BEFORE THE
                     Federal Communications Commission
                          WASHINGTON, D.C.  20554



In the Matter of                        )
                                   )
Implementation of Section 302 of             )    CS Docket No. 96-46
the Telecommunications Act of 1996      )
                                   )
Open Video Systems                      )


To:  The Commission



                              REPLY COMMENTS













                         ADELPHIA COMMUNICATIONS CORPORATION
                         SUBURBAN CABLE TV CO. INC.



                         FLEISCHMAN AND WALSH, L.L.P.
                         1400 Sixteenth Street, N.W.
                         Suite 600
                         Washington, D.C. 20036
                         (202) 939-7900
     
                         Their Attorneys

Dated:  April 11, 1996                                  SUMMARY


     The Commission's Report and Order and Notice of Proposed Rulemaking ("Notice")
in this proceeding seeks comment in implementing the Telecommunications Act of 1996's
(the "Act") provisions regarding "open video systems" ("OVS").  On several issues
addressed in their comments, Bell Atlantic et al. and by US West (collectively, the "Telcos")
take anticompetitive positions, clearly at odds with the Act.  The Act contains certain
fundamental requirements regarding OVS, which the Commission may not violate.
     First and foremost, OVS must be truly "open."  The Act prohibits discrimination in
the price, terms and conditions of access by programmers.  Likewise, OVS operators or their
affiliates may not select more than one-third of channel capacity where demand for capacity
exceeds supply.  The Telcos seek to undermine these requirements by denying access to
programmers (especially cable operators) of their choosing.  The Telcos also seek to
establish the one-third capacity limit as a floor rather than a ceiling.  Additionally, they want
a guarantee that their affiliates will never be allocated fewer channels than any unaffiliated
programmer, while simultaneously adopting positions that will reduce channel capacity for
their competitors.
     In fact, nothing in the Act prohibits the FCC from reducing the capacity allocated to
OVS operators and their affiliates as demand for increases, in order to apportion such
capacity equitably among all programmers.  The Commission should require such reductions
in capacity, unless the OVS operator expands capacity to accommodate all programmers. 
Otherwise, the OVS operator has the incentive to minimize capacity, allocate an ever-
decreasing number of channels to a growing group of programmers, and thereby keep the
lion's share of channels for itself.
     The Act also prohibits the blatant discrimination proposed by the Telcos regarding
safeguards governing OVS operation.  The Telcos want no restrictions on joint marketing, no
cost allocation requirements, no separate subsidiary requirements, and no other safeguards
against anticompetitive conduct, especially cross-subsidization.  The Telcos' proposals would
put them in the position of the fox guarding the henhouse, as both unfettered gatekeeper of
the facility and competitor to unaffiliated programmers.  Under their suggested framework,
they would be no more than unregulated cable operators, contrary to Congress' intent.
     Accordingly, the Commission is bound by the letter and spirit of the statute to create
a regulatory framework that is not so tilted in the telephone companies' favor as to
undermine fair competition and open access.  Likewise, the Commission must swiftly adopt
meaningful safeguards, including its promised separate cost allocation proceeding, to deter
anticompetitive conduct.                                 BEFORE THE
                     Federal Communications Commission
                          WASHINGTON, D.C.  20554



In the Matter of                        )
                                   )
Implementation of Section 302 of             )    CS Docket No. 96-46
the Telecommunications Act of 1996      )
                                   )
Open Video Systems                      )


To:  The Commission


                              REPLY COMMENTS

     Adelphia Communications Corporation and Suburban Cable TV Co. Inc. (collectively,
the "Commenters"), by their attorneys, respectfully submit these Reply Comments in
response to the Commission's Report and Order and Notice of Proposed Rulemaking
("Notice") in the above-referenced proceeding.  The Notice seeks to implement the
provisions of the Telecommunications Act of 1996 (the "Act") regarding "open video
systems" ("OVS").  The Commenters operate cable systems throughout the Middle Atlantic
and Eastern United States.  The Commenters herein primarily reply to the Comments filed
by Bell Atlantic et al., and by US West, Inc. ("US West") (collectively, the "Telcos").  On
several issues, the Telcos have taken anticompetitive positions clearly at odds with the Act.

