petition and
    Liberty filed a reply.[^3] For the reasons discussed below,
    Liberty's petition is granted.

# background

2.  In the Cable Television Consumer Protection and Competition Act of
    1992 ("1992 Cable Act"), Congress recognized that compatibility
    problems between cable service and consumer electronics equipment
    were limiting and/or precluding the operation of premium features of
    consumer equipment and were affecting the ability of consumer
    equipment to receive cable programming.[^4] Section 624A of the
    Communications Act of 1934, as amended ("the Act"), Consumer
    Electronics Equipment Compatibility, was added by Section 17 of the
    1992 Cable Act.[^5] Section 624A required the Commission to issue
    regulations to assure compatibility between consumer electronics
    equipment and cable systems.

3.  In *Implementation of Section 17 of the Cable Television Consumer
    Protection and Competition Act of 1992 -- Compatibility Between
    Cable Systems and Consumer Electronics Equipment*, the Commission
    adopted to implement the requirements of Section 624A.[^6] Section
    76.630(a) requires that cable operators refrain from scrambling
    signals carried on the basic tier of service.[^7] The Commission
    determined that this rule would significantly advance compatibility
    by ensuring that all subscribers are able to receive basic tier
    signals "in the clear" and that basic-only subscribers with
    cable-ready televisions will not need set-top devices.[^8] Based
    upon the Commission recognition that there are some instances where
    operators may need to scramble signals, the rule provides for
    waivers of the scrambling prohibition upon a showing of \"either a
    substantial problem with theft of basic tier service or a strong
    need to scramble basic signals for other reasons.\"[^9]

4.  The procedures adopted by the Commission require a cable operator to
    notify subscribers by mail that it has filed a request for waiver of
    the scrambling prohibition with the Commission. The notice to
    subscribers, which is delineated in Section 76.630(a), must be
    mailed no later than thirty calendar days from the date the waiver
    request was filed with the Commission. Subscribers have 30 days from
    the date of the notice to mail comments to the Commission. The cable
    operator may file comments in reply no later than 7 days from the
    date subscriber comments must be filed. Liberty notified its
    subscribers of its petition with the Commission requesting the
    ability to scramble its basic tier by mail sent on January 19, 2000.

# discussion

5.  Liberty argues in its petition that scrambling of the basic tier is
    warranted because it is experiencing a substantial problem with
    cable theft. Liberty estimates a 21% rate of cable theft relative to
    the number of homes passed.[^10] Liberty calculates approximately
    \$10 million per year in lost revenues resulting from cable
    theft.[^11] Liberty argues that cable theft also causes it serious
    non-monetary consequences related to quality of service and signal
    leakage.[^12] Liberty contends that it has aggressively pursued
    several means to combat cable theft aimed at both educating and
    penalizing offenders, and has pursued civil actions and assisted law
    enforcement officials in criminal actions.[^13] Liberty believes
    that scrambling the basic service tier would reduce the incentive to
    steal service and the damages to its system that result from illegal
    connections.

6.  We find that Liberty's contentions regarding a substantial problem
    with theft justify granting the requested waiver. Liberty presents
    evidence establishing that the percentage of homes in its franchise
    illegally connected to its systems is nearly twice the industry
    average nationwide.[^14] The high number of illegal taps possess a
    potential for signal leakage as well as a diminution in the quality
    of the video signal received by the authorized subscribers.
    Liberty's problem is documented in three audits undertaken in 1995,
    1996, and 1999 that covered over half of the homes passed by
    Liberty. The results of these audits showed that cable theft is not
    isolated to certain portions of Liberty's systems, but is a
    significant problem in all of Liberty's service areas in Puerto
    Rico. The high percentage remains despite the multi-pronged program
    Liberty has initiated to reduce cable theft. Liberty individually
    contacts known offenders with educational materials followed by
    sales visits. If its education efforts fail to end the cable theft,
    Liberty indicates that it seeks civil and criminal remedies.[^15] We
    recognize that allowing Liberty to scramble its basic tier will
    require some subscribers to obtain set-top boxes. Liberty submits,
    however, that 98% of its subscribers already have an
    operator-supplied set-top box.[^16] We believe that with such a high
    percentage of subscribers already using set-top boxes, problems due
    to incompatibility between cable service and consumer electronics
    equipment will not be widespread once basic tier scrambling is
    commenced. Further, with less compromise to the physical integrity
    of its system, Liberty will be able to offer a better quality signal
    to all authorized subscribers.

7.  Although the rule implementing the prohibition of scrambling the
    basic tier was adopted to further the objectives of Section 17 of
    the 1992 Cable Act, *i.e*., to ensure compatibility between cable
    systems and consumer television and video equipment, Liberty's
    request to scramble the basis tier implicates other Commission rules
    and policies. Subscribers complain that granting Liberty's request
    is in effect a rate increase because basic cable subscribers will be
    forced to pay to rent a set-top box.[^17] Subscribers also submit
    that this rate increase will follow soon after Liberty's last rate
    increase, which became effective March 1, 2000.[^18] In response,
    Liberty maintains that consolidation of all of its systems to one
    channel line-up necessitated the last rate increase. Liberty
    explains that its last rate increase was accompanied by the addition
    of ten channels to the basic tier.[^19]

