**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | MB Docket No. 05-311         |
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| 621(a)(1) of the Cable           | * |                              |
| Communications Policy Act of     | * |                              |
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| and Competition Act of 1992      | * |                              |
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SECOND REPORT AND ORDER

**Adopted: October 31, 2007 Released: November 6, 2007**

By the Commission: Chairman Martin; Commissioners Tate and McDowell
issuing separate statements; Commissioners Copps and
Adelstein dissenting and issuing separate statements.

**TABLE OF CONTENTS**

**Heading Paragraph \#**

I. INTRODUCTION 1

II\. BACKGROUND 2

II\. DISCUSSION 7

A.  Incumbent Treatment 7

B.  Other Issues 21

C.  Customer Service 26

III\. PROCEDURAL MATTERS 34

IV\. ORDERING CLAUSES 38

APPENDIX -- Final Regulatory Flexibility Act Analysis

**I. INTRODUCTION**

1.  In this Second Report and Order ("*Order*"), we provide further
    guidance on the operation of the local franchising process. To
    promote the federal goals of enhanced cable competition and
    accelerated broadband development, we extend a number of the rules
    promulgated in this docket's preceding Report and Order ("*First
    Report and Order*")[^1] to incumbents as well as new entrants. We
    also decline to preempt state or local customer service laws that
    exceed the Commission's standards.

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II. **BACKGROUND**

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2.  New competitors are entering markets for the delivery of services
    historically offered by monopolists: traditional phone companies are
    entering the multichannel video market, while traditional cable
    companies are competing in the telephony market.[^2] Ultimately,
    both types of companies are projected to offer customers a "triple
    play" of voice, high-speed Internet access, and video services over
    their respective networks. These entities also face competition from
    other new providers of bundled services, including overbuilders and
    utility companies. We believe this competition for the delivery of
    bundled services will benefit consumers by reducing prices and
    improving the quality of service offerings. In the *First Report and
    Order*, we stated our concerns that competitive applicants seeking
    to enter the video market faced unreasonable regulatory obstacles,
    to the detriment of competition generally and cable subscribers in
    particular.[^3]

3.  Specifically, in the *First Report and Order*, we adopted rules and
    provided guidance to implement Section 621(a)(1) of the
    Communications Act of 1934, as amended (the "Act"), which prohibits
    franchising authorities from unreasonably refusing to award
    competitive franchises for the provision of cable services.[^4] The
    record in the *First Report and Order* showed that new entrants
    eager to provide video service are often delayed, and in some cases
    derailed, by the unreasonable demands made by local franchising
    authorities ("LFAs") during the franchising process.[^5] The *First
    Report and Order* found that these delays contravened the dual
    congressional goals of enhancing cable competition and accelerating
    broadband deployment.[^6] As such, the Commission found that the
    operation of the local franchising process in many jurisdictions
    constituted an unreasonable barrier to entry.[^7]

4.  To eliminate unreasonable barriers to entry into the cable market,
    and to encourage investment in broadband facilities, we found in the
    *First Report and Order* that: (1) an LFA's failure to issue a
    decision on a competitive application within the timeframes
    specified in the order constitutes an unreasonable refusal to award
    a competitive franchise within the meaning of Section 621(a)(1); (2)
    an LFA's refusal to grant a competitive franchise because of an
    applicant's unwillingness to agree to unreasonable build-out
    mandates constitutes an unreasonable refusal to award a competitive
    franchise within the meaning of Section 621(a)(1); (3) an LFA's
    refusal to grant a competitive franchise because of an applicant's
    unwillingness to agree to a variety of franchise fee requirements
    that are impermissible under Section 622 of the Act constitutes an
    unreasonable refusal to award a competitive franchise within the
    meaning of Section 621(a)(1); (4) it would be an unreasonable
    refusal to award a competitive franchise if the LFA denied an
    application based upon a new entrant's refusal to undertake certain
    obligations relating to public, educational, and government channels
    ("PEG") and institutional networks ("I-Nets"); and (5) it is
    unreasonable under Section 621(a)(1) for an LFA to refuse to grant a
    franchise based on issues related to non-cable services or
    facilities.[^8]

5.  Some of the Commission's findings in the *First Report and Order*
    relied, in part, on statutory provisions that do not distinguish
    between incumbent providers and new entrants;[^9] however, in light
    of the fact that the NPRM in this proceeding focused on competitive
    entrants, the findings were made applicable only to new entrants. At
    the same time that we adopted the *First Report and Order,* we
    therefore issued a *Further Notice of Proposed Rulemaking*
    ("*FNPRM*") to provide interested parties with the opportunity to
    provide comment on which of those findings should be made applicable
    to incumbent providers and how that should be done.

6.  This *FNPRM* tentatively concluded that the findings in the *First
    Report and Order* should apply to incumbent cable operators as they
    negotiate renewal of their existing agreements with LFAs.[^10] We
    noted that two of the statutory provisions that we discussed in the
    *First Report and Order*, Sections 611(a) and 622(a), do not
    distinguish between incumbents and new entrants or franchises issued
    to incumbents versus franchises issued to new entrants.[^11] We
    sought comment on that tentative conclusion, and also on the
    Commission's authority to implement this finding.[^12] We also
    sought comment on what effect, if any, the findings in the *First
    Report and Order* have on most favored nation ("MFN") clauses that
    may be included in existing franchises.[^13] Finally, we asked about
    the Commission's authority to preempt state or local customer
    service laws that exceed the Commission's standards.[^14] We
    examined the statutory language of Section 632(d)(2) and tentatively
    concluded that we can neither preempt state or local customer
    service laws that exceed the Commission's standards, nor prevent
    LFAs and cable operators from agreeing to more stringent
    standards.[^15]

**III. DISCUSSION**

A.  **Incumbent Treatment**

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7.  Based on the comments filed in response to this *Order*, we agree,
    as detailed below, that many of the findings in the sections of the
    *First Report and Order* addressing franchise fees, PEG and I-Net
    obligations, and non-cable related services and facilities should be
    applicable to incumbent operators. We also conclude, however, that
    the findings in the *First Report and Order* involving timing and
    build-out should not be applicable to incumbent operators.
    Accordingly, we extend the applicable findings from the *First
    Report and Order* to incumbents as discussed below.

8.  *Time Limits.* The "Time Limit for Franchise Negotiations" section
    of the *First Report and Order* is not applicable to incumbents.
    Many commenters argue that this section of the *First Report and
    Order* should not be applicable to incumbents. They point out that
    Section 626 of the Act, which concerns renewals, clearly delineates
    the process and timeline for renewal negotiations.[^16] We agree.
    The time limits established in the *First Report and Order* for
    negotiating initial agreements cannot apply to incumbent renewals
    because those limits are not consistent with the 36-month renewal
    procedure set forth in Section 626 of the Act.[^17] Moreover, the
    underlying rationale for the time limits -- that is, preventing
    unreasonable entry delays -- is inapplicable to incumbents.[^18]
    Although new entrants are barred from providing service until they
    obtain a franchise, incumbents are able to continue providing
    service during renewal negotiations.[^19] Accordingly, the rationale
    for the time limits set forth in the *First Report and Order* does
    not apply to the renewal context.

9.  *Build-Out*. The "Build-Out" section of the *First Report and Order*
    is also not applicable to incumbents. Again, many commenters argue
    that the findings in this section of the *First Report and Order*
    should not be applicable to incumbents. In particular, they contend
    that eliminating build-out requirements has no relevance for
    incumbents (and might prompt efforts to shrink existing service
    areas).[^20] We agree that the findings in the *First Report and
    Order* concerning build-out should not apply to incumbents. Our
    findings regarding build-out requirements were squarely based on
    Section 621(a)(1) of the Act, a provision that plainly does not
    apply to incumbent providers. While we did indicate in the *First
    Report and Order* that Section 621(a)(4)(A) of the Act did not limit
    our authority to restrict unreasonable build-out demands made on
    competitive applicants pursuant to Section 621(a)(1), our findings
    clearly were not based on that provision. As we stated at the time,
    "Section 621(a)(4)(A) does not address the central question
    here."[^21] We also find there is no basis for applying the
    build-out rationale in the *First Report and Order* to incumbents,
    because the underlying rationale -- that build-out requirements can
    serve as a barrier to new entrants -- is inapplicable to
    incumbents.[^22] Incumbents by definition are not barred from entry,
    and allowing incumbents to retract the boundaries of their own
    franchise areas may create disruptions that would hinder the
    statutory goal of broadband deployment.[^23] Moreover, the *First
    Report and Order* discussed the differential impact of build-out
    requirements on incumbents and new entrants.[^24]

10. *Franchise Fees*. The "Franchise Fees" section of the *First Report
    and Order* applies equally to incumbents and new entrants. Most
    commenters agree that our findings regarding franchise fees from the
    *First Report and Order* should apply to incumbents. In that section
    of the *First Report and Order*, we determined that an LFA's refusal
    to grant a competitive franchise because of an applicant's
    unwillingness to agree to a variety of franchise fee requirements
    that are impermissible under Section 622 of the Act constitutes an
    unreasonable refusal to award a competitive franchise within the
    meaning of Section 621(a)(1).[^25] Commenters argue that Section 622
    of the Act does not differentiate between new entrants and
    incumbents, and that when Congress intended to treat various
    providers differently, it was explicit when doing so.[^26] NCTA
    argues that absent a Congressional mandate otherwise, the Commission
    has defined its role as establishing a uniform franchising regime,
    and uniformity requires equal treatment.[^27] Some LFAs argue that
    the Commission was incorrect in its interpretation of Section 622,
    and it should not extend its interpretation.[^28] NATOA states that
    incumbents have been renewing franchises for years with full
    knowledge of the Cable Act, and the FNRPM's proposal to extend the
    franchise fee aspects of the *First Report and Order* to incumbents
    is a solution in search of a problem.[^29]

