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 OF THE MOTION PICTURE ASSOCIATION
                             OF AMERICA, INC.









                                   MOTION PICTURE ASSOCIATION
                                     OF AMERICA, INC.

                              
                              
Fritz E. Attaway                        Charles S. Walsh
MOTION PICTURE ASSOCIATION         Seth A. Davidson
  OF AMERICA, INC.                      FLEISCHMAN AND WALSH, L.L.P.
1600 Eye Street, N.W.                        1400 Sixteenth Street, N.W.
Washington, D.C. 20006                  Suite 600
                                   Washington, D.C. 20036
                                   (202) 939-7900
          
                                   Its Attorneys

Dated:  April 11, 1996
                                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 OF THE MOTION PICTURE ASSOCIATION
                             OF AMERICA, INC.


     The Motion Picture Association of America, Inc. ("MPAA"), by its attorneys,
respectfully submits these Reply Comments in the above-referenced proceeding regarding the
establishment of "open video systems" ("OVS").  As MPAA indicated in its initial
Comments, the motion picture industry has a strong interest in the development of OVS as a
mechanism for fostering competition in the video programming marketplace, thereby
maximizing the unfettered flow of programming to consumers. 

I.   The Proposals Submitted By Major Telephone Companies Would Thwart Rather 
     Than Maximize Open And Competitive Outlets For Video Distribution.          

