**DA 09-68**

**Released: January 16, 2009**

**MEDIA BUREAU CLARIFIES ISSUES CONCERNING**

**FRANCHISE AUTHORITY CERTIFICATION TO REGULATE RATES**

Recently, when new entrant cable operators ("new entrants") have
proposed to provide cable service in franchise areas served by incumbent
cable operators, issues have arisen about regulation by the local
franchise authority ("LFA") of the new entrant's basic cable service
rates. The purpose of this Public Notice is to provide guidance to new
entrants and LFAs on some of those issues.

Congress adopted Section 623 of the Communications Act as part of the
Cable Television Consumer Protection and Competition Act of 1992.[^1]
Pursuant to Section 623, LFAs can, under certain circumstances, regulate
rates for basic cable service.[^2] In *Implementation of Sections of the
Cable Television Consumer Protection and Competition Act of 1992: Rate
Regulation*, the Commission adopted a process through which it would
certify LFAs to regulate basic cable service rates.[^3] Pursuant to the
process established in the *Rate Order*, LFAs can become certified to
regulate the basic cable service rates of cable operators within their
jurisdiction by completing and submitting to the Commission FCC Form
328: Certification of Franchise Authority to Regulate Basic Cable
Service Rates and Initial Finding of Lack of Effective Competition.[^4]
Acceptance of a Form 328 by the Commission authorizes the LFA to
regulate the basic cable service rates only of the cable operator(s)
specified by the LFA in response to Question 2b of Form 328. In other
words, the Commission's acceptance of a Form 328 does not authorize
regulation of any cable operator's rates in that franchise area other
than those operators specified in response to Question 2b. If a new
entrant commences cable service in a franchise area, the LFA is not
authorized to regulate that new entrant's basic cable service rates
unless and until the Commission has accepted a Form 328 that specifies
the new entrant as a rate regulated cable operator in response to
Question 2b.

In completing a Form 328 with regard to a new entrant, LFAs are also
required to respond to Question 6, which states "The \[C\]ommission
presumes that the cable systems listed in \[Question\] 2b is (are) not
subject to effective competition. Based on the \[effective competition\]
definition\[s\] \[set forth separately\] below, do you have reason to
believe that this presumption is correct?"[^5] We remind LFAs seeking to
certify to regulate the basic cable service rates of new entrants that
they "can rely on this presumption when filing certifications with the
Commission, *unless they have actual knowledge to the contrary*."[^6] A
LFA could acquire "actual knowledge" that the presumption of no
effective competition is invalid as to the competitive circumstances of
a new entrant in several ways. If the Commission has previously
determined that the incumbent cable operator in the franchise area is
subject to competing provider, governmental provider, or LEC effective
competition (and the circumstances underpinning such determination have
not materially altered since that determination), a LFA would be
considered to have actual knowledge that the presumption of no effective
competition does not apply to a new entrant. Further, even if the
Commission has not made a formal determination of LEC effective
competition with regard to the incumbent cable operator, if a local
exchange carrier or its affiliate (or any MVPD using the facilities of
such carrier or its affiliate) offers comparable video programming
services directly to subscribers by any means (other than direct-to-home
satellite services) to an area that substantially overlaps the franchise
area of an incumbent, a LFA would be considered to have actual knowledge
that the presumption of no effective competition does not apply to a new
entrant. Finally, during the initial phase of its rollout of video
service in a given franchise area, a new entrant would, in almost all
circumstances, be subject to low penetration effective competition
because it serves less than 30 percent of the households in its
franchise area. A LFA could attain actual knowledge of a new entrant's
franchise area penetration rate through reports filed by the new entrant
or through correspondence with the new entrant. In each of the
circumstances described above, a LFA could not in good faith
affirmatively respond to Question 6 of Form 328.[^7]

For further information, contact Senior Deputy Chief, Policy Division,
Media Bureau, Steven Broeckaert, (202) 418-1075,
Steven.Broeckaert@fcc.gov, TTY (202) 418-7171.

**- FCC -**

[^1]: Pub. Law No 102-385, § 3, 106 Stat. 1460 (1992), *codified as*, 47
    U.S.C. § 543.

[^2]: 47 U.S.C. § 543(a)(3)(A)-(C); 47 C.F.R. § 76.910(b)(1)-(3).

[^3]: *In Implementation of Sections of the Cable Television Consumer
    Protection and Competition Act of 1992: Rate Regulation,* 8 FCC Rcd
    5631, 5686-87 (1993) ("*Rate Order*").

[^4]: *See* FCC Form 328 (OMB 3060-0550) *available at*,
    http://www.fcc.gov/Forms/Form328/328.pdf ("Form 328').

[^5]: *See* Form 328 at Question 6. The term "effective competition"
    means that: (A) fewer than 30 percent of the households in the
    franchise area subscribe to the cable service of a cable system
    ("low penetration effective competition"); (B) the franchise area is
    \-- (i) served by at least two unaffiliated multichannel video
    programming distributors each of which offers comparable video
    programming to at least 50 percent of the households in the
    franchise area; and (ii) the number of households subscribing to
    programming services offered by multichannel video programming
    distributors other than the largest multichannel video programming
    distributor exceeds 15 percent of the households in the franchise
    area ("competing provider effective competition"); (C) a
    multichannel video programming distributor operated by the
    franchising authority for that franchise area offers video
    programming to at least 50 percent of the households in that
    franchise area ("governmental provider effective competition"); or
    (D) a local exchange carrier or its affiliate (or any multichannel
    video programming distributor using the facilities of such carrier
    or its affiliate) offers video programming services directly to
    subscribers by any means (other than direct-to-home satellite
    services) in the franchise area of an unaffiliated cable operator
    which is providing cable service in that franchise area, but only if
    the video programming services so offered in that area are
    comparable to the video programming services provided by the
    unaffiliated cable operator in that area ("LEC effective
    competition"). 47 U.S.C. §§ 543(l)(1)(A)-(D); *see also* 47 C.F.R. §
    76.906 (presumption of no effective competition).

[^6]: *See Rate Order*, 8 FCC Rcd at 5669 (emphasis added).

[^7]: Form 328 states that "WILLFUL FALSE STATEMENTS MADE ON THIS FORM
    ARE PUNISHABLE BY FINE AND/OR IMPRISONMENT (U.S. CODE TITLE 18,
    SECTION 1001)."