Before the

Federal Communications Commission

Washington, D.C. 20554

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| In the Matter of:                | * | CSR 6106-E                   |
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| Amzak Cable Midwest, Inc.        | ) |                              |
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| Minnesota Cable Properties, Inc. | * |                              |
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| Petition for Determination of    | ) |                              |
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| Competition in Eleven Minnesota  |   |                              |
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MEMORANDUM OPINION AND ORDER

**Adopted: March 31, 2004** **Released: April 5, 2004**

By the Deputy Chief, Policy Division, Media Bureau:

# introduction

1.  Amzak Cable Midwest, Inc. and Minnesota Cable Properties, Inc.
    ("Cable Operators") have filed with the Commission a petition
    pursuant to Sections 76.7 and 76.907 of the Commission\'s rules for
    a determination of effective competition in the eleven Minnesota
    communities listed below (the "Communities").[^1] The Cable
    Operators alleges that their cable systems serving these communities
    are subject to effective competition and are therefore exempt from
    cable rate regulation. More particularly, the Cable Operators claim
    the presence of effective competition in the eleven Communities
    stems from the competing services provided by two unaffiliated
    direct broadcast satellite (\"DBS\") providers, Direct TV and DISH
    Network. The Cable Operators claim they are subject to effective
    competition in these Communities under the "competing provider"
    effective competition test set forth in Section 623(1)(1)(B) of the
    Communications Act.[^2] An opposition to the petition was filed by
    the local franchising authority of the City of Shakopee (the
    "City").

# discussion

2.  In the absence of a demonstration to the contrary, cable systems are
    presumed not to be subject to effective competition,[^3] as that
    term is defined by Section 623(1) of the Communications Act of 1934,
    as amended, and Section 76.905 of the Commission\'s rules.[^4] The
    cable operator bears the burden of rebutting the presumption that
    effective competition does not exist with evidence that effective
    competition is present within the relevant franchise area.[^5]
    Section 623(l) of the Communications Act provides that a cable
    operator is subject to effective competition, if either one of four
    tests for effective competition set forth therein is met.[^6] A
    finding of effective competition exempts a cable operator from rate
    regulation and certain other of the Commission's cable
    regulations[^7]

3.  Section 623(l)(1)(B) of the Communications Act provides that a cable
    operator is subject to effective competition if its franchise area
    is (a) served by at least two unaffiliated multi-channel video
    programming distributors (\"MVPD\") each of which offers comparable
    video programming to at least 50 percent of the households in the
    franchise area; and (b) the number of households subscribing to
    programming services offered by MVPDs other than the largest MVPD
    exceeds fifteen percent of the households in the franchise area.[^8]
    Turning to the first prong of this test, we find that the
    programming of DBS providers, such as Direct TV and DISH Network,
    satisfy the Commission\'s programming comparability criterion. DBS
    service is presumed to be technically available due to its
    nationwide satellite footprint, and presumed to be actually
    available if households in a franchise area are made reasonably
    aware that the service is available.[^9]

4.  The Cable Operators provided evidence of the advertising of DBS
    service in national media serving the franchise areas.[^10]
    Moreover, the two DBS providers undertook an extensive round of
    national advertising in the Fall of 2002 during such high-profile
    sporting events as professional baseball playoffs and NFL football
    games.[^11] Morover, the two DBS providers's subscriber growth
    reached approximately 20.4 million as of June 30, 2003, comprising
    20 percent of all MVPD subscribers nationwide; Direct TV has become
    the second largest, and Echostar the fourth largest, MVPD provider
    as of June 2003.[^12] We conclude that the population of the
    Communities at issue here may be deemed reasonably aware of the
    availability of DBS services for purposes of the first prong of the
    competing provider test. With respect to the issue of program
    comparability, we find that the programming of the DBS providers
    satisfies the Commission\'s program comparability criterion because
    the DBS providers offer at least 12 channels of video programming,
    including at least one non-broadcast channel.[^13] Based on the
    foregoing, we find that Cable Operators have demonstrated that the
    eleven Minnesota Communities are served by at least two unaffiliated
    MVPDs, namely the two DBS providers, each of which offers comparable
    video programming to at least 50 percent of the households in the
    franchise area. Therefore, the first prong of the competing provider
    test is satisfied.

5.  The second prong of the competing provider test requires that the
    number of households subscribing to MVPDs, other than the largest
    MVPD, exceed 15 percent of the households in a franchise area. The
    Cable Operators provided information showing that their residential
    subscribership in six of the Communities tested under the competing
    provider test exceeds the aggregate total subscribership of the DBS
    and other MVPD providers, thus establishing that they are the
    largest MVPD providers in these six Communities.[^14]

6.  The Cable Operators also provided 2000 Census data and population
    growth estimates for the eleven Communities.[^15] The Cable
    Operators then compared the 2000 Census households for each of the
    six communities in which the Cable Operators were the largest MVPD
    with the households in each of the U.S. Postal Zip Code areas
    encompassing each community, and allocated that proportion of the
    DBS subscribers within each such Zip Code to each community.[^16]
    The resulting numbers of DBS subscribers were then compared to the
    household numbers for each community to demonstrate that in each
    community the DBS MPVD providers collectively have attained
    subscriber penetration in excess of the competing provider test
    threshold of 15 percent in each of the six communities.[^17] Based
    on this information we find that the Cable Operators have satisfied
    the second prong of the competing provider test in these six
    communities.