     In order to promote the development of new facilities-based outlets for independent
program vendors and packagers, Congress has provided several alternative approaches for
telephone companies to provide video programming -- as common carriers under Title II, as
franchised cable operators under Title VI, as radio-based providers such as wireless cable
operators, or as OVS operators with affiliated MVPDs.  To create an incentive for the
establishment of OVS facilities -- facilities which would be accessible not only by the telco-
affiliated MVPD but also by unaffiliated programmers and packagers -- Congress accorded
OVS operators a measure of regulatory flexibility not otherwise available to common carriers
or cable operators.  However, as MPAA argued in its initial Comments, this regulatory
flexibility is not a one-way street.  In return for such flexibility, OVS facilities must offer
real access and sufficient capacity to ensure that both telco and non-telco MVPDs are able to
compete in the video marketplace.
     The comments filed jointly by six major telephone companies ("Joint Telephone
Parties"), as well as those of other telephone companies -- who are likely to be among the
first to seek certification to provide OVS service -- propose a framework for the development
of OVS that is vastly unlike what the MPAA suggested or what is required to achieve the
"bargain" Congress intended.  The Joint Telephone Parties urge a level of laissez faire
operation that raises the prospects of telco video facilities closed to new unaffiliated MVPDs
and programming vendors, and a regulatory environment so unbalanced that renders
meaningless the concept of competition on a level playing field among other existing MVPD
competitors.   
     While MPAA fully supports the development of a regulatory environment that will
create economic incentives for the construction of OVS facilities, MPAA is discouraged at
the tenor and substance of the telephone companies' comments in this proceeding.  In
essence, it appears the telephone companies seek to turn the OVS concept into an opportunity
to operate unregulated cable systems.  Such a result would, in MPAA's view, ultimately be
destructive to competition.  MPAA submits the Commission should establish clear and
distinct OVS regulations that not only facilitate the development of multiple outlets for video
programming but also ensure that any competitive advantages enjoyed by the OVS operator's
affiliated MVPD are the result of marketplace skills and program quality, not discrimination
and artificial regulatory distinctions.
II.  Without The Safeguards Advocated By MPAA, Discrimination Against
     Programming Vendors And Non-Telco MVPDs Will Occur.              
     MPAA and the telephone industry disagree as to whether there is a need for express
regulation to prohibit an OVS operator from discriminating against non-telco MVPDs in its
allocation of capacity.  MPAA's Comments urged that such express regulation of the OVS
operator's allocation of capacity was both appropriate and crucial to maximizing the number
of MVPDs and programming vendors which can viably compete in the video marketplace. 
MPAA Comments at 4.  The telephone companies, however, see little need for such
safeguards.
     The philosophy underpinning the comments of the telephone companies turns the
primary goal of the Congress in authorizing the OVS framework on its head.  The telephone
companies rationalize their persistent demand for open-ended discretion and unfettered ability
to favor their own affiliates and programming by pointing to "[t]he absolute necessity of
competing effectively against incumbent cable operators."  MPAA submits that the broad
freedom to discriminate sought by the telcos does great violence to the real intent of
Congress to encourage fair and sustainable intermodal and intramodal competition.  Non-
cable MVPDs and programming vendors, unaffiliated with the telephone companies, cannot
be relegated to bit players in the telephone companies' portrayal of their OVS operations as
simply the "Gunfight at the OK Corral" with the cable television industry.  
     MPAA reiterates the position taken in its Comments that the public interest will not
be served if the OVS operator is given both the freedom to foreclose unaffiliated competition
on its OVS system and excessive regulatory advantages over the incumbent cable operator. 
As both licensors and owners of programming services, MPAA urges the Commission to
reject the one-dimensional philosophy of the Joint Telephone Parties and those of other
telephone interests.  MPAA submits that, in light of the telephone companies' apparent
antipathy to the use of OVS capacity by unaffiliated MVPDs or program vendors, the
Commission must establish specific rules to prevent discrimination as to channel allocation,
channel position, channel sharing, rates for capacity and marketing and information regarding
the availability of programming to subscribers.
     A.   The OVS Operator Cannot Be Given Broad Discretion As To
          Channel Sharing, Allocation And Position.                        
     MPAA recognizes that the OVS operator has to make certain crucial decisions
regarding the operation of the OVS facility -- capacity, design, etc.  And as MPAA made
clear in its initial Comments, it is crucial that the Commission provide sufficient incentives
for OVS operators to build and expand capacity to meet the demand of non-affiliated MVPDs
and to make such capacity available on a non-discriminatory basis.  MPAA Comments at 4. 
However, in no case should the OVS operator be permitted to discriminate in favor of its
affiliated MVPD with respect to how and which programming is selected for shared
channels, which MVPDs and programming obtain more desirable analog channel positioning,
and how capacity is allocated among competing MVPDs.
     MPAA's Comments maintained that one of the most important issues in this
proceeding relates to the sharing of channels.  MPAA Comments at 6.  A regulatory
approach that maximizes channel sharing is crucial to ensuring the "open" nature of the OVS
facility.  In contrast, adoption of the telephone companies' position that channel sharing
should be left to the OVS operator's discretion not only will produce potential inefficiencies
but also inherently will lessen the number of channels available for unaffiliated MVPDs or
program vendors.  MPAA submits that any channels licensed by a programming vendor to
more than one MVPD must be given shared status, consistent with contractual rights and
technical limitations.
     Similarly, the Joint Telephone Parties suggest that the OVS operator should have
complete discretion with respect to channel positioning and allocation.  This includes the
decision "to assign programming to analog or digital channels as [the OVS operators] deem
necessary to provide marketable, competitive programming packages" against incumbent
cable operators.  MPAA rejects this view as representing a prime example of improper and
unreasonable discrimination between affiliated and unaffiliated MVPDs and program vendors. 
In the foreseeable future, MVPDs or program vendors with analog channel capacity will
have a significant competitive advantage over those entities allocated digital capacity.
     MPAA does not disagree with the proposition that an affiliated MVPD can program
100 percent of the OVS capacity until such time as unaffiliated "demand" does, in fact, exist. 
However, MPAA does not accept the repeatedly stated premise underlying the Joint
Telephone Parties' comments -- namely, that Congress intended to give OVS operators wide
latitude to design their systems and allocate capacity without regard to the significant goal of
accommodating the demand of unaffiliated MVPDs.  For example, the Joint Telephone
Parties point to the statement in section 653(b)(1)(B) that nothing in the Act limits the
absolute number of channels that the OVS operator or its affiliate could offer directly to
subscribers as evidence that Congress did not intend to guarantee that unaffiliated MVPDs
desiring OVS capacity could obtain it for purposes of competing as packagers of video
programming directly to subscribers.  Rather, Congress' sole intent, according to the Joint
Telephone Parties, was to permit individual program services to seek carriage on the telco
MVPD's package.  This convoluted reading of the law by the telephone companies is
erroneous.  It also is telling as to what the future will hold without explicit regulation of
channel allocation.  
     The telephone company comments also advocate that the OVS operator may treat
programmers or MVPDs differently, based on their legitimate business judgments, and that a
complaint of unjust and unreasonable discrimination would determine whether such
judgement was reasonable.  The Joint Telephone Parties argue that "[t]he Commission should
not attempt to second-guess the good faith business judgment of [OVS] operators" in
competing with the local cable operator.  Any complainant alleging discrimination must
prove the discrimination was intentional, the treatment was commercially unreasonable, and
that the complainant suffered substantial and actual harm.  Under the telephone companies'
approach, any action they deem necessary to compete against the incumbent video distributor
would not be intentional or commercially unreasonable.  This approach provides the
foolproof defense to virtually any complaint, under the theory that whatever the conduct
favoring its affiliates, it was necessary to ensure an attractive, successful replacement to the
incumbent cable operator.  MPAA urges the Commission to reject any discrimination among
different MVPDs or programming vendors and, instead, to establish an effective complaint
process for alleging discrimination.
     B.   The FCC Must Closely Scrutinize An OVS Operator's Rates,
          Terms And Conditions Of Access.                                   