11. We agree that our findings interpreting Section 622 should apply
    equally to incumbent operators and new entrants. Section 622 does
    not distinguish between incumbent providers and new entrants. As a
    result, to the extent that a franchise-fee requirement is found to
    be impermissible under Section 622, that statutory interpretation
    applies to both incumbent operators and new entrants.[^30] The
    relevant findings from the *First Report and Order* that apply to
    incumbent providers include the following: (1) our clarification
    that a cable operator is not required to pay cable franchise fees on
    revenues from non-cable services;[^31] (2) our finding that the term
    "incidental" in Section 622(g)(2)(D) should be limited to the list
    of incidentals in the statutory provision, as well as other minor
    expenses, and that certain fees[^32] are not to be regarded as
    "incidental" and therefore must count toward the 5 percent franchise
    fee cap;[^33] (3) our clarification that any municipal projects
    requested by LFAs unrelated to the provision of cable services that
    do not fall within the exempted categories in Section 622(g)(2) are
    subject to the statutory 5 percent franchise fee cap;[^34] and (4)
    our finding that payments made to support the operation of PEG
    access facilities are considered franchise fees and are subject to
    the 5 percent cap, unless they are capital costs, which are excluded
    from franchise fees under Section 622(g)(2)(C).[^35]

12. *PEG/I-Nets*. Much of the "PEG/I-Nets" section of the *First Report
    and Order* applies equally to incumbents and new entrants. Many
    commenters argue that our findings regarding PEG and I-Net issues
    from the *First Report and Order* should apply equally to incumbents
    because the statutory provisions discussed do not distinguish among
    differing providers.[^36] LFAs, on the other hand, argue that the
    findings regarding PEG and I-Nets should not be extended to
    incumbents. They contend that doing so would freeze PEG support at
    current contribution levels without the possibility for future
    modification, which would result in either substantially reduced PEG
    access facility support or decreased general fund monies.[^37] They
    also contend that they would lose the ability to benefit from an
    affordable I-Net, which cable operators can offer for no net
    costs.[^38] LFAs also assert that I-Nets provide numerous benefits
    to the community and are vital to government functions, and the
    Commission may not take any action that would inhibit an LFA's
    ability to require a cable operator to build an I-Net.[^39] LFAs
    further argue that some PEG and I-Net obligations are undertaken as
    part of a settlement agreement against an operator, and these
    contracts cannot be invalidated.[^40]

13. We determine that some of the findings related to PEG and I-Nets
    should apply to incumbent providers while others should not.
    Specifically, the finding, discussed above, that the non-capital
    costs of PEG requirements must be offset from the cable operator's
    franchise fee payments[^41] is applicable to incumbents because it
    was based upon our statutory interpretation of Section 622 of the
    Act. Again, nothing in the language or structure of that provision
    distinguishes between different classes of providers, and thus our
    interpretation applies to all providers. Similarly, both our refusal
    to adopt standard terms for PEG channels for new entrants as well as
    our refusal to hold that it is *per se* unreasonable for LFAs to
    require the payment of ongoing costs to support PEG by new entrants
    (so long as such support costs as applicable are subject to the
    franchise fee cap) apply to incumbents as well.[^42]

14. We conclude, however, that other findings pertaining to PEG and
    I-Nets should not apply to incumbents. In particular, our findings
    that it would be unreasonable for an LFA to impose on a new entrant
    more burdensome PEG carriage obligations than it has imposed upon
    the incumbent cable operator and that it would be unreasonable for
    an LFA to require a new entrant to provide PEG support that is in
    excess of the incumbent cable operator's obligations, by their
    terms, do not provide relief for incumbents. Neither do we believe
    that we can similarly conclude that it would be *per se*
    unreasonable for an LFA to impose less burdensome PEG carriage
    obligations on a new entrant than it has imposed on an incumbent
    cable operator or *per se* unreasonable for an LFA to require a new
    entrant to provide less PEG support than the incumbent cable
    provider. Requiring an established incumbent operator to have a
    greater PEG carriage obligation or provide greater PEG support than
    a fledgling new entrant may very well be reasonable under the
    circumstances, and we see no statutory provision that categorically
    precludes such an approach.[^43] Finally, in the *First Report and
    Order*, we found that "completely duplicative PEG and I-Net
    requirements imposed by LFAs would be unreasonable," and that it was
    unreasonable for an LFA to refuse to award a competitive franchise
    unless the applicant agrees to pay the face value of an I-Net that
    will not be constructed.[^44] The problems that these two
    determinations were designed to address -- the required construction
    of duplicative networks and required payments in lieu of the
    construction of a duplicative network -- are issues that face
    competitive entrants, and it is not clear to us how these findings
    would be of practical relevance to incumbents. We therefore do not
    apply them to incumbents at this time. However, incumbent providers
    are free in the future to present the Commission with evidence that
    these findings are of practical relevance to incumbents and
    therefore should be applied to them in an appropriate form. When
    doing so, incumbent providers should identify the particular
    problems that applying some variation of these findings to them
    would address.

15. We disagree with comments arguing that any changes to the PEG
    structure means that PEG support would be frozen at current
    contribution levels without the possibility for future modification
    to reflect the community's needs at that time.[^45] Sections 611 and
    626 provide a process for requiring PEG carriage and determining a
    community's future cable-related needs and interests. Section 626
    requires that an LFA identify "future cable-related community needs
    and interests" prior to the consideration of a franchise renewal
    proposal.[^46] Therefore, LFAs are to evaluate their current and
    future PEG needs at the time of an incumbent provider's renewal, and
    are allowed to request such PEG support from their providers, within
    the limits of the Act and the Commission's statutory interpretation.
    Our findings here and in the *First Report and Order* have no
    bearing on these renewal requirements.

16. *Mixed-Use Networks*. The "Mixed-Use Networks" section of the *First
    Report and Order* also applies equally to incumbents and new
    entrants. Consistent with their position on other provisions, a
    number of commenters argue that the Commission's mixed-use network
    findings in the *First Report and Order* are based upon a statutory
    interpretation of Section 602(7)(C), and the statute's failure to
    distinguish among differing providers requires that it applies
    uniformly to all.[^47] LFAs argue that the mixed-use findings
    presume the competitor is a telecommunications provider, and that
    the findings do not speak to an incumbent cable provider that
    already is using its network to provide cable services.[^48]

17. Because our findings on mixed-use networks in the *First Report and
    Order* depended upon our statutory interpretation of Section 602,
    which does not distinguish between incumbent providers and new
    entrants, we agree that the findings in this section should be
    applicable to incumbent providers.[^49] Specifically, we clarify
    that LFAs' jurisdiction under Title VI over incumbents applies only
    to the provision of cable services over cable systems[^50] and that
    an LFA may not use its franchising authority to attempt to regulate
    non-cable services offered by incumbent video providers.[^51] For
    example, the provision of video services pursuant to a cable
    franchise agreement does not provide a basis for customer service
    regulation by local law or franchise agreement of a cable operator's
    entire network, or any services beyond cable services.[^52]

18. *Timing*. The Commission tentatively concluded that the findings in
    the *First Report and Order* should apply to cable operators at the
    time of renewal:

> \[t\]he findings in this *Order* should apply to cable operators that
> have existing franchise agreements as they negotiate renewal of those
> agreements with LFAs. We note that Section 611(a) states "A
> franchising authority may establish requirements in a franchise with
> respect to the designation or use of channel capacity for public,
> educational, or governmental use" and Section 622(a) provides "any
> cable operator may be required under the terms of any franchise to pay
> a franchise fee." These statutory provisions do not distinguish
> between incumbents and new entrants or franchises issued to incumbents
> versus franchises issued to new entrants.[^53]

Many commenters agreed with our tentative conclusion.[^54] However, some
incumbent providers argue that regulatory parity requires that the
Commission extend the *First Report and Order* immediately to incumbent
providers, and not wait until renewal.[^55] Specifically, incumbent
providers argue that some of the findings in the *First Report and
Order*, including franchise fees, PEG/I-Nets, and mixed use networks,
were not made solely pursuant to Section 621, but also other sections of
the Act that are applicable to all operators, not just new entrants, and
that those provisions should be immediately applicable to all
providers.[^56] Further, a small number of incumbent competitive
providers argue that to avoid penalizing them for being the first to
risk competitive entry, the *Order* should be applicable to such
"legacy" competitive providers immediately or upon entrance of a new
competitive provider.[^57] They argue that if the Commission adopts the
tentative conclusion to apply the decisions in the *First Report and
Order* at renewal, it is conceivable, where an incumbent's franchise is
up for renewal before a competitive entrant's franchise, that a new
competitive entrant and an incumbent would receive the regulatory relief
of the *First Report and Order* before the incumbent competitive
provider.[^58] LFAs, by contrast, argue that if findings from the *First
Report and Order* are found to be applicable to incumbents, they should
be effective only at the time of renewal. These commenters argue that
the Commission does not have the authority to void existing agreements,
and that to do so would violate LFAs' contractual rights.[^59]

19. We believe that neither of the principal views expressed by
    commenters is entirely correct. The statutory interpretations set
    forth above represent the Commission's view as to the meaning of
    various statutory provisions, such as Section 622, and these
    interpretations are valid immediately.[^60] We do not see, for
    example, how Section 622 could mean different things in different
    sections of the country depending on when various incumbents'
    franchise agreements come up for renewal. We recognize, however,
    that franchise agreements involve contractual obligations and also
    note that some terms may have been implemented as part of a
    settlement agreement regarding rate disputes or past performance by
    the franchisee.[^61] As a result, we believe that the facts and
    circumstances of each situation must be assessed on a case-by-case
    basis under applicable law to determine whether our statutory
    interpretation should alter the incumbent's existing franchise
    agreement. This *Order* should in no way be interpreted as giving
    incumbents a unilateral right to breach their existing contractual
    obligations. [^62] Instead, if an incumbent asserts that the terms
    of its franchise should be amended as a result of this Order, we
    encourage LFAs and incumbents to work cooperatively to address those
    issues.[^63]

20. *Most Favored Nations ("MFN") Clauses.* The *First Report and Order*
    does not have any effect on existing MFN clauses. In the *FNPRM*, we
    sought comment on "what effect, if any, the findings in this *Order*
    have on MFN clauses that may be included in existing
    franchises."[^64] While provisions differ, MFN clauses generally
    allow franchisees to adjust their obligations if and when an LFA
    grants a competing provider any franchise provisions that are more
    favorable than the provisions in the incumbent's franchise
    agreement. Some providers state that an incumbent with existing MFN
    provisions should be able to amend its franchise to reflect the
    requirements applicable to the new entrant, in order to encourage
    regulatory parity.[^65] Others state that the proceeding should have
    no effect on MFN clauses, as they do not impose any barriers to
    entry.[^66] They also argue that MFN clauses are negotiated in order
    to adjust obligations when a new competitor enters the market, and
    the Commission has no basis to interfere with these contractual
    provisions.[^67] To the extent that the *First Report and Order*
    allows competitive providers to enter markets with franchise
    provisions more favorable than those of the incumbent provider, we
    expect that MFN clauses, pursuant to the operation of their own
    design, will provide some franchisees the option and ability to
    change provisions of their existing agreements. Otherwise, we do not
    believe that our *First Report and Order* has any effect on MFN
    clauses.