I.   THE ONE-THIRD CHANNEL CAPACITY LIMIT IS A MAXIMUM, NOT A
     MINIMUM REQUIREMENT                                                              

     According to the Bells, "Congress intended that open video system operators be
restricted to selecting the programming on no less than one-third of the activated channels if
demand exceeds capacity."  This statement is incorrect.  Section 653(b)(1)(B) of the Act
requires the Commission to prescribe regulations that
     if demand exceeds the channel capacity of the open video system, prohibit an operator
     of an open video system and its affiliates from selecting the video programming
     services for carriage on more than one-third of the activated channel capacity on such
     system, but nothing in this subparagraph shall be construed to limit the number of
     channels that the carrier and its affiliates may offer to provide directly to
     subscribers.

Thus, the statute limits OVS operators to a maximum of one third of channel capacity where
channel demand exceeds supply.  The statute does not require the Commission to permit
OVS operators to occupy one-third of channel capacity in all cases.  Nor does the statute
prohibit the Commission from reducing the OVS operator's capacity to less than one-third as
demand increases.
     A.   The Bells' Proposals Would  Destroy Incentives to Expand OVS Capacity.
     If the Bells' position is adopted, i.e., that no matter how many programmers seek
capacity, the affiliated programmer keeps its one-third channel allotment, OVS operators will
have no incentives either to build sufficient capacity to meet initial unaffiliated demand, or to
expand capacity to meet increased demand.  In fact, under the Bells' suggested framework,
the OVS operator has the incentive not to add capacity, since under such framework each
added unaffiliated purchaser will reduce capacity for each unaffiliated entity, but not for the
affiliated purchaser.  Obviously, such a result is anticompetitive and contrary to
Congressional intent.  The solution to this problem is simple: the Commission must provide
that the capacity apportioned to the affiliate will be reduced below one-third as demand
increases above capacity, unless and until the operator expands the capacity of the OVS.
     B.   Under the Telcos' Proposals, the "Fox Would Guard the Henhouse."
     The Bells also argue that, in all cases, OVS operators should be permitted to control
the programming on at least as many channels as the unaffiliated video programming
provider.  The Commenters agree that, where demand does not exceed supply, the OVS
operator's affiliate could potentially select the programming on well over one-third of the
channels.  For example, on an OVS facility with 100 activated channels, one affiliated
programmer, and one unaffiliated programmer, where the unaffiliated programmer seeks to
utilize 40 channels, the OVS operator's affiliate may select the programming on the
remaining 60 channels, since demand does not exceed supply.  However, two examples
demonstrate that, in most other cases, the positions taken by the Telcos are unfair,
anticompetitive, and contrary to Congressional intent:
     Example 1:     100 activated channel OVS facility, one affiliated programmer, one
     unaffiliated.  The unaffiliated programmer seeks to utilize 60 channels.  The
     Commenters agree that the affiliated programmer is not limited to one-third of
     capacity (33 channels), because to do so would let seven channels lie fallow.  Rather,
     the affiliate may select the programming on the remaining 40 channels, at which point
     demand equals but does not exceed supply.  The statute does not, however, allow the
     affiliate to select 50 channels, and reduce the unaffiliated programmer's capacity to 50
     channels, as the Bells argue. 

     Example 2:     100 activated channel OVS facility, one affiliated programmer, four
     unaffiliated programmers.  The unaffiliated programmers each seek to utilize 25
     channels.  The affiliated programmer should not be permitted to select the
     programming on 33 channels, leaving the remaining 67 channels to be divided by the
     four other programmers, as suggested by the Bells.  Instead, the capacity should be
     apportioned equally, with each of the five programmers allowed to select 20 channels.

