Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of:                | * | CSR 5967-Z                   |
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| Centennial Puerto Rico Cable TV  | ) |                              |
| Corp.                            | * |                              |
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| Petition for Waiver of Section   |   |                              |
| 76.630(a)                        | * |                              |
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| Basic Tier Scrambling            | ) |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted: April 17, 2003 Released: April 24, 2003**

By the Deputy Chief, Media Bureau:

# INTRODUCTION

1.  In the above-captioned proceeding, Centennial Puerto Rico Cable TV
    Corp. ("Centennial") filed a petition for special relief requesting
    waiver of Section 76.630(a) of the Commission's rules. Section
    76.630(a) provides that \"\[c\]able systems shall not scramble or
    otherwise encrypt signals carried on the basic service tier."[^1]
    The instant waiver request is based on petitioner\'s contention of
    significant theft of cable television service in its service
    areas.[^2] Centennial's petition is unopposed. For the reasons
    discussed below, Centennial's petition is granted.

# background

2.  In the Cable Television Consumer Protection and Competition Act of
    1992 ("1992 Cable Act"), Congress recognized that compatibility
    problems between cable service and consumer electronics equipment
    were limiting and/or precluding the operation of premium features of
    consumer equipment and were affecting the ability of consumer
    equipment to receive cable programming.[^3] Section 624A of the
    Communications Act of 1934, as amended ("the Act"), Consumer
    Electronics Equipment Compatibility, was added by Section 17 of the
    1992 Cable Act.[^4] Section 624A required the Commission to issue
    regulations to assure compatibility between consumer electronics
    equipment and cable systems.

3.  In *Implementation of Section 17 of the Cable Television Consumer
    Protection and Competition Act of 1992 -- Compatibility Between
    Cable Systems and Consumer Electronics Equipment*, the Commission
    adopted rules to implement the requirements of Section 624A.[^5]
    Section 76.630(a) requires that cable operators refrain from
    scrambling signals carried on the basic tier of service.[^6] The
    Commission determined that this rule would significantly advance
    compatibility by ensuring that all subscribers are able to receive
    basic tier signals "in the clear" and that basic-only subscribers
    with cable-ready televisions will not need set-top devices.[^7]
    Based on a recognition that there are some instances where operators
    may need to scramble signals, the rule provides for waivers of the
    scrambling prohibition upon a showing of \"either a substantial
    problem with theft of basic tier service or a strong need to
    scramble basic signals for other reasons.\"[^8]

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

# discussion

5.  Centennial argues in its petition that scrambling of the basic tier
    is warranted because it is experiencing a substantial problem with
    cable theft. Centennial estimates a 15.49% rate of cable theft
    relative to the number of homes passed.[^9] Centennial contends that
    loss of revenue from theft of cable services results in a
    significant financial burden.[^10] In addition, Centennial claims
    that theft of service may result in serious non-monetary
    consequences related to signal leakage and technical problems.[^11]
    Centennial contends that it has aggressively pursued several means
    to combat cable theft aimed at both educating and penalizing
    offenders.[^12] Centennial believes that scrambling the basic
    service tier would reduce the incentive to steal service and the
    damages to its system that result from illegal connections.

6.  Centennial also contends that disconnections caused by non-payment
    and subsequent reconnections are substantially higher than in other
    areas of the country, and that scrambling of the basic tier will
    allow the cable operator to avoid costly "truck-rolls" associated
    with such actions.[^13] Centennial recognizes that scrambling of the
    basic tier will require some subscribers to obtain set-top boxes.
    However, since 96% of Centennial's subscribers already rent a
    set-top box, petitioner contends that the impact on subscribers will
    be minimal.[^14] Centennial also contends that scrambling of the
    basic tier will enable the cable operator to offer more channels and
    programming choices, and will create sufficient bandwidth for
    high-speed internet access and other services in a cost-efficient
    manner.[^15]

7.  We find that Centennial's contentions regarding a substantial
    problem with theft justify granting the requested waiver. Centennial
    presents evidence establishing that the percentage of homes in its
    franchise illegally connected to its systems is substantially
    greater than the industry average nationwide.[^16] The high number
    of illegal connections creates a potential for signal leakage as
    well as a diminution in the quality of the video signal received by
    authorized subscribers. Centennial's audits show that cable theft is
    not isolated to certain portions of Centennial's systems, but is a
    significant problem in all of Centennial's service areas in Puerto
    Rico. The high percentage remains despite the multi-pronged program
    Centennial has initiated to reduce cable theft. Centennial
    individually contacts known offenders and invites them to become
    authorized customers. If this fails, Centennial advises the offender
    that the violation will be referred to proper law enforcement
    officials for prosecution under applicable state and federal law.