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B.  **Other** **Issues**

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21. *Franchise Modification.* We agree with commenters that the
    modification provision of the Cable Act will provide some
    franchisees the option and ability to change their existing
    agreements. Section 625 of the Act provides that a cable operator
    may obtain a franchise modification from an LFA: (1) in the case of
    any requirements for facilities or equipment (including PEG access)
    where the provider can show that it is "commercially impracticable"
    to comply with a requirement; or (2) in the case of any requirements
    for services, if the cable operator demonstrates that the mix,
    quality, and level of services required by the franchise at the time
    it was granted will be maintained after any proposed
    modification.[^68]

22. Commenters argue that incumbents without an MFN provision should be
    allowed to seek modification through Section 625 when a competitor
    enters the franchise area.[^69] They assert that the Commission
    should find an incumbent's compliance with more burdensome franchise
    provisions than a new competitor "commercially impracticable"
    because of the possibility of higher costs.[^70] Some LFAs and
    Verizon agree that Section 625 may be applicable in some
    circumstances, provided that the incumbent can meet the commercially
    impracticable test, but contend that there should not be an
    assumption that all providers can meet this test.[^71] NATOA argues
    that the Commission does not have jurisdiction to construe or
    enforce this provision under Section 625(b)(1), which provides for
    review of modification decisions in state or federal district court
    under Section 635, and that the Commission cannot issue any blanket
    statements about modifications, as any determinations are fact
    specific, and cannot be shown merely by the presence of a new
    competitor.[^72] We agree that the *First Report and Order* and this
    *Order*, to the extent applicable, can be taken into consideration
    if an incumbent seeks modification of a franchise when a competitor
    enters the franchise area, within the processes set forth under
    Section 625. However, it is up to the incumbent to make to the
    relevant franchising authority the requisite showing of "commercial
    impracticability."[^73]

23. *Generally Accepted Accounting Principles.* We decline to adopt a
    requirement that an operator's gross income be determined under
    Generally Accepted Accounting Principles ("GAAP"). Time Warner asks
    the Commission to mandate that the calculation of an operator's
    gross income under Section 622 be determined in accordance with
    GAAP.[^74] Time Warner argues that the Commission has authority from
    Congress to mandate that uniform federal standards be used to govern
    franchise fee calculations*.*[^75] Some franchising authorities
    reject this assertion and argue that GAAP will not produce the
    clarity and uniformity Time Warner is seeking, because GAAP does not
    create rules but rather functions as a set of guidelines interpreted
    by professionals.[^76] They also state that GAAP was established by
    the financial community to govern disclosures to investors and
    stockholders, not to determine franchise fee payments, and these
    differing purposes may result in characterization of revenues that
    are not applicable to cable operations.[^77] Finally, they argue
    this has nothing to do with competitive entry, and a separate NPRM
    must be issued to consider it.[^78] Given the paucity of comments on
    the matter, and conflicting information of the applicability of GAAP
    to the franchising process, we do not believe that there is a
    sufficient record supporting the requested regulation. We therefore
    decline to adopt such a requirement here.

24. *Fresh Look*. We reject RCN's request that we invoke the fresh look
    doctrine. The fresh look doctrine is used to re-open contracts.[^79]
    The Commission utilizes it sparingly, when it is "necessary to
    promote consumer choice and eliminate barriers to competition."[^80]
    RCN urges the Commission to invoke its "fresh look" doctrine to
    require that LFAs reconsider existing franchises when a new entrant
    enters the franchise area and, in markets where there is more than
    one franchised operator, when the first existing franchise comes up
    for renewal.[^81] RCN suggests that when a new provider files an
    application to provide service, the LFA should provide notice to
    existing franchisees and allow them to terminate their franchise and
    negotiate a new one reflecting the rules in the *First Report and
    Order*.[^82] Similarly, the Broadband Service Providers Association
    asks that if one cable operator in a competitive market is able to
    eliminate franchise requirements deemed unlawful by the *First
    Report and Order,* other operators in that LFA should be able to
    submit a renewal proposal at any time that would allow that operator
    to conform its franchise to the rules in the *First Report and
    Order.* RCN argues that this proceeding is consistent with other
    contexts where the Commission adopted the fresh look doctrine,
    because the entity holding the long-term contracts has market power,
    that entity has exercised that power to create long term contracts
    to "lock up" the market in a way that creates unreasonable barriers
    to competition, and the contractual obligations can be nullified
    without harm to the public interest.[^83]

25. We do not believe that it is necessary to invoke the fresh look
    doctrine here. As indicated above, we believe that any contractual
    issues arising from today's *Order* should be decided on a
    case-by-case basis. The fresh look doctrine was developed to allow
    customers to take advantage of competition, not to protect incumbent
    service providers when competitors enter the market.  The case
    precedent is thus distinguishable from the circumstances addressed
    here.[^84] 

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C.  **Customer Service**

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26. We find that the explicit statutory language of Section 632 of the
    Act prohibits the Commission's preemption of state or local cable
    customer service laws that exceed the Commission's standards. The
    Commission previously sought comment on whether customer service
    requirements should be allowed to vary greatly between
    jurisdictions.[^85] Commenters urged the Commission to adopt a
    number of rules limiting LFA authority to adopt local customer
    service regulations.[^86] After reviewing those comments, we sought
    additional comment on our tentative conclusion that Section
    632(d)(2) of the Act prevents us from preempting state or local
    customer service laws exceeding Commission standards, and allows
    LFAs and cable operators to agree to more extensive customer service
    requirements.[^87]

27. Section 632 of the Communications Act sets out the regulatory
    framework for cable customer service.[^88] It authorizes LFAs to
    establish and enforce customer service requirements and directs the
    Commission to establish standards by which cable operators may
    fulfill these requirements. Specifically, Section 632(d)(1) provides
    that "\[n\]othing in this title shall be construed to prohibit any
    State or any franchising authority from enacting or enforcing any
    consumer protection law, to the extent not specifically preempted by
    this title." Further, Section 632(d)(2) states that

    \[n\]othing in this title shall be construed to prevent the
    establishment or enforcement of any municipal law or regulation, or
    any State law, concerning customer service that imposes customer
    service requirements that exceed the standards set by the Commission
    under the section, or addresses matters not addressed by the
    standards set by the Commission under this section.[^89]

    The statute's explicit language makes clear that Commission
    standards are a floor for customer service requirements, rather than
    a ceiling, and thus do not preclude LFAs from adopting stricter
    customer service requirements.[^90]

28. In response to the *FNPRM*, some commenters ask that we clarify
    certain issues surrounding customer service. [^91] Verizon
    recognizes that while LFAs have some discretion in the crafting of
    customer service regulations, they argue that this discretion is
    limited by the language of Section 632(d)(2) to cable customer
    service issues.[^92] They urge the Commission to plainly state that
    LFAs only have authority to regulate cable customer service
    standards and that the Commission has the authority to preempt
    regulations that do not concern customer service for cable
    service.[^93] They argue that onerous regulations, as well as those
    unrelated to the provision of cable services couched as customer
    service rules, should be preempted because they amount to an
    unreasonable burden under Section 621(a)(1).[^94] They suggest that
    customer service requirements be limited to those general types of
    issues recognized in Section 632(b).[^95] That provision authorizes
    the Commission to "establish standards by which cable operators can
    fulfill their customer service requirements" including "(1) cable
    system office hours and telephone availability; (2) installations,
    outages, and service calls; and (3) communications between the cable
    operator and subscriber."[^96] They assert that requirements beyond
    these limited categories impose unreasonable burdens on new
    entrants.[^97]

29. Supporters of the Commission's tentative conclusion regarding
    Section 632(d)(2) argue that the statute expressly authorizes the
    establishment and enforcement of local customer service standards
    that go beyond those delineated by the Commission. [^98] They assert
    that the unreasonable refusal language of Section 621(a)(1) has no
    application to customer service standards under Section 632.[^99] In
    fact, they argue that the only way to read these sections together
    is to conclude that Congress intended that local customer service
    standards exceeding Commission standards do not amount to an
    unreasonable refusal.[^100]

30. New entrants also take issue with the local character of customer
    service requirements. AT&T cites difficulties created by disparate
    local standards and local data reporting requirements and suggested
    the Commission adopt uniform customer service standards because of
    the inefficiency inherent in varying standards.[^101] They argue
    that requiring new entrants to comply with these differing standards
    can be a potential barrier to entry.[^102] They further argue that
    the imposition of local data collection requirements also poses a
    barrier to entry.[^103] AT&T states that under their regional
    systems it is not currently possible to compile their data on a
    franchise area basis.[^104] At minimum, they ask the Commission to
    allow regional providers to demonstrate compliance with local
    standards through aggregate regional data.[^105]

31. Given the explicit language of Section 632, we conclude that the
    Commission cannot preempt local or state cable customer service
    requirements, nor can it prevent LFAs and cable operators from
    agreeing to more stringent standards. However, an LFA's authority to
    implement customer service rules under Section 632 is limited to the
    adoption of regulations that, in fact, involve customer service
    matters and impose customer service requirements on the provision of
    cable services.[^106] For instance, LFAs cannot implement a
    "customer service" rule requiring a six percent franchise fee
    payment. Furthermore, it would constitute an unreasonable refusal
    under Section 621(a)(1) for an LFA to make the grant of a
    competitive franchise contingent upon a cable customer service
    requirement that does not, in fact, involve cable customer
    service.[^107] While localities may have independent authority to
    impose customer service requirements on a cable operator's non-cable
    activities, franchising authorities may not condition the exercise
    of their video franchising authority on an operator's agreement to
    such non-cable requirements because we interpret Section 632 to
    apply only to customer service requirements related to cable
    service.