     While the Telcos argue that the Commission should always permit channel allocation
in favor of the affiliated programmer, the only fair way for the Commission to interpret the
statute in the above examples is in favor of the unaffiliated programmer.  The reason why is
clear:  because the OVS operator has control over both the construction of the original and
additional capacity of the OVS facility.  There is no requirement in the Commission's
proposed rules that the OVS operator build sufficient capacity to meet demand or to add
capacity as demand continues to grow.  Therefore, in example 2 above, under the Bells'
"mandated minimum capacity" proposal, the OVS operator can unfairly reduce the
unaffiliated programmer's capacity merely by seeking more capacity for its affiliated
programmer.  The OVS operator cannot be left to manipulate channel capacity without
restrictions, because it will always have the incentive and the ability to do so in its favor, at
the expense of unaffiliated competitors.
     C.   The Telcos' Positions Would Eliminate the "Open" Requirement of OVS.
     The Telcos' efforts to gain a favored regulatory position does not stop at seeking a
minimum of one-third channel of capacity for their affiliates.  They also want to count such
capacity in ways that favor their affiliates.  For example, the Telcos do not want the
Commission to deduct PEG, shared, or must-carry channels from the total prior to
calculating the operator's one-third maximum channel capacity.  Moreover, while the
Telcos argue that their affiliates' channel occupancy can never be reduced below one-third,
they claim that occupancy by their unaffiliated programming competitors can be so reduced. 
They also want full freedom to assign channel positions to unaffiliated programming
competitors, which includes the ability to do so in the manner least favorable to such
competitors.  Perhaps most egregiously, the Telcos desire the freedom to make the open
video system available only for their own affiliates, and closed for others.  The Telcos'
position is best summed up by the Bells' statement that "[o]pen video systems will not
succeed if operators are restrained by regulation . . . ."
     The Telcos' suggestions, if adopted, would eliminate the "open" aspect of OVS, the
key obligation that distinguishes OVS from a cable system in the Act, while rewarding OVS
operators with reduced regulation, the key benefit that the Act bestows upon OVS. 
However, Congress clearly recognized that in the OVS context -- where the ability of
unaffiliated programmers to compete with the OVS operator and its affiliate is dependent on
access to capacity controlled by the OVS operator -- fair competition cannot exist without
regulation.  To conclude otherwise would be to leave the veritable fox guarding the
henhouse.  Consequently, the Act contains a clear quid pro quo -- OVS operators are subject
to relief from certain regulatory burdens only if they certify to the Commission that they
comply with regulations adopted by the Commission to ensure that the OVS facility is truly
open.  First among such regulations is that the Commission "prohibit an operator of an
open video system from discriminating among video programming providers with regard to
carriage on its open video systems."  The Telcos' proposals, including the suggestion that
OVS operators should be permitted to deny carriage to prospective programmers, are clearly
discriminatory and contrary to the Act.  Likewise, given an OVS operator's unique position
as both a gatekeeper of the facility and a program distributor seeking to dominate any
unaffiliated distributors using OVS facilities, US West's claim that "no rules are necessary"
to deter discrimination is simply unrealistic.
     Of course, as the Commission notes, where OVS capacity grows to exceed demand
and the affiliated programmer's capacity must therefore be reduced below one-third, there
should be a transition period during which the capacity is reapportioned, so as to avoid
disruption to viewers.  For example, NCTA advocates a maximum one-year transition
period in such cases.  The Commenters believe that such a period is too long.  Considering
that cable operators face a much shorter period of only 90 days to discontinue carriage of
existing programming to make room for a new must-carry television broadcast station, a
similar period should apply to reapportionment of OVS capacity.

II.  THE COMMISSION MUST IMPOSE ADEQUATE SAFEGUARDS AGAINST
     ANTICOMPETITIVE BEHAVIOR                                                        

     The Notice requests comment as to various safeguards that should be imposed upon
OVS operation.  For example, the Commission asks whether it "can and should adopt
regulations regarding the joint marketing" of bundled services, such as long distance and
local telephone, video, and data transmission, by OVS operators.  Likewise, the
Commission seeks comment on establishing cost allocation procedures between regulated and
unregulated services under Part 64 of its rules.  Given that LECs are local exchange
telephone service monopolists or near-monopolists in most markets, permitting them to also
become OVS operators subject to streamlined regulation places them in a unique and
powerful position, where they will be able to cross-subsidize their services absent adequate
safeguards.


