*Pages 1--92 from  FCC 99-57*
 Federal  Communications  Commission  FCC  99-  57 
 Before  the 
 Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of  ) 
 ) 
 Implementation  of  Cable  Act  Reform  Provisions  )  CS  Docket  No.  96-  85 
 of  the  Telecommunications  Act  of  1996  ) 
 ) 


 REPORT  AND  ORDER 
 Adopted:  March  25,  1999  Released:  March  29,  1999 
 By  the  Commission:  Commissioners  Furchtgott-  Roth  and  Powell  approving  in  part,  dissenting  in  part  and 
 issuing  separate  statements;  Commissioner  Tristani  issuing  a  separate  statement. 


 Table  of  Contents 
 Paragraph 
 I.  Introduction  ..............................................................  1 
 II.  Effective  Competition  ......................................................  3 
 III.  CPST  Rate  Complaints  ....................................................  31 
 IV.  Small  Cable  Operators  ....................................................  61 
 V.  Definition  of  "Affiliate"  In  The  Context  of  Cable-  Telco  Buy  Outs  ....................  90 
 VI.  Uniform  Rate  Requirement  .................................................  92 
 VII.  Technical  Standards  ......................................................  117 
 VIII.  Prior  Year  Losses  .......................................................  144 
 IX.  Advanced  Telecommunications  Incentives  ....................................  149 
 X.  Cable  Operator  Refusal  To  Carry  Certain  Programming  ........................  150 
 XI.  Subscriber  Notice  .......................................................  155 
 XII.  Market  Entry  Analysis  ...................................................  168 
 XIII.  Final  Regulatory  Flexibility  Analysis  .........................................  169 
 XIV.  Paperwork  Reduction  Act  Of  1995  Analysis  ...................................  193 
 XV.  Ordering  Clauses  ........................................................  195 


 APPENDIX  A 
 APPENDIX  B 
1
 Federal  Communications  Commission  FCC  99-  57 
 1  Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104    301,  302,  110  Stat.  56,  114-  124  approved  Feb.  8,  1996. 
 2  47  U.  S.  C.    151-  614. 
 3  11  FCC  Rcd  5937,  5938  (1996).  Hereinafter,  we  refer  to  the  two  portions  of  the  previous  item  as  the  Interim  Order 
 and  the  Notice. 


 4  Id. 


 5  Id. 
 6  We  are  retaining  the  definition  of  "affiliate"  in  the  context  of  effective  competition  from  a  local  exchange  carrier 
 as  an  interim  rule.  See  para.  25  infra. 


 7  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Pub.  L.  No.  102-  385    3(  a),  106  Stat.  1460, 
 1464-  71  (1992)  ("  1992  Cable  Act    3(  a)"),  47  U.  S.  C.    543. 


 8  47  U.  S.  C.    543(  a)(  2),  (b),  (c). 


 2 


 I.  INTRODUCTION 
 1.  This  Report  and  Order  adopts  final  rules  regulating  cable  television  service  and  cable  system 
 operators  pursuant  to  Sections  301  and  302  of  the  Telecommunications  Act  of  1996  ("  1996  Act").  1  The  1996 
 Act  amended  or  deleted  numerous  provisions  of  Title  VI  of  the  Communications  Act  of  1934,  as  amended, 
 ("  Communications  Act"),  2  and  added  new  provisions  affecting  cable  television.  Many  of  these  changes 
 consisted  of  clear,  self-  effectuating  revisions  to  pre-  existing  federal  statutory  provisions.  To  the  extent  these 
 self-  effectuating  statutory  changes  required  amendments  to  our  rules,  we  implemented  them  in  the  order  section 
 of  the  Order  and  Notice  of  Proposed  Rulemaking  in  this  docket.  3 


 2.  Regulations  to  implement  other  provisions  of  the  1996  Act  required  notice  and  comment  to 
 be  fully  and  finally  implemented.  4  We  initiated  that  process  in  the  Notice  portion  of  the  previous  item.  Many 
 of  the  statutory  provisions  that  required  implementing  rules  and  were  the  subject  of  the  Notice  were  effective 
 upon  enactment  of  the  1996  Act  on  February  8,  1996.  The  public  interest  thus  necessitated  that  we  adopt 
 interim  rules  effectuating  these  provisions  pending  the  adoption  of  final  rules  pursuant  to  the  Notice.  5  We  now 
 adopt  final  rules  and  eliminate  the  interim  rules.  6 


 II.  EFFECTIVE  COMPETITION 
 A.  Background 
 3.  The  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992  ("  1992  Cable  Act"), 
 amended  Section  623  of  the  Communications  Act  by  establishing  a  pervasive  scheme  of  rate  regulation  for 
 cable  operators  not  subject  to  effective  competition.  7  Amended  Section  623  requires  the  Commission  to  ensure 
 that  rates  are  reasonable  and  that  subscribers  are  protected  from  rates  for  the  basic  service  tier  ("  BST")  and 
 cable  programming  service  tier(  s)  ("  CPST")  that  exceed  the  rates  that  would  be  charged  if  the  cable  system 
 were  subject  to  effective  competition.  8  A  regulated  cable  operator  must  offer  a  BST  that  includes,  at  a 
 minimum,  all  of  the  local  broadcast  channels  carried  on  the  cable  system  and  any  public,  educational,  and 
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 Federal  Communications  Commission  FCC  99-  57 
 9  47  U.  S.  C.    543(  b)(  7). 
 10  47  U.  S.  C.    543(  l)(  2). 
 11  47  U.  S.  C.    543(  a)(  2). 
 12  A  cable  operator  not  subject  to  effective  competition  must  maintain  a  rate  structure  that  is  uniform  throughout  its 
 franchise  area  but  may  offer  bulk  discounts  to  multiple  dwelling  units.  47  U.  S.  C.    543(  d);  47  C.  F.  R.    76.984. 


 13  47  U.  S.  C.    543(  c)(  4). 


 14  47  U.  S.  C.    543(  l)(  1)(  A)-(  C). 
 15  Id.  The  test  in  paragraph  A  is  referred  to  as  the  "low  penetration  test";  the  test  in  paragraph  B,  as  the  "competing 
 provider  test";  the  test  in  paragraph  C,  as  the  "municipal  provider  test."  These  tests  were  implemented  in  the 
 Commission's  rules  at  47  C.  F.  R.    76.905(  b)(  1)-(  3). 


 16  1996  Act    301(  b)(  3),  110  Stat.  115;  47  U.  S.  C.    543(  l)(  1)(  D);  see  47  C.  F.  R.    76.905(  b)(  4). 


 3 


 government  access  ("  PEG")  channel  required  under  the  terms  of  a  franchise  agreement  with  the  local 
 franchising  authority  ("  LFA").  9  A  CPST  is  any  tier  of  programming  offered  by  a  cable  operator,  other  than 
 the  BST  and  programming  provided  on  a  per  channel  or  per  program  basis.  10  Cable  systems  subject  to 
 effective  competition  are  not  subject  to  rate  regulation,  11  including  the  uniform  rate  requirement.  12  The  1996 
 Act  provides  that  all  CPST  rate  regulation  will  end  for  services  provided  after  March  31,  1999.  13  Regulation 
 of  BST  and  associated  equipment  rates  will  remain  in  effect  for  systems  not  subject  to  effective  competition. 
 Rates  for  programming  provided  on  a  per  channel  or  per  program  basis  are  not  regulated. 


 4.  Section  623(  l)  as  amended  by  the  1992  Cable  Act  provides  three  tests  for  determining  effective 
 competition.  14  A  cable  system  is  exempt  from  rate  regulation  if  any  of  the  following  three  tests  is  met: 


 (A)  fewer  than  30  percent  of  the  households  in  the  franchise  area 
 subscribe  to  the  cable  service  of  a  cable  system; 
 (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;  or 
 (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.  15 


 5.  The  1996  Act  adds  a  fourth  test  to  Section  623(  l).  16  Under  the  new  test,  a  cable  operator  will 
 be  subject  to  effective  competition  if  comparable  video  programming  is  offered  to  subscribers  within  the  cable 
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 Federal  Communications  Commission  FCC  99-  57 
 17  47  U.  S.  C.    153(  26)  defines  a  LEC  as: 
 any  person  that  is  engaged  in  the  provision  of  telephone  exchange  service  or 
 exchange  access.  Such  term  does  not  include  a  person  insofar  as  such  person  is 
 engaged  in  the  provision  of  a  commercial  mobile  service  under  section  332(  c), 
 except  to  the  extent  that  the  Commission  finds  that  such  service  should  be 
 included  in  the  definition  of  such  term. 


 18  47  U.  S.  C.    543(  l)(  1)(  D). 


 19  Interim  Order,  11  FCC  Rcd  at  5938-  45;  47  C.  F.  R.    76.905(  b)(  4),  76.1401. 
 20  Notice,  11  FCC  Rcd  at  5962-  63. 
 21  See  47  C.  F.  R.    76.905(  g). 
 22  Notice,  11  FCC  Rcd  at  5961-  62. 
 23  Id.  at  5962. 


 4 


 operator's  franchise  area  by,  or  over  the  facilities  of,  a  local  exchange  carrier  ("  LEC")  or  its  affiliate.  17  Section 
 623(  l)(  1)(  D)  18  ("  LEC  test")  provides  that  effective  competition  exists  when: 


 (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. 


 6.  Because  the  new  effective  competition  test  became  effective  upon  enactment  of  the  1996  Act, 
 we  amended  our  rules  to  incorporate  the  statutory  language  of  the  test,  and  adopted  interim  rules  relating  to 
 certain  definitions  and  procedures  needed  to  properly  implement  the  provision.  19  We  sought  comment  on 
 proposed  final  rules.  Our  Notice  specifically  requested  comment  as  to  whether  effective  competition  can  be 
 found  under  the  LEC  test  if  the  LEC  or  its  affiliate  makes  its  service  available  only  to  a  de  minimis  portion  of 
 the  franchise  area  or  whether  the  service  must  be  offered  to  some  larger  portion  of  the  franchise  area.  20 
 Commenters  were  asked  to  consider  what  level  of  competition  provided  by  a  LEC  or  its  affiliate  is  sufficient 
 to  have  a  restraining  effect  on  cable  rates.  The  Notice  sought  comment  as  to  whether  the  definition  of 
 "comparable"  programming  suggested  for  the  LEC  test  in  the  Conference  Report  should  be  adopted  and,  if  so, 
 how  it  should  be  implemented.  Because  that  definition  differs  from  the  definition  of  comparable  programming 
 in  our  rules,  21  the  Notice  sought  comment  as  to  whether  we  should  adopt  a  uniform  definition  applicable  in  all 
 cases.  22  The  Notice  sought  comment  as  to  whether  satellite  master  antenna  television  ("  SMATV")  service 
 constitutes  direct-  to-  home  ("  DTH")  satellite  service,  as  that  term  is  used  in  the  new  effective  competition  test.  23 
 The  Notice  solicited  comment  as  to  when  a  multichannel  video  programming  distributor  ("  MVPD")  should  be 
 deemed  an  "affiliate"  of  a  LEC  for  purposes  of  this  test.  Finally,  the  Notice  solicited  comment  on  the  standards 
 for  showing  whether  a  competing  MPVD  is  offering  service  in  the  franchise  area. 
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 Federal  Communications  Commission  FCC  99-  57 
 24  For  the  purpose  of  this  discussion,  the  term  "LEC"  includes  a  LEC  affiliate  or  an  MVPD  using  the  facilities  of  a 
 LEC  or  its  affiliate. 


 25  H.  R.  Rep.  No.  458,  104th  Cong.,  2d  Sess.  170  (1996)  ("  Conference  Report"). 


 26  47  C.  F.  R.    76.905(  e). 
 27  Interim  Order,  11  FCC  Rcd  at  5941;  Notice,  11  FCC  Rcd  at  5962. 
 28  Notice,  11  FCC  Rcd  at  5962-  63. 


 5 


 B.  Discussion 
 1.  Offers  services  in  the  franchise  area 
 7.  To  satisfy  the  new  test  for  effective  competition,  a  cable  operator  must  show  that  a  LEC  or 
 LEC-  affiliated  MVPD  or  an  MVPD  using  the  facilities  of  a  LEC  or  its  affiliate  24  "offers"  comparable  video 
 programming  services  in  the  franchise  area  of  an  unaffiliated  cable  operator.  The  Conference  Report  provided 
 that,  "[  f]  or  purposes  of  Section  623(  l)(  1)(  D)  of  the  Communications  Act,  `offer'  has  the  same  meaning  given 
 that  term  in  the  Commission's  rules  as  in  effect  on  the  date  of  enactment  of  [the  1996  Act]."  25  According  to 
 Section  76.905(  e)  of  the  Commission's  rules  in  effect  when  the  1996  Act  was  enacted: 


 Service  of  a  multichannel  video  programming  distributor  will  be  deemed 
 offered: 
 (1)  When  the  multichannel  video  programming  distributor  is 
 physically  able  to  deliver  service  to  potential  subscribers,  with  the  addition 
 of  no  or  only  minimal  additional  investment  by  the  distributor,  in  order  for 
 an  individual  subscriber  to  receive  service;  and 
 (2)  When  no  regulatory,  technical  or  other  impediments  to 
 households  taking  service  exist,  and  potential  subscribers  in  the  franchise 
 area  are  reasonably  aware  that  they  may  purchase  the  services  of  the 
 multichannel  video  programming  distributor.  26 


 We  adopted  this  definition  of  offer  in  the  Interim  Order.  27  We  further  provided  that,  in  the  interim,  a  cable 
 operator  attempting  to  prove  effective  competition  will  have  to  show  that  the  competitor  is  physically  able  to 
 offer  service  to  subscribers  "in  the  franchise  area."  Where  the  competitor's  service  area  does  not  follow  the 
 borders  of  the  local  cable  franchise  area,  we  directed  the  operator  to  provide  information  about  the  extent  of 
 the  overlap  between  its  franchise  area  and  the  actual  or  planned  service  area  of  the  competitor.  We  sought 
 comment  on  whether  we  should  follow  these  standards  for  purposes  of  the  permanent  rule.  28  We  also  sought 
 comment  about  how  widely  available  a  LEC's  service  should  be  in  the  franchise  area  to  constitute  effective 
 competition  and  whether  we  should  consider  potential  as  well  as  actual  pass  rates  in  making  the  determination. 


 8.  Commenters  have  divergent  views  about  the  extent  to  which  a  competing  video  programming 
 service  must  be  offered  in  the  franchise  area  to  satisfy  the  LEC  test.  Some  commenters,  primarily  cable 
 interests,  argue  from  the  "plain  language"  of  the  LEC  test  that  the  test  is  met  when  service  is  available  to  as 
5
 Federal  Communications  Commission  FCC  99-  57 
 29  Fleischman  and  Walsh  ("  Fleischman")  Comments  at  9;  Cablevision  Systems  Corporation  ("  Cablevision") 
 Comments  at  9;  Cox  Communications,  Inc.  ("  Cox")  Comments  at  8-  9;  see  Comcast  Cable  Communications,  Inc. 
 ("  Comcast")  Comments  at  4  (statute  places  no  minimum  penetration  or  pass  rate;  SMATV  competition  is  sufficient); 
 Commonwealth  of  Massachusetts  Cable  Television  Commission  ("  Massachusetts  Cable  Commission")  Comments  at 
 3  (subscriber  interest  generated  by  LEC  service  even  on  a  limited  basis  may  threaten  operator's  market  share  and 
 restrain  cable  rates). 


 30  New  York  City  Department  of  Information  Technology  and  Telecommunications  ("  New  York  City")  Comments 
 at  6-  7;  New  Jersey  Division  of  the  Ratepayer  Advocate  ("  New  Jersey  Ratepayer  Advocate")  at  6. 


 31  OpTel,  Inc.  ("  OpTel")  Comments  at  3;  New  York  City  Comments  at  8;  New  Jersey  Ratepayer  Advocate  at  4;  City 
 of  Indianapolis  ("  Indianapolis")  Comments  at  2;  City  and  County  of  Denver  ("  Denver")  Comments  at  4. 


 32  Massachusetts  Cable  Commission  at  4  (while  not  advocating  standards,  if  Commission  adopts  any  standards,  it 
 should  consider  the  potential  pass  rate).  See  New  York  City  Comments  at  8  (commenting  that  a  cable  operator's 
 response  to  a  LEC  competitor  may  depend  upon  potential  as  well  as  actual  competition  and  advocating,  therefore,  that 
 the  LEC  competitor  meet  the  50%  offering  test  but  not  meet  any  penetration  standards);  see  also  OpTel  Comments 
 at  3  (Commission  should  use  a  relative  measure  of  service  availability  and  subscriber  access,  such  as  service  to  at  least 
 15%  of  households  served  by  incumbent  cable  operator). 


 33  Tele-  Communications,  Inc.  ("  TCI")  Comments  at  5. 


 34  New  Jersey  Ratepayer  Advocate  Comments  at  5. 
 35  New  Jersey  State  Board  of  Public  Utilities  ("  New  Jersey  Board")  Comments  at  3-  5. 


 6 


 few  as  two  potential  subscribers.  29  Others  argue  that  consumers  must  have  realistic  or  competitive  choices 
 before  effective  competition  can  be  found.  30  To  assure  this  choice,  some  advocate  setting  a  threshold  for 
 effective  competition  on  the  basis  of  the  percent  of  households  in  the  franchise  area  to  which  the  LEC  can  offer 
 service  or  the  percent  of  households  in  the  franchise  area  subscribing  to  the  LEC  service,  much  like  the 
 thresholds  in  the  competing  provider  test.  31  No  commenters  other  than  those  referencing  the  competing  provider 
 test  offer  insight  into  determining  the  level  of  LEC  competition  that  would  be  sufficient  to  restrain  cable  rates, 
 although  the  Massachusetts  Cable  Commission  opines  that  the  LEC's  potential  pass  rate  could  be  an  important 
 consideration.  32  TCI  argues  that  the  1996  Cable  Act  does  not  require  consideration  of  whether  the  level  of 
 competition  is  sufficient  to  restrain  rates.  33 


 9.  We  reject  the  argument  advocated  by  cable  interests  that  any  service  offering  in  the  franchise 
 area,  no  matter  how  minimal,  should  be  sufficient  for  a  finding  of  effective  competition.  As  the  New  Jersey 
 Ratepayer  Advocate  points  out,  so  lenient  a  test  "could  have  the  unfortunate  result  of  allowing  a  dominant  cable 
 company  to  raise  rates,  unabated  by  regulation  or  genuine  competition,  whenever  a  LEC  delivers  video  signals 
 to  just  one  home  in  the  franchise  area."  34  The  New  Jersey  State  Board  of  Public  Utilities  adds  that  deregulation 
 of  a  cable  operator's  rates  in  an  entire  franchise  area  because  of  competition  in  a  small  portion  of  the  franchise 
 area  "can  lead  to  absurd  results."  35  For  example,  a  LEC's  service  area  could  encompass  one  franchise  area  but 
 overlap  only  a  small  corner  of  an  adjoining  franchise  area  where  no  subscribers  are  served  by  the  incumbent 
 operator,  or  a  cable  operator's  rates  could  be  prematurely  deregulated  in  a  franchise  area,  allowing  it  to 
 subsidize  subscribers  where  it  faces  competition  by  charging  higher  rates  to  subscribers  in  the  rest  of  the 
 franchise  area.  The  City  and  County  of  Denver  point  out  that,  "taken  to  its  extreme,  .  .  .  effective  competition 
 could  be  claimed  in  a  franchise  area  served  by  a  LEC-  based  MVPD  that  actually  represented  no  competition 
6
 Federal  Communications  Commission  FCC  99-  57 
 36  City  and  County  of  Denver  Comments  at  5. 
 37  Cablevision  Comments  at  9. 
 38  See  141  Cong.  Rec.  S8243  (daily  ed.  June  13,  1995)  (statement  of  Sen.  Pressler:  "Looming  large  on  the  fringes 
 of  the  [video  programming  services]  market  are  the  telephone  companies.  The  telephone  companies  pose  a  very  highly 
 credible  competitive  threat  because  of  their  specific  identities,  the  technology  they  are  capable  of  deploying,  the 
 technological  evolution  their  networks  are  undergoing  for  reasons  apart  from  video  distribution,  and,  last  but  by  no 
 means  least,  their  financial  strength  and  staying  power.")  But  see  New  York  City  Reply  Comments  at  7:  "Great 
 financial  resources  and  marketing  experience  will  not  create  effective  competition  if  the  LEC  does  not  intend  to  service 
 a  substantial  portion  of  the  cable  franchise  area." 