32. Local franchise authorities maintain that Congress made a policy
    judgment when it permitted individual franchising authorities to
    adopt local customer service standards, despite the inconvenience it
    may pose to new entrant compliance.[^108] They note that incumbents
    operating regional networks have complied with local data reporting
    requirements and other differing local standards.[^109] They state
    that local data collection requirements also are consistent with
    Section 626 of the Act, which allows LFAs to take the quality of an
    operator's service into account during the franchise renewal
    process.[^110] They argue that limiting local data collection, as
    AT&T suggests, would make it impossible for LFAs to assess an
    operator's performance within their respective communities.[^111]

33. The language of Section 632(d)(2) provides that, while the
    Commission may adopt standards applicable to all cable operators, it
    may not prohibit LFAs from imposing requirements that exceed those
    standards. [^112] We conclude, therefore, that we do not have
    authority to grant AT&T's request for uniform local customer service
    standards or data collection requirements. In sum, we find that the
    explicit statutory language of Section 632 prohibits the
    Commission's preemption of state or local cable customer service
    laws that exceed the Commission's standards.

**IV. PROCEDURAL MATTERS**

34. *Paperwork Reduction Act Analysis*. This document does not contain
    new or modified information collection requirements subject to the
    Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In
    addition, we note that there is no new or modified "information
    burden for small business concerns with fewer than 25 employees,\" 
    pursuant to the Small Business Paperwork Relief Act of 2002, Public
    Law 107-198, *see * U.S.C. 3506(c)(4).

35. *Final Regulatory Flexibility Analysis*. As required by the
    Regulatory Flexibility Act,[^113] the Commission has prepared a
    Final Regulatory Flexibility Analysis ("FRFA") relating to this
    *Report and Order*. The FRFA is set forth in Appendix B.

36. *Congressional Review Act*. The Commission will send a copy of this
    *Report and Order* in a report to be send to Congress and the
    Government Accountability Office pursuant to the Congressional
    Review Act, *see* 5 U.S.C. § 801(a)(1)(A).

37. *Additional Information*. For additional information on this
    proceeding, please contact Holly Saurer, Policy Division, Media
    Bureau at (202) 418-2120, or Brendan Murray, Policy Division, Media
    Bureau at (202) 418-2120.

**V. ORDERING CLAUSES**

38. IT IS ORDERED that, pursuant to the authority contained in Sections
    1, 2, 4(i), 303, 303r, 403, 405, 602, 611, 621, 622, 625, 626, and
    632 of the *Communications* Act of 1934, 47 U.S.C §§ 151, 152,
    154(i), 303, 303(r), 403, 405, 522, 531, 541, 542, 545, 546, and
    552, this *Report and Order* IS ADOPTED.

39. IT IS FURTHER ORDERED that the *Second Report and Order* SHALL BE
    EFFECTIVE 30 days after publication of the *Second Report and Order*
    in the Federal Register.

40. IT IS FURTHER ORDERED that the Commission's Consumer and
    Governmental Affairs Bureau, Reference Information Center, SHALL
    SEND a copy of this *Second Report and Order*, including the Final
    Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy
    of the Small Business Administration.

41. IT IS FURTHER ORDERED that the Commission SHALL SEND a copy of this
    *Second Report and Order* in a report to be sent to Congress and the
    General Accounting Office pursuant to the Congressional Review Act,
    see 5 U.S.C. § 801(a)(1)(A).

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

**APPENDIX**

**Final Regulatory Flexibility Act Analysis**

1\. As required by the Regulatory Flexibility Act of 1980, as amended
("RFA")[^114] an Initial Regulatory Flexibility Analysis ("IRFA") was
incorporated in the *Further Notice of Proposed Rulemaking* ("*FNPRM*")
to this proceeding.[^115] The Commission sought written public comment
on the proposals in the FNPRM, including comment on the IRFA. The
Commission received one comment on the IRFA. This Final Regulatory
Flexibility Analysis ("FRFA") conforms to the RFA.[^116]

A.  **Need for, and Objectives of, the Second Report and Order**

2\. This *Second Report and Order* ("*Order*") adopts rules and provides
guidance to implement the findings in the First Report and Order dealing
with Section 611 and Section 622 of the Communications Act of 1934, as
amended (the "Communications Act").[^117] The First Report and Order
adopted rules in accordance with Section 621(a) of the Communications
Act to prevent Local Franchising Authorities ("LFAs") from creating
unreasonable barriers to competitive entry.[^118] It also provided
clarifications of Section 611, restricting LFAs' authority to establish
capacity and support requirements for PEG channels,[^119] and Section
622, setting limits on the franchise fees LFAs may charge cable
operators.[^120] Neither of these sections distinguishes between the
treatment of new entrants and incumbent cable operators.[^121] The
Commission extends these findings to incumbent cable operators to
further the interrelated goals of enhanced cable competition and
accelerated broadband deployment. The Commission also finds that it
cannot preempt state or local customer service rules exceeding
Commission standards.

B.  **Summary of Significant Issues Raised by Public Comments in
    Response to the IRFA**

3\. Only one commenter, the Local Government Lawyer's Roundtable,
submitted a comment that specifically responded to the IRFA. The Local
Government Lawyer's Roundtable contends that the Commission should issue
a revised IRFA because of the erroneous determination that the proposed
rules would have a *de minimis* effect on small governments. They argue
that the Commission has not given weight to the economic impact the
rules will have on small governments, including training and hiring
concerns.

4\. We disagree with the Local Government Lawyer's Roundtable's
assertion that our rules will have any more than a *de minimis* effect
on small governments. LFAs today must review and decide upon competitive
and renewal cable franchise applications, and will continue to perform
that role. While the Local Government Lawyer's Roundtable expresses
concern about additional training that may be necessary to understand
these actions, and potential hiring of additional personnel to
accommodate the *Order's* requirements, we disagree that those steps
will be necessary. This *Order* simply extends existing requirements to
apply to incumbent cable providers. LFAs should be familiar with those
existing requirements, and therefore should not need additional training
or personnel to implement the *Order's* requirements. Moreover,
modifications made to the franchising process that result from this
proceeding further streamline the franchising process, lessening the
economic burdens placed upon LFAs.

C.  **Description and Estimate of the Number of Small Entities to Which
    the Rules Will Apply**

5\. The RFA directs the Commission to provide a description of and,
where feasible, an estimate of the number of small entities that will be
affected by the rules adopted herein.[^122] The RFA generally defines
the term "small entity" as having the same meaning as the terms "small
business," "small organization," and "small government
jurisdiction."[^123] In addition, the term "small business" has the same
meaning as the term "small business concern" under the Small Business
Act.[^124] A small business concern is one which: (1) is independently
owned and operated; (2) is not dominant in its field of operation; and
(3) satisfies any additional criteria established by the Small Business
Administration (SBA).[^125]

6\. The rules adopted by this *Order* will streamline the local
franchising process by adopting rules that provide guidance as to the
applicability of prior findings in this proceeding to incumbents and the
limitations on the Commission's authority regarding customer service
regulations. The Commission has determined that the group of small
entities directly affected by the rules adopted herein consists of small
governmental entities (which, in some cases, may be represented in the
local franchising process by not-for-profit enterprises). Therefore, in
this FRFA, we consider the impact of the rules on small governmental
entities. A description of such small entities, as well as an estimate
of the number of such small entities, is provided below.

7\. *Small Governmental Jurisdictions*. The term "small governmental
jurisdiction" is defined generally as "governments of cities, towns,
townships, villages, school districts, or special districts, with a
population of less than fifty thousand."[^126] Census Bureau data for
2002 indicate that there were 87,525 local governmental jurisdictions in
the United States.[^127] We estimate that, of this total, 84,377
entities were "small governmental jurisdictions."[^128] Thus, we
estimate that most governmental jurisdictions are small.

8\. *Cable and Other Program Distribution.* The Census Bureau defines
this category as follows: "This industry comprises establishments
primarily engaged as third-party distribution systems for broadcast
programming. The establishments of this industry deliver visual, aural,
or textual programming received from cable networks, local television
stations, or radio networks to consumers via cable or direct-to-home
satellite systems on a subscription or fee basis. These establishments
do not generally originate programming material."[^129] The SBA has
developed a small business size standard for Cable and Other Program
Distribution, which is: all such firms having \$13.5 million or less in
annual receipts.[^130] According to Census Bureau data for 2002, there
were a total of 1,191 firms in this category that operated for the
entire year.[^131] Of this total, 1,087 firms had annual receipts of
under \$10 million, and 43 firms had receipts of \$10 million or more
but less than \$25 million.[^132] Thus, under this size standard, the
majority of firms can be considered small.

9\. *Cable Companies and Systems.* The Commission has also developed its
own small business size standards, for the purpose of cable rate
regulation. Under the Commission's rules, a "small cable company" is one
serving 400,000 or fewer subscribers, nationwide.[^133] Industry data
indicate that, of 1,076 cable operators nationwide, all but eleven are
small under this size standard.[^134] In addition, under the
Commission's rules, a "small system" is a cable system serving 15,000 or
fewer subscribers.[^135] Industry data indicate that, of 7,208 systems
nationwide, 6,139 systems have under 10,000 subscribers, and an
additional 379 systems have 10,000-19,999 subscribers.[^136] Thus, under
this second size standard, most cable systems are small.