     A.   Joint Marketing Must be Regulated.
     The Bells argue that they should be free to jointly market video programming and
telephone services.  However, "Congress directed that OVS operators should be prevented
from using their marketing activities to discriminate against competitors."  Moreover,
LECs operating OVS facilities are in a unique position to market numerous services to
residents, at a substantial discount.  At minimum, therefore, until telephone service is fully
competitive, a LEC representative who advises a customer or potential customer about
additional services such as video or long distance should be required to mention alternative
providers of such services such as the local cable operator.  The Commission should
monitor this procedure.  Alternatively, OVS operators should be required to conduct inbound
telemarketing or referrals of their video services on the same terms, conditions and prices to
all video programming providers, and must provide the names, on a rotating basis, of video
programmers and cable operators that request such a listing service.
     B.   The Commission Must Take Swift, Concrete Steps Regarding Cost
          Allocation.

     The Telcos also argue that the Commission should not impose any conditions
regarding cost allocation in the OVS certification process.  However, since the Title II
safeguards normally available will not apply to OVS, there is even more need to establish
cost allocation procedures under Part 64.  Such procedures are necessary to ensure that
regulated telecommunications service costs are segregated from the costs of unregulated
services such as OVS, thereby rendering cross-subsidization more difficult.  The
Commenters thus agree with parties who stressed the need for the Commission to adopt cost
allocation regulations before entertaining requests for OVS certification.  As the
Pennsylvania Public Utility Commission stated, "[r]eliance upon LEC provided ad hoc or ex
post facto separations studies by state regulators obligated to regulate LEC rates and tariffs
would both impose an intolerable burden, and create a likely risk of inter-jurisdictional
separations disputes.
     The Commission states that it will address cost allocation in a separate proceeding to
be initiated "shortly."  The Commenters join others, including US West, in supporting the
Commission's efforts in this area, but urge the Commission to act swiftly and decisively to
conclude such proceeding.  Adelphia, in particular, urges the Commission not to repeat the
process that took place regarding cost allocation for Bell Atlantic's video dialtone ("VDT")
facility in Dover Township, New Jersey, where Adelphia operates a cable system.  The
Telecommunications Act of 1996 repealed the Commission's VDT rules and policies, but
grandfathered VDT operations, such as Bell Atlantic's Dover system, that had already been
authorized.  The Commission never resolved the VDT cost allocation issue.  Accordingly,
Bell Atlantic's VDT system is not subject to any cost allocation rules or oversight.  Bell
Atlantic is thus in a position to cross-subsidize its VDT service with local telephone ratepayer
revenue.  This situation must not be allowed to recur in the OVS context.  The promise of
a separate cost allocation proceeding must not be used to back burner or completely avoid
crucial cost allocation issues.
     C.   The Commission Should Require Separate Subsidiaries for BOCs and
          Tier I LECs.

     The Commenters also agree with NCTA and others that the Commission should
require Bell Operating Companies and other incumbent Tier I LECs to offer video
programming directly to subscribers over OVS through a structurally separate subsidiary. 
Otherwise, "the incumbent LEC has strong incentives to" cross-subsidize its OVS service by
misallocating "costs associated with OVS to telephone services."  As a result, the LEC
could price its OVS service at an artificially low level, at which unaffiliated programmers
could not compete, while simultaneously charging higher rates to its telephone ratepayers. 
A separate subsidiary requirement is the only way to ensure that such cross-subsidization
does not occur. 

III. CONGRESS INTENDED TO PROMOTE COMPETITION AMONG ALL
     VIDEO DELIVERY SYSTEMS                                                                  
     A.   The Act Does Not Prohibit Any Party From Qualifying Either as an OVS
          Operator or Programmer.

