Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of:                | * | CSR 4393-Z                   |
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| Caribbean Communications         | ) |                              |
| Corporation                      | * |                              |
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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: November 21, 2001 Released: November 30, 2001**

By the Chief, Cable Services Bureau:

# INTRODUCTION

1.  In the above-captioned proceeding, Caribbean Communications
    Corporation, d/b/a/ St. Thomas - St. John Cable TV ("Caribbean"),
    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."[^1] The instant waiver request
    is based upon petitioner\'s contentions that theft of basic tier
    service and costs associated with remedying signal leakage from
    unauthorized connections justify the requested waiver.[^2]
    Caribbean's petition is opposed by the Virgin Islands Public
    Services Commission ("PSC")[^3] and the Government of the Virgin
    Islands, as represented by the Virgin Islands Attorney General's
    Office ("AG's Office"). Caribbean filed a reply to the oppositions.
    For the reasons discussed below, Caribbean's petition is denied.

# 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"), 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
    implemented 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's
    recognition that there are some instances in which 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]

# discussion

4.  Caribbean states that prior to its upgrade to a fully scrambled
    system,[^10] the system carried all signals on a single unscrambled
    service tier and theft of service was a serious problem. An audit
    conducted prior to the system's conversion revealed 523 unauthorized
    connections and 13,754 authorized subscribers.[^11] Caribbean
    asserts that it disconnects unauthorized connections when discovered
    and attempts to "convince the resident to become an authorized
    subscriber," but that seven egregious cases of theft have been
    pursued in the legal system. Caribbean maintains that since the
    upgrade, theft of service has ceased. Caribbean argues that if
    required to unscramble its basic tier, there is a substantial
    likelihood that it would once again be "victimized by large numbers
    of cable pirates."[^12] Caribbean contends that these anticipated
    unauthorized connections would result in prohibited signal leakage,
    and would cause the operator to "expend significant resources" in
    locating and correcting the leaks.[^13] Caribbean concludes that
    this additional business expense would prevent the operator from
    providing the lowest cost service to its subscribers.[^14]

5.  The PSC argues that prior to the system's conversion, unauthorized
    user connections would have provided access to Caribbean's single
    service tier, which now has been separated into basic and cable tier
    programming. The PSC contends that since the Commission requires a
    showing of basic tier theft, Caribbean's waiver request is
    inadequate because it is not based solely on theft of its basic
    tier. The PSC also argues that Caribbean has represented that only
    6% of its subscribers have chosen basic service since the system's
    conversion, and that the incentive to create unauthorized
    connections to an unscrambled basic only service would be "radically
    different" from that which existed when the system offered only a
    single 33 channel tier. [^15]

6.  The AG's Office argues that the empirical data provided by Caribbean
    demonstrates a theft of service rate of 2.66%.[^16] The AG's Office
    contends that the industry average for theft of basic service for
    similar size systems is approximately 10%[^17] and that Caribbean
    cannot appropriately characterize its theft rate as
    "substantial."[^18] The AG's Office also argues that rather than use
    criminal sanctions to combat theft,[^19] Caribbean attempts to make
    subscribers out of unauthorized users, and that prosecution would
    deter other potential offenders. The AG's Office states that
    Caribbean pursued legal remedies in only 7 of the 523 incidents of
    unauthorized connections, and that two of the incidents involved
    Caribbean employees and another involved a local telephone company
    employee with legitimate access to cable poles. The AG's Office
    argues that these are not the type of thefts for which the general
    public should be held accountable, nor do they represent the type of
    "substantial problem with theft" that would warrant waiver of a rule
    adopted to benefit the public.[^20] Both opponents contend that
    Caribbean has provided no documentation to support its claim that
    unscrambling the basic tier will result in signal leakage.

7.  In its reply, Caribbean argues that the AG's Office understates the
    rate of theft Caribbean experienced before it instituted scrambling,
    and that its pursuit of remedies through the Attorney General's
    Office were unsuccessful. Caribbean contends that its audit was
    limited to 12,600 households, which represents only 70% of homes
    passed. Extrapolating the figures to the entire cable plant,
    Caribbean states "there were probably closer to 747 incidences of
    theft."[^21] In addition, Caribbean argues that only 18,000 homes
    were passed when the audit was conducted, and concludes that the
    "actual incidence of theft (747) to the number of homes passed . . .
    (18,000)" provides a theft rate of 4.15%.[^22] Caribbean also argues
    that its current 21 channel basic tier is similar to its former 33
    channel single tier, and that its previous experience with theft can
    be anticipated without scrambling. With respect to cable signal
    leakage, Caribbean states that prior to scrambling, 93 reportable
    leaks were found on a 5 mile section of the 250 mile cable plant,
    and that after scrambling, the number of reportable leaks dropped
    sharply.[^23] Caribbean concludes that the only rational explanation
    for the difference is the amount of theft experienced before and
    after scrambling. Caribbean also contends that it will incur
    significant expenses if not allowed to scramble the basic tier.[^24]