10\. *Cable System Operators*. The Communications Act of 1934, as
amended, also contains a size standard for small cable system operators,
which is "a cable operator that, directly or through an affiliate,
serves in the aggregate fewer than 1 percent of all subscribers in the
United States and is not affiliated with any entity or entities whose
gross annual revenues in the aggregate exceed \$250,000,000."[^137] The
Commission has determined that an operator serving fewer than 677,000
subscribers shall be deemed a small operator, if its annual revenues,
when combined with the total annual revenues of all its affiliates, do
not exceed \$250 million in the aggregate.[^138] Industry data indicate
that, of 1,076 cable operators nationwide, all but ten are small under
this size standard.[^139] We note that the Commission neither requests
nor collects information on whether cable system operators are
affiliated with entities whose gross annual revenues exceed \$250
million,[^140] and therefore we are unable to estimate more accurately
the number of cable system operators that would qualify as small under
this size standard.

11\. *Open Video Systems ("OVS").* In 1996, Congress established the
open video system framework, one of four statutorily recognized options
for the provision of video programming services by local exchange
carriers ("LECs").[^141] The OVS framework provides opportunities for
the distribution of video programming other than through cable systems.
Because OVS operators provide subscription services,[^142] OVS falls
within the SBA small business size standard of Cable and Other Program
Distribution Services, which consists of such entities having \$13.5
million or less in annual receipts.[^143] The Commission has certified
25 OVS operators, with some now providing service. Broadband service
providers ("BSPs") are currently the only significant holders of OVS
certifications or local OVS franchises.[^144] As of June, 2005, BSPs
served approximately 1.4 million subscribers, representing 1.5 percent
of all MVPD households.[^145] Affiliates of Residential Communications
Network, Inc. ("RCN"), which serves about 371,000 subscribers as of
June, 2005, is currently the largest BSP and 14th largest MVPD.[^146]
RCN received approval to operate OVS systems in New York City, Boston,
Washington, D.C. and other areas. The Commission does not have financial
information regarding the entities authorized to provide OVS, some of
which may not yet be operational. We thus believe that at least some of
the OVS operators may qualify as small entities.

D.  **Description of Projected Reporting, Recordkeeping and Other
    Compliance Requirements.**

12\. The rule and guidance adopted in the *Order* will require a *de
minimus* additional reporting, record keeping, and other compliance
requirements. Local franchising authorities ("LFAs") will continue to
perform its role of reviewing and deciding upon competitive cable
franchise applications; the rules adopted in this *Order* will decrease
the procedural burdens faced by LFAs. Since the adopted rules do not
apply until franchise renewal, there is no additional burden beyond what
has been required during past renewals. Therefore, the rules adopted
will not require any additional special skills beyond any already needed
in the cable franchising context.

E.  **Steps Taken to Minimize Significant Impact on Small Entities, and
    Significant Alternative Considered**

13\. The RFA requires an agency to describe any significant alternatives
that it has considered in reaching its proposed approach, why may
include the following four alternatives (among others): (1) the
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or any part thereof, for small
entities.[^147]

14\. In the *FNPRM*, the Commission sought comment on the extension of
its findings that do not distinguish between new entrants and incumbents
in the *First Report and Order* to incumbents and its authority to do
so.[^148] The Commission also invited comment on the effect, if any, the
findings in the *First Report and Order* had on most favored nation
clauses in existing franchises.[^149] Additionally, the Commission also
sought comment on its tentative conclusion that it cannot preempt state
or local customer service laws exceeding Commission standards, nor can
it prevent LFAs and cable operators from agreeing to more stringent
standards.[^150] The Commission tentatively concluded that any rules
likely would have at most a *de minimis* impact on small governmental
jurisdictions, and that the interrelated, high-priority federal
communications policy goals of enhanced cable competition and
accelerated broadband deployment necessitated the extension of its rules
to incumbent cable providers. We agree with those tentative conclusions,
and we believe that the rules adopted in the *Order* will not impose a
significant impact on any small entity.

15\. In the *Order*, we provide that the *First Report and Order*'s
findings resting upon statutory provisions that do not distinguish
between new entrants and incumbents should be extended to incumbent
cable operators at the time of franchise renewal. This will result in
decreasing the regulatory burdens on incumbent cable operators. We
declined to impose the findings of the *First Report and Order*
immediately so that we do not unduly disrupt existing contracts. As an
alternative, we considered not extending the *First Report and Order*'s
rules to incumbent cable operators at all. We conclude that the guidance
we provide minimizes any adverse impact on small entities because it
clarifies the terms within which parties must negotiate, and should
prevent small entities from facing costly litigation over those terms.

**Report to Congress:** The Commission will send a copy of the *Order*,
including this FRFA, in a report to be sent to Congress pursuant to the
Congressional Review Act.[^151] In addition, the Commission will send a
copy of the *Order*, including the FRFA, to the Chief Counsel for
Advocacy of the Small Business Administration. A copy of the *Order* and
FRFA (or summaries thereof) will also be published in the Federal
Register.[^152]

**STATEMENT OF**

**CHAIRMAN KEVIN J. MARTIN**

*Re: Implementation of Section 621(a)(1) of the Cable Communications
Policy Act of 1984 as amended by the Cable Television Consumer
Protection and Competition Act of 1992*

In our prior order in this docket, the Commission took action to remove
regulatory barriers to competition in the video marketplace by giving
meaning to the words Congress wrote in section 621 of the Cable Act. Our
findings in that order only applied to new entrants. In today's item we
find that some of the Commission's findings in that order apply equally
to incumbent providers as they do to new entrants. Given this, the order
we adopt today takes action to level the regulatory playing-field
between these providers. It is important to emphasize that today's order
in no way gives incumbents a unilateral right to breach their existing
contractual obligations. As I have said before, I am committed to seeing
that consumers are able to realize the benefits of competition in the
forms of better services and lower prices. I hope that the regulatory
parity that we establish in this order helps to achieve this goal.

**STATEMENT OF**

**COMMISSIONER MICHAEL J. COPPS, DISSENTING**

 

*Re:       Implementation of Section 621(a)(1) of the Cable
Communications Policy Act of 1984 as amended by the Cable Television
Consumer Protection and Competition Act of 1992*

 

            I strongly dissented last year when the Commission issued an
order short-circuiting the franchise negotiation process between new
entrants into the video market and local governments.  Our decision that
day found no justification in the record compiled in the proceeding, and
it struck me as violative of the basic principles of federalism and the
statute Congress has given us.  In short, I found no rationale for the
FCC to intrude into these negotiations. 

 

            I dissent to today's item because I believe the legal and
factual justifications for this new decision---concerning the
negotiations between existing franchise holders and local
governments---are even weaker.  And they are even more contrary to good
government.  If our previous decision was a body blow to the principle
of federalism, today's decision is the *coup de grace*. 

 

            As I explained in my prior statement, the record before us
at that time did not contain sufficient granularity to convince me that
the process for competitive entry into the video market was fatally
flawed.  Nor could I find sufficient justification in the plain language
of the statute for the FCC to insert itself into the franchise
negotiation process.  I instead read Congress's words as indicating that
negotiations should be conducted between companies and Local Franchise
Authorities, with legal disputes to be adjudicated by federal district
courts.

 

            I find today's *Order* to be even ***more*** intrusive into
traditional prerogatives of local franchising authorities than our prior
*Order*, while simultaneously ***less*** persuasive about the policy or
legal grounds for taking such a step.  To begin with, I do not see any
evidence in the record that existing franchise operators are facing
meaningful competitive disadvantages or barriers.  And our decision
today certainly does not have the virtue of introducing new competition
to the market.  Rather, it addresses---and changes---an existing
negotiation process that is respectful of the principles of federalism
and that appears to be working well today.  If it ain't broke, why are
we fixing it? 

 

            My concern about today's decision is not just
philosophical.  As the record indicates, one possible consequence of
this new set of regulations may be to deprive American consumers of
access to PEG channels that serve important community needs.  Another
effect may be to deprive local governments of access to I-Net facilities
that support public safety and other important government operations. 
Finally, this decision opens the Commission to enormous legal risk.  Why
incur such results when Congress provided a workable process for
incumbent video providers and LFAs to negotiate with each other for
franchises, with recourse to federal district courts if disagreements
arose? 

 

            In conclusion, I certainly understand my colleagues'
interest in establishing regulatory parity between different video
services providers.  Parity is an important value and I generally
support it.  But this is parity moving in the wrong direction.  It is
parity undercutting good policy; parity denying generations of
productive state and local relationships; and parity that will harm
consumers, localities and public safety, among others.  It represents
exactly the sort of unexpected---or at least unpublicized---consequences
that flow from our original mistaken franchising decision.  Though the
genie is out of the bottle for now, I hope that at some point my
colleagues and I will consider removing the Commission from the field of
local franchise regulation---where we are not welcome and have no reason
to be.

 

**STATEMENT OF**

**COMMISSIONER JONATHAN S. ADELSTEIN**

**DISSENTING**

***Re*:** Implementation of Section 621(a)(1) of the Cable
Communications Policy Act of 1984 as amended by the Cable Television
Consumer Protection and Competition Act of 1992

In the *First Report and Order*, I said that "the policy goals of
\[that\] *Order*, to promote competitive video offerings and broadband
deployment, are laudable. But while I support these goals, \[the\] item
goes out on a limb in asserting federal authority to preempt local
governments, and then saws the limb off with a highly dubious legal and
policy scheme that substitutes our judgment as to what is reasonable for
that of local officials -- all in violation of the franchising framework
established in the Communications Act."

Today's *Second Report and Order* picks up where the *First Report and
Order* left off, providing further disruption, confusion and
complication to the operation of the local franchising process. Similar
to its predecessor order, the instant *Order's* attempt to provide
comparable regulatory relief to incumbent cable operators is arbitrary
and capricious. Unlike the prior decision, however, today's decision
undermines the Commission's principal responsibility and local
governments' ability to ensure the safety and welfare of the American
people.

While I understand the need for regulatory parity, today's decision
represents a "race to bottom," an unraveling of important local
protections set in motion by the Commission's prior misguided
decision-making in the *First Report and Order*.

In the *Further Notice of Proposed Rulemaking* that established the
record for today's *Order*, the Commission sought comment on what
effect, if any, the findings in the *First Report and Order* have on
"most favored nation" (MFN) clauses in existing franchise agreements.
Now, in a cursory discussion wanting of serious analysis, the Commission
asserts that "we expect the MFN clauses, pursuant to the operation of
their own design, will provide some franchisees the option and ability
to change provision of their existing agreements." The Commission simply
concludes that "we do not believe that our *First Report and Order* has
any effect on MFN clauses." In the real world, this finding could not be
further from the truth.