8.  Once basic tier scrambling is commenced, a set-top box will be
    required for each television connected to Liberty's system. Because
    nearly all of Liberty's subscribers already rent a set-top box, most
    subscribers will not incur additional charges. We believe that
    subscribers who did not need a set-top box prior to basic tier
    scrambling should not be charged for the installation of the box
    after scrambling begins because the scrambling is for the
    convenience of Liberty, and not to provide additional services
    requested by the subscriber. We note that any rate Liberty charges
    for the basic service tier and for equipment used to receive this
    tier must conform to the Commission's rate regulations. Section 623
    of the Act sets forth a comprehensive procedural framework for the
    regulation of rates for the basic service cable tier. The
    Commission's rules establish formulas and procedures for determining
    a cable systems maximum permissible rate for the basic service
    tier,[^20] and any equipment necessary to access that tier,[^21] as
    well as procedures for adjudicating rate complaints.[^22] Our rules
    permit cable operators to charge subscribers for set-top boxes and
    other equipment provided the charges do not exceed actual
    costs.[^23] Authority for the regulation of rates is shared between
    the Commission and state and local regulatory authorities. Liberty
    is required to submit increases in rates to the local franchising
    authority for review prior to adjusting its rates. Thus, rather than
    making any determinations in this proceeding regarding the
    appropriateness of Liberty's rates, we will rely on our existing
    regulatory procedures to address any rate issues.

9.  Also, we note that pursuant to the Commission's rules, beginning
    July 1, 2000, cable operators are required to offer point of
    deployment modules containing security functionality to subscribers
    that obtain set-top boxes containing non-security functionality from
    sources other than the operator.[^24] Excluded from this requirement
    is equipment that contains security functionality only to access
    analog video programming.[^25] Liberty currently only provides
    subscribers an analog set-top box, but plans later this year to
    offer a hybrid analog/digital set-top box which allows access to a
    digital programming tier.[^26] Permitting Liberty to scramble the
    basic tier does not modify Liberty's obligation to comply with the
    rules implemented by the Commission to assure commercial
    availability of navigation devices.

# ORDERING CLAUSES 

10. Accordingly, **IT IS ORDERED** that the petition filed by Liberty
    Cablevision of Puerto Rico, Inc. requesting a waiver of the
    Commission's rules prohibiting scrambling of channels on the basic
    service tier **IS GRANTED**.

11. **IT IS FURTHER ORDERED** that the request for special temporary
    authority filed by Liberty **IS DISMISSED AS MOOT**.

12. This action is taken pursuant to delegated authority by Section
    0.321 of the Commission\'s rules.[^27]

FEDERAL COMMUNICATIONS COMMISSION

Deborah A. Lathen

Chief, Cable Services Bureau

[^1]: Liberty changed its corporate name from "TCI Cablevision of Puerto
    Rico, Inc.," on Dec. 20, 1999.

[^2]: 47 C.F.R. § 76.630(a).

[^3]: Liberty also filed a request for special temporary authority ("STA
    petition") to scramble its basic tier while its waiver petition was
    pending. Because we issue a decision regarding the waiver petition
    in this Order, we dismiss the STA petition as moot.

[^4]: Pub. L. No. 102-385, 106 Stat. 1460 (1992).

[^5]: 47 U.S.C. § 624A.

[^6]: 9 FCC Rcd 1981 (1994) ("*Compatibility* *Report and Order*").

[^7]: 47 C.F.R. § 76.630(a).

[^8]: *Compatibility* *Report and Order*, 9 FCC Rcd at 1991.

[^9]: 47 C.F.R. § 76.630(a).

[^10]: This estimate is based upon three separate audits of different
    portions of Liberty cable systems covering 179,904 out of a total of
    338,140 homes passed. The audits indicate that in some sections of
    Liberty's service area, there were more unauthorized than authorized
    connections. Petition at 1 and Exhibit A.

[^11]: *Id*. at 2.

[^12]: *Id*. Liberty reports numerous service taps damaged as a result
    of break-ins for illegal cable drops. Liberty submits that the
    broken service taps results in higher repair costs and loss of
    signal quality.

[^13]: *Id*.

[^14]: The National Cable Television Association's Office of Cable
    Signal Theft estimates the average percentage of basic service tier
    theft at 11.48% nationwide. *See* \<http:/www.ncta.com\>.

[^15]: Petition at 2.

[^16]: Out of its 108,642 subscribers, including 41,397 basic only
    subscribers, Liberty provides a box to all but 1,779. Letter from L.
    Brett Babb, Regulatory Compliance Officer, Liberty to Thomas Horan,
    FCC (Mar. 31, 2000).

[^17]: *See* Comments of Rosalia Molina at 1.

[^18]: On March 1, 2000, Liberty increased the number of channels on the
    basic tier from 21 to 31 and raised the rate from \$15.92 to \$16.74
    per month. *See* Liberty Reply at Exhibit D. Liberty charges \$3.55
    a month for a set-top box and an additional \$0.41 for a remote
    control unit.

[^19]: *See* Letter from L. Brett Babb, Regulatory Compliance Officer,
    Liberty to Thomas Horan, FCC (Mar. 8, 2000).

[^20]: 47 C.F.R. § 76.922.

[^21]: 47 C.F.R. § 76.923.

[^22]: *Id.*

[^23]: 47 C.F.R. §76.923(a)(2).

[^24]: *See Commercial Availability of Navigation Devices*, Report and
    Order, 13 FCC Rcd 14775, 14779 (1998) (\"In general, we find that it
    would be most consistent with our obligations under Section 629 to
    require that, by July 1, 2000, a security element separated from
    navigation devices be available from MVPDs so that equipment may be
    commercially available from unaffiliated manufacturers, retailers,
    and other vendors. .. This requirement will facilitate the
    development and commercial availability of navigation
    devices\....\"). *See also* 47 U.S.C. §549; 47 C.F.R. §§1200 et.
    seq.

[^25]: 47 C.F.R. § 76.1204(e).

[^26]: Letter from L. Brett Babb, Regulatory Compliance Officer, Liberty
    to Thomas Horan, FCC (Mar. 17, 2000).

[^27]: 47 C.F.R. §0.321.