 39  142  Cong.  Rec.  S688  (daily  ed.  Feb.  1,  1996)  (statement  of  Sen.  Hollings  explaining  the  thrust  of  the  1996  Act). 


 40  Once  Congress  amended  the  Communications  Act  to  allow  LECs  to  provide  cable  service  in  their  local  exchange 
 areas,  effective  competition  from  a  LEC  could  be  evaluated  under  the  competitive  provider  test.  The  LEC  test  provides 
 an  alternative  way  to  evaluate  competition  from  a  LEC. 


 41  142  Cong.  Rec.  S699  (daily  ed.  Feb.  1,  1996)  (statement  of  Sen.  Lott).  See,  e.  g.,  142  Cong.  Rec.  H1149  (daily 
 ed.  Feb.  1,  1996)  (statement  of  Cong.  Fields)  (looking  for  head-  to-  head  competition  from  cable  and  telephone 
 competitors);  142  Cong.  Rec.  H1156  (daily  ed.  Feb.  1,  1996)  (statement  of  Cong.  Dingell:  "No  longer  will  consumers 
 have  just  one  company  to  choose  from  for  the  provision  of  local  telephone  or  cable  television  service."). 


 42  See  FCC  Local  State  Government  Advisory  Committee:  Advisory  Committee  Recommendation  Number  13 
 ("  LSGAC  Recommendation  13"),  Recommendation  13(  C),  Resolution  on  Effective  Competition,  filed  in  CS  Docket 
 No.  96-  85  (Nov.  20,  1998),  recommending  that  the  Commission  "[  d]  efine  the  term  'offer'  in  a  manner  that 
 acknowledges  that  the  geographic  area  in  which  services  are  actually  available  is  critical  to  whether  effective 
 competition  actually  exists." 


 7 


 at  all."  36  This  is  not  what  we  believe  Congress  intended.  The  thrust  of  the  1996  Act  is  Congress'  expectation 
 that  LECs  will  be  robust  competitors  of  cable  operators  because  of  their  financial  and  technical  ability  and, 
 as  Cablevision  points  out,  37  their  ubiquitous  presence  in  the  market.  38  "[  C]  ompetition  is  the  best  regulator  of 
 the  marketplace.  Until  that  competition  exists,  monopoly  providers  of  services  must  not  be  able  to  exploit  their 
 monopoly  power  to  the  consumer's  disadvantage.  Timing  is  everything.  Telecommunications  services  should 
 be  deregulated  after,  not  before,  markets  become  competitive."  39 


 10.  When  written,  the  definition  of  "offer"  presumed  the  widespread  availability  of  competing 
 service.  Under  the  competitive  provider  test,  at  least  50%  of  the  households  in  the  franchise  area  must  have 
 access  to  competing  service.  Although  we  agree  with  commenters  who  argue  that  the  LEC  test  is  different  from 
 the  competitive  provider  test,  40  nothing  in  the  statute  or  legislative  history  suggests  that,  when  incorporating 
 the  word  "offer"  into  the  LEC  test,  Congress  intended  that  "offer"  should  lose  its  context  of  the  widespread 
 availability  of  the  competing  service.  To  the  contrary,  the  expectation  was  that  the  LEC  presence  would  be 
 ubiquitous,  and  the  intent  repeatedly  expressed  in  the  floor  debates  was  that  "the  people  will  get  a  choice  in  how 
 they  get  their  services."  41  There  is  no  choice  where  there  is  no  service.  We  conclude,  therefore,  that  to  support 
 a  finding  of  effective  competition  under  the  LEC  test,  the  LEC's  service  must  substantially  overlap  the 
 incumbent  cable  operator's  service  in  the  franchise  area.  42  Because  the  definition  of  "offer"  does  not  include 
 any  requirement  that  consumers  actually  purchase  the  service,  only  that  the  service  be  available,  we  reject 
 arguments  that  we  should  adopt  penetration  standards. 
7
 Federal  Communications  Commission  FCC  99-  57 
 43  Notice,  11  FCC  Rcd  at  5962-  63. 
 44  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992:  Rate 
 Regulation,  8  FCC  Rcd  5631,  5656  (1993)  ("  Rate  Order"). 


 45  See  Time  Warner  Entertainment-  Advance/  Newhouse  Partnership  and  Paragon  Communications  (North  and  South 
 Pinellas  Counties,  FL),  12  FCC  Rcd  3143  (Cab.  Serv.  Bur.  1997)  (effective  competition  found  where  LEC  competitor 
 completed  15%  of  service  area  and  its  franchise  required  completion  throughout  franchise  area  within  three  years; 
 incumbent  cable  operator  had  lost  subscribers  and  planned  programming  upgrades);  see  also  Comcast  Cablevision  of 
 the  South,  13  FCC  Rcd  1676  (Cab.  Serv.  Bur.  1997)  (effective  competition  found  where  franchises  authorize  LEC 
 service  throughout  franchise  areas,  LEC  competitors  began  by  using  facilities  constructed  for  video  dialtone  service 
 through  parts  of  the  franchise  areas,  and  incumbent  cable  operator  had  responded  competitively  in  anticipation  of  the 
 LEC  competition.) 


 46  See  Massachusetts  Cable  Commission  Comments  at  4  ("[  A]  LEC's  potential  pass  rate  may  ultimately  turn  out  to 
 be  a  more  meaningful  measure  of  a  LEC's  competitive  impact  on  a  cable  franchise  than  its  actual  pass  rate  at  any  given 
 point  in  time.  Such  a  standard  would  allow  a  [cable]  operator  the  flexibility  of  'looking  ahead'  to  adjust  its  marketing, 
 programming  and  rating  strategies  in  advance  of  competition  of  a  more  substantive  nature.");  accord,  New  York  City 
 Department  of  Information  Technology  and  Telecommunications  Comments  at  8;  OpTel  Comments  at  3. 


 47  S.  Rep.  No.  23,  104th  Cong.,  1st  Sess.  152  1995  (additional  Views  of  Sen.  Hollings  at  152)  (emphasis  added). 
 Sen.  Hollings'  statement  was  repeated  in  the  debate  on  S.  652,  141  Cong.  Rec.  S7896  (daily  ed.  June  7,  1995) 
 (statement  of  Sen.  Hollings). 


 8 


 11.  In  the  Notice  we  sought  comment  on  whether  a  LEC's  potential  service  area  as  well  as  the  area 
 where  it  actually  offers  service  should  be  considered  in  determining  effective  competition  under  the  LEC  test.  43 
 The  definition  of  "offer"  incorporated  into  the  LEC  test  requires  that  LEC  service  be  both  technically  and 
 actually  available  to  households,  44  and  does  not  provide  for  consideration  of  service  planned  for  the  future. 
 However,  in  resolving  individual  cases  under  the  LEC  test  in  the  interim,  the  Cable  Services  Bureau  has  found 
 that  a  LEC's  presence  can  have  a  competitive  impact  on  a  cable  operator  before  the  LEC  finishes  installing  its 
 plant  or  rolling  out  its  service.  45  We  see  no  reason  from  the  record  before  us  not  to  continue  applying  the  LEC 
 test  in  this  way  when  the  likelihood  of  impending  competition  throughout  a  substantial  part  of  the  incumbent 
 cable  operator's  service  area  is  established,  the  competitive  service  is  commercially  available,  and  potential 
 subscribers  in  the  franchise  area  served  by  the  incumbent  are  reasonably  aware  that  the  service  is  either 
 actually  available  to  them  or  will  be  available  within  a  reasonable  time.  46  Views  such  as  those  expressed  by 
 Senator  Hollings  support  this  position.  In  his  Additional  Views  appended  to  S.  Rep.  No.  23,  Senator  Hollings 
 explained  that  "the  bill  changes  the  definition  of  'effective  competition'  in  the  1992  Act  to  allow  cable  rates  to 
 be  deregulated  as  soon  as  a  telephone  company  begins  to  offer  competing  cable  service  in  a  franchise  area. 
 Once  consumers  have  a  choice  among  cable  offerors,  the  need  for  regulation  diminishes."  47  While  we  disagree 
 with  commenters  who  argue  that  this  and  similar  statements  require  cable  rate  deregulation  on  the  basis  of  a 
8
 Federal  Communications  Commission  FCC  99-  57 
 48  Commenters  relied  heavily  on  statements  made  during  the  debate  on  the  1995  version  of  the  Senate  bill.  During 
 the  floor  debate  on  the  Conference  Report  on  the  1996  Act,  Senator  Kerry  stated  his  view  that  the  Conference  Report 
 is  substantially  better  than  the  bill  considered  by  the  Senate  the  previous  summer  because  the  Senate  bill,  like  the  House 
 bill,  "deregulated  cable  monopolies  before  there  was  effective  competition."  142  Cong.  Rec.  S699-  70  (daily  ed.  Feb. 
 1,  1996)  (statement  of  Sen.  Kerry). 


 49  For  example,  Senator  Hollings  prefaced  his  additional  views  with  the  explanation  that,  "The  basic  thrust  of  the 
 bill  is  clear:  competition  is  the  best  regulator  of  the  marketplace,  but  until  that  competition  exists,  monopoly  providers 
 of  services  must  not  be  able  to  exploit  their  monopoly  power  to  the  consumer's  disadvantage."  S.  Rep.  No.  23,  104th 
 Cong.,  1st  Sess.  149  (additional  views  of  Sen.  Hollings). 


 50  In  Reply  Comments  at  4,  New  York  City  expressed  concern  about  a  LEC  proposal  to  offer  a  programming  package 
 tailored  to  the  needs  of  the  City's  financial  community.  The  service,  including  more  than  12  channels  of  both  broadcast 
 and  nonbroadcast  services,  will  be  transmitted  to  desktop  personal  computers,  but  only  within  the  city's  financial 
 district.  "[  O]  nly  an  extremely  small  group  would  have  any  use  for  the  service.  While  the  programming  will  be 
 invaluable  to  stock  market  analysts,  it  will  not  be  made  available  to  the  overwhelming  majority  of  residential 
 subscribers  in  the  franchise  area." 


 51  S.  Rep.  No.  92,  102d  Cong.,  1st  Sess.  76  (1992). 


 52  When  Congress  clarified  that  the  uniform  rate  requirement  does  not  apply  in  competitive  markets,  it  did  not 
 eliminate  the  requirement  in  markets  not  facing  effective  competition.  It  allowed  operators  to  respond  competitively 
 to  competition  in  MDUs,  but  it  did  not  otherwise  exempt  operators  from  the  uniform  rate  requirement  when 
 competition  was  present  only  in  MDUs.  We  see  no  reason  why  limited  LEC  service  should  have  a  different  impact 
 on  cable  rate  regulation  than  other  competitive  services  that  are  limited  to  MDUs. 


 9 


 mere  de  minimis  LEC  presence  in  the  franchise  area,  48  we  find  in  such  statements  and  their  broader  context  49 
 a  reflection  of  Congress'  intent  that  the  Commission  have  the  discretion  to  consider  the  likelihood  and  extent 
 of  impending  competition  when  considering  whether  effective  competition  exists  under  the  LEC  test.  Congress 
 sought  to  restrain  cable  rates  and  stimulate  quality  cable  services.  Once  the  LEC's  competitive  presence  is 
 sufficient  to  achieve  these  goals,  even  if  the  LEC's  buildout  or  roll  out  is  not  complete,  the  intent  of  the  effective 
 competition  test  has  been  met. 


 12.  On  the  other  hand,  service  offered  only  on  a  test  basis,  MMDS  coverage  limited  by  signal 
 strength  or  terrain  factors,  or  service  only  to  a  specialized  or  niche  market  or  to  a  geographically  limited  market 
 within  the  franchise  area  does  not  satisfy  the  test.  50  Nor  is  the  test  satisfied  if  the  LEC  does  not  have  firm  plans 
 to  build  or  market  so  as  to  offer  service  that  substantially  overlaps  the  incumbent  cable  operator's  service  in 
 the  franchise  area,  or  the  public  is  not  reasonably  aware  of  any  such  plans.  To  find  effective  competition  when 
 the  LEC  does  not  intend  widespread  service  invites  the  problem  that  concerned  Congress  when  it  adopted  the 
 uniform  rate  requirement  as  part  of  the  1992  Cable  Act;  namely,  a  cable  operator's  ability  to  charge  low  rates 
 in  parts  of  the  franchise  area  where  it  faces  competition  and  charge  higher  unregulated  rates  in  those  parts  of 
 the  franchise  area  where  it  does  not  face  competition  and  has  no  reason  to  expect  competitive  repercussions 
 from  such  pricing  behavior.  51  We  do  not  believe  that  Congress  intended  for  us  to  apply  the  LEC  test  so  broadly 
 that  the  protections  Congress  intended  through  the  rate  regulation  system  are  lost  to  consumers  without  the 
 prospect  of  competition.  52 
9
 Federal  Communications  Commission  FCC  99-  57 
 53  47  C.  F.  R.    76.906. 
 54  Isolated,  limited  pockets  of  poor  reception  will  not  defeat  a  showing  of  effective  competition. 
 55  The  City  of  Los  Angeles,  National  League  of  Cities,  and  National  Association  of  Telecommunications  Officers 
 and  Advisors  ("  Los  Angeles,  League  of  Cities,  and  NATOA")  reports,  for  example,  that  a  LEC  affiliate  there  "offers 
 MMDS  in  a  limited  area,  but  for  the  vast  majority  of  Los  Angeles  cable  subscribers,  cable  remains  the  only  source  of 
 multichannel  video  programming."  Los  Angeles,  League  of  Cities,  and  NATOA  Reply  Comments  at  3. 


 10 


 13.  A  cable  operator  seeking  to  show  effective  competition  from  a  LEC  bears  the  burden  of 
 rebutting  the  presumption  to  the  contrary  that  Congress  left  intact.  53  Because  competitive  service  can  be 
 provided  "by  any  means  (other  than  direct-  to-  home  satellite  services),"  the  showing  will  necessarily  vary 
 somewhat,  depending  on  the  means  employed.  Basically,  however,  the  incumbent  cable  operator  must  show 
 that  the  LEC  is  technically  and  actually  able  to  provide  service  that  substantially  overlaps  the  incumbent  cable 
 operator's  service  in  the  franchise  area.  If  the  LEC  has  not  completed  its  buildout  or  roll  out,  the  incumbent 
 cable  operator  must  establish  that  the  LEC  intends  to  do  so  within  a  reasonable  period  of  time,  that  the  LEC 
 does  not  face  regulatory,  technical  or  other  impediments  to  households  taking  service,  that  the  LEC  is 
 marketing  its  service  so  that  potential  customers  are  reasonably  aware  that  they  will  be  able  to  purchase  the 
 service,  that  the  LEC  has  begun  actual  commercial  service,  the  extent  of  that  service,  the  ease  with  which 
 service  can  be  expanded,  and  the  estimated  date  for  completion  of  the  construction  or  rollout  in  the  franchise 
 area.  If  the  LEC  has  not  shown  its  intention  to  offer  service  that  substantially  overlaps  the  incumbent  cable 
 operator's  service  in  the  franchise  area,  we  will  entertain  petitions  for  waiver  showing  that  the  extent  of  the 
 LEC's  presence  is  sufficient  to  have  a  direct  impact  on  the  cable  operator's  services  throughout  its  service  area, 
 and  particularly  on  the  price.  The  presence  of  other  competing  MVPDs  in  the  franchise  area  may  be  relevant 
 in  this  regard. 


 14.  Where  the  competition  is  from  a  wire  or  cable  distribution  system,  the  incumbent  cable 
 operator  must  show  what  commitments  the  LEC  has  made  to  serve  that  area,  including  the  status  of 
 construction  and  the  estimated  completion  date.  If  the  LEC  is  franchised,  a  showing  of  the  coverage  and 
 construction  obligations  in  the  franchise  should  be  sufficient.  If  the  LEC  plans  an  open  video  system,  the 
 showing  must  establish  the  LEC's  intent  regarding  the  proposed  area.  Any  contractual  commitments  for 
 construction  or  service  would  be  relevant  as  would  any  public  representations  the  LEC  has  made  to  local 
 officials  and  consumers;  for  example,  through  marketing  and  publicity  regarding  its  plans.  Documentation  of 
 actual  commercial  service  must  also  be  provided. 


 15.  Where  the  competition  is  from  an  MMDS  or  wireless  cable  system,  the  incumbent  cable 
 operator  must  establish  that  a  viewable  signal  can  be  received  in  an  area  that  substantially  overlaps  the 
 incumbent's  service  area  by  showing:  (a)  the  franchise  area  lies  within  the  MMDS  interference-  free  contour; 
 (b)  the  signal  strength  is  adequate  throughout  the  area;  and  (c)  there  are  no  terrain  or  other  obstacles  to  line  of 
 sight  service.  54  Because  an  MMDS  operator  is  under  no  obligation  to  market  its  service  throughout  its  service 
 area  and  may  target  service  to  specific  areas,  the  incumbent  cable  operator  must  show  that  the  MMDS  or 
 wireless  cable  operator  can  and  will  provide  service  to  an  area  that  substantially  overlaps  the  area  served  by 
 the  incumbent  within  the  franchise  area.  55  This  showing  can  be  satisfied  by  showing  that  the  MMDS  operator 
 has  customers  throughout  the  area  and  that  the  service  is  being  marketed  to  the  public  at  large.  If  service  is 
 being  implemented  on  a  rolling  basis  rather  than  offered  throughout  the  service  area,  the  incumbent  cable 
 operator  should  show  that  consumers  in  an  area  that  substantially  overlaps  the  incumbent's  service  area  are 
10
 Federal  Communications  Commission  FCC  99-  57 
 56  The  Cable  Services  Bureau  has  denied  petitions  seeking  a  determination  of  effective  competition  where  the  LEC's 
 intentions  to  offer  service  throughout  the  area  were  not  clear  and  consumers  in  the  area  were  not  shown  to  be 
 reasonably  aware  of  the  availability  of  the  wireless  service.  Service  was  being  rolled  out  on  a  low  key,  controlled  basis 
 and  marketing  was  limited  to  very  specific  demographics.  See,  e.  g.,  Paragon  Communications  d/  b/  a  Time  Warner 
 Communications  and  KBL  Cable  Systems  of  the  Southwest  (Gardena,  CA,  et  al.),  13  FCC  Rcd  8675  (Cab.  Serv.  Bur. 
 1998),  petition  for  reconsideration  pending;  Charter  Communications  Entertainment  II,  L.  P.  and  Long  Beach 
 Acquisition  Corp.  (La  Canada,  CA,  et  al.),  13  FCC  Rcd  8506  (Cab.  Serv.  Bur.  1998),  application  for  review  pending. 