7.  Neither Cable Operator claimed to be the larger MVPD provider in
    Jackson Township, Louisville Township, Madelia Township or Waverly.
    They are able in the case of Waverly to show only that the cable
    operator's subscribership does not exceed the combined
    subscribership of the DBS providers.[^18] However, the Cable
    Operators have shown that the combined penetration level of the DBS
    providers exceeds 15 percent as does that of the cable operator
    serving Waverly.[^19] Therefore, it is unnecessary to determine
    which MVPD actually has the largest number of subscribers in this
    community, because such MVPD provider necessarily faces a combined
    penetration level of at least 15 percent from the other two MVPD
    providers.

8.  For the remaining three communities, the Cable Operators show that
    combined DBS subscribership exceeds 15 percent in each community,
    but that of the cable operators serving each community does
    not,[^20] as summarized in the following table.

    **PENETRATION LEVELS**

    **Franchise Area Combined DBS Cable Operator Single DBS**

    **Required for 15%**

    Jackson Township 18.07% 13.09% 1.91%

    Louisville Township 18.07% 13.09% 1.91%

    Medelia City/Township[^21] 20.26% 11.55% 3.45%

    The Cable Operators contend that it is again unnecessary to
    determine which MVPD actually has the largest number of subscribers
    in these communities. They argue that this data suggests that the
    aggregate subscribership of any two MVPD providers must surely
    exceed 15 percent. This data shows that the DBS provider with the
    least subscribership in either community need have a penetration
    level of no more than 3.45 percent, which when combined with the
    appropriate cable operator's penetration level, to meet the
    competing provider 15 percent threshold penetration level for any
    such community. In view of the recent DBS subscriber growth to
    approximately 18.2 million as of June 1, 2002, we believe it
    reasonable to find that the Cable Operators have met their burden of
    satisfying the second prong of the competing provider test and of
    overcoming the statutory presumption that they do not face effective
    competition in these three communities.

9.  The City contends that the Cable Operators have failed to meet their
    burden of proving the presence of effective competition in Shakopee
    under both prongs of the competing provider test. With respect to
    the first prong of the test, the City asserts that Cable Operators
    failed to provide evidence of local advertising sufficient to make
    potential Shakopee satellite subscribers reasonably aware that DBS
    service may be purchased locally. Shakopee asserts that the second
    prong of the test is not met because Cable Operators failed to
    present evidence of the exact number of MPVD subscribers within
    Shakopee's franchise area. For the reasons given below, we reject
    both of these contentions.

10. We find that the Cable Operators have presented substantial evidence
    showing that potential Shakopee satellite subscribers should be
    reasonably aware that DBS service may be purchased locally. As
    pointed out above, the two DBS provider undertook an extensive round
    of national advertising in the Fall of 2002 during such high-profile
    sporting events as professional baseball playoffs and NFL football
    games.[^22] In view of that advertising and the fact that DBS
    subscriber growth reached approximately 18.2 million as of June 1,
    2002, and Direct TV had become the third largest MVPD,[^23] we
    conclude that the population of the Communities at issue here may be
    deemed reasonably aware of the local availability of DBS services
    for purposes of the first prong of the competing provider test.

11. We also reject the City's assertion that cable operators'
    penetration figures for Shakopee should not be accepted because they
    were based on flawed data. The City faulted the DBS subscriber
    allocation for being based on five digit Zip Code data for the
    entire city, when in fact the operator has no franchise obligation
    to serve any portion of the city having a density of less than 40
    potential subscribers per cable mile. The City suggests that a
    higher DBS penetration rates must exist in the low density portions
    of Shakopee not actually served by the cable operator, resulting in
    a lower DBS penetration level in the portion of the city actually
    served by the cable operator. The City argues that DBS subscribers
    in the un-served portions of the city who are unable to receive the
    cable operator's services should not be counted in applying the
    competing provider test, because they are not being offered
    comparable programming from a competing provider. Shakopee asserts
    that this demonstrates that the competing provider test has not been
    satisfied.