     The Joint Telephone Parties and other telephone entities argue that, because OVS
facilities are not subject to regulation as common carriers, there is no authority for the
Commission to use Title II-like regulations to require prices, terms and conditions to be just
and reasonable.  The telephone companies argue that competitive market forces will operate
to ensure reasonable OVS rates so that no rules are needed.  Moreover, despite the assurance
that rates, terms and conditions will be reasonable and non-discriminatory, telephone
comments strongly oppose any rate filings or requirement to make their contracts with
affiliates or others public.
     MPAA's Comments recommended that the Commission assist in the development of a
rate formula that produces the lowest possible non-discriminatory rate consistent with the
OVS operator's cost.  MPAA Comments at 8.  Other commenters urged similar Commission
involvement and continued scrutiny by the Commission to ensure that rates are reasonable
and non-discriminatory.  Many of these same parties also argued that the public filing of
rates be compelled as a necessary safeguard to protect non-affiliates and other programmers
deemed less desirable by the OVS operator from rate discrimination.  MPAA agrees with
the importance of requiring the disclosure of the rates for capacity between OVS operator
and MVPDs but stresses that rates or other confidential contractual information between
MVPDs and individual programmers need not and should not be subject to disclosure.
     While firmly supporting comments urging close scrutiny over an OVS operator's
rates, MPAA disagrees with suggestions that the rate formulas for access to a OVS capacity
and for commercial leased access on a cable system should be linked.  MPAA submits that
the underlying benefits associated with obtaining access in each case are drastically different. 
In the OVS context, access by a programming vendor or packager to capacity means simply
access to the underlying platform and facilities.  In contrast, obtaining leased access capacity
from a cable system involves, in part, access to an existing package of services assembled by
the cable operator and marketed by it to a sizeable universe of subscribers.  The value to a
programming vendor of access to a subscriber's existing package on a cable system obviously
is much different than the value to such vendor associated with the simple access to channel
capacity afforded by OVS.
     C.   Program Access.
     One telephone company commenter, NYNEX, argues that OVS operators should be
given the freedom to deny access to the system by any entity holding either exclusive rights
to a programming service or favorable contract terms that effectively preclude others from
distributing the program service on that OVS facility.  In support of this position, NYNEX
cites section 616 of the 1992 Cable Act which prohibits an MVPD from unreasonably
denying a programmer distribution based on its lack of affiliation with the MVPD.  But
NYNEX's citation of section 616 is both incomplete and misplaced.  Section 616 was
intended to protect unaffiliated programming vendors against coercion by MVPDs such as
cable operators and telco or other MVPDs.  Apart from certain program access
requirements, voluntary agreements by programming vendors with MVPDs are encouraged,
not restrained by the law.
     It is ironic that the telephone companies maintain that OVS operators should have
discretion to discriminate against a video programmer or MVPD on the basis of legitimate
business judgment, including the attractiveness of the programming to potential subscribers. 
Yet, the same telcos would remove that discretion from program licensors and copyright
owners by forcing them to provide such programming to the telco-MVPD if that
programming is deemed desirable by the OVS operator and its affiliate.  NYNEX indeed has
it backwards.  The Congress did not intend to permit an "open" video system operator to
deny access or otherwise discriminate as to certain MVPDs or program vendors.  Congress
did intend to allow voluntary agreements between program vendors and MVPDs in order to
differentiate particular program packages if such exclusivity or more favorable terms are
consistent with sections 616 and 628 of the law.
III. The Commission's Rule Should Carry Out Congress' Intent With Respect
     To The Carriage Of Broadcast Programmings On OVS Facilities.           

     The 1996 Act specifically directs the Commission to adopt rules relating to the
retransmission of broadcast television programming on OVS facilities.  In particular, the
Commission is required to adopt rules pertaining to the application of syndicated exclusivity,
network non-duplication, and sports blackout protection in the OVS context and to the
implementation of must-carry and retransmission consent.  MPAA's Comments urged the
Commission to carry out the statutory mandate in a manner that is consistent with Congress'
intent.  MPAA Comments at 12-14.
     Fulfilling Congressional intent with respect to the retransmission of broadcast
programming via OVS clearly means protecting broadcasters against discrimination vis-a-vis
other non-broadcast program sources.  However, the broadcast industry appears at times to
be seeking not merely even-handed treatment, but preferential treatment.  While MPAA
agrees that broadcasters must be accorded their must-carry and retransmission consent rights
in the OVS context and that the syndicated exclusivity, network non-duplication and sports
blackout rules must be enforced, there is no basis for granting broadcasters additional
protections against discriminatory treatment without according similar protections to non-
broadcast programmers.
     In addition, MPAA takes exception to the broadcasters' suggestions that there should
be no limits on the number of stations entitled to mandatory carriage in the OVS context. 
The statute makes clear that the broadcast industry's must-carry rights are to be "no greater
or lesser" in the OVS context than in the cable context.  Consequently, the broadcast
industry's "first claim" on OVS capacity is subject to the limits specified in section 614 of
the 1992 Cable Act.  
     Finally, MPAA wishes to reiterate its concern that the Commission make clear that its
implementation of OVS is not intended to resolve issues relating to the application of the
cable compulsory license to OVS operation and MVPDs utilizing OVS capacity.  Those
issues, as MPAA pointed out, are best left to Congress, the Copyright Office, and the courts.
IV.  Conclusion.
     For the foregoing reasons, the Commission should adopt OVS regulations and policies
consistent with MPAA's Comments and Reply Comments.
                              Respectfully submitted,