 57  Rate  Order,  8  FCC  Rcd  at  5666-  67.  In  order  to  offer  comparable  programming  within  the  meaning  of  this 
 provision,  a  competing  multichannel  video  programming  distributor  must  offer  at  least  12  channels  of  video 
 programming,  including  at  least  one  channel  of  nonbroadcast  service  programming.  In  passing  the  1992  Cable  Act, 
 Congress  explicitly  rejected  the  standard  previously  used  by  the  Commission  when  it  redefined  effective  competition 
 to  cable  systems  in  terms  of  over-  the-  air  broadcast  signal  competition.  The  Commission  had  required  that  a  competitor 
 provide  at  least  six  broadcast  signals  in  order  to  be  considered  comparable.  Id.  at  5667  n.  128.  In  the  Rate  Order,  the 
 Commission  concluded  that  a  competitor  carrying  only  broadcast  signals  should  not  be  deemed  to  be  offering 
 programming  comparable  to  that  of  an  incumbent  cable  operator. 


 58  Interim  Order,  11  FCC  Rcd  at  5942;  see  Conference  Report  at  170.  Confusion  was  introduced  because  the 
 Conference  Report  language  differs  from  Section  76.905(  g),  but  the  language  was  followed  by  a  citation  to  Section 
 76.905(  g)  that  was  introduced  by  the  signal  "See,"  a  signal  generally  understood  to  mean  support  for  a  point  rather  than 
 a  distinction. 


 59  See  Cable  Telecommunications  Association  ("  CATA")  Comments  at  2;  Independent  Cable  and 
 Telecommunications  Association  ("  ICTA")  Comments  at  2;  New  York  City  Comments  at  12-  13;  State  of  New  York 


 11 


 reasonably  aware  the  proposed  service  will  be  available  to  them.  56  Any  public  representations  the  LEC  has 
 made,  for  example  through  any  marketing  and  publicity  alerting  consumers  to  the  LEC's  plans  for  the 
 competitive  service,  would  be  relevant.  Documentation  of  actual  commercial  service  must  also  be  provided. 


 2.  "Comparable"  Video  Programming 
 16.  Section  623(  l)  provides  that  the  competitor  must  offer  "comparable"  programming  services 
 before  effective  competition  can  be  found  to  exist  in  the  franchise  area  under  either  the  LEC  or  the  competing 
 provider  test.  In  the  process  of  implementing  provisions  of  the  1992  Cable  Act,  including  the  competing 
 provider  test,  the  Commission  adopted  a  definition  of  comparable  programming.  That  definition  involves  the 
 offering  of  at  least  twelve  channels  of  programming,  including  at  least  one  channel  of  nonbroadcast 
 programming  service.  57  In  the  present  proceeding,  the  Commission  proposed  and  adopted  on  an  interim  basis 
 a  different  definition  for  purposes  of  the  LEC  effective  competition  test,  which  required  that  the  competing 
 provider's  service  consist  at  least  in  part  in  the  distribution  of  broadcast  station  signals.  This  proposal  was 
 based  on  language  in  the  legislative  history  of  the  1996  Telecommunications  Act  purporting  to  follow  the 
 Commission's  definition  but  referring  to  the  competitor's  service  as  comparable  if  it  "includes  access  to  at  least 
 12  channels  of  programming,  at  least  some  of  which  are  television  broadcasting  signals."  58  The  Commission 
 also  proposed  that  a  single  definition  be  used  for  comparable  programming  as  that  term  is  used  in  various  of 
 the  effective  competition  tests  and  sought  comment  as  to  whether  the  definition  should  be  the  interim  one 
 adopted  for  the  LEC  test. 


 17.  Some  parties  responding  to  the  request  for  comment  on  this  issue  support  a  definition  requiring 
 the  inclusion  of  some  broadcast  signals.  59  Some,  however,  also  argue  that  satellite  delivered  superstations 
11
 Federal  Communications  Commission  FCC  99-  57 
 Department  of  Public  Service  ("  State  of  New  York")  Comments  at  5-  6;  US  WEST,  Inc.  ("  US  WEST")  Comments  at 
 5-  6;  BellSouth  Corporation  ("  BellSouth")  Comments  at  2. 


 60  See  National  Cable  Television  Association  ("  NCTA")  Comments  at  3;  Fleischman  Comments  at  5;  CATA 
 Comments  at  2;  Comcast  Comments  at  10. 


 61  Cole,  Raywid  &  Braverman  ("  Cole  Raywid")  Comments  at  5;  Comcast  Comments  at  1-  2;  Cox  Comments  at  4. 


 62  47  C.  F.  R.    76.905(  g). 
 63  Comcast  Comments  at  9  &  n.  25. 
 64  Massachusetts  Cable  Commission  Comments  at  5. 
 65  Denver  Comments  at  3;  Small  Cable  Business  Association  ("  SCBA")  Comments  at  32-  33;  NCTA  Reply 
 Comments  at  8-  9. 


 66  See  Indianapolis  Comments  at  1;  Los  Angeles  Reply  Comments  at  7;  LSGAC  Recommendation  13(  C). 


 67  See  Karl  N.  Llewellyn,  Remarks  on  the  Theory  of  Appellate  Decision  and  Rules  or  Canons  about  How  Statutes 
 are  to  be  Construed,  reprinted  in  2A  Norman  J.  Singer,  Statutes  and  Statutory  Construction  539,  544  (5th  Ed.  1992). 


 12 


 should  be  treated  as  television  broadcast  signals  if  the  interim  definition  is  adopted.  60  Others  point  to  ambiguity 
 in  the  Conference  Report  as  to  what  Congress  intended  and  advocate  applying  the  existing  definition  in  Section 
 76.905(  g),  61  which  requires  the  inclusion  of  at  least  one  channel  of  nonbroadcast  service  programming.  62 
 Comcast  is  concerned  that  adopting  the  interim  definition  as  a  single  definition  would  preclude  consideration 
 of  DBS  as  a  source  of  effective  competition  to  cable  systems  under  the  competitive  provider  test,  in  spite  of 
 Commission  findings  to  the  contrary.  63  The  Massachusetts  Cable  Commission  suggests  that  comparable 
 programming  services  should  be  defined  as  12  channels  of  programming,  without  regard  to  the  breakdown 
 between  broadcast  and  nonbroadcast  channels,  contending  that  the  Commission  cannot  at  this  time  determine 
 what  specific  channel  lineups  LEC  affiliated  entities  will  use  to  compete  with  cable.  64  Other  commenters 
 suggest  that  programming  should  not  be  deemed  comparable  unless  it  includes  both  broadcast  and  non-broadcast 
 programming,  65  while  still  others  argue  that  comparable  video  programming  services  must  include 
 some  PEG  channels.  66 


 18.  Having  considered  all  of  the  comments  and  the  complexities  of  adopting  alternative  definitions 
 of  "comparable"  for  separate  portions  of  the  effective  competition  test,  we  now  believe  that  the  existing 
 definition  adopted  in  implementing  the  1992  Cable  Act  should  be  used  for  both  competing  provider  and  LEC 
 effective  competition  determinations.  As  a  general  matter  of  statutory  interpretation,  a  term  used  repeatedly 
 in  the  same  connection  should  be  given  the  same  meaning  unless  different  meanings  are  required  to  make  the 
 statute  consistent.  67  Nothing  in  the  statute  requires  a  change  in  our  definition.  Although  the  Conference  Report 
 includes  different  language,  it  cites  to  our  rule  as  support.  We  see  no  basis  here  for  having  inconsistent 
 definitions. 


 19.  We  also  note  that  the  selection  of  which  definition  to  use  does  not  appear  likely  to  have 
 practical  consequences  in  applying  the  LEC  test  in  most  instances.  Under  the  Interim  Order,  MMDS  service 
 could  meet  the  comparable  programming  requirement  if  the  MMDS  operator  offered  access  to  local  broadcast 
12
 Federal  Communications  Commission  FCC  99-  57 
 68  Interim  Order,  11  FCC  Rcd  at  5943.  The  Interim  Order  concluded  that  a  LEC  MMDS  operator  not  delivering 
 broadcast  stations  by  microwave  would  be  deemed  to  offer  broadcast  stations  if  the  subscriber  could  receive  the  stations 
 without  an  A/  B  switch  or  similar  device  for  switching  between  an  off-  the-  air  antenna  and  the  microwave  antenna.  The 
 Interim  Order  further  provided  that,  if  an  A/  B  switch  were  required,  the  MMDS  operator  would  be  deemed  to  offer 
 broadcast  stations  if  it  were  responsible  for  installing  the  A/  B  switch. 


 69  See  e.  g.  ___  Congressional  Record  S14253  (daily  ed.  Sept.  21,  1992)  (discussion  between  Sen.  Lieberman  and 
 Sen.  Inouye  of  effective  competition  test,  using  DBS  as  a  specific  example  of  how  provision  was  intended  to  function.) 


 70  Time  Warner  Entertainment  Co.,  L.  P.  v.  FCC,  56  F.  3d  151  (D.  C.  Cir.  1995)  ("  Time  Warner"). 


 71  See  Notice,  11  FCC  Rcd  at  5962. 
 72  Id. 
 73  Interim  Order,  11  FCC  Rcd  at  5942-  43. 


 13 


 stations  by  direct  microwave  delivery  or  through  a  separate  antenna.  68  In  effective  competition  petitions  filed 
 with  the  Commission  to  date,  LEC  MMDS  operators  cited  as  providing  effective  competition  to  cable  have  all 
 delivered  some  television  broadcast  stations  by  microwave,  and  cable  operators  have  not  relied  on  integration 
 of  off-  the-  air  delivery  to  show  that  the  comparable  programming  requirement  is  met.  The  choice  of  definition 
 also  will  not  affect  consideration  of  DBS  under  the  LEC  effective  competition  test,  because  the  LEC  test 
 already  specifically  excludes  "direct-  to-  home  satellite  services"  as  types  of  competitors  that  can  be  considered. 


 20.  On  the  other  hand,  changing  the  definition  of  "comparable"  as  applied  to  the  competing 
 provider  test  could  alter  that  test  with  respect  to  the  treatment  of  DBS.  DBS  and  other  direct-  to-  home  satellite 
 services  were  specifically  referenced  as  potential  sources  of  effective  competition  in  the  legislative  history  of 
 the  1992  Cable  Act  69  and  there  is  no  indication  in  the  history  of  the  1996  Act  that  Congress  intended  to  alter 
 the  Commission's  determination  regarding  the  existing  definition,  which  had  been  litigated  and  judicially 
 affirmed  in  terms  of  the  comparability  test.  70  Rather,  the  LEC  test  was  added  to  create  an  additional 
 deregulatory  effective  competition  test,  not  to  alter  the  existing  test.  Application  of  the  interim  definition  to 
 the  competing  provider  test  would  require  that  we  decide  whether  a  DBS  operator's  offering  of  "superstations" 
 would  satisfy  the  requirement  that  a  competitor  offer  broadcast  stations,  or  whether  integration  of  satellite  and 
 off-  the-  air  broadcast  signals  at  the  receiving  location  would  be  considered  to  be  an  offering  of  broadcast  signals 
 for  the  purpose  of  determining  whether  a  DBS  operator  offers  comparable  programming. 


 21.  In  light  of  our  conclusion  above,  that  the  existing  definition  of  comparable  programming  be 
 applied  under  the  LEC  test  as  well  as  the  competing  provider  test,  we  do  not  need  to  decide  whether  satellite-delivered 
 superstations  should  be  counted  as  broadcast  stations  outside  their  local  service  areas.  71  We  also  do 
 not  need  to  address  the  questions  posed  in  the  Notice  about  whether  a  LEC  MMDS  operator  will  be  considered 
 to  be  offering  effective  competition  if  its  subscribers  receive  television  broadcast  signals  by  means  of  an  off-the- 
 air  antenna  rather  than  as  part  of  the  operator's  microwave  offering.  72  Our  interim  rules  governing  these 
 matters  73  will  cease  to  be  effective  on  the  effective  date  of  this  Report  and  Order. 


 22.  Some  commenters  suggest  that  the  video  programming  services  of  a  competing  provider  can 
 only  be  deemed  comparable  if  the  competitor  has  equal  access  to  programming  provided  by  the  incumbent  cable 
13
 Federal  Communications  Commission  FCC  99-  57 
 74  BellSouth  Comments  at  2-  3;  United  States  Telephone  Association  ("  USTA")  Comments  at  4  and  Reply  Comments 
 at  2-  4;  Ameritech  New  Media,  Inc.  ("  Ameritech")  Reply  Comments  at  3-  5;  Los  Angeles  Reply  Comments  at  9. 


 75  US  WEST  Reply  Comments  at  6-  7.  See  generally  Implementation  of  the  Cable  Television  Consumer  Protection 
 and  Competition  Act  of  1992:  Petition  for  Rulemaking  of  Ameritech  New  Media,  Inc.  Regarding  Development  of 
 Competition  and  Diversity  in  Video  Programming  Distribution  and  Carriage,  Report  and  Order,  13  FCC  Rcd  15822 
 (1998)  (amending  program  access  rules  to  expedite  the  resolution  of  disputes  and  allow  damages  on  a  case-  by-  case 
 basis). 


 76  Communications  Act    621(  a)(  4)(  B),  47  U.  S.  C.    541(  a)(  4)(  B),  gives  franchising  authorities  the  discretion  when 
 awarding  a  franchise  to  require  assurance  that  a  cable  operator  will  provide  adequate  PEG  access  channel  capacity, 
 facilities,  or  financial  support. 


 77  1996  Act    3(  a)    3(  a),  110  Stat.  58,  codified  at  47  U.  S.  C.    153(  1). 


 78  47  U.  S.  C.    153. 
 79  47  U.  S.  C.    522(  2):  "[  T]  he  term  'affiliate',  when  used  in  relation  to  any  person,  means  another  person  who  owns 
 or  controls,  is  owned  or  controlled  by,  or  is  under  common  ownership  or  control  with,  such  person".  This  definition 
 is  also  codified  at  47  C.  F.  R.    76.5(  z). 


 14 


 operator.  74  We  do  not  believe  such  a  requirement  is  warranted.  As  US  West  points  out,  the  Commission's 
 program  access  rules  provide  sufficient  protection  in  this  regard.  75  We  see  no  evidence  that  Congress  intended 
 for  us  to  impose  additional  program  access  requirements  in  this  context.  We  also  see  no  evidence  that  Congress 
 intended  to  impose  PEG  access  requirements  at  the  federal  level  by  incorporating  them  into  the  comparable 
 programming  requirement.  76 


 3.  "Affiliate" 
 23.  The  LEC  effective  competition  test  applies  when  comparable  programming  is  provided  by  a 
 LEC  or  its  affiliate.  The  1996  Act  amended  Title  I,  Section  3  of  the  Communications  Act  by  adding  a  definition 
 of  "affiliate":  77 


 The  Term  "affiliate"  means  a  person  that  (directly  or  indirectly)  owns  or 
 controls,  is  owned  or  controlled  by,  or  is  under  common  ownership  or  control 
 with  another  person.  For  purposes  of  this  paragraph,  the  term  "own"  means 
 to  own  an  equity  interest  (or  the  equivalent  thereof)  of  more  than  10  percent. 


 Although  this  definition  applies  "unless  the  context  otherwise  requires,"  78  the  definition  of  "affiliate"  in  Title 
 VI  of  the  Communications  Act  concerning  cable  television  was  unchanged.  79  Unlike  the  definition  in  Title  I, 
 the  Title  VI  definition  does  not  establish  a  threshold  for  determining  when  an  entity  is  owned  by  another  entity. 


 24.  Because  the  Title  VI  definition  does  not  specify  an  ownership  threshold,  the  Notice  requested 
 comment  as  to  how  "affiliate"  should  be  defined  for  the  purpose  of  the  LEC  test.  In  the  interim,  we  adopted 
 a  rule  that  incorporated  the  10%  ownership  threshold  from  Title  I.  We  also  stated  that  we  would  determine 
 "on  a  case-  by-  case  basis"  when  interests  other  than  traditional  equity  investments  constituted  "the  equivalent" 
14
 Federal  Communications  Commission  FCC  99-  57 
 80  Interim  Order,  11  FCC  Rcd  at  5944. 
 81  Id. 
 82  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992:  Review  of  the 
 Commission's  Cable  Attribution  Rules,  Notice  of  Proposed  Rulemaking,  13  FCC  Rcd  12990  (1998)  ("  Cable  Attribution 
 Notice"). 


 83  Id.  at  paras.  9,  15  &  n.  52. 


 84  47  C.  F.  R.    76.1401(  b). 
 85  Notice,  11  FCC  Rcd  at  5964. 
 86  NCTA  Comments  at  19;  Cox  Comments  at  16;  Time  Warner  Comments  at  10-  11. 
 87  Massachusetts  Cable  Commission  Comments  at  7. 
 88  SBC  Communications  Inc.  and  Southwestern  Bell  Video  Services,  Inc.  ("  SBC")  Comments  at  3. 
 89  State  of  New  York  Comments  at  9. 
 90  New  York  City  Comments  at  11-  12. 


 15 


 of  an  equity  interest.  80  We  established  that  affiliation  could  be  demonstrated  through  de  facto  control  regardless 
 of  the  actual  ownership  interest.  81 


 25.  The  Commission  recently  initiated  a  more  general  review  of  the  ownership  attribution  rules 
 in  CS  Docket  No.  98-  82.  82  There  the  Commission  noted  the  pendency  of  the  affiliate  issues  in  this  proceeding 
 and  solicited  comment  on  whether  and  how  changes  in  cable  attribution  rules  should  affect  the  various 
 definitions  of  "affiliate"  in  the  Commission's  rules  regarding  cable  television,  83  including  the  LEC  test  affiliation 
 rule  in  Section  76.1401(  b).  84  In  light  of  that  more  general  review  of  the  attribution/  affiliation  issue,  we  will 
 retain  the  interim  rule  in  renumbered  Section  76.1401(  a)  for  the  time  being  and  address  the  LEC  affiliate  issue 
 more  fully  in  CS  Docket  No.  98-  82.  Relevant  comments  submitted  in  this  proceeding  will  be  considered  in  CS 
 Docket  No.  98-  82. 