8.  Section 76.630(a) provides for waiver of the scrambling prohibition
    upon showing of "a substantial problem with theft of basic tier
    service or a strong need to scramble basic signals for other
    reasons."[^25] Even if we were to accept the percentage of basic
    cable theft most favorable to Caribbean's request, we do not agree
    that petitioner has established "a substantial problem."[^26]
    Caribbean does not refute the average figures for cable theft
    provided by the AG's Office.[^27] In regard to theft of basic tier
    service, Caribbean's arguments, at best, establish a rate of signal
    theft less than half the national average. With respect to
    Caribbean's contention that it will face a significant problem with
    signal leakage without scrambling of the basic tier, we do not agree
    with petitioner's inferences from the leakage data before and after
    it began scrambling the basic tier. Caribbean contends that the
    "only rational explanation" for the drop in signal leakage is its
    scrambling of the basic tier.[^28] However, Caribbean's scrambling
    of its system coincided with a rebuild of the system's distribution
    plant. It is just as plausible that the reportable leaks discovered
    prior to the rebuild were due to old distribution plant, and that
    the new cable plant significantly reduced the system's signal
    leakage. In addition, although Caribbean contends that its expenses
    will increase if it is not able to scramble the basic tier,
    petitioner has failed to demonstrate that such expenditures will
    create any financial hardship.

    **V. ORDERING CLAUSES**

9.  Accordingly, **IT IS ORDERED** that the petition filed by Caribbean
    Communications Corporation requesting a waiver of the Commission's
    rules prohibiting scrambling of channels on the basic service tier
    **IS DENIED**.

10. This action is taken pursuant to delegated authority by Section
    0.321 of the Commission\'s rules.[^29]

FEDERAL COMMUNICATIONS COMMISSION

W. Kenneth Ferree

Chief, Cable Services Bureau

[^1]: 47 C.F.R. § 76.630(a).

[^2]: Petition at 1, filed by Caribbean on October 11, 1994.

[^3]: The opposition filed by the PSC attaches a petition objecting to
    the waiver request signed by 510 residents of St. Thomas and St.
    Johns.

[^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]: Caribbean's system was upgraded between September 1989 and May
    1990 as a result of Hurricane Hugo's "near total destruction" of the
    system's distribution plant. Petition at 2.

[^11]: *Id.*

[^12]: *Id.* at 5.

[^13]: *See* 47 C.F.R. §§ 76.611, 76.614.

[^14]: Petition at 6.

[^15]: PSC Opposition at 5.

[^16]: AG'S Office Opposition at 2. The AG's Office states that
    Caribbean has estimated that it provides cable service to 70% of the
    households in St. Thomas - St. John. Extrapolating from 13,754
    subscribers served by Caribbean, the AG's Office concludes that, of
    the 19,649 available households in the franchise area, 523 incidents
    of cable theft represents a theft rate of 2.66%.

[^17]: National Cable Television Association's Office of Cable Signal
    Theft, 1990 and 1992 Theft of Service Survey Results.

[^18]: *Id.* at 3.

[^19]: The Virgin Islands Legislature enacted a law on March 13, l984,
    which provides for penalties of \$300 to \$2,000 and/or imprisonment
    for up to one year for cable theft. Section 1263 of Chapter 63,
    Title 14, Virgin Islands Code.

[^20]: *Id.* at 4.

[^21]: Reply at 7.

[^22]: *Id.* at 8.

[^23]: Reply at 16.

[^24]: Caribbean claims that it will incur the following costs: (1)
    \$101,196 annually for cable drop audits; (2) \$84,240 annually for
    four additional installers to perform disconnections and
    reconnections; (3) \$80,000 for the purchase of 4 service vehicles
    and \$38,400 annually to fuel and maintain the vehicles; and (4)
    \$31,950 in lost investment for equipment purchased to scramble the
    basic tier. Reply at 14.

[^25]: 47 C.F.R. § 76.630(a).

[^26]: Because Caribbean has not established a substantial problem with
    theft of basic tier service, it is not necessary to address PSC's
    argument that petitioner has not established that the theft of
    service relates to the basic tier, as required by Section 76.630(a).

[^27]: The NCTA's Office of Cable Signal Theft estimates the average
    percentage of basic service tier theft at 11.48% nationwide. See
    \<http:/www.ncta.com\>

[^28]: Caribbean argues that potential cable thieves had less incentive
    to create unauthorized connections after scrambling, thereby
    reducing the signal leakage created by these connections.

[^29]: 47 C.F.R. § 0.321.