                              MOTION PICTURE ASSOCIATION    
                                OF AMERICA, INC.
                              
                              By: ___________________________________
Fritz E. Attaway                        Charles S. Walsh
MOTION PICTURE ASSOCIATION         Seth A. Davidson
  OF AMERICA, INC.                      FLEISCHMAN AND WALSH, L.L.P.
1600 Eye Street, N.W.                   1400 Sixteenth Street, N.W.
Washington, D.C. 20006                  Suite 600
                                   Washington, D.C. 20036
                                   (202) 939-7900
          
                                   Its Attorneys
Dated:  April 11, 1996                             TABLE OF CONTENTS


                                                                       Page

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

I.   The Proposals Submitted By Major Telephone Companies Would Thwart
     Rather Than Maximize Open And Competitive Outlets For Video Distribution  2

II.  Without The Safeguards Advocated By MPAA, Discrimination Against
     Programming Vendors And Non-Telco MVPDs Will Occur. . . . . . . . .  3

     A.   The OVS Operator Cannot Be Given Broad Discretion As To
          Channel Sharing, Allocation And Position.                          5

     B.   The FCC Must Closely Scrutinize An OVS Operator's Rates,
          Terms And Conditions Of Access . . . . . . . . . . . . . . . .  8

     C.   Program Access . . . . . . . . . . . . . . . . . . . . . . . .  9

III. The Commission's Rule Should Carry Out Congress' Intent With Respect
     To The Carriage Of Broadcast Programmings On OVS Facilities.            11

IV.  Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

                                  SUMMARY


     As MPAA argued in its initial comments, Congress has attempted in the 1996
Telecommunications Act to promote competition in the video marketplace by authorizing
telephone companies to establish unfranchised "open video systems."  As a condition of this
regulatory flexibility, Congress directed the Commission to take such actions as necessary to
ensure that OVS facilities are not operated simply as unregulated cable systems and that non-
telco affiliated MVPDs and program providers have an opportunity to utilize OVS capacity
on a competitive basis.  The proposals submitted by the major telephone companies reveal a
much different vision of OVS -- one that would thwart rather than maximize the development
of open and competitive outlets for video program distribution.
     In particular, the telco comments seek broad freedom for OVS operators to
discriminate in favor of their own affiliates so as to maximize their competitive position vis-
a-vis incumbent cable operators.  However, the public interest will not be served if OVS
operators are able to foreclose unaffiliated competition.  MPAA again urges the Commission
to fulfill the Congressional goal of promoting both intermodal and intramodal competition by
adopting rules to prevent discrimination with respect to channel allocation, channel position,
channel sharing, rates for capacity, and the provision of information to subscribers.  For
example, in no case should an OVS operator be permitted to favor its own affiliate in the
allocation of analog capacity.  Similarly, in order to maximize the efficient use of capacity
and minimize competitive differentials, any channels licensed by a programming vendor to
more than one MVPD using OVS capacity must be given shared channel status, consistent
with contractual rights and technical limitations.  And the Commission must establish an
effective complaint process for resolving discrimination complaints.
     The issue of rates represents another area of disagreement between MPAA and the
telephone companies.  MPAA agrees with those commenters who have advocated that the
Commission play a significant role in the development of reasonable and non-discriminatory
rates for OVS capacity and that the telephone companies be required to publish the rates for
capacity.  However, there is no reason to require disclosure of rates or other confidential
contractual information regarding the relationship between MVPDs and individual program
vendors.  Nor should the Commission link the regulation of OVS capacity rates to the
regulation of cable leased access rates.
     Lastly, MPAA reiterates that the Commission is required to implement rules relating
to the OVS retransmission of broadcast television programming in a manner consistent with
Congress' intent.  This means protecting broadcast programming against discrimination vis-a-
vis non-broadcast program sources and ensuring must carry protection "no greater or lesser"
than that provided under Section 614 of the 1992 Cable Act.  However, it does not mean
ignoring the must carry limits in Section 614 or granting broadcasters greater protections
against discrimination than those accorded other program vendors.