 26.  One  matter  can  be  resolved  in  this  proceeding,  however.  In  the  Notice,  we  solicited  comment 
 on  whether  we  should  aggregate  the  interests  of  various  LECs  when  calculating  ownership  under  the  affiliation 
 test.  85  Cable  operators  favor  aggregation,  arguing  that  the  failure  to  aggregate  could  mean  that  an  MVPD  is 
 majority  owned  by  several  LECs  but  deemed  unaffiliated  under  the  effective  competition  standard  because  no 
 single  LEC  owns  a  cognizable  equity  interest.  In  their  view,  this  would  constitute  an  "absurd"  result.  86  The 
 Massachusetts  Cable  Commission  favors  aggregation,  arguing  that  any  LEC  investment  is  motivated  by  a 
 desire  to  profit  from  video  service  delivery.  87  SBC  opposes  aggregation,  asserting  simply  that  the  ownership 
 standard  should  apply  to  single  LECs.  88  The  State  of  New  York  argues  that  aggregation  is  appropriate  because 
 the  statute  does  not  limit  the  affiliation  test  to  in-  region  LECs.  Thus,  it  advocates  that  all  LEC  involvements 
 should  be  counted  toward  the  ownership  threshold.  89  By  contrast,  New  York  City  opposes  aggregation, 
 contending  that  small  independent  interests  will  not  provide  adequate  incentives  for  investing  LECs  to  act  in 
 a  manner  that  restrains  cable  rates.  90 
15
 Federal  Communications  Commission  FCC  99-  57 
 91  See  infra  at  para.  70. 
 92  Interim  Order,  11  FCC  Rcd  at  5944. 
 93  Id. 
 94  Fleischman  Comments  at  3-  4;  NCTA  Comments  at  22. 
 95  Time  Warner  Cable  ("  Time  Warner")  Comments  at  24. 
 96  Los  Angeles,  League  of  Cities,  and  NATOA  Reply  Comments  at  5-  6. 
 97  47  C.  F.  R.    76.906. 


 16 


 27.  We  will  not  aggregate  the  investment  interests  of  LECs  in  a  single  MVPD  to  determine 
 affiliation.  Even  if  the  aggregated  investment  interests  of  multiple  LECs  in  a  single  MVPD  constitute  a 
 majority  ownership  of  the  MVPD,  it  cannot  be  concluded  from  that  fact  alone  that  any  one  of  the  LECs  would 
 have  the  power  or  incentive  to  control  the  MVPD.  Likewise,  a  single  LEC  could  not  be  assumed  to  be  able 
 to  control  the  actions  of  any  other  MVPD  affiliated  LEC(  s).  This  is  consistent  with  the  statutory  language 
 which  requires  us  to  find  that  the  MVPD  in  question  is  affiliated  with  a  LEC.  If  a  LEC's  relationship  with  the 
 MVPD,  by  itself,  does  not  rise  to  the  level  of  affiliation  as  defined  above,  that  lack  of  affiliation  is  not  affected 
 by  the  fact  that  one  or  more  other  LECs  also  have  invested  in  the  MVPD.  If  none  of  the  LECs  has  a  sufficient 
 interest  in  the  MVPD  to  constitute  affiliation,  then  the  MVPD  is  not  affiliated  with  a  LEC,  regardless  of  the 
 aggregated  interest  of  all  the  LECs.  Our  approach  here  is  also  consistent  with  our  approach  to  aggregation 
 in  other  contexts,  such  as  that  of  small  cable  operators.  91 


 4.  Procedures 
 28.  As  of  February  8,  1996,  the  date  on  which  the  1996  Act  was  enacted,  cable  systems  meeting 
 all  of  the  relevant  criteria  under  the  new  effective  competition  test  became  exempt  from  rate  regulation.  92  We 
 permitted  operators  seeking  a  determination  of  effective  competition  to  file  a  petition  with  the  Commission 
 demonstrating  the  presence  of  effective  competition  according  to  our  interim  rules.  93  We  believe  our  interim 
 procedures  should  be  incorporated  into  our  final  rules  as  discussed  below. 


 29.  Several  cable  commenters  suggest  that  the  Commission  adopt  rules  whereby  a  cable  operator 
 will  be  deregulated  upon  simply  filing  a  claim  of  effective  competition.  94  They  argue  that  systems  taking 
 advantage  of  this  initial  deregulation  would  still  be  subject  to  a  subsequent  determination  by  the  Commission 
 that  effective  competition  does  not  exist,  and  that  the  Commission  could  order  refunds  as  a  remedy  for  any 
 unjustified  rate  increases  that  may  occur  as  a  result  of  deregulation.  95  We  do  not  agree.  As  Los  Angeles,  the 
 League  of  Cities  and  NATOA  state,  providing  for  immediate  deregulation  upon  the  filing  of  an  effective 
 competition  claim  is  tantamount  to  creating  a  presumption  that  effective  competition  exists.  96  Congress  did 
 not  alter  Section  76.906  of  our  rules  which  provides:  "In  the  absence  of  a  demonstration  to  the  contrary,  cable 
 systems  are  presumed  not  to  be  subject  to  effective  competition."  97  A  finding  of  effective  competition  must  be 
 made  based  on  a  record  that  demonstrates  effective  competition  exists,  not  on  a  mere  claim  by  the  cable 
 operator  that  it  is  subject  to  effective  competition. 
16
 Federal  Communications  Commission  FCC  99-  57 
 98  See  47  C.  F.  R.    76.915.  This  section  further  provides:  "Cable  operators  denied  a  change  in  status  by  a  franchising 
 authority  may  seek  review  of  that  finding  at  the  Commission  by  filing  a  petition  for  revocation."  47  C.  F.  R.    76.915(  e). 


 99  See  47  C.  F.  R.    76.911,  76.914,  76.915(  e). 


 100  Interim  Order,  11  FCC  Rcd  at  5944  &  n.  28;  47  C.  F.  R.    76.1401(  c)  (interim  rule). 
 101  Notice,  11  FCC  Rcd  at  5963. 
 102  Report  and  Order,  FCC  98-  348,  14  FCC  Rcd  ___  para.  10,  64  Fed.  Reg.  6565  (1999).  Several  commenters  in 
 this  proceeding  have  suggested  that  the  Commission  adopt  various  time  limits  for  the  filing  of  oppositions  and  replies, 
 and  for  the  resolution  of  claims  based  on  the  new  effective  competition  test.  See  Fleischman  Comments  at  16-  18; 
 NCTA  Comments  at  22-  24;  New  England  Cable  Television  Association,  Inc.  ("  NECTA")  Comments  at  16-  17;  Time 
 Warner  Comments  at  25;  U  S  WEST  Reply  Comments  at  4.  These  views  were  considered  in  1998  Biennial  Regulatory 
 Review. 


 103  See  new  Section  76.10  adopted  in  1998  Biennial  Regulatory  Review,  App.  A. 


 104  47  C.  F.  R.    76.917.  A  franchising  authority  may  notify  the  Commission  at  any  time  that  it  no  longer  intends  to 
 regulate  basic  cable  rates. 


 17 


 30.  The  Commission's  rules  allow  cable  operators  to  demonstrate  that  their  systems  are  subject 
 to  effective  competition  under  the  definitions  of  effective  competition  adopted  with  the  1992  Cable  Act  by  filing 
 a  petition  for  change  in  regulatory  status  with  the  appropriate  franchising  authority,  98  or  by  filing  with  the 
 Commission  a  petition  for  reconsideration  or  revocation  of  the  LFA's  certification  to  regulate  rates.  99  Our 
 interim  rules  provide  that  LEC  effective  competition  cases  should  be  filed  as  petitions  for  determination  of 
 effective  competition  under  Section  76.7  of  our  rules.  100  In  the  Notice,  we  proposed  to  adopt  a  uniform 
 procedure  applicable  to  all  four  tests  for  effective  competition.  101  In  1998  Biennial  Regulatory  Review  --  Part 
 76  -  Cable  Television  Service  Pleading  and  Complaint  Rules  ("  1998  Biennial  Regulatory  Review"),  we 
 consolidated  the  procedures  regarding  petitions  for  effective  competition  to  achieve  a  uniform  procedure 
 applicable  to  all  petitions  seeking  a  determination  of  effective  competition,  except  petitions  for  reconsideration 
 of  the  LFA's  certification  to  regulate  rates.  102  Petitions  for  reconsideration  of  a  local  franchising  authority's 
 certification  to  regulate  rates  should  continue  to  be  filed  pursuant  to  the  Section  76.911  and  Section  1.106,  the 
 Commission's  rules  setting  forth  the  procedures  for  petitions  for  reconsideration.  103  All  other  effective 
 competition  cases  should  be  filed  with  the  Commission  as  petitions  for  determinations  of  effective  competition 
 under  Section  76.7  of  the  Commission's  rules  and  new  Section  76.907,  which  describers  the  petitioner's  burden 
 and  addresses  the  availability  of  evidence.  We  are  eliminating  Section  76.915  from  our  rules,  so  cable 
 operators  will  no  longer  petition  local  franchising  authorities  for  a  change  in  regulatory  status  based  on 
 effective  competition.  Section  76.917  of  our  rules  is  not  affected  by  this  action.  104  Section  76.917  provides 
 procedures  by  which  a  franchising  authority  certified  to  regulate  rates  may  notify  the  Commission  that  it  no 
 longer  intends  to  regulate  basic  cable  rates. 


 III.  CPST  RATE  COMPLAINTS 
 A.  Sunset  of  CPST  Rate  Regulation 
17
 Federal  Communications  Commission  FCC  99-  57 
 105  47  U.  S.  C.    543(  c)(  4),  as  amended  by  Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104    301(  a)(  1),  100 
 Stat.  115  (1996). 


 106  Interim  Order,  11  FCC  Rcd  at  5957,  5986. 


 107  47  U.  S.  C.    543(  c)(  3). 
 108  Rate  Order,  8  FCC  Rcd  5840-  5841. 
 109  47  U.  S.  C.    543(  c)(  3),  as  amended  by  Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104    301(  a)(  1),  100 
 Stat.  115  (1996). 


 110  Interim  Order,  11  FCC  Rcd  at  5946. 


 111  Id. 


 18 


 31.  The  1996  Act  provides  that  the  Commission's  authority  to  regulate  CPST  rates  pursuant  to 
 Section  623(  c)  of  the  Communications  Act  will  sunset  "for  cable  programming  services  provided  after  March 
 31,  1999."  105  The  Interim  Order  revised  Section  76.950  of  the  Commission's  rules  to  implement  this 
 provision.  106  We  are  further  amending  Section  76.950(  b)  to  track  the  statutory  language.  Thus,  we  will 
 continue  to  accept  complaints  filed  pursuant  to  our  complaint  procedures  regarding  rates  for  services  provided 
 through  March  31,  1999. 


 B.  Background 
 32.  Prior  to  passage  of  the  1996  Act,  the  Communications  Act  permitted  any  subscriber  or  LFA 
 or  other  relevant  state  or  local  government  entity  to  seek  Commission  review  of  a  rate  charged  for  the  CPST 
 by  filing  a  complaint  with  the  Commission  within  a  "reasonable  period"  of  time  following  a  change  in  the  CPST 
 rates.  107  In  implementing  this  provision  we  established  a  45  day  window  following  a  CPST  rate  change  as  the 
 reasonable  period  in  which  CPST  rate  complaints  could  be  filed.  108  As  amended  by  the  1996  Act,  Section 
 623(  c)(  3)  of  the  Communications  Act  now  provides: 


 The  Commission  shall  review  any  complaint  submitted  by  a  franchising  authority  after  the 
 date  of  enactment  of  the  Telecommunications  Act  of  1996  concerning  an  increase  in  rates  for 
 cable  programming  services  and  issue  a  final  order  within  90  days  after  it  receives  such  a 
 complaint,  unless  the  parties  agree  to  extend  the  period  for  such  review.  A  franchising 
 authority  may  not  file  a  complaint  under  this  paragraph  unless,  within  90  days  after  such 
 increase  becomes  effective  it  receives  subscriber  complaints.  109 


 In  the  Interim  Order,  we  promulgated  interim  rules  to  govern  the  procedures  by  which  LFAs  would  file  CPST 
 rate  complaints  pursuant  to  the  1996  Act.  110 


 33.  The  interim  rules  require  that,  before  filing  a  complaint  with  the  Commission,  the  LFA  must 
 give  the  cable  operator  written  notice  of  its  intent  to  do  so  and  allow  the  operator  a  minimum  of  30  days  to  file 
 with  the  LFA  the  relevant  forms  used  to  justify  a  rate  increase.  111  Where  appropriate  the  operator  may  submit 
18
 Federal  Communications  Commission  FCC  99-  57 
 112  Id.  at  n.  35.  An  operator  might  file  such  a  certification  if  it  is  subject  to  effective  competition,  see  supra  at  paras. 
 3-  30,  or  is  deregulated  under  the  small  cable  operator  provisions.  See  infra  at  paras.  61-  89. 


 113  Interim  Order,  11  FCC  Rcd  at  5946. 


 114  Id. 
 115  Id.  &  n.  34. 
 116  Notice,  11  FCC  Rcd  5964. 
 117  Id. 
 118  Id. 
 119  Id. 
 120  Order  at  5992. 


 19 


 to  the  LFA  a  certification  that  it  is  not  subject  to  rate  regulation,  in  lieu  of  the  rate  justification  forms.  112  The 
 interim  rules  provide  that  the  LFA  shall  then  forward  its  complaint  and  the  operator's  response  to  the 
 Commission  no  more  than  180  days  after  the  rate  increase  becomes  effective.  113  If  the  operator  fails  to  respond, 
 the  LFA  may  file  its  complaint  with  the  Commission  and  specify  that  the  operator  has  not  filed  a  response.  114 
 After  we  receive  the  complaint,  we  will  decide  the  case  based  upon  the  information  submitted.  In  addition  to 
 these  changes,  we  eliminated  the  requirements  that  operators  notify  subscribers  of  their  right  to  file  complaints 
 with  the  Commission  and  provide  subscribers  with  the  Commission's  address  and  telephone  number  for 
 purposes  of  filing  rate  complaints.  115  We  also  proposed  eliminating  the  requirement  in  47  C.  F.  R.    76.952 
 that  operators  include  the  name,  mailing  address,  and  telephone  number  of  the  Cable  Services  Bureau  on 
 monthly  subscriber  bills  and  solicited  comment  on  this  action.  116 


 34.  In  addition,  we  noted  that  although  Section  623(  c)(  3)  permits  the  LFA  to  file  a  CPST  rate 
 complaint  with  the  Commission  only  if  the  LFA  has  received  subscriber  complaints  within  90  days  of  the 
 effective  date  of  a  CPST  increase,  it  specifies  no  deadline  for  the  LFA  to  file  its  complaint  with  the 
 Commission.  117  Accordingly,  we  sought  comment  on  possible  time  limits  for  LFAs  to  file  complaints  with  the 
 Commission.  118  We  solicited  comment  on  our  proposal  to  adopt  the  interim  rule  requiring  LFAs  to  file  CPST 
 rate  complaints  with  the  Commission  within  90  days  of  the  close  of  the  window  for  subscribers  to  file 
 complaints  with  the  LFA  (or  180  days  after  the  rate  becomes  effective).  119  Finally  as  part  of  revising  our  rules, 
 we  amended  the  Commission  rate  complaint  form,  Form  329,  120  and  invited  comments  on  those  amendments. 


 B.  Discussion 


 1.  LFA  Filing  Deadlines 
 35.  The  amount  of  time  an  LFA  should  have  to  file  a  CPST  rate  complaint  must  account  for  an 
 LFA's  own  procedures  and  any  procedural  requirements  that  we  impose.  Before  turning  to  those  procedures, 
 we  agree  with  commenters  representing  both  the  cable  industry  and  LFAs  that  urge  us  to  make  clear  that  LFAs 
19
 Federal  Communications  Commission  FCC  99-  57 
 121  NCTA  Comments  at  27;  Massachusetts  Cable  Commission  Comments  at  16. 
 122  Massachusetts  Cable  Commission  Comments  at  8;  NCTA  Comments  at  27. 
 123  See  47  C.  F.  R.    76.910. 
 124  New  Jersey  Ratepayer  Advocate  Comments  at  12. 
 125  See  1996  Act,    301(  b)(  1)(  A),  110  Stat.  115. 
 126  Fleischman  Comments  at  19.  Accord  NCTA  Comments  at  25. 
 127  Fleischman  Comments  at  19. 
 128  Id.  See  47  U.  S.  C.  543(  c)(  1)(  C)  ("  refund  such  portion  of  the  rates  or  charges  that  were  paid  by  subscribers  after 
 the  filing  of  the  first  complaint  filed  with  the  franchising  authority  .  .  .  ";  47  C.  F.  R.  76.961(  b)  as  amended  herein,  infra 


 20 


 have  discretion  to  decline  to  file  a  complaint  with  the  Commission.  NCTA  and  the  Massachusetts  Commission 
 both  request  that  the  Commission  state  explicitly  that  LFAs  have  the  discretion  not  to  file  a  rate  complaint  even 
 if  the  requisite  number  of  subscriber  complaints  has  been  timely  filed  with  the  LFA.  121  Other  commenters 
 suggest  that  the  LFA  or  state  authorities  should  have  the  prerogative  to  require  a  higher  threshold  of  consumer 
 complaints  before  filing  than  is  prescribed  by  the  statute.  122 


 36.  An  LFA  may  decide  not  to  file  a  CPST  rate  complaint,  based  on  its  assessment  of  the  validity 
 of  the  underlying  subscriber  complaints  or  any  other  reason.  There  is  nothing  in  the  1996  Act  that  suggests 
 Congress  sought  to  override  the  judgment  of  an  LFA  in  this  regard.  An  LFA  should  have  the  same  absolute 
 discretion  in  this  context  as  it  does  when  deciding  whether  to  seek  the  Commission  certification  that  is  required 
 before  it  may  regulate  BST  rates.  123  We  clarify  that  under  our  rules  an  LFA  is  not  obligated  to  file  a  CPST 
 complaint  and  may  set  standards  it  deems  appropriate  for  deciding  whether  to  file  a  complaint,  as  long  as  the 
 minimum  standards  set  forth  in  Section  623(  c)(  3)  and  our  rules  are  satisfied. 