As I predicted, the *First Report and Order*, which purported to provide
clarification with respect to which franchise fees are permissible under
the Communications Act, has in fact muddled the regime and left
communities, incumbent cable operators and new entrants with conflicting
views about funding and support for public, education and government
(PEG) facilities, including local institutional networks (I-NETs). For
example, while section 622(g)(2)(C) of the Communications Act excludes
from the term "franchise fee" any "capital costs which are required by
the franchise to be incurred by the cable operator for public,
educational or governmental access facilities," the Commission has
limited "capital costs" to simply the costs associated with the
"construction of PEG access facilities." But the Communications Act
defines "PEG access facilities" to mean channel capacity, facilities and
equipment. 47 U.S.C. §522(16). Moreover, the legislative history of the
1984 Cable Act clearly indicates that "any franchise requirement for the
provision of services, facilities or equipment is not included as a
'fee.'"

Many local governments, however, receive payments from cable operators
that are not simply for the construction of PEG studios, but also for
the acquisition of equipment needed to produce PEG access programming.
PEG facilities and access provide important resources to thousands of
communities across this country.

In terms of public safety, redundant or even duplicative I-NETs provides
invaluable homeland security and public health, safety and welfare
functions in towns, cities, localities and municipalities across
America. It was my hope that the *First Report and Order* would not have
undermined these and other important local community resource needs. But
it has because local governments cannot require new entrants to provide
I-NET support beyond that which has been provided by the incumbent. The
Commission effectively created a *per se* rule that freezes PEG/INET
funding support to what constituted as "adequate" many years ago when
the incumbent cable franchise was consummated.

In this post-911 era, the Commission's action is an unfortunate
undermining of public safety, which could otherwise benefit from
redundant communications networks. PEG capacity and facilities are
interconnected with local I-NETs and they provide local first responders
with essential public safety communication capabilities. When you couple
the effects of the *First Report and Order* with today's decision to
leave MFN clauses in force -- without any meaningful analysis, the
Commission has created a dangerous two-step, downward spiral. Step one:
local government cannot require more from the new entrant today than it
required from the incumbent provider years ago. Step two: the incumbent
providers can enforce the MFN clause to get the same treatment as the
new entrant. By adding bad decisions on top of one another, this
Commission has converted the entire cable franchise fees and PEG/I-NET
support regime into a regulatory minefield for local governments, and
that will likely impact the ability of local governments to provide
critical, state-of-the-art services when they matter most.

Accordingly, I dissent.

**STATEMENT OF**

**COMMISSIONER DEBORAH TAYLOR TATE**

*Re: Implementation of Section 621(a)(1) of the Cable Communications
Policy Act of 1984 as amended by the Cable Television Consumer
Protection and Competition Act of 1992*

Today's item, like many we consider, requires a broader examination of
Commission principles, particularly the principle of regulatory parity.
I was pleased that our original order required us to consider this
matter in a timely manner- within six months. I believe we must ensure
that our policies do not unreasonably create asymmetry in the
marketplace and if they do, to promptly correct them. In this order, we
continue down a path of deregulatory policies designed to encourage
market entry, innovation, and investment. Indeed, "encourage\[ing\] more
robust competition in the video marketplace" has long been a stated goal
of the Commission as well as a driving force behind the statutory
language we interpret today.

Section 621(a)(1) of the Communications Act of 1934 states that
franchising authorities ("LFAs") may not "unreasonably refuse to award"
a competitive franchise to provide cable service. I agree with our
conclusion that we have the broad jurisdictional authority to interpret
this section of the Act and adopt rules to implement it. That is what
expert agencies do everyday. While it is up to the LFA and the MVPD to
set the terms of the licensing agreements, I believe the FCC has a role
to play in protecting MVPDs against overly zealous and specifically in
this case, unreasonable, terms.

I am pleased that today we clearly require that franchise fees be
limited to those costs actually associated with providing video service.
This ensures a more level playing field.

I am also pleased that we will include the costs of PEG requirements as
part of the operator's franchise fees. Public, Education, and Government
access channels provide our citizens with a window to view the work of
their local government. We should do all we can to encourage and support
the MVPDs' efforts to provide those channels.

I hope that we will continue to implement policies that promote parity
across platforms. As new services and providers emerge, the FCC should
seek to apply a light but equitable regulatory touch to ensure fair
competition for all participants.

**STATEMENT OF**

**COMMISSIONER ROBERT M. MCDOWELL**

*Re: Implementation of Section 621(a)(1) of the Cable Communications
Policy Act of 1984 as amended by the Cable Television Consumer
Protection and Competition Act of 1992*

Today's Order will encourage fair and full competition among video
service providers by picking up where we left off in our video franchise
reform order released last spring. This Order levels the playing field
by extending to incumbent providers many of the de-regulatory benefits
we provided to new entrants in our First Report and Order. No
governmental entities, including those of us at the FCC, should have any
thumb on the scale to give a regulatory advantage to any competitor. The
Order will provide regulatory certainty to market players, enhance video
competition, accelerate broadband deployment and produce lower rates for
consumers. Furthermore, as with the First Report and Order, I am
confident that our action today is fully supported by substantial legal
authority.

Thank you to the Chairman and thank you to the Bureau for your hard work
on this item.

[^1]: *Implementation of Section 621(a)(1) of the Cable Communications
    Policy Act of 1984 as amended by the Cable Television Consumer
    Protection and Competition Act of 1992*, Report and Order and
    Further Notice of Proposed Rulemaking, 22 FCC Rcd 5101 (2006)
    ("*First Report and Order*").

[^2]: According to Verizon press releases, FiOS is available to 3.1
    million households (Press Release, Verizon FiOS TV Customers Have a
    Powerful New Way to Find and Enjoy Home Entertainment (July 17,
    2007)) and is subscribed to by 348,000 customers (Press Release,
    Verizon Reports Strong 1Q 2007 Results, Driven By Top-Line Growth
    Across Key Markets (Apr. 30, 2007)). AT&T had 13,000 Uverse
    subscribers at the end of the first quarter of 2007 and 51,000 by
    the end of the second quarter of 2007. Press Release, AT&T Delivers
    Strong First Quarter: Merger Integration on Track; Advances in
    Wireless, Business and Broadband Drive Results (Apr. 27, 2007);
    Press Release, AT&T Posts Strong Second-Quarter Results Led by
    Accelerated Wireless Growth, Solid Regional Results and a
    Significant Improvement in Enterprise Trends (July 24, 2007).
    According to the National Cable and Telecommunications Association
    ("NCTA"), the cable industry had over 12 million residential cable
    telephony subscribers as of June 2007. National Cable and
    Telecommunications Association Statistics,
    http://www.ncta.com/ContentView.aspx?contentId=54 (last visited
    Sept. 14, 2007).

[^3]: *First Report and Order,* 22 FCC Rcd at 5103.

[^4]: 47 U.S.C. § 541(a)(1).

[^5]: *First Report and Order,* 22 FCC Rcd at 5103.

[^6]: *Id.*

[^7]: *Id*.

[^8]: *Id*.

[^9]: *Id*. at 5164. Other portions of the *First Report and Order* were
    based entirely on Section 621(a)(1).

[^10]: *First Report and Order,* 22 FCC Rcd at 5165.

[^11]: *Id.*

[^12]: *Id.*

[^13]: *Id.*

[^14]: *Id.* at 5166.

[^15]: *Id*.

[^16]: Burnsville/Eagan Telecommunications Commission *et al* Comments
    at 6; Fairfax County Comments at 7; Certain Florida Municipalities
    Comments at 2.

[^17]: 47 U.S.C. § 546. *See also* Anne Arundel County *et al* Comments
    at 3; Burnsville/Eagan Telecommunications Commission *et al*
    Comments at 12, 16; Fairfax County Comments at 7; Greater Metro
    Telecommunications Consortium *et al* Reply Comments at 7-8; League
    of Minnesota Cities *et al* Comments at 5-6; NATOA *et al* Comments
    at 7-8, 13; New Jersey Division of Rate Counsel Comments at 5;
    Philadelphia Comments at 3; Qwest Comments at 3.

[^18]: *First Report and Order,* 22 FCC Rcd at 5134.

[^19]: Burnsville/Eagan Telecommunications Commission *et al* Comments
    at 11; Huntsville Comments at 7; League of Minnesota Cities *et al*
    Comments at 7; Montgomery Comments at 7; New Jersey Board of Public
    Utilities Comments at 7.

[^20]: Anne Arundel County *et al* Comments at 3; Burnsville/Eagan
    Telecommunications Commission *et al* Comments at 12, 18;
    Fiber-to-the-Home Council Comments at 3; Greater Metro
    Telecommunications Consortium *et al* Reply Comments at 7-8; League
    of Minnesota Cities *et al* Comments at 5-8; NATOA *et al* Reply
    Comments at 3; New Jersey Division of Rate Counsel Comments at 5;
    Philadelphia Comments at 3.

[^21]: *First Report and Order*, 22 FCC Rcd at 5141.

[^22]: *First Report and Order,* 22 FCC Rcd at 5142-45. *See also* NATOA
    *et al* Comments at 14. *See also* Burnsville/Eagan
    Telecommunications Commission *et al* at 18; Comments at 12 League
    of Minnesota Cities *et al* Comments at 8. *But see* Knology
    Comments at 8, 10.

[^23]: Section 706 of the Telecommunications Act of 1996, 47 U.S.C. §
    157 nt.

[^24]: *First Report and Order*, 22 FCC Rcd at 5143.

[^25]: *Id*. at 5144-5151.

[^26]: Charter Comments at 9; Comcast Comments at 3; NCTA Comments at
    15; RCN Reply Comments at 3; WideOpenWest Comments at 6.

[^27]: NCTA Comments at 15-16.