8.  We recognize that allowing Centennial to scramble its basic tier
    will require some subscribers to obtain set-top boxes. Centennial
    submits, however, that 96% of its subscribers already have an
    operator-supplied set-top box. We believe that with such a high
    percentage of subscribers already using set-top boxes, problems due
    to incompatibility between cable service and consumer electronics
    equipment will not be widespread once basic tier scrambling is
    commenced. Further, with less compromise to the physical integrity
    of its system, Centennial will be able to offer a better quality
    signal to all authorized subscribers.

9.  Once basic tier scrambling is commenced, a set-top box will be
    required for each television connected to Centennial's system.
    Because nearly all of Centennial's subscribers already rent a
    set-top box, most subscribers will not incur additional charges. We
    believe, consistent with previous decisions relating to the
    rule,[^17] that subscribers who did not need a set-top box prior to
    basic tier scrambling should not be charged for the initial
    installation of the box after scrambling begins because the
    scrambling is for the convenience of Centennial, and not to provide
    additional services requested by the subscriber. We note that any
    rate Centennial charges for the basic service tier and for equipment
    used to receive this tier must conform to the Commission's rate
    regulations. Section 623 of the Act sets forth a comprehensive
    procedural framework for the regulation of rates for the basic
    service cable tier. The Commission's rules establish formulas and
    procedures for determining a cable system's maximum permissible rate
    for the basic service tier,[^18] and any equipment necessary to
    access that tier,[^19] as well as procedures for adjudicating rate
    complaints.[^20] Our rules permit cable operators to charge
    subscribers for set-top boxes and other equipment provided the
    charges do not exceed actual costs.[^21] Authority for the
    regulation of rates is shared between the Commission and state and
    local regulatory authorities. Thus, rather than making any
    determinations in this proceeding regarding the appropriateness of
    Centennial's rates, we will rely on our existing regulatory
    procedures to address any rate issues.

# ORDERING CLAUSES 

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

11. This action is taken pursuant to delegated authority by Section
    0.321 of the Commission\'s rules.[^22]

FEDERAL COMMUNICATIONS COMMISSION

William H. Johnson

Deputy Chief

Media Bureau

[^1]: 47 C.F.R. § 76.630(a).

[^2]: The petition addresses three systems, serving the following
    communities from three headend locations: (1) Ponce headend --
    Adjuntas, Arroyo, Coamo, Guayama, Guayanilla, Jayuya, Juana Diaz,
    Maunabo, Patillas, Penuelas, Ponce, Salinas, Santa Isabel, Villalba,
    and Yauco; (2) Mayaguez headend -- Anasco, Cabo Rojo, Guanica,
    Hormigueros, Lajas, Las Marias, Maricao, Mayaguez, Rincon, Sabana
    Grande, and San German; and (3) Aguadilla headend -- Aguada,
    Aguadilla, Isabela, Moca, and Quebradillas.

[^3]: Pub. L. No. 102-385, 106 Stat. 1460 (1992).

[^4]: 47 U.S.C. § 624A.

[^5]: 9 FCC Rcd 1981 (1994) ("*Compatibility* *Report and Order*").

[^6]: 47 C.F.R. § 76.630(a).

[^7]: *Compatibility* *Report and Order*, 9 FCC Rcd at 1991.

[^8]: 47 C.F.R. § 76.630(a).

[^9]: This estimate is based upon ongoing audits of portions of
    Centennial's cable systems representing areas served by all three
    headends. Petition at Attachment B.

[^10]: Centennial estimates its annual loses from theft of services in
    excess of \$11,000,000 per year. *See* Letter from Robert L. James,
    Esq., April 7, 2003.

[^11]: Petition at 3.

[^12]: *Id*.

[^13]: *Id*.

[^14]: *Id*. at 4.

[^15]: *Id*.

[^16]: The National Cable Television Association's Office of Cable
    Signal Theft estimates the average percentage of basic service tier
    theft at 11.5 % nationwide. *See* \<http:/www.ncta.com\>.

[^17]: *See, e. g., Liberty Cablevision of Puerto Rico*, 15 FCC Rcd
    15064 (2000).

[^18]: 47 C.F.R. § 76.922.

[^19]: 47 C.F.R. § 76.923.

[^20]: *Id.*

[^21]: 47 C.F.R. §76.923(a)(2).

[^22]: 47 C.F.R. §0.321.