 37.  The  New  Jersey  Advocate  suggests  that  where  an  LFA  opts  not  file  a  complaint  with  the 
 Commission  despite  having  the  grounds  and  authority  to  do  so,  individual  subscribers  or  consumer  advocacy 
 groups  should  have  the  right  to  appeal  this  omission  to  the  Commission.  124  Rather  than  giving  subscribers  the 
 right  to  appeal  an  LFA's  decision  not  to  file,  the  1996  Act  eliminated  provisions  of  the  Communications  Act 
 that  had  recognized  the  authority  of  subscribers  to  initiate  Commission  review  of  CPST  rates.  125  As  amended, 
 Section  623(  c)(  3)  does  not  permit  the  filing  of  CPST  rate  complaints  with  the  Commission  by  any  entity  other 
 than  the  LFA.  Congress  thus  entrusted  the  decision  whether  to  file  a  complaint  to  the  sole  discretion  of  the 
 LFA.  Adopting  the  New  Jersey  Advocate's  suggestion  would  be  inconsistent  with  the  statute. 


 38.  A  number  of  cable  operators  contend  that  the  LFA  should  notify  the  operator  each  time  a 
 subscriber  complaint  is  received.  Fleischman  proposes  that  LFAs  be  required  to  provide  cable  operators  with 
 copies  of  written  CPST  rate  complaints  within  10  days  of  receipt  of  such  complaints  from  subscribers.  126 
 According  to  Fleischman,  this  requirement  would  allow  the  operator  to  determine  the  validity  of  the  complaint 
 and  place  the  operator  on  notice  of  its  potential  refund  liability.  127  Fleischman  notes  that  under  the  1996  Act's 
 new  CPST  rate  review  process,  refunds  begin  to  accrue  as  soon  as  the  LFA  receives  a  valid  subscriber 
 complaint,  not  when  a  Form  329  is  filed  with  the  Commission.  128  Fleischman  argues  that  cable  operators  must 
20
 Federal  Communications  Commission  FCC  99-  57 
 App.  A. 
 129  Fleischman  Comments  at  18-  21. 


 130  Time  Warner  Comments  at  26-  27.  See  NCTA  Comments  at  26. 
 131  Interim  Order,  11  FCC  Rcd  at  5946;  47  C.  F.  R.    76.951(  b)(  6),  76.1402. 
 132  CATA  Comments  at  3-  4. 
 133  Id. 
 134  47  U.  S.  C.    543(  a)(  2)(  B),  (c). 


 21 


 be  given  notice  of  their  potential  refund  liability  as  soon  as  possible.  Fleischman  proposes  that  after  two  valid 
 subscriber  complaints  are  filed  with  the  LFA  and  forwarded  to  the  operator,  the  operator  would  then  be 
 required  to  submit  its  rate  justification,  or  any  other  defense  it  deemed  appropriate,  to  the  LFA  within  30  days. 
 After  receiving  the  response  from  the  cable  operator,  Fleischman  suggests  that  the  LFA  have  30  days  to  file 
 Form  329  and  the  operator's  response  with  the  Commission.  129  Time  Warner  proposes  a  similar  procedure, 
 except  that  under  its  plan  the  LFA  would  have  120  days  from  the  effective  date  of  the  CPST  rate  increase  in 
 which  to  file  a  complaint  with  the  Commission.  130 


 39.  These  proposals  would  place  unnecessary  burdens  on  both  LFAs  and  cable  operators.  We 
 will  not  require  an  LFA  to  notify  the  cable  operator  of  every  CPST  rate  complaint  the  LFA  receives  from  a 
 subscriber,  particularly  since  the  LFA  may  choose  not  to  file  a  complaint.  We  acknowledge  that  a  cable 
 operator  may  have  a  legitimate  interest  in  learning  of  subscriber  complaints,  even  if  the  LFA  does  not  elect  to 
 pursue  the  claim  with  the  Commission.  There  is  no  indication  in  the  1996  Act  or  its  legislative  history, 
 however,  that  Congress  sought  to  impose  additional  burdens  on  LFAs  in  this  regard.  We  presume  that 
 subscriber  complaints  are  matters  of  public  record  that  are  accessible  under  state  or  local  laws.  We  will, 
 however,  retain  the  requirement  adopted  in  the  Interim  Order  that  an  LFA  copy  the  cable  operator  with  the 
 complaint  package  it  files  with  the  Commission  and  certify  that  it  has  done  so  on  Form  329.  131 


 40.  CATA  asserts  that  LFAs  should  act  as  a  filter  for  subscriber  complaints  rather  than  simply 
 acting  as  a  passive  conduit.  132  CATA  suggests  that  an  LFA  should  be  required  to  include  with  each  filing  an 
 affirmative  statement  that  it  believes  the  rates  in  question  do  not  conform  with  the  Commission's  rules.  133  We 
 disagree.  Under  the  Communications  Act,  the  Commission,  not  LFAs,  has  the  responsibility  and  authority  to 
 determine  the  reasonableness  of  CPST  rates.  134  Still,  Congress  presumably  did  not  intend  an  LFA  to  pass  along 
 to  the  Commission  subscriber  complaints  that  the  LFA  knows  to  be  invalid.  The  LFA  should  not  file  a 
 complaint  with  the  Commission  that  is  based  on  subscriber  complaints  concerning  the  BST  or  premium 
 services.  Furthermore,  the  LFA  must  determine  that  it  has  received  more  than  one  complaint  per  community 
 unit  served  by  the  operator  before  filing  a  complaint  against  the  operator's  rates  in  that  community  unit. 
 Beyond  measures  such  as  these,  which  merely  ensure  that  the  LFA's  complaint  is  not  procedurally  defective 
 under  Section  623(  c)(  3),  we  see  nothing  in  the  1996  Act  that  imposes  on  LFAs  any  requirements  with  respect 
 to  substantive  review  of  CPST  rates. 
21
 Federal  Communications  Commission  FCC  99-  57 
 135  Comcast  Comments  at  17-  20;  Cox  Comments  16-  18;  U  S  WEST  Reply  Comments  at  7-  9;  National  League  of 
 Cities  ("  League  of  Cities")  Reply  Comments  at  10-  11. 


 136  See  e.  g.,  William  Cook  Comments  at  1;  GMCC  Comments  at  2-  4;  New  York  City  Comments  at  16-  17.  But  see 
 Massachusetts  Cable  Commission  Comments  at  7-  8  (supporting  the  proposed  90  day  window  for  LFAs  to  CPST  rate 
 complaints  with  the  Commission). 


 137  See  e.  g.,  William  A.  Cook,  Jr.  ("  William  Cook")  Comments  at  1;  Greater  Metro  Cable  Consortium,  Metro 
 Denver,  CO,  ("  GMCC")  Comments  at  2-  4.  See  also  New  Jersey  Ratepayer  Advocate  Comments  at  11  (arguing  that 
 the  LFA  must  have  a  minimum  of  90  days  from  the  close  of  the  subscribers  90  day  window  to  file  a  CPST  rate 
 complaint  with  the  LFA  but  that  the  Commission  must  allow  for  an  extension  for  good  cause). 


 138  National  League  of  Cities  and  National  Association  of  Telecommunications  Officers  and  Advisors  ("  League  of 
 Cities  and  NATOA")  Comments  at  12-  13. 


 139  GMCC  Comments  at  2-  4. 


 140  New  York  City  Comments  at  17-  18. 


 22 


 41.  Some  commenters  suggest  that  we  abandon  our  interim  procedure  of  requiring  an  LFA  to  file 
 its  complaint  and  the  cable  operator's  response  simultaneously.  135  These  commenters  recommend  that  we  direct 
 the  LFA  to  file  its  complaint  with  the  Commission  when  it  serves  the  operator  with  the  complaint,  after  which 
 the  operator  would  file  its  response  directly  with  the  Commission,  with  a  copy  to  the  LFA.  We  will  retain  the 
 interim  procedure  in  the  final  rules.  Allowing  the  LFA  to  consider  both  the  subscriber  complaints  and  the  cable 
 operator's  rate  justification  will  enable  the  LFA  to  make  a  more  informed  decision  as  to  whether  or  not  to  file 
 a  complaint  with  the  Commission.  Furthermore,  the  90  day  window  for  the  Commission  to  consider  a  rate 
 complaint  is  triggered  when  the  complaint  is  filed.  We  do  not  believe  the  Commission  should  begin  its 
 proceeding  with  less  than  a  complete  record.  As  noted  elsewhere,  the  rules  we  are  adopting  here  impose  no 
 obligation  on  the  LFA  to  file  a  complaint,  nor  do  they  require  the  LFA  to  perform  any  in-  depth  analysis. 
 Rather,  they  allow  LFAs  an  opportunity,  consistent  with  Congressional  intent,  to  participate  in  the  rate 
 regulation  process  to  the  degree  they  choose  to  do  so. 


 42.  In  our  interim  rules,  we  found  it  appropriate  to  allow  an  LFA  180  days  from  the  effective  date 
 of  a  CPST  rate  increase  to  file  a  complaint  with  the  Commission.  Assuming  the  LFA  received  subscriber 
 complaints  on  the  90th  day  following  the  rate  increase,  it  would  have  another  90  days  to  give  the  required 
 notice  to  the  cable  operator,  obtain  the  operator's  response,  and  file  a  complaint  and  the  response  with  the 
 Commission.  Some  LFAs  and  consumer  advocacy  groups  argue  that  no  time  frame  is  set  out  in  the  1996  Act 
 and  that  no  firm  deadline  should  be  established.  136  According  to  these  commenters,  the  proposed  deadline  risks 
 imposing  an  unwarranted  burden  on  the  LFAs.  137  The  League  of  Cities  and  NATOA  argue  that  such  a  deadline 
 only  serves  to  restrict  the  access  of  subscribers  to  legitimate  rate  relief.  138  The  Greater  Metro  Cable 
 Consortium  ("  GMCC")  contends  that  the  cable  operator  would  not  be  prejudiced  by  the  absence  of  a  filing 
 deadline  because  the  rate  increase  could  go  into  effect  while  the  LFA  decides  whether  it  can  and  should  file  a 
 complaint.  139  In  the  event  the  complaint  is  granted,  the  operator  would  refund  only  those  amounts  that  it  was 
 never  entitled  to  in  the  first  instance.  New  York  City  contends  that  no  deadline  is  warranted,  but  as  an 
 alternative  suggests  that  operators  be  required  to  submit  a  rate  justification  to  the  LFA  30  days  prior  to  the 
 effective  date  of  the  proposed  rate  increase.  140 
22
 Federal  Communications  Commission  FCC  99-  57 
 141  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992:  Rate 
 Regulation,  Thirteenth  Order  on  Reconsideration,  11  FCC  Rcd  388,  451  (1995)  ("  Thirteenth  Order  on 
 Reconsideration"). 


 142  Id. 


 143  NCTA  Comments  at  26 
 144  See  e.  g.,  Comcast  Comments  at  17-  20;  Cox  Comments  16-  18;  US  WEST  Comments  at  7-  9. 
 145  Massachusetts  Cable  Commission  Comments  at  7-  8;  New  Jersey  Board  Comments  at  6.  See  also  Indianapolis 
 Comments  at  3  (90  days  is  a  reasonable  time  frame  for  the  LFA  to  file  a  rate  complaint  on  behalf  of  the  subscribers 
 who  have  already  filed  them  with  the  LFA). 


 146  Fleischman  Comments  at  19. 


 23 


 43.  We  will  adopt  our  interim  rule  as  our  final  rule.  A  limited  time  frame  is  required  if  the 
 ratemaking  process  is  to  have  any  closure  or  finality.  Shortly  before  enactment  of  the  1996  Act,  this  factor 
 persuaded  us  to  discontinue  the  practice  of  reviewing  a  cable  operator's  entire  rate  structure  when  a  CPST  rate 
 complaint  is  filed.  141  At  that  time  we  observed  that  the  uncertainty  created  by  the  lingering  potential  of  refund 
 liability  "may  generally  discourage  investment,  without  which  operators  may  lack  the  resources  to  upgrade  their 
 networks,  add  new  programming  services,  and  provide  new  and  innovative  services."  142  For  the  same  reasons, 
 we  will  not  subject  cable  operators  to  potential  liability  indefinitely  under  the  revised  CPST  rate  complaint 
 procedure.  LFAs  are  not  prejudiced  by  the  establishment  of  a  reasonable  deadline  since  they  retain  unfettered 
 discretion  to  invoke  the  rate  review  process,  assuming  they  have  received  subscriber  complaints  within  the  90- 
 day  period  mandated  by  Congress. 


 44.  We  reject  New  York  City's  proposal  that  would  require  an  operator  to  provide  the  LFA  with 
 a  rate  justification  in  advance  of  the  rate  increase.  Section  623(  c)(  3)  precludes  LFA  involvement  in  the  CPST 
 rate  review  process  until  it  has  received  subscriber  complaints  following  a  CPST  rate  increase. 


 45.  The  cable  industry  generally  favors  an  abbreviated  deadline  for  LFA  rate  complaints  filed  with 
 the  Commission.  NCTA  suggests  that  LFAs  be  required  to  file  a  complaint  within  105  days  of  the  effective 
 date  of  the  rate  increase,  thus  giving  the  LFA  15  days  beyond  the  close  of  the  90  day  window  for  subscriber 
 complaints.  143  Other  commenters  suggest  that  LFAs  be  allowed  135  days  from  the  effective  date  of  the  CPST 
 rate  increase  in  which  to  file  a  complaint  with  the  Commission.  144  The  Massachusetts  Cable  Commission  and 
 the  New  Jersey  Board  agree  that  180  days  is  reasonable.  145  Fleischman  and  NCTA  express  concern  that  the 
 180  day  deadline  undermines  the  Form  1240  annual  rate  adjustment  methodology. 


 46.  We  believe  the  proposals  to  shorten  the  180  day  window  are  unrealistic.  The  time  period  for 
 the  filing  of  a  complaint  by  the  LFA  should  not  begin  to  run  before  the  90th  day  after  a  rate  increase,  since  the 
 underlying  subscriber  complaints  may  not  be  received  until  that  day.  Conceivably,  we  could  start  the  time 
 period  as  soon  as  the  number  of  subscriber  complaints  reaches  some  numerical  threshold,  as  suggested  by 
 Fleischman,  even  if  that  occurs  within  a  few  days  of  the  rate  increase.  146  It  is  clear,  however,  that  Congress 
 believed  it  reasonable  that  subscribers  take  up  to  90  days  to  complain  to  the  LFA.  Since  subscriber  complaints 
 are  the  linchpin  for  LFA  complaints  to  the  Commission,  an  LFA  should  be  permitted  to  take  account  of  the 
 number  of  subscriber  complaints  filed  within  90  days  in  deciding  whether  to  pass  those  complaints  on  to  the 
23
 Federal  Communications  Commission  FCC  99-  57 
 147  GMCC  Comments  at  3. 
 148  When  filing  the  relevant  forms  needed  to  justify  a  rate  increase,  we  expect  such  justification  to  fully  comply  with 
 our  rules.  See  47  C.  F.  R.    76.956. 


 149  It  should  include  evidence  of  a  claim  of  effective  competition  or  refer  to  a  pending  petition  for  such  a  finding. 
 If  the  operator  is  small,  it  should  include  evidence  that  the  operator  meets  the  definition. 


 150  Interim  Order,  11  FCC  Rcd  at  5946. 


 151  47  U.  S.  C.    543(  c)(  3). 
 152  Id. 


 24 


 Commission.  This  means  that  the  time  period  for  LFA  complaints  should  not  begin  to  run  until  90  days  after 
 the  rate  increase. 


 47.  After  the  90th  day,  the  cable  operator  is  given  30  days  to  respond  to  the  LFA's  notice,  since 
 that  is  the  standard  period  for  rate  justifications.  In  addition,  the  LFA  must  be  afforded  sufficient  time  after 
 the  initial  90-  day  period  to  decide  whether  to  give  the  cable  operator  notice  of  its  intent  to  file  a  complaint,  to 
 give  such  notice  and  review  the  operator's  response,  and  determine  whether  to  file  the  complaint  with  the 
 Commission.  Importantly,  this  process  must  accommodate  any  state  and  local  requirements  that  govern  LFA 
 procedures.  We  recognize  that  such  local  procedures  may  differ  substantially  among  jurisdictions.  147  Sixty 
 days  is  not  an  excessive  period  of  time  to  accomplish  these  responsibilities. 


 48.  We  note  that  both  the  LFA  and  the  cable  operator  can  expedite  the  process.  The  LFA  may 
 give  notice  of  its  intent  to  file  a  complaint  with  the  Commission  as  soon  as  it  receives  two  subscriber 
 complaints,  and  need  not  wait  until  after  the  90-  day  period  for  subscriber  complaints  has  passed.  Similarly, 
 the  cable  operator  need  not  take  the  full  30  days  to  respond  to  the  LFA's  notice  of  intent  to  file  a  compliant. 
 We  note,  however,  that  the  cable  operator  must  file  its  rate  justification  with  the  LFA  and  cannot  simply  refer 
 the  LFA  to  a  form  previously  filed  with  the  Commission.  148  If  the  operator  certifies  that  it  is  not  subject  to  rate 
 regulation,  it  must  accompany  the  certification  with  supporting  evidence.  149  We  encourage  LFAs  and  cable 
 operators  to  attempt  to  resolve  rate  disputes  expeditiously,  as  that  is  in  all  parties'  interests.  Once  the  LFA 
 receives  the  cable  operator's  rate  justification  and  believes  the  complaint  meritorious,  it  should  forward  the 
 complaint  and  the  justification  to  the  Commission  promptly.  As  stated  in  the  Interim  Order,  after  the 
 Commission  receives  the  complaint,  we  will  decide  the  case  based  upon  the  information  submitted.  150 
 Insufficient  or  incomplete  cable  operator  responses  may  result  in  our  finding  that  the  rate  increase  is 
 unreasonable.  Consistent  with  the  statute,  the  Commission  is  required  to  issue  a  final  order  within  90  days  of 
 receiving  a  complaint.  151  The  statute  also  provides  that  the  parties  may  agree  to  extend  the  Commission's  90 
 day  review  period.  152  We  would  anticipate  an  LFA  and  a  cable  operator  agreeing  to  such  an  extension  in  the 
 case  of,  for  example,  new  information  regarding  a  change  in  a  cable  operator's  circumstance  during  the 
 pendency  of  the  Commission's  review  of  the  complaint.  LFAs  and  operators  agreeing  to  an  extension  of  the 
 90  day  review  period  must  do  so  in  writing  and  specify  the  period  of  time  for  which  the  extension  is  granted. 


 49.  Therefore,  we  affirm  our  original  proposal  to  require  LFAs  to  file  rate  complaints  with  the 
 Commission  within  180  days  of  the  effective  date  of  the  CPST  rate  increase,  in  accordance  with  the  procedures 
24
 Federal  Communications  Commission  FCC  99-  57 
 153  Interim  Order,  11  FCC  Rcd  at  5946. 
 154  See  e.  g.,  Cox  Comments  at  18;  NCTA  Comments  at  28;  Time  Warner  Comments  at  29. 
 155  Fleischman  Comments  at  n.  46. 
 156  NCTA  Comments  at  28. 
 157  New  York  City  Comments  at  18. 
 158  Id. 


 25 


 described  above.  We  find  that  this  reconciles  the  operators'  need  for  speedy  resolution  of  complaints  against 
 its  rates  and  the  LFAs'  need  to  accomplish  any  steps  necessary  before  filing  a  complaint  with  the  Commission. 