     The Notice asks whether the Commission should allow cable operators to become
OVS operators or provide programming using OVS capacity, and tentatively concludes that
"there may be significant benefits to permitting cable operators and others to become open
video system operators."  The Act also authorizes cable operators to operate OVS
facilities, consistent with the public interest.  While the Telcos agree that cable operators
should be able "to convert to open video systems," the Telcos state that OVS operators
should be able to refuse capacity to cable system operators and other multichannel video
programming providers.  These entities incorrectly seek to define these proceedings and the
underlying statutory provision as a battle simply between themselves and incumbent cable
operators, and then request numerous regulatory advantages over cable operators who remain
significantly regulated under the Act.  In so doing, the Telcos seek to eliminate the "open"
requirement of OVS, and offer what amounts to unregulated cable service.  This is not what
the Act intended.  Rather, the Commission cited among Congress' goals "diversity of
programming choices . . . and increased consumer choice."  Furthermore, as previously
explained, the Act clearly prohibits OVS operators from discriminating with regard to
carriage of programmers.  The Act thus intended truly "open" video systems, where all
competitors have more options to compete, maximizing choices and reducing prices for
consumers.  The only way to achieve these goals is to ensure that the regulatory advantages
accorded OVS operators and programmers are available to all parties, including cable
operators.
     Accordingly, under the Act, telephone companies may provide video programming as
(i) franchised cable operators, (ii) OVS operators and/or programmers, (iii) wireless cable
operators, or (iv) radio-based system operators.  Thus, it is anticompetitive for the Telcos
and US West to try to limit cable operators' options in providing video programming.  Such
a result would tilt the playing field even further in the telephone companies' favor.  The Act
does not prohibit cable operators from transforming their operations into an OVS facility or
from utilizing capacity on their own or another's OVS facility.  The Act's goals of increased
programming and consumer choice will be furthered by giving consumers access to more
programming and providers, including cable operators and their programming, over OVS
facilities.

IV.  CONCLUSION
     The Telcos argue for de facto unregulated cable operator status and other unfair
advantages against OVS programmers with whom they will compete.  The Commission must
not permit the "fox to guard the henhouse" without clear limits and safeguards regarding
OVS operator channel allocation and operation.  



   Respectfully submitted,




By:                                                    By:                                          
   Randall D. Fisher, Esq.            Samuel W. Morris, Jr.
   John B. Glicksman, Esq.            Vice President, General Counsel

   ADELPHIA COMMUNICATIONS         SUBURBAN CABLE TV CO. INC.
     CORPORATION                   1332 Enterprise Drive, Suite 200
   5 West Third Street                West Chester, PA  19380
   Coudersport, PA  16915             (610) 692-5900
   (814) 274-9830

                                   FLEISCHMAN AND WALSH, L.L.P.
                                   1400 Sixteenth Street, N.W.
                                   Suite 600
                                   Washington, D.C.  20036
                                   (202) 939-7900

                                   Their Attorneys



Dated:  April 11, 1996

37942                             TABLE OF CONTENTS


                                                                       Page


SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  i

I.  THE ONE-THIRD CHANNEL CAPACITY LIMIT IS A MAXIMUM, NOT
    A MINIMUM REQUIREMENT. . . . . . . . . . . . . . . . . . . . . . . .  2

    A.   The Bells' Proposals Would  Destroy Incentives to Expand OVS
         Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . .  3

    B.   Under the Telcos' Proposals, the "Fox Would Guard the Henhouse."  3

    C.   The Telcos' Positions Would Eliminate the "Open" Requirement of 
         OVS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5

II. THE COMMISSION MUST IMPOSE ADEQUATE SAFEGUARDS
    AGAINST ANTICOMPETITIVE BEHAVIOR . . . . . . . . . . . . . . . . . .  7

    A.   Joint Marketing Must be Regulated.. . . . . . . . . . . . . . .  8

    B.   The Commission Must Take Swift, Concrete Steps Regarding Cost
         Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . .  8

    C.   The Commission Should Require Separate Subsidiaries for BOCs and
         Tier I LECs.. . . . . . . . . . . . . . . . . . . . . . . . . . 10

III.     CONGRESS INTENDED TO PROMOTE COMPETITION AMONG ALL VIDEO
         DELIVERY SYSTEMS. . . . . . . . . . . . . . . . . . . . . . . . 11

    A.   The Act Does Not Prohibit Any Party From Qualifying Either as an
         OVS Operator or Programmer. . . . . . . . . . . . . . . . . . . 11

IV. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14