[^28]: League of Minnesota Cities Comments at 9; Texas Coalition of
    Cities for Utility Issues Comments at 7-10. Despite this assertion,
    no parties filed a petition for reconsideration of the *First Report
    and Order.*

[^29]: NATOA Comments at 12.

[^30]: Indeed, the case law that shaped the Commission's interpretation
    of Section 622 in the *First Report and Order* involved incumbent
    providers. *See generally First Report and Order*, 22 FCC Rcd at
    5146-5151 (citing *Robin Cable Systems v. City of Sierra Vista*, 842
    F.Supp. 380 (D. Ariz. 1993); *Time Warner Entertainment Co. v.
    Briggs*, 1993 WL 23710 (D. Mass 1993); *Birmingham Cable Comm. v.
    City of Birmingham*, 1989 WL 253850 (N.D. Ala. 1989); *Cable TV Fund
    14-A v. City of Naperville*, 1997 WL 433628 (N.D. Ill. 1997); *City
    of Bowie, Maryland*, 14 FCC Rcd. 7675 (Cable Service Bureau, 1999)
    *as clarified* 14 FCC Rcd 9596 (Cable Services Bureau, 1999)) In
    that regard, therefore, we have not made entirely new pronouncements
    but rather have recognized the state of existing law on point.

[^31]: *First Report and Order,* 22 FCC Rcd at 5146-47. This finding, of
    course, does not apply to non-cable franchise fee requirements, such
    as any lawful fees related to the provision of telecommunications
    services.

[^32]: Such fees include "processing fees, consultant fees, and attorney
    fees", and "application or processing fees that exceed the
    reasonable cost of processing the application, acceptance fees, free
    or discounted services provided to an LFA, any requirement to lease
    or purchase equipment from an LFA at prices higher than market
    value, and in-kind payments." *First Report and Order,* 22 FCC Rcd
    at 5148-49.

[^33]: *Id*.

[^34]: *First Report and Order,* 22 FCC Rcd at 5150.

[^35]: *First Report and Order,* 22 FCC Rcd at 5150-51.

[^36]: Charter Comments at 13; Comcast Comments at 3; Fiber-to-the-Home
    Council Comments at 3; NCTA Comments at 17; RCN Reply Comments at 3.

[^37]: Greater Metro Telecommunications Consortium *et. al* Comments at
    3; League of Minnesota Cities at 9; NATOA Comments at 8, 15; Texas
    Coalition for Utility Issues Comments at 17.

[^38]: Greater Metro Telecommunications Consortium *et. al* Comments at
    7.

[^39]: Anne Arundel Reply Comments at 3, 8; NATOA Reply Comments at 9.

[^40]: Burnsville/Eagan Telecommunications Commission *et al* Comments
    at 21; Anne Arundel Reply Comments at 9.

[^41]: *First Report and Order,* 22 FCC Rcd at 5152.

[^42]: *See id*. at 5152-5153.

[^43]: We note that in the *First Report and Order* we found that a *pro
    rata* cost sharing approach between incumbents and new entrants is
    *per se* reasonable. *See* *id*. at 5154. In doing so, we also cited
    Section 76.1505 of the Commission's rules, which requires an open
    video system operator to match an incumbent cable operator's PEG
    obligations. *Id*. at n.396 (citing 47 C.F.R. § 76.1505(d)). Under a
    matching approach, the open video system operator and incumbent
    cable operator make equal contributions. In a *pro rata* cost
    sharing approach, the new entrant would make PEG contributions based
    on the ratio of its subscribership as compared to the incumbent
    operator's subscribership. While we did not find a matching
    arrangement *per se* reasonable, we did not find it *per se*
    unreasonable either. Section 653(c)(2)(A) of the Act requires that
    open video system PEG obligations be "no greater or lesser" than
    obligations imposed on incumbent operators, but the Act makes no
    such requirement with respect to new cable operator entrants. 47
    U.S.C. § 573(c)(2)(A).

[^44]: *See First Report and Order,* 22 FCC Rcd at 5154.

[^45]: Greater Metro Telecommunications Consortium Comments at 3; NATOA
    *et al* Comments at 8.

[^46]: 47 U.S.C. § 626(a)(1).

[^47]: Charter Comments at 14; Fiber-to-the-Home Council Comments at 3;
    NCTA Comments at 3.

[^48]: NATOA Comments at 15; Philadelphia, PA Comments at 6.

[^49]: *See supra* ¶ 11. These findings are also consistent with
    existing precedent. *See In re Inquiry Concerning High Speed Access
    to the Internet Over Cable and Other Facilities*, 17 FCC Rcd 4798,
    4851 (2002) ("*Cable Modem Declaratory Ruling*"), *rev'd*, *Brand X
    Internet Services v. FCC*, 345 F.3d 1120 (9^th^ Cir. 2003), *rev'd*,
    *NCTA v. Brand X*, 545 U.S. 967 (2005).

[^50]: *See* *First Report and Order,* 22 FCC Rcd at 5155.

[^51]: *See* *First Report and Order,* 22 FCC Rcd at 5155.

[^52]: *See id.*

[^53]: *Id.* at 5165.

[^54]: Broadband Service Providers Association Comments at 3; Knology
    Comments at 3-4; National Telecommunications Cooperative Association
    Reply Comments at 4, 8; Qwest Reply Comments at 1; RCN Comments at
    2; Telecommunications Industry Association Comments at 1; Verizon
    Comments at 10.

[^55]: Charter Comments at 3-5; Comcast Comments at 2; Discovery
    Institute Comments at 1; NCTA Comments at 8; Time Warner Comments at
    7

[^56]: Charter Reply Comments at 3, 8-10; Comcast Comments at 3,5;
    Fiber-to-the-Home Comments at 4-5; NCTA Comments at 7-9, 15-19; RCN
    Reply Comments at 3; Time Warner Comments at 4, 6;

[^57]: WideOpenWest Comments at 3-4, RCN Comments at 8.

[^58]: WideOpenWest Comments at 3-4.

[^59]: Fairfax County Comments at 6-7; NATOA *et al* Comments at 15-16;
    Philadelphia Comments at 5.

[^60]: In addition, because these interpretations do not depend on
    Section 621(a)(1), they are also valid through the nation.

[^61]: Anne Arundel Reply Comments at 9; Burnsville/Eagan
    Telecommunications Commission *et al* Comments at 21-22; NATOA *et
    al* Comments at 16, Verizon Comments at 11.

[^62]: Additionally, nothing in this Order can be used as an independent
    basis for obtaining retrospective relief.

[^63]: Should such efforts fail, we recognize that particular disputes
    eventually may make their way to court but note that there are other
    means of addressing existing contract provisions. As further
    described below, incumbent providers may pursue avenues for
    pre-renewal modifications, including contractual most favored nation
    clauses, which may allow franchisees to take advantage of the
    franchise provisions of new competitive entrants. *See infra* ¶ 20.
    *See also* Alcatel-Lucent Comments at 4; BSPA Comments at 6; Comcast
    Comments at 12; League of Minnesota Cities et al. at 10; NCTA Reply
    Comments at 18; NTCA Reply Comments at 4. Parties may also make
    adjustments to franchise terms pursuant to compliance with law
    provisions within the franchise or contract. Statutory relief is
    also available in the form of the franchise modification provision
    in Section 625 of the Act. *See infra* ¶¶ 21-22.

[^64]: *First Report and Order*, 22 FCC Rcd at 5165.

[^65]: Alcatel-Lucent Comments at 4-5; Comcast Comments at 3, 13; NCTA
    Reply at 18; NTCA Reply at 4.

[^66]: Comcast Comments at 13; Martin County, Florida Comments at 3.

[^67]: Comcast Comments at 13-14; New Jersey Division of Rate Counsel at
    6; Anne Arundel *et al* Comments at 4.

[^68]: 47 U.S.C. § 545(a)(1).

[^69]: Alcatel-Lucent Comments at 6-7; Fiber-to-the-Home Council
    Comments at 7.

[^70]: *Id*.

[^71]: Greater Metro Telecommunications Consortium Reply at 9; NATOA *et
    al* Reply at 12-13; NTCA Reply at 4; Verizon Comments at 11.

[^72]: NATOA *et al* Reply at 12-13.

[^73]: Section 625(f) states, "For purposes of this section, the term
    'commercially impracticable' means, with respect to any requirement
    applicable to a cable operator, that it is commercially
    impracticable for the operator to comply with such requirement as a
    result of a change in conditions which is beyond the control of the
    operator and the nonoccurrence of which was a basic assumption on
    which the requirement was based." 47 U.S.C. § 545(f).

[^74]: Time Warner Comments at 9-11.

[^75]: *Id.* at 11.

[^76]: Anne Arundel *et al.* Reply at 14.

[^77]: *Id*.

[^78]: *Id*.; NATOA *et al* Reply at 10.

[^79]: *AT&T Inc. and BellSouth Corporation*, 22 FCC Rcd 5662, 5773
    (2007); *Section 251 Unbundling Obligations of Incumbent Local
    Exchange Carriers,* 18 FCC Rcd. 16978, 16991-92 (2003); *In the
    Matter of Direct Access to the INTELSAT System,* 14 FCC Rcd. 15703,
    15751-15754 (1999)(all declining to impose "fresh look").

[^80]: *In the Matter of Direct Access to the INTELSAT System,* 14 FCC
    Rcd. 15703, 15752-54 (1999) (declining to impose the fresh look
    doctrine because the Commission did "not believe it would be
    reasoned decision-making to upset previous commitments freely
    entered into by all parties"). *See also AT&T Inc. and BellSouth
    Corporation*, 22 FCC Rcd 5662, 5773 (2007) (declining to adopt the
    "fresh look" doctrine for failure to demonstrate the ability to use
    contracts for anti-competitive purposes); *Section 251 Unbundling
    Obligations of Incumbent Local Exchange Carriers,* 18 FCC Rcd.
    16978, 17401-03 (2003) (finding that the "fresh look" doctrine is
    not appropriate "because it would be unfair to both incumbent LECs
    and other competitors, disruptive to the market place, and
    ultimately inconsistent with the public interest," in part because
    the terms at issue "were established by a process of bilateral
    negotiation or arbitration, not fiat" and because there was "not
    sufficient evidence, in this record, of abuse of market power by the
    incumbent LECs or some other wrong that must be retroactively
    addressed here."). *But see* n. 83 *infra*.