 2.  Bill  Enclosure  Information 
 50.  Since  subscribers  may  no  longer  directly  file  rate  complaints  with  the  Commission,  the  Interim 
 Order  eliminated  the  requirement  that  cable  operators  include  the  name,  telephone  number  and  address  of  the 
 Cable  Services  Bureau  on  all  subscriber  bills.  153  Cable  operators  generally  support  this  proposal  and  point  out 
 that  given  the  relevant  amendments  of  the  1996  Act,  this  information  is  no  longer  necessary  and  is  potentially 
 confusing  to  subscribers.  154  Fleischman  further  suggests  that  operators  no  longer  be  required  to  list  the  LFA 
 name  and  address  on  each  subscriber  bill,  as  currently  required.  155  Fleischman  asserts  that  such  information 
 is  only  necessary  on  bills  which  reflect  CPST  rate  increases  subject  to  the  complaint  window.  NCTA  agrees 
 and  further  suggests  that  such  information  should  only  be  included  if  requested  by  the  LFA.  156 


 51.  Other  commenters  suggest  that  subscribers  continue  to  need  ready  access  to  the  Cable  Services 
 Bureau  and  that  the  name,  address  and  telephone  number  of  the  Bureau  should  continue  to  be  provided  as  part 
 of  the  bill.  New  York  City  notes  that  while  the  Cable  Services  Bureau  no  longer  accepts  CPST  rate  complaints 
 directly  from  subscribers,  it  remains  responsible  for  other  matters.  157  Consequently,  New  York  City 
 recommends  that  we  continue  to  require  operators  to  include  this  information  on  subscriber  bills.  158 


 52.  We  adopt  our  proposal  to  discontinue  requiring  operators  to  include  the  name,  address  and 
 telephone  number  of  the  Cable  Services  Bureau  in  each  bill.  Initial  review  of  both  the  BST  and  CPST  rates 
 is  left  to  the  discretion  of  the  LFA.  In  the  case  of  CPST  rates,  however,  this  discretion  can  be  exercised  only 
 if  the  LFA  receives  subscriber  complaints  within  the  90-  day  statutory  deadline.  Given  the  critical  role  played 
 by  the  LFA  and  the  time  sensitivity  of  consumer  CPST  rate  complaints,  we  find  that  subscribers  may  be 
 harmed  if  we  continue  to  require  subscriber  bills  to  include  the  Cable  Services  Bureau  information.  If  bills 
 continued  to  include  this  information,  subscribers  might  mistakenly  direct  CPST  rate  complaints  to  the 
 Commission  as  opposed  to  their  local  franchising  authority,  and  may  consequently  fail  to  meet  the  90-  day 
 statutory  deadline  for  LFA  receipt  of  subscriber  complaints.  We  will  continue  to  require  operators  to  include 
 the  LFA's  name,  address  and  telephone  number  because  this  information  will  generally  assist  subscribers  in 
 exercising  their  statutory  right  to  file  a  CPST  rate  complaint  with  the  LFA.  However,  because  LFAs  interact 
 regularly  with  subscribers,  we  believe  they  are  better  positioned  to  evaluate  the  needs  of  subscribers  and  the 
 means  to  serve  those  needs.  We  will  therefore  permit  LFAs  the  discretion  to  allow  operators  to  omit  this 
 information. 
25
 Federal  Communications  Commission  FCC  99-  57 
 159  C-  TEC  Cable  Systems,  Inc.  and  Mercom,  Inc.  ("  C-  TEC  and  Mercom")  Comments  at  6. 
 160  Id.  at  12. 
 161  NCTA  Comments  at  27;  Time  Warner  Comments  at  28. 
 162  FCC  Form  329  currently  requires  LFA  certification  that  it  has  received  complaints. 
 163  47  C.  F.  R.    76.951. 
 164  TCI  Comments  at  25-  27. 
 165  Id. 


 26 


 3.  Threshold  for  Subscriber  Complaints 
 53.  In  our  interim  rules,  we  determined  that  for  purposes  of  triggering  the  LFAs'  authority  to  file 
 a  CPST  rate  complaint  with  the  Commission,  Congress  intended  to  require  at  least  two  subscriber  complaints 
 be  properly  filed  for  each  community  unit  before  the  LFA  filed  a  complaint  with  the  Commission.  C-  TEC 
 Cable  Systems,  Inc.  and  Mercom  argue  that  members  of  the  franchising  authority  such  as  the  mayor  or  a  city 
 council  member,  should  not  be  counted  toward  the  two  subscriber  threshold  required  for  an  LFA  to  file  a 
 complaint  with  the  Commission.  159 


 54.  We  reject  C-  TEC  and  Mercom's  argument  that  members  of  the  franchising  authority  should 
 not  be  counted  toward  the  two  subscriber  threshold.  C-  TEC  and  Mercom  cites  no  authority  for  its  position. 
 To  the  extent  that  these  individuals  are  cable  subscribers,  they  have  the  same  rights  as  other  cable  subscribers. 


 55.  Similarly,  C-  TEC  and  Mercom  urge  the  Commission  to  require  all  subscriber  complaints  to 
 the  LFA  to  be  in  writing  if  they  are  to  count  toward  the  two  subscriber  threshold.  160  Other  commenters  suggest 
 that  complaints  to  the  Commission  be  dismissed  if  they  are  not  accompanied  by  two  written  subscriber 
 complaints  or  if  the  underlying  subscriber  complaints  are  subsequently  withdrawn.  161 


 56.  We  will  not  dictate  to  the  LFAs  the  manner  in  which  they  deal  with  their  own  constituencies. 
 We  will  continue  to  allow  the  LFA  to  use  the  records  maintained  in  accordance  with  its  regular  business 
 practices  to  establish  that  it  has  received  the  requisite  subscriber  complaints  within  90  days  of  a  rate  increase. 
 We  will,  however,  condition  the  filing  of  a  CPST  rate  complaint  upon  the  LFA's  certification  that  it  has 
 received  two  or  more  subscriber  complaints  about  CPST  rates  during  the  90  day  period  after  the  rate  became 
 effective.  162 


 4.  FCC  Form  329 
 57.  Our  rules  require  that  CPST  rate  complaints  be  filed  with  the  Commission  using  the  standard 
 rate  complaint  form,  FCC  Form  329.  163  TCI  advocates  that  the  Commission  require  LFAs  filing  rate 
 complaints  to  use  Form  329  with  appropriate  revisions.  164  According  to  TCI,  continued  use  of  an  amended 
 Form  329  will  ensure  that  valid  complaints  are  resolved  quickly  and  invalid  complaints  are  weeded  out 
 expeditiously.  165  NCTA  urges  the  Commission  to  continue  requiring  subscribers  to  use  Form  329  when  filing 
26
 Federal  Communications  Commission  FCC  99-  57 
 166  NCTA  Comments  at  26,  n.  75. 
 167  State  of  New  York  Comments  at  17. 
 168  Id. 
 169  Id. 
 170  47  C.  F.  R.  76.951(  a),  (b)(  6). 
 171  See  47  U.  S.  C.    543(  c)(  3)(  an  LFA  may  not  file  a  complaint  "unless,  within  90  days  after  such  increase  becomes 
 effective  it  receives  subscriber  complaints"). 


 27 


 CPST  rate  complaints  with  the  LFA.  NCTA  argues  that  Form  329  provides  a  simple,  easily  understood  format 
 that  can  be  completed  by  subscribers  and  reviewed  by  affected  parties.  166 


 58.  The  State  of  New  York  suggests  several  changes  to  the  Form  329.  It  recommends  that 
 references  in  the  form  to  the  complainant  should  be  to  the  "franchising  authority"  and  not  to  the  "local 
 franchising  authority"  for  consistency  with  the  statute  and  Commission  rules.  167  The  State  of  New  York  also 
 cites  to  language  in  paragraph  1  of  page  2  of  the  form.  The  State  of  New  York  suggests  that  language  in  the 
 Form  329  asking  the  LFA  to  certify  that  it  has  received  subscriber  complaints  "within  90  days  of  the  increase 
 first  appearing  on  the  subscriber's  bill"  be  amended  to  "within  90  days  of  the  effective  date  of  the  rate  increase" 
 in  order  to  conform  with  the  statute,  the  rules  and  the  balance  of  the  form.  168  In  addition,  the  State  of  New 
 York  notes  that  as  proposed,  Form  329  states  that  "[  i]  ncomplete  filings  cannot  be  processed  and  will  be 
 returned"  even  though  the  form  requires  "in  detail"  specific  information  which  may  not  be  readily  available  to 
 the  franchising  authority  without  the  cooperation  of  the  cable  operator.  The  State  of  New  York  expresses 
 concern  that  as  the  form  currently  reads,  the  operator  would  control  the  LFA's  ability  to  file  a  valid  complaint. 
 Accordingly,  the  State  of  New  York  suggests  that  the  form  should  indicate  that  if  the  cable  operator  has  not 
 responded  in  a  timely  manner  to  the  notice  of  intent  to  file  a  complaint,  the  LFA  need  only  use  reasonable 
 efforts  to  obtain  and  provide  the  information  requested  on  Form  329.  169 


 59.  We  agree  that  LFAs  should  continue  to  use  Form  329  to  file  CPST  rate  complaints  with  the 
 Commission.  As  with  our  proposed  rule,  LFAs  should  use  Form  329  to  serve  notice  on  the  operator  of  its 
 intent  to  file  a  CPST  rate  complaint  with  the  Commission.  170  When  providing  the  operator  of  notice  of  its  intent 
 to  file  a  complaint,  the  LFA  also  should  indicate  the  date  by  which  the  cable  operator  must  respond.  The 
 response  date  must  be  no  less  than  30  days  from  the  date  the  notice  of  intent  to  file  a  complaint  is  received  by 
 the  cable  operator.  The  notice  and  the  draft  Form  329  should  be  sent  to  the  cable  operator  simultaneously 
 using  a  delivery  service  that  can  establish  the  date  of  receipt  through  routine  business  documents. 


 60.  We  see  no  need  to  require  that  subscribers  use  Form  329  when  filing  complaints  with  the  LFA. 
 Subscriber  complaints  to  the  LFA  can  be  received  in  any  form  acceptable  to  the  LFA.  We  will,  however, 
 condition  the  filing  of  a  CPST  rate  complaint  with  the  Commission  upon  the  LFA's  certification  that  it  has 
 received  two  or  more  subscriber  complaints  about  CPST  rates  during  the  90  day  period  after  the  rate  became 
 effective.  Consistent  with  the  statutory  language,  subscriber  complaints  filed  with  the  LFA  prior  to  the 
 effective  date  of  the  rate  increase  may  not  be  counted  toward  the  subscriber  complaint  threshold  for  filing  a 
 complaint  with  the  Commission.  171  Because  subscriber  notice  of  a  planned  rate  increase  by  a  cable  operator 
 may  not  in  every  case  result  in  an  actual  rate  increase,  consideration  of  only  those  subscriber  complaints  filed 
27
 Federal  Communications  Commission  FCC  99-  57 
 172  47  U.  S.  C.    543(  m). 
 173  Interim  Order,  11  FCC  Rcd  at  5947. 
 174  Id.  at  5948. 
 175  See  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992:  Rate 
 Regulation,  Sixth  Report  and  Order  and  Eleventh  Order  on  Reconsideration,  10  FCC  Rcd  7393,  7412  n.  88  (1995) 
 ("  Small  System  Order");  47  C.  F.  R.    76.934(  a);  FCC  Form  1230  Establishing  Maximum  Permitted  Rates  for  Regulated 
 Cable  Services  on  Small  Cable  Systems  (Aug.  1995). 


 176  Interim  Order,  11  FCC  Rcd  at  5948-  50. 


 177  Notice,  11  FCC  Rcd  at  5965-  68. 


 28 


 with  the  LFA  on  or  after  the  effective  date  of  a  rate  increase  will  prevent  unnecessary  investigations  of  rate 
 increases  that  were  not  in  fact  implemented. 


 IV.  SMALL  CABLE  OPERATORS 
 A.  Background 
 61.  Section  301(  c)  of  the  1996  Act  amended  Section  623  of  the  Communications  Act  to  exempt 
 small  cable  operators  from  rate  regulation  requirements.  New  Section  623(  m)  of  the  Communications  Act 
 defines  a  small  cable  operator  as  "a  cable  operator  that,  directly  or  through  an  affiliate,  serves  in  the  aggregate 
 fewer  than  1  percent  of  all  subscribers  in  the  United  States  and  is  not  affiliated  with  any  entity  or  entities  whose 
 gross  annual  revenues  in  the  aggregate  exceed  $250,000,000."  172  The  exemption  applies  to  cable  programming 
 services  or  a  basic  service  tier  that  was  the  only  service  tier  subject  to  regulation  as  of  December  31,  1994  in 
 any  franchise  area  in  which  that  operator  services  50,000  or  fewer  subscribers. 


 62.  The  Interim  Order  treated  an  operator  serving  fewer  than  617,000  subscribers  as  a  small 
 operator  if  its  annual  revenues,  including  revenues  of  affiliated  entities,  do  not  exceed  the  $250  million  revenue 
 ceiling.  173  The  interim  rules  defined  an  affiliate  as  an  entity  having  a  20%  or  greater  equity  interest  in  the 
 operator  (active  or  passive)  or  exercising  de  jure  or  de  facto  control  over  the  operator.  174  This  definition  of 
 "affiliate"  mirrors  the  definition  of  affiliate  under  our  pre-  existing  small  system  cost-  of-  service  rules  governing 
 rates  charged  by  certain  small  systems  that  are  not  exempted  by  the  statute.  175  The  Interim  Order  also 
 established  interim  procedures  for  asserting  small  operator  eligibility.  176 


 63.  The  Notice  solicited  comment  on  several  issues.  The  issues  raised  are  the  methodology  that 
 should  be  employed  to  determine  the  subscriber  threshold  under  the  statute;  our  proposal  to  implement  as  a 
 permanent  rule  a  definition  of  affiliate  that  would  establish  affiliation  when  an  entity  owns  an  active  or  passive 
 equity  interest  of  20%  or  more  in  the  cable  operator  or  holds  de  facto  control  over  the  operator;  the  calculation 
 of  "gross  annual  revenues"  counted  toward  the  $250  million  threshold;  procedures  for  determining  eligibility 
 for  small  operator  treatment;  and  the  treatment  of  operators  that  lose  eligibility  for  small  operator  relief  and 
 become  subject  to  regulation.  177 


 B.  Discussion 
28
 Federal  Communications  Commission  FCC  99-  57 
 178  Id.  at  5965. 
 179  NCTA  Comments  at  29-  30;  CATA  Comments  at  5;  Massachusetts  Cable  Commission  Comments  at  8. 
 180  SCBA  Comments  at  4. 
 181  Id.  (quoting  15  U.  S.  C.    632(  a)(  2)(  C)). 
 182  See  15  U.  S.  C.    632(  a)(  2)(  C). 
 183  See  U.  S.  Small  Business  Administration,  Assistant  Administrator  for  Size  Standards,  Comments  at  2. 
 184  Communications  Act    623(  m),  47  U.  S.  C.    543(  m). 
 185  NCTA  Comments  at  38;  Fleischman  Comments  at  26;  National  Telephone  Cooperative  Association  ("  NTCA") 
 Comments  at  3.  But  see  LSGAC  Recommendation  13(  E),  recommending  that  the  Commission  count  all  franchise 
 territories  operated  by  a  single  system  if  the  system  is  held  by  a  multiple  system  owner. 


 186  See  Notice,  11  FCC  Rcd  at  5967;  NCTA  Comments  at  38. 


 29 


 1.  Subscriber  Count 
 64.  The  Notice  proposed  that  the  national  subscriber  threshold  in  Communications  Act  Section 
 623(  m)  should  be  determined  annually,  using  the  most  reliable  means  available  from  industry  groups,  trade 
 journals  or  other  sources.  178  Commenters  generally  support  this  proposal.  179  SCBA  however,  contends  that 
 the  Commission  is  obligated  to  seek  approval  from  the  Small  Business  Administration  ("  SBA")  before 
 promulgating  a  final  rule  implementing  the  statutory  definition  of  small  operator  set  forth  in  the  1996  Act.  180 
 SCBA  argues  that  the  Small  Business  Act  requires  all  agencies,  including  the  Commission,  to  obtain  approval 
 from  the  Administrator  of  the  SBA  before  it  can  "prescribe  a  size  standard  for  categorizing  a  business  concern 
 as  a  small  business  concern."  181 


 65.  We  disagree  with  SCBA's  contention.  Congress  has  defined  a  small  cable  operator  in  the  1996 
 amendments  to  the  Commission's  governing  statute  as  an  operator  that  serves  fewer  than  1%  of  all  subscribers 
 in  the  nation  and  is  unaffiliated  with  entities  whose  gross  annual  revenues  exceed  $250  million.  By  selecting 
 sources  from  which  to  estimate  the  national  subscriber  base,  the  Commission  is  not  "prescribing  a  size 
 standard"  for  small  operators.  182  The  Commission  is  merely  implementing  the  specific  terms  of  the  statute. 
 Accordingly,  we  will  determine  the  subscriber  count  on  a  periodic  basis  using  the  most  reliable  sources  publicly 
 available.  The  SBA  Assistant  Administrator  for  Size  Standards  supports  this  approach.  183 


 66.  As  proposed  in  the  Notice,  we  will  apply  the  small  operator  definition  to  qualifying  systems 
 serving  50,000  or  fewer  subscribers  on  an  individual  franchise  area  basis.  We  will  not  aggregate  subscribers 
 in  adjoining  franchise  areas,  even  though  they  might  be  served  by  a  common  head  end  or  be  part  of  a  common 
 system.  The  explicit  terms  of  the  statute  provide  for  the  exemption  "in  any  franchise  area"  and  require  this 
 interpretation.  184  Commenters  addressing  this  issue  generally  agreed.  185  In  addition,  each  separately  billed  or 
 billable  customer  will  count  as  a  household  subscribing  to  the  cable  operator's  cable  service.  As  proposed  in 
 the  Notice  and  supported  by  commenters,  186  subscribers  in  MDUs  should  be  counted  by  using  the  equivalent 
29
 Federal  Communications  Commission  FCC  99-  57 
 187  See  Public  Notice:  Questions  and  Answers  on  Cable  Television  Regulation,  pp.  1-  2  (released  July  27,  1994). 
 Under  the  EBU  methodology,  subscribers  to  bulk-  rate  services  are  calculated  by  dividing  the  annual  bulk-  rate  charge 
 by  the  basic  annual  subscription  rate  for  individual  households.  The  specific  individual  household  rate  that  is  used 
 should  correspond  to  the  level  of  service  received  by  the  bulk  rate  customer. 


 188  See  generally  47  C.  F.  R    76.905(  c)  (counting  subscribers  for  the  purpose  of  the  effective  competition  tests). 