12. We reject the City's contentions as a credible basis for rejecting
    the data and DBS subscriber allocation for Shakopee presented by the
    Cable Operators. No specific data has been presented by the City to
    support its contentions. The City did not even provide information
    showing what portion of Shakopee is not in fact served by the cable
    operator, or any information regarding the population density in
    that pert of the city. On the other hand, the City conceded that the
    DBS subscriber penetration in the city overall was 18 percent.[^24]
    The statutory test set forth in Section 623(l)(1)(B) of the Act
    considers whether programming services of an MPVD other that the
    largest one "exceeds 15 percent of the households of an operator's
    franchise area,"[^25] and not merely in some undetermined portion of
    the franchise area. Moreover, the pertinent issue we must address in
    applying the competing provider test is whether the cable operator
    serving Shakopee is subject to effective competition from subscriber
    penetration that reaches 15 percent from other MVPD providers, not
    whether the cable operator offers comparable programming to DBS
    subscribers.

13. The Cable Operators met their initial burden of coming forward with
    evidence relative to effective competition in Shakopee, by
    presenting DBS subscriber penetration levels in the franchise area
    developed from subscriber allocation figures based on the five digit
    Zip Code data discussed above. The City's argument alone that such
    data may be flawed failed to rebut the Cable Operators' evidentiary
    showing. If the City believed other data would provide more accurate
    DBS subscriber counts, it had the burden of presenting such evidence
    for the record. In failing to present any data shown to be more
    accurate that that presented by the Cable Operators, the City failed
    in its burden of coming forward to meet the initial evidentiary
    showing made by Cable Operators.

# ordering clauses

14. Accordingly, **IT IS ORDERED** that the captioned petition for a
    determination of effective competition in the eleven Minnesota
    communities listed above **IS GRANTED**.

15. This action is taken pursuant to authority delegated under Section
    0.283 of the Commission's rules.[^26]

    FEDERAL COMMUNICATIONS COMMISSION

    Steven A. Broeckaert

    Deputy Chief, Policy Division, Media Bureau

[^1]: Amzak Cable Midwest, Inc. seeks finding for Carver, Chaska,
    Jackson Township, Louisville Township and Shakopee, Minnesota, and
    Minnesota Cable Properties, Inc. seeks finding for Jordan, Madelia,
    Madelia Township, Montrose, New Prague, and Waverly, Minnesota.

[^2]: *See* 47 U.S.C. § 543(1)(1)(B).

[^3]: ^ ?^47 C.F.R. § 76.906.

[^4]: ^ ?^*See* 47 U.S.C. § 543(1) and 47 C.F.R. § 76.905.

[^5]: ^?^*See* 47 C.F.R. §§ 76.906 & 907.

[^6]: *See* 47 U.S.C. § 543(l)(1)(A)-(D).

[^7]: ^?^*See* 47 C.F.R. § 76.905.

[^8]: 47 U.S.C. § 543(1)(1)(B); *see also* 47 C.F.R. § 76.905(b)(2).

[^9]: *See MediaOne of Georgia*, 12 FCC Rcd 19406 (1997).

[^10]: *See* Petition at 4; Reply at 9-12 and Exhibit C & D.

[^11]: Petition at 3-5 and Exhibit 1; Reply at 5-6.

[^12]: *Tenth Annual Assessment of the Status of Competition in the
    Market for Delivery of Video Programming*, FCC 04-5, released
    January 28, 2004, at Par. 65-67.

[^13]: *See* 47 C.F.R. § 76.905(g). *See also* Cable Operators Petition
    at 6-7.

[^14]: These six communities are Carver, Chaska, Jordan, Montrose, New
    Prague and Shakopee. Petition at 8.

[^15]: *Id* at 7-9 and Exhibit A. 2000 Census data satisfies effective
    competition decision requirements. *See Cable Operators\' Petitions
    for Reconsideration and Revocation of Franchising Authorities\'
    Certifications to Regulate Cable Service Rates*, 9 FCC Rcd 3656
    (1994).

[^16]: *Id*.

[^17]: The DBS penetration levels are Carver, 19.84%; Chaska, 18.84%;
    Jordan, 26.93%; Montrose, 30.18%; New Prague, 28.30%; and Shakopee,
    18.07. Petition at 10 and Exhibits A-E.

[^18]: SkyTrends does not provide separate data for the two DBS
    providers. Petition at Exhibit E.

[^19]: In Waverly, the combined DBS penetration is 40.05 percent; the
    Cable Operator's penetration in Waverly exceeds 15 percent but is
    less that the combined DBS penetration. Petition at 11-12.

[^20]: *Id* at 12-13.

[^21]: Since these communities operate under the same Franchise
    Agreement, the petition treats them as a single community.

[^22]: Petition at 3-5 and Exhibit 1; Reply at 5-6.

[^23]: *Ninth Annual Assessment of the Status of Competition in the
    Market for Delivery of Video Programming*, FCC 02-338 , released
    December 31, 2002, at Par. 58-59.

[^24]: Opposition at 7.

[^25]: 47 U.S.C. § 543(l)(1)(B)(ii).

[^26]: ^?^47 C.F.R. § 0.283.