[^81]: RCN Comments at 2.

[^82]: *Id.* at 8.

[^83]: RCN Comments at 7; *citing* *Expanded Interconnection with Local
    Telephone Company Facilities*, 8 FCC Rcd 7341 (1993), and
    *Competition in the Interstate Interexchange Marketplace,* 7 FCC Rcd
    2677 (1992).

[^84]: The first of these proceedings allowed special access customers
    to cancel contracts that were more than three years in length. 
    *Expanded Interconnection with Local Telephone Company Facilities*,
    8 FCC Rcd 7341.  The second allowed customers to cancel certain 800
    service contracts without termination liability.  *Competition in
    the Interstate Interexchange Marketplace*, 7 FCC Rcd 2677. 

[^85]: *Implementation of Section 621(a)(1) of the Cable Communications
    Policy Act of 1984 as amended by the Cable Television Consumer
    Protection and Competition Act of 1992*, Notice of Proposed
    Rulemaking, 20 FCC Rcd 18581, 18588 (2005) (*"Local Franchising
    NPRM"*).

[^86]: *First Report and Order*, 22 FCC Rcd at 5165.

[^87]: *Id*. at 5166.

[^88]: 47 U.S.C. § 552.

[^89]: 47 U.S.C. §552(d)(2).

[^90]: *Id*.

[^91]: *See, e.g*., Verizon Comments at 2; AT&T Comments at 6; Qwest
    Comments at 4.

[^92]: Verizon Comments at 2.

[^93]: *Id*. at 9. *See* AT&T Comments at 7; Qwest Comments at 4.

[^94]: Verizon Comments at 3-5; AT&T Comments at 7. AT&T urges the
    Commission to read Section 632(d) consistent with Section
    621(a)(1)'s prohibition against unreasonable refusals to grant
    additional competitive franchises.

[^95]: *Id*. at 5.

[^96]: 47 U.S.C. §552(b).

[^97]: Burnsville/Eagan Telecommunications Commission *et al* Reply
    Comments at 25; New Jersey Board of Public Utilities Comments at 7;
    City of New York Comments at 5.

[^98]: *See* Anne Arundel County *et al* Reply Comments at 10;
    Burnsville/Eagan Telecommunications Commission *et al* Reply
    Comments at 2-3; Fairfax County Comments at 9; League of Minnesota
    Cities Comments at 12; NATOA Reply Comments at 23.

[^99]: *See* NATOA *et al* Reply Comments at 23; Burnsville/Eagan
    Telecommunications Commission *et al* Reply Comments at 8-9.

[^100]: *See* NATOA *et al* Reply Comments at 23.

[^101]: AT&T Comments at 2. *See also* Verizon Comments at 3; Discovery
    Institute Comments at 4-5.

[^102]: AT&T Comments at 5. *See* *also* Verizon Comments at 8;
    Discovery Institute Comments at 4; RCN Reply Comments at 6.

[^103]: Local data collection requirements include requests from LFAs to
    provide data regarding various customer service aspects (*e.g.,*
    monthly outage logs for the franchise area, quarterly logs of
    customer service complaints for the franchise area).

[^104]: AT&T Comments at 5. *See* Verizon Reply Comments at 3; RCN Reply
    Comments at 6.

[^105]: AT&T Comments at 5-6.

[^106]: 47 U.S.C. § 552(d)(2).

[^107]: *First Report and Order*, 22 FCC Rcd at 5103.

[^108]: Fairfax County Reply Comments at 10; Greater Metro
    Telecommunications Consortium Reply Comments at 10; NATOA *et al*
    Comments at 17; New York State Dept. of Public Service Comments at
    2.

[^109]: Burnsville/Eagan Telecommunications Commission *et al* Reply
    Comments at 17-18; Greater Metro Telecommunications Consortium Reply
    Comments at 10.

[^110]: Fairfax County Reply Comments at 10.

[^111]: Fairfax County Reply Comments at 10; New York State Department
    of Public Service Comments at 3.

[^112]: *See* 47 U.S.C. § 552(d)(2).

[^113]: *See* 5 U.S.C. § 604.

[^114]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. § 601 -- 612, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^115]: *Implementation of Section 621(a)(1) of the Cable Communications
    Policy Act of 1984 as amended by the Cable Television Consumer
    Protection and Competition Act of 1992*, 22 FCC Rcd 5101, 5164
    (2006) ("*First Report and Order*").

[^116]: *See* 5 U.S.C. § 604.

[^117]: 47 U.S.C. §§ 531, 622.

[^118]: *First Report and Order*, 22 FCC Rcd at 5103.

[^119]: 47 U.S.C. § 531.

[^120]: 47 U.S.C. § 622.

[^121]: 47 U.S.C. §§ 531(a), 622(a)

[^122]: 5 U.S.C. § 603(b)(3).

[^123]: *Id*. § 601(6)

[^124]: *Id*. § 601(3) (incorporating by reference the definition of
    "small business concern" in 15 U.S.C. § 632). Pursuant to 5 U.S.C. §
    601(3), the statutory definition of a small business applies "unless
    an agency, after consultation with the Office of Advocacy of the
    Small Business Administration and after opportunity for public
    comment, establishes one or more definitions of such term which are
    appropriate to the activities of the agency and publishes such
    definition(s) in the Federal Register." 5 U.S.C. § 601(3).

[^125]: 15 U.S.C. § 632. Application of the statutory criteria of
    dominance in its field of operation and independence are sometimes
    difficult to apply in the context of broadcast television.
    Accordingly, the Commission's statistical account of television
    stations may be over-inclusive.

[^126]: 5 U.S.C. § 601(5).

[^127]: U.S. Census Bureau, Statistical Abstract of the United States:
    2006, Section 8, page 272, Table 415.

[^128]: We assume that the villages, school districts, and special
    districts are small, and total 48,558. *See* U.S. Census Bureau,
    Statistical Abstract of the United States: 2006, section 8, page
    273, Table 417. For 2002, Census Bureau data indicate that the total
    number of county, municipal, and township governments nationwide was
    38,967, of which 35,819 were small. *Id.*

[^129]: U.S. Census Bureau, 2002 NAICS Definitions, "517510 Cable and
    Other Program Distribution";
    http://www.census.gov/epcd/naics02/def/NDEF517.HTM.

[^130]: 13 C.F.R. § 121.201, NAICS code 517510.

[^131]: U.S. Census Bureau, 2002 Economic Census, Subject Series:
    Information, Table 4, Receipts Size of Firms for the United States:
    2002, NAICS code 517510 (issued November 2005).

[^132]: *Id*. An additional 61 firms had annual receipts of \$25 million
    or more.

[^133]: 47 C.F.R. § 76.901(e). The Commission determined that this size
    standard equates approximately to a size standard of \$100 million
    or less in annual revenues. *Implementation of Sections of the 1992
    Cable Act: Rate Regulation,* Sixth Report and Order and Eleventh
    Order on Reconsideration, 10 FCC Rcd 7393, 7408 (1995).

[^134]: These data are derived from: R.R. Bowker, *Broadcasting & Cable
    Yearbook 2006*, "Top 25 Cable/Satellite Operators," pages A-8 & C-2
    (data current as of June 30, 2005); Warren Communications News,
    *Television & Cable Factbook 2006*, "Ownership of Cable Systems in
    the United States," pages D-1805 to D-1857.

[^135]: 47 C.F.R. § 76.901(c).

[^136]: Warren Communications News, *Television & Cable Factbook 2006*,
    "U.S. Cable Systems by Subscriber Size," page F-2 (data current as
    of Oct. 2005). The data do not include 718 systems for which
    classifying data were not available.

[^137]: 47 U.S.C. § 543(m)(2); *see* 47 C.F.R. § 76.901(f) & nn. 1-3.

[^138]: 47 C.F.R. § 76.901(f); *see* Public Notice*, FCC Announces New
    Subscriber Count for the Definition of Small Cable Operator*, DA
    01‑158 (Cable Services Bureau, Jan. 24, 2001).

[^139]: These data are derived from: R.R. Bowker, *Broadcasting & Cable
    Yearbook 2006*, "Top 25 Cable/Satellite Operators," pages A-8 & C-2
    (data current as of June 30, 2005); Warren Communications News,
    *Television & Cable Factbook 2006*, "Ownership of Cable Systems in
    the United States," pages D-1805 to D-1857.

[^140]: The Commission does receive such information on a case-by-case
    basis if a cable operator appeals a local franchise authority's
    finding that the operator does not qualify as a small cable operator
    pursuant to § 76.901(f) of the Commission's rules. *See* 47 C.F.R. §
    76.909(b).

[^141]: 47 U.S.C. § 571(a)(3)-(4). *See* *Annual Assessment of the
    Status of Competition in the Market for the Delivery of Video
    Programming, Eleventh Annual Report,* 20 FCC Rcd 2507, 2549 (2006)
    ("*2006 Cable Competition Report*").

[^142]: *See* 47 U.S.C. § 573.

[^143]: 13 C.F.R. § 121.201, NAICS code 517510.

[^144]: *See 2006 Cable Competition Report*, 20 FCC Rcd at 2549. BSPs
    are newer firms that are building state-of-the-art, facilities-based
    networks to provide video, voice, and data services over a single
    network.

[^145]: *See id*. at 2507.

[^146]: *See 2006 Cable Competition Report*, 20 FCC Rcd at 2549.
    WideOpenWest is the second largest BSP and 16th largest MVPD, with
    cable systems serving about 292,000 subscribers as of June, 2005.
    The third largest BSP is Knology, serving approximately 170,800
    subscribers as of June, 2005. *Id*.

[^147]: 5 U.S.C. § 603(c)(1)-(c)(4).

[^148]: *First Report and Order*, 22 FCC Rcd at 5164.

[^149]: *Id*. at 5165.

[^150]: *Id*. at 5166.

[^151]: *See* 5 U.S.C. § 801(a)(1)(A).

[^152]: *See id*. § 604(b).