 189  47  C.  F.  R.    76.934(  a). 
 190  Interim  Order,  11  FCC  Rcd  at  5948. 
 191  Notice  at  5965.  The  Title  VI  definition  provides:  "[  T]  he  term  'affiliate',  when  used  in  relation  to  any  person, 
 means  another  person  who  owns  or  controls,  is  owned  or  controlled  by,  or  is  under  common  ownership  or  control  with, 
 such  person."  47  U.  S.  C.    522(  2). 


 192  Id.  at  5966  (citing  47  C.  F.  R.    76.720(  f)).  In  determining  whether  the  $250  million  threshold  has  been  crossed, 
 we  will  evaluate  revenues  according  to  the  fiscal  year  of  the  entity  holding  the  ownership  interest  in  the  small  cable 
 operator. 


 193  Id. 


 30 


 billing  unit  methodology.  187  Households  used  solely  for  seasonal,  occasional,  or  recreational  use  should  not 
 be  included  in  the  customer  count.  188 


 2.  Definition  of  "affiliate" 
 67.  In  the  Interim  Order,  we  determined  that  applying  the  definition  of  "affiliate"  used  in  our  small 
 system  cost-  of-  service  rules  189  to  implement  Section  623  (m)  on  an  interim  basis  was  reasonable  because  the 
 small  system  rules  and  the  small  cable  operator  provisions  of  the  1996  Act  have  similar  objectives  of 
 minimizing  regulation  and  enhancing  the  capital  attractiveness  of  small  cable  entities,  while  ensuring  that  the 
 benefits  of  small  system  regulation  are  not  extended  to  larger  entities  where  such  relief  is  unnecessary  and 
 inappropriate.  190  We  also  concluded  that  we  could  depart  from  the  definition  of  "affiliate"  set  forth  in  Title  I 
 of  the  Communications  Act  because  Title  VI,  where  the  small  cable  operator  provisions  arise,  contains  its  own 
 definition  of  "affiliate."  191  We  therefore  implemented  a  definition  of  "affiliate"  that  conformed  to  the  policy 
 objectives  of  the  small  operator  provisions  of  the  Communications  Act. 


 68.  With  respect  to  the  1996  Act's  $250  million  gross  revenue  threshold,  the  Interim  Order 
 adopted  the  gross  revenue  definition  used  to  determine  eligibility  for  certain  frequencies  devoted  to  personal 
 communications  services  ("  PCS").  Under  that  definition,  gross  revenue  includes  "all  income  received  by  an 
 entity,  whether  earned  or  passive,  before  any  deductions  are  made  for  costs  of  doing  business  (e.  g.,  cost  of 
 goods  sold),  as  evidenced  by  audited  quarterly  financial  statements  for  the  relevant  period."  192  We  determined, 
 however,  that  audited  quarterly  financial  statements  would  not  be  required  to  verify  these  amounts,  although 
 we  requested  comment  regarding  methods  to  verify  gross  revenue  figures  for  natural  persons.  193  In  addition, 
 the  Interim  Order  tentatively  concluded  that  the  statute  requires  aggregation  of  the  revenue  of  all  affiliates 
30
 Federal  Communications  Commission  FCC  99-  57 
 194  Id.  at  5966-  67. 
 195  Id.  at  5967. 
 196  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992:  Rate 
 Regulation,  Second  Order  on  Reconsideration,  Fourth  Report  and  Order  and  Fifth  Notice  of  Proposed  Rulemaking, 
 9  FCC  Rcd  4119,  4173  n.  157  (1994)  ("  Second  Reconsideration  Order"). 


 197  Id. 


 198  Fleischman  Comments  at  23. 
 199  SCBA  Comments  at  19. 
 200  U.  S.  Small  Business  Administration,  Office  of  Advocacy,  Ex  Parte  Submission  (filed  Nov.  12,  1996).  The  Office 
 of  Advocacy  advises  that  the  SBA's  affiliation  rules  in  13  C.  F.  R.    121.103  distinguish  between  different  types  of 
 investors  and  focus  on  the  amount  of  voting  stock  held  by  the  investor  and  de  facto  control.  The  SBA  Assistant 
 Administrator  for  Size  Standards  also  notes  the  SBA  definition  of  affiliation  in  his  Comments  at  3. 


 201  47  U.  S.  C.    522(  2). 


 31 


 toward  the  $250  million  threshold.  194  We  sought  comment  on  whether  the  operator's  own  revenues  and  non-cable 
 revenues  of  affiliates  should  be  counted  toward  the  $250  million  threshold.  195 


 69.  We  will  adopt  the  20%  ownership  standard  to  determine  affiliation  under  Section  301(  c)  of 
 the  1996  Act.  As  noted  in  the  Interim  Order,  we  adopted  the  20%  ownership  standard  in  the  course  of  our 
 earliest  efforts  to  establish  a  separate  regulatory  scheme  for  smaller  cable  systems.  196  We  explained  that  the 
 20%  threshold  served  as  the  point  where  a  large  entity  "will  have  a  significant  enough  stake  that  it  will  be  likely 
 to  extend  financial  resources  to  the  small  operator  should  that  operator  face  financial  difficulties."  197  As  a 
 general  matter,  commenters  in  this  proceeding  support  the  20%  threshold  although  they  raise  concerns 
 regarding  the  types  of  investment  interests  applicable  to  the  20%  test.  Fleischman  states  that  Congress  was 
 aware  of  the  20%  ownership  test  at  the  time  it  adopted  the  1996  Act.  Hence,  Congress's  decision  to  leave  the 
 20%  test  in  effect  as  a  small  system  affiliation  standard  suggests  legislative  acceptance  of  the  20%  threshold.  198 
 On  the  other  hand,  the  SCBA  argues  in  favor  of  a  "safe  harbor"  rule  that  would  ensure  that  a  holder  of  a  20% 
 voting  interest  (or  less)  would  not  be  deemed  affiliated  with  the  small  operator,  and  that  a  holder  of  a  20%  to 
 50%  voting  interest  would  be  allowed  to  make  an  affirmative  showing  of  non-  affiliation  based  on  the  absence 
 of  control.  199  The  SBA  Office  of  Advocacy  encourages  the  Commission  to  model  its  rules  after  the  SBA's 
 affiliation  rules  to  avoid  discouraging  inherently  passive  investment.  200 


 70.  In  adopting  the  20%  threshold  as  a  permanent  rule,  we  adhere  to  our  prior  conclusion  that 
 investments  at  this  level  provide  sufficient  incentive  for  the  affiliated  entity  to  provide  financial  support  to  the 
 smaller  cable  entity.  The  affiliation  definition  set  forth  in  Title  VI  of  the  Communications  Act  recognizes  that 
 affiliation  can  be  demonstrated  either  by  an  ownership  interest  or  by  control.  201  The  standard  proposed  by  the 
 SCBA,  requiring  the  absence  of  control  for  voting  interests  of  20%  to  50%,  would  eviscerate  the  ownership 
 standard  as  an  independent  basis  for  affiliation.  Moreover,  we  believe  the  absence  of  legislative  action  to 
 change  the  standard  in  the  1996  Act  is  some  indication  that  Congress  did  not  object  to  the  20%  test  or  the 
 balance  it  strikes  between  supporting  the  capital  attractiveness  of  smaller  systems  and  the  consumer  protection 
31
 Federal  Communications  Commission  FCC  99-  57 
 202  NCTA  Reply  Comments  at  22;  CATA  Comments  at  4;  Falcon  Holding  Group,  L.  P.  ("  Falcon")  Comments  at  5. 
 203  NCTA  Comments  at  35-  36. 
 204  Cole  Raywid  Comments  at  14-  15. 
 205  SCBA  Comments  at  14-  17. 
 206  SCBA  Reply  Comments  at  10.  See  also  FrontierVision  Operating  Partners,  L.  P.  Comments  at  6. 
 207  General  Electric  Capital  Corporation  ("  GE  Capital")  Reply  Comments  at  2-  4. 
 208  J.  P.  Morgan  &  Co.,  Brown  Brothers  Harriman  &  Co.,  Olympus  Partners,  and  First  Union  Capital  Partners,  Inc. 
 Reply  Comments  at  3. 


 32 


 objectives  of  Title  VI.  Accordingly,  we  will  maintain  the  20%  ownership  test  as  a  final  rule.  If  two  or  more 
 unaffiliated  entities  hold  an  equity  interest  in  the  small  cable  operator,  we  will  not  aggregate  the  equity  interests 
 of  the  entities.  For  example,  if  two  unaffiliated  entities  each  held  a  15%  interest  in  the  cable  operator,  neither 
 would  be  deemed  affiliated  with  the  small  cable  operator. 


 71.  Commenters  also  address  whether  the  Commission  should  articulate  distinctions  between 
 active  and  passive  investment  when  determining  whether  an  entity  is  affiliated  with  a  cable  operator.  Cable 
 operators  argue  that  many  smaller  operators  depend  upon  substantial  passive  equity  investments  and  that 
 allowing  such  investments  to  constitute  affiliation  would  detrimentally  affect  the  operators'  ability  to  maintain 
 their  current  operating  structures.  They  claim  that  passive  investments  by  financial  institutions  fail  to  provide 
 technical  resources  or  operating  efficiencies  to  small  operators  and  thus  revenues  from  these  passive 
 investments  should  be  excluded  from  the  ownership  test.  202  In  the  alternative,  NCTA  argues  for  either  a  more 
 liberal  threshold  when  passive  investment  is  involved  or  the  adoption  of  a  procedure  to  enable  small  operators 
 to  request  waiver  of  the  affiliate  standard  when  other  attributes  warrant  small  system  regulatory  relief.  203 
 Citing  the  "small  business"  definition  in  the  broadband  C  Block  rules  for  PCS,  Cole  Raywid  argues  that  passive 
 investment  should  not  be  counted  until  it  exceeds  50%  ownership  of  the  small  operator.  204  SCBA  seeks  a 
 control-  oriented  test  for  investments  counted  toward  the  ownership  threshold,  arguing  that  passive  investment 
 is  important  to  small  operators  and  that  its  inclusion  toward  the  threshold  would  shrink  the  number  of  small 
 operators  qualifying  for  regulatory  relief.  205  If  passive  investment  is  excluded,  the  SCBA  argues  that  limited 
 investor  oversight  of  the  operator  should  not  disqualify  the  investment  from  passive  treatment.  206 


 72.  Investment  firms  also  seek  the  exclusion  of  passive  investments  from  the  affiliation  test. 
 General  Electric  Capital  Corporation  claims  that  passive  investors  do  not  seek  day-  to-  day  management  of  the 
 enterprise  and  would  seek  only  to  engage  in  limited  oversight  to  ensure  compliance  with  ownership  and 
 attribution  rules.  Thus,  it  argues  for  a  passive/  active  distinction  to  ensure  that  investors  do  not  shy  away  from 
 cable  operators  when  greater  investment  would  fail  to  maximize  the  revenue  advantages  that  stem  from  small 
 operator  status.  207  Similarly,  J.  P.  Morgan  and  other  investment  banks  contend  that  small  operators  pose  capital 
 risks  that  underscore  the  importance  of  maximizing  revenue  potential.  Accordingly,  these  investors  assert  that 
 they  would  not  risk  losing  such  advantages  by  taking  their  investment  beyond  the  20%  threshold.  208  In  addition, 
 these  institutions  emphasize  that  their  passive  investments  are  conducted  on  behalf  of  investor-  clients,  and  their 
 primary  allegiance  is  to  these  individuals  rather  than  to  the  cable  operator  receiving  the  capital  investment. 
32
 Federal  Communications  Commission  FCC  99-  57 
 209  Id.  at  4. 
 210  Michigan,  Illinois  and  Texas  Communities  Reply  Comments  at  13. 
 211  We  note  that  both  active  and  passive  investments  are  counted  toward  the  affiliation  standard  set  forth  in  the  Small 
 System  Order.  10  FCC  Rcd  at  7412  n.  88.  Unlike  the  Small  System  Order's  affiliation  inquiry,  however,  the  affiliation 
 test  in  the  context  of  the  $250  million  revenue  threshold  focuses  on  access  to  financial  resources  rather  than  the 
 expertise  and  efficiencies  associated  with  access  to  a  wider  subscriber  base.  We  further  note,  however,  that  even  in  the 
 context  of  the  Small  System  Order,  the  Commission  has  indicated  that  it  may  discount  the  impact  of  purely  passive 
 investment  in  its  affiliation  inquiry.  See  Insight  Communications  Company,  L.  P.,  11  FCC  Rcd  1270,  1271-  73  (1995) 
 (cable  operator  whose  passive  owner  held  34%  interest  was  allowed  small  system  rate  relief). 


 212  Cole  Raywid  Comments  at  10-  11. 


 33 


 Thus,  passive  investment  does  not  afford  operational  advantages  to  the  cable  operator.  209  Local  regulators  take 
 the  opposite  view,  arguing  for  inclusion  of  both  active  and  passive  interests.  They  emphasize  that  a  20% 
 investment,  active  or  passive,  is  a  substantial  enough  investment  to  justify  a  finding  of  affiliation.  In  their  view, 
 the  20%  threshold  itself  accommodates  the  more  limited  nature  of  passive  investment,  recognizing  that  any 
 investment  at  such  levels  will  justify  a  determination  that  the  interests  of  the  affiliated  entities  are  aligned.  210 


 73.  We  will  exclude  truly  passive  investments  when  determining  whether  an  investor's  interest  in 
 a  cable  operator  exceeds  20%  for  purposes  of  small  cable  operator  deregulation.  The  record  in  this  proceeding 
 demonstrates  that  the  typical  smaller  operator  is  likely  to  depend  upon  passive  equity  investment  from  large 
 financial  institutions  that  have  annual  revenues  in  excess  of  the  $250  million  cap  established  by  Congress.  A 
 large  investor  with  more  than  $250  million  in  revenues  may  be  reluctant  to  take  the  investment  beyond  a  20% 
 ownership  interest  if  that  added  investment  jeopardizes  more  favorable  regulatory  treatment.  Counting  truly 
 passive  investment  toward  the  20%  affiliation  standard  could  punish  a  large  number  of  operators  that 
 presumably  were  the  intended  beneficiaries  of  the  small  operator  provision  of  the  1996  Act.  Only  truly  passive 
 investments  will  be  excluded  for  these  purposes.  211  A  cable  investor  that  takes  an  equity  interest  in  the  cable 
 operator  goes  beyond  passivity  when  the  investor  places  its  own  representative  on  the  cable  operator's  board 
 of  directors  or  on  an  advisory  committee  or  in  any  other  manner  has  its  representatives  involved  in  the  operation 
 of  the  business.  Likewise,  an  investor  will  not  be  deemed  passive  if  it  retains  the  authority  to  approve  or 
 disapprove  the  cable  operator's  standard  business  transactions.  In  these  cases,  the  investor  is  taking  an  active 
 role  in  the  operation  of  the  cable  system  and  thus  should  be  deemed  affiliated  with  the  operator,  if  the 
 investment  meets  the  20%  threshold.  We  recognize  that  this  approach  is  different  than  that  used  in  many  other 
 areas  where  the  Commission  addresses  "attribution"  or  affiliation  issues.  We  believe  it  is  appropriate  here 
 because  the  concerns  that  are  being  addressed  are  not  the  usual  issues  of  program  content  influence  or 
 anticompetitive  economic  incentives.  Here  the  concern  is  to  limit  the  class  of  operators  to  whom  this  exemption 
 applies  while  not  cutting  off  investments  that  will  aid  in  system  growth  and  modernization. 


 74.  The  affiliation  test  of  Section  301(  c)  also  depends  upon  whether  entities  affiliated  with  the 
 small  operator  generate  at  least  $250  million  in  annual  revenue.  A  number  of  commenters  expressed  concern 
 regarding  the  revenue  sources  that  might  be  included  in  this  statutory  formula  for  affiliation.  Cole  Raywid, 
 for  example,  argues  against  the  inclusion  of  non-  cable  revenues  in  calculating  gross  revenues,  suggesting  that 
 the  potential  field  of  small  cable  investors  could  be  affected  significantly  by  a  broad  definition  of  applicable 
 revenue  sources.  212  Moreover,  Cole  Raywid  suggests  Congress  may  have  intended  the  $250  million  figure  as 
33
 Federal  Communications  Commission  FCC  99-  57 
 213  Cole  Raywid  Comments  at  10-  11. 
 214  C-  TEC  and  Mercom  Comments  at  4-  5. 
 215  GE  Capital  Reply  Comments  at  6-  7. 
 216  BellSouth  Comments  at  4-  5. 
 217  United  States  Telephone  Association  ("  USTA")  Reply  Comments  at  11. 
 218  Massachusetts  Cable  Commission  Comments  at  9;  Michigan,  Illinois  and  Texas  Communities  Reply  Comments 
 at  16. 


 219  SCBA  Comments  at  22. 


 34 


 a  "backstop"  to  determine  the  propriety  of  small  system  relief  when  an  operator  moves  above  the  one  percent 
 subscriber  limit,  because  $250  million  is  roughly  what  an  operator  would  generate  with  a  one  percent  share 
 of  the  national  subscriber  market.  213  C-  TEC  and  Mercom  make  a  similar  argument.  214 


 75.  GE  Capital  also  contends  that  non-  cable  revenues  should  be  excluded  from  the  $250  million 
 revenue  cap.  According  to  GE  Capital,  the  Commission  should  limit  the  cap  to  cable  revenues  because  those 
 revenues  indicate  whether  the  large  affiliated  entity  can  provide  practical  assistance  to  the  small  operator, 
 including  operational  expertise,  administrative  economies  of  scale  and  discounts  on  programming  or 
 equipment.  215  Telephone  companies  have  also  opposed  counting  non-  cable  revenues.  BellSouth  asserts  that 
 non-  cable  revenues  should  not  count  toward  the  cap  because  only  large  operators  with  revenues  above  the  cap 
 have  the  resources  and  expertise  to  ease  regulatory  burdens  on  small  operators.  216  USTA  asserts  that  inclusion 
 of  non-  cable  revenues  would  impair  small  cable  operator  access  to  capital  needed  to  compete  in  a  competitive 
 video  services  market.  217  On  the  other  hand,  local  regulatory  authorities  argue  for  the  inclusion  of  all  revenues, 
 cable  and  non-  cable,  because  Congress  decided  against  limiting  the  sources  of  applicable  revenue  in  the  statute 
 itself.  218 


 76.  We  also  conclude  that  non-  cable  revenues  should  be  counted  toward  the  $250  million  cap. 
 In  determining  whether  the  $250  million  threshold  has  been  crossed,  we  will  evaluate  revenues  according  to 
 the  fiscal  year  of  the  entity  holding  the  ownership  interest  in  the  small  cable  operator.  The  language  of  the 
 statute  describes  the  $250  million  cap  in  general  terms  and  we  believe  a  reasonable  construction  of  the  statute 
 includes  non-  cable  revenues  toward  the  cap.  We  believe  that  Congress,  in  establishing  the  revenue  cap, 
 presumed  that  capital  access  is  enhanced  through  affiliation  with  an  entity  that  generates  substantial  revenues. 
 Whether  the  revenues  derive  from  cable  or  non-  cable  enterprises,  the  existence  of  a  large  revenue  base  was 
 deemed  sufficient  to  increase  the  affiliated  operator's  access  to  capital  sources.  Given  the  range  of  current  and 
 potential  investors  in  the  cable  industry,  Congress  could  have  limited  estimations  of  the  revenue  cap  to  cable 
 revenues.  It  did  not  do  so.  We  will  therefore  include  non-  cable  revenues  when  determining  whether  an  operator 
 is  affiliated  with  an  entity  generating  $250  million  in  annual  revenues. 


 77.  Finally,  we  must  also  consider  whether  multiple  equity  stakes  in  a  small  operator  can  be 
 accumulated  toward  the  $250  million  threshold.  SCBA  urges  the  Commission  to  resist  aggregation  based  on 
 language  in  the  Joint  Committee  Report  that  seems  to  limit  the  small  operator's  ability  to  affiliate  "with  any 
 entity"  whose  annual  revenues  exceed  the  cap.  219  In  the  alternative,  SCBA  advocates  a  proportional 
34
 Federal  Communications  Commission  FCC  99-  57 
 220  Id.  at  22-  23. 
 221  Cole  Raywid  Comments  at  15. 
 222  NCTA  Comments  at  37;  Michigan,  Illinois  and  Texas  Communities  Reply  Comments  at  15. 
 223  LSGAC  Recommendation  13(  E). 
 224  47  U.  S.  C.    543(  m)(  2). 
 225  See  NCTA  Comments  at  37;  SCBA  Comments  at  20. 
 226  Interim  Order,  11  FCC  Rcd  at  5949. 


 35 


 aggregation  under  which  the  affiliated  entity's  revenues  are  applied  toward  the  cap  in  proportion  to  the  equity 
 proportion  it  holds  in  the  small  operator.  220  Cole  Raywid  also  opposes  aggregation,  contending  aggregation 
 will  impair  the  ability  to  raise  capital.  221  NCTA  and  the  Michigan,  Illinois  and  Texas  Communities  argue  that 
 aggregation  is  appropriate  because  the  statutory  language  clearly  requires  it.  222  The  FCC  Local  State 
 Government  Advisory  Committee  recommends  that  the  Commission  adopt  a  broad  definition  of  affiliate  that 
 counts  all  systems  operated  by  a  multiple  system  owner  and  its  subsidiaries.  223 


 78.  We  agree  with  those  commenters  who  contend  that  the  statute  requires  aggregation  in  this 
 context.  Section  623(  m)(  2)  of  the  Communications  Act  states  that  a  small  operator  seeking  regulatory  relief 
 pursuant  to  that  provision  cannot  be  affiliated  "with  any  entity  or  entities  whose  gross  annual  revenues  in  the 
 aggregate  exceed  $250,000,000."  224  The  explicit  language  specifies  that  revenues  are  calculated  "in  the 
 aggregate"  and  we  will  implement  this  provision  accordingly.  In  calculating  the  gross  revenue  cap,  we  will  not 
 require  entities  to  submit  audited  quarterly  financial  statements  if  such  entities  do  not  routinely  generate 
 them.  225  Rather,  a  small  operator  can  provide  published  financial  data  of  its  affiliated  entities  or  provide 
 declarations  of  affiliated  entities  describing  their  interest  in  the  small  operator.  If  such  materials  do  not  provide 
 adequate  information  regarding  affiliation,  we  will  consider  other  evidence  of  affiliation  as  we  deem  appropriate 
 on  a  case-  by-  case  basis. 


 3.  Procedures 
 79.  The  interim  rules  set  forth  a  procedure  that  enables  operators  to  assert  eligibility  for  small 
 operator  treatment.  For  cable  operators  that  offered  only  a  single  tier  of  service  as  of  December  31,  1994, 
 eligibility  for  small  operator  treatment  can  be  established  through  a  certification  application  to  the  LFA.  The 
 LFA  is  obligated  to  act  upon  the  request  within  90  days  and  appeals  from  the  decision  may  be  filed  with  the 
 Commission.  Also,  qualifying  systems  with  more  than  one  tier  of  service  as  of  December  31,  1994,  may  assert 
 deregulated  status  in  response  to  notice  from  the  LFA  that  it  intends  to  file  a  CPST  rate  complaint.  The 
 operator's  certification  of  eligibility  for  small  operator  treatment  serves  as  the  response  to  the  complaint.  226 


 80.  We  solicited  comment  on  our  proposal  to  adopt  the  procedures  set  forth  in  the  interim  rules 
 on  a  permanent  basis.  We  also  sought  comment  regarding  alternative  mechanisms  or  approaches  that  would 
 further  minimize  the  administrative  burdens  on  operators  and  franchising  authorities  in  cases  where  eligibility 
35
 Federal  Communications  Commission  FCC  99-  57 
 227  Notice,  11  FCC  Rcd  at  5969. 
 228  NCTA  Comments  at  41. 
 229  SCBA  Comments  at  28. 
 230  Fleischman  Comments  at  25. 
 231  NCTA  Comments  at  41;  SCBA  Comments  at  28. 
 232  Interim  Order,  11  FCC  Rcd  at  5948-  49. 
 233  47  U.  S.  C.    543(  m). 


 36 


 for  small  operator  treatment  is  not  in  dispute.  227  Cable  operators  support  simplified  procedures  for  asserting 
 eligibility  for  small  operator  treatment.  NCTA  urges  the  Commission  to  clarify  that  certifications  need  not  be 
 filed  unless  and  until  the  LFA  regulates  BST  rates.  228  The  SCBA  argues  that  a  simple  declaration  of  eligibility 
 should  be  sufficient  and  that  the  LFA's  failure  to  act  on  the  certification  declaration  within  60  days  would 
 render  the  certification  effective.  229  Fleischman  supports  filing  certification  requests  directly  with  the 
 Commission  to  obviate  multiple  filings  with  several  LFAs  having  jurisdiction  over  the  system.  230  Both  NCTA 
 and  the  SCBA  request  rules  that  would  allow  operators  to  appeal  to  the  Commission  when  information  requests 
 made  by  LFAs  are  considered  unduly  burdensome.  231 


 81.  Subject  to  one  modification,  we  will  adopt  the  procedures  set  forth  in  the  Interim  Order.  We 
 believe  they  are  sufficiently  streamlined  to  minimize  administrative  burdens  on  operators  while  enabling  LFAs 
 a  reasonable  opportunity  to  address  the  merits  of  the  operator's  assertions.  Under  the  1996  Act,  operators 
 qualifying  for  small  operator  treatment  are  exempt  from  certain  regulatory  provisions  on  the  date  of  enactment. 
 Operators  claiming  entitlement  to  such  treatment  may  operate  accordingly.  We  believe,  however,  that  LFAs 
 must  have  the  opportunity  to  assess  the  circumstances  of  each  case.  The  90-  day  response  period  allows  LFAs 
 sufficient  time  to  determine  eligibility  for  small  operator  treatment.  Because  LFAs  initiate  the  CPST  rate 
 complaint  process  and  address  BST  rate  issues,  certification  requests  should  be  addressed  at  the  LFA  level 
 subject  to  Commission  review,  and  can  be  filed  at  any  time.  We  will  allow  operators  to  appeal  to  the 
 Commission  when  information  requests  from  LFAs  are  deemed  too  burdensome  and  the  LFA  refuses  to  drop 
 or  modify  the  information  request  in  response  to  the  operator's  challenge.  As  stated  in  the  Interim  Order,  an 
 LFA  may  request  that  an  operator  seeking  certification  identify  in  writing  all  of  its  affiliates  providing  cable 
 service,  the  total  cable  subscriber  base  of  itself  and  each  affiliate,  and  the  aggregate  gross  revenues  of  all  its 
 cable  and  non-  cable  affiliates.  232 


 82.  With  respect  to  small  operators  with  only  one  tier  of  service  subject  to  regulation  as  of 
 December  31,  1994,  we  will  adhere  to  our  tentative  conclusion  that  such  operators  are  deregulated  on  all  tiers 
 of  service  if  they  otherwise  qualify  for  small  operator  treatment.  A  system  that  now  offers  more  than  one  tier 
 of  service  but  had  only  one  tier  subject  to  regulation  on  December  31,  1994,  would  now  be  deregulated  on  its 
 BST  as  well  as  its  CPST(  s)  if  it  meets  the  relevant  numerical  thresholds  and  limits  of  the  statute.  The  statute 
 states  that  its  deregulatory  provisions  apply  to  small  operators  with  respect  to  "a  basic  service  tier  that  was  the 
 only  tier  subject  to  regulation  as  of  December  31,  1994."  233  Commenters  agree  with  the  Commission's  tentative 
36
 Federal  Communications  Commission  FCC  99-  57 
 234  State  of  New  York  Comments  at  28;  National  Telephone  Cooperative  Ass'n  ("  NTCA")  Comments  at  4;  NCTA 
 Comments  at  39. 


 235  Notice,  11  FCC  Rcd  at  5969.  See  also  SCBA  Comments  at  10-  11. 


 236  NCTA  Comments  at  43;  Cole  Raywid  Comments  at  16. 
 237  Small  System  Order,  10  FCC  Rcd  at  7413-  14. 
 238  NCTA  Comments  at  43. 
 239  Id. 
 240  Fleischman  Comments  at  29;  Time  Warner  Comments  at  44. 


 37 


 conclusion  in  this  regard.  234  Operators  claiming  eligibility  for  deregulatory  treatment  based  on  this  aspect  of 
 the  small  operator  provision  may  assert  such  eligibility  consistent  with  the  procedures  established  in  this  Order. 


 4.  Transition  From  Small  Operator  Treatment 
 83.  In  the  Notice,  we  requested  comment  regarding  the  implementation  of  a  transition  process  for 
 operators  that  lose  eligibility  for  small  operator  treatment  and  become  subject  to  regulation.  We  tentatively 
 concluded  that  an  instantaneous  shift  from  deregulation  to  full  regulation  could  prove  disruptive  to  consumers 
 and  operators.  We  also  noted  that  the  potential  imposition  of  regulation  simply  because  subscribers  have  been 
 added  to  the  system  could  discourage  operators  from  providing  the  quality  of  service  that  expands  the  operator's 
 customer  base.  235 


 84.  Cable  operators  advocate  a  transition  rule  similar  to  the  rule  applied  in  the  Small  System 
 Order.  236  Under  the  Small  System  Order,  a  small  system  (no  more  than  15,000  subscribers)  affiliated  with  a 
 small  cable  company  (no  more  than  400,000  subscribers)  may  set  rates  in  accordance  with  the  small  system 
 cost-  of-  service  rules.  The  transition  rule  has  two  components.  First,  a  small  system  that  establishes  its 
 eligibility  for  the  small  system  cost-  of-  service  rules  retains  that  even  if  the  parent  cable  company  subsequently 
 exceeds  the  400,000  subscriber  threshold,  or  the  small  system  is  acquired  by  a  separate  cable  company  that 
 exceeds  that  threshold.  237  Second,  when  the  system  itself  exceeds  the  15,000  subscriber  limit,  it  can  continue 
 to  charge  the  last  maximum  rate  it  was  able  to  justify  while  it  still  qualified  under  the  small  system  rules, 
 although  subsequent  rate  increases  must  be  justified  under  our  standard  benchmark  or  cost-  of-  service  rules 
 applicable  to  cable  operators  generally. 


 85.  NCTA  contends  that  application  of  the  latter  approach  is  consistent  with  the  goal  of  increasing 
 the  value  of  smaller  cable  systems  in  the  eyes  of  potential  investors.  238  In  cases  where  a  small  operator  exceeds 
 the  50,000  subscriber  ceiling  in  the  franchise  area,  NCTA  advocates  maintenance  of  rates  established  while 
 the  operator  was  deregulated  but  allowing  subsequent  rate  increases  under  applicable  rate  regulations.  239  Other 
 operators  support  a  "snapshot"  approach  under  which  operators  qualifying  as  "small  operators"  on  the  date  of 
 enactment  of  the  1996  Act  can  maintain  their  deregulated  status  regardless  of  events  subsequent  to  that  date.  240 
 With  respect  to  the  $250  million  revenue  threshold,  for  example,  cable  operators  request  a  rule  that  would 
 preserve  an  operator's  deregulated  status  even  if  entities  affiliated  with  the  operator  later  increase  their  revenues 
37
 Federal  Communications  Commission  FCC  99-  57 
 241  Fleischman  Reply  Comments  at  14;  Time  Warner  Reply  Comments  at  57;  Cole  Raywid  Reply  Comments  at  7; 
 NCTA  Reply  Comments  at  25;  US  WEST  Reply  Comments  at  5. 


 242  CATA  Comments  at  7. 


 243  City  of  Fairfield,  CA  ("  Fairfield")  Comments  at  2-  3.  See  also  Los  Angeles,  League  of  Cities,  and  NATOA  Reply 
 Comments  at  14. 


 244  Fairfield  Comments  at  3. 


 245  Interim  Order,  11  FCC  Rcd  at  5969. 
 246  Rate  Order,  8  FCC  Rcd  at  5922  (footnote  omitted). 
 247  The  transition  rules  established  under  our  Small  System  Order,  which  temporarily  maintain  rate  relief  for  systems 
 that  lose  their  technical  eligibility  for  small  system  relief,  are  not  a  good  analogy  because  those  rules  simply  provide 
 for  transition  from  one  form  of  rate  regulation  to  another.  Systems  covered  by  those  rules  are  always  subject  to  some 
 form  of  regulation,  as  required  by  the  statute. 


 38 


 to  the  point  of  exceeding  the  $250  million  threshold.  They  argue  that  the  threat  of  losing  regulatory  relief  based 
 on  expanded  affiliate  revenues  would  discourage  investors  from  affiliating  with  small  operators.  241 


 86.  CATA  advocates  an  extended  transition  period  of  two  years  to  ensure  the  operator's  financial 
 stability.  242  On  the  other  hand,  the  City  of  Fairfield,  California  ("  Fairfield")  argues  that  the  statute  mandates 
 regulation  when  an  operator  loses  small  operator  eligibility.  243  According  to  Fairfield,  subscribers  should  not 
 lose  the  benefits  of  regulation  during  a  transition  period.  It  argues  that  rate  refund  liability  should  extend  back 
 to  the  date  that  small  operator  eligibility  was  lost.  Moreover,  Fairfield  contends  that  operators  have  increased 
 their  subscriber  totals  under  regulation  and  will  continue  to  have  incentives  to  do  so  when  small  operator  status 
 is  terminated.  244 


 87.  As  recognized  in  the  Notice,  the  language  of  the  1996  Act  requires  regulation  to  commence 
 once  an  operator  no  longer  qualifies  for  small  operator  treatment  under  the  governing  statute's  subscriber  or 
 revenue  criteria.  245  Before  the  1996  amendments,  the  Communications  Act  did  not  give  us  the  discretion 
 "totally  to  exempt  small  systems,  even  those  very  small  systems  with  under  400  subscribers,  from  rate 
 regulation  .  .  .  ."  246  The  1996  Act  now  mandates  such  an  exemption  for  small  cable  operators  in  franchise  areas 
 where  they  serve  fewer  than  50,000  subscribers  but,  with  respect  to  operators  that  do  not  meet  these  criteria, 
 gives  us  no  more  discretion  than  we  had  before.  When  a  system  no  longer  meets  the  small  cable  operator 
 criteria  for  deregulation,  the  statute  imposes  rate  regulation.  247 


 88.  At  the  same  time,  we  recognize  that  a  sudden  transition  to  regulation  upon  the  loss  of  small 
 operator  treatment  could  prove  disruptive  to  consumers  and  operators.  Accordingly,  we  will  implement  a 
 transition  approach  that  is  conceptually  similar  to  the  approach  used  pursuant  to  the  Small  System  Order  but 
 cognizant  of  the  statutory  obligations  to  protect  consumers  under  Section  623. 


 89.  We  will  allow  small  operators  that  lose  eligibility  for  small  operator  treatment  to  maintain  the 
 rates  that  prevailed  prior  to  the  loss  of  eligibility.  After  a  cable  operator  loses  eligibility  under  the  small 
 operator  provisions  of  the  statute,  subsequent  rate  increases  will  be  subject  to  generally  applicable  regulations 
38
 Federal  Communications  Commission  FCC  99-  57 
 248  See  Thirteenth  Order  on  Reconsideration,  11  FCC  Rcd  at  451  (operators  not  previously  subject  to  CPST  rate 
 regulation  will  not  face  Commission  review  of  entire  rate  structure  if  a  complaint  is  filed). 


 249  47  U.  S.  C.    572. 


 250  Notice,  11  FCC  Rcd  at  5970.  The  Notice  also  solicited  comment  regarding  the  definition  of  affiliate  in  the 
 context  of  open  video  systems.  That  issue  was  addressed  in  Implementation  of  Section  302  of  the  Telecommunications 
 Act  of  1996:  Open  Video  Systems,  Third  Report  and  Order  and  Second  Order  on  Reconsideration,  11  FCC  Rcd  20227, 
 20230-  37  (1996),  and  may  be  revisited  in  Cable  Attribution  Notice,  13  FCC  Rcd  at  12998-  99  para.  15  &  n.  52. 


 251  Cable  Attribution  Notice,  13  FCC  Rcd  at  12998-  99  para.  15  &  n.  52. 


 39 


 governing  increases.  248  BST  rates  that  were  subject  to  small  cable  treatment  will  not  be  subject  to  full 
 benchmark  review.  Our  objectives  are  to  minimize  disruption  to  newly  regulated  operators  and  to  assure 
 operators  that  successful  subscriber  growth  will  not  subject  them  to  burdensome  regulation.  We  do  not  want 
 our  regulations,  however,  to  act  as  an  incentive  for  an  operator  to  raise  rates  dramatically  as  a  means  of 
 protecting  those  rates  from  regulatory  review,  when  it  becomes  apparent  that  the  operator  is  about  to  lose  its 
 deregulatory  status.  In  order  to  carry  its  rates  over  into  regulation,  an  operator  must  demonstrate  that  it  has 
 had  such  rates  in  effect  three  months  prior  to  the  loss  of  small  operator  eligibility.  Although  some  reasonable 
 variation  in  rates  over  the  preceding  three-  month  period  would  not  disqualify  an  operator  from  transition 
 treatment,  a  substantial  spike  in  rates  during  the  three-  month  period  would  indicate  that  rates  were  increased 
 primarily  to  ensure  that  higher  rates  carry  over  into  the  regulated  environment. 


 V.  DEFINITION  OF  "AFFILIATE"  IN  THE  CONTEXT  OF  CABLE-  TELCO 
 BUY-  OUTS 


 90.  Section  302  of  the  1996  Act  added  Section  652  to  the  Communications  Act.  Section  652 
 provides  in  relevant  part: 


 (a)  Acquisitions  By  Carriers.  No  local  exchange  carrier  or  any  affiliate  of  such  carrier  owned 
 by,  operated  by,  controlled  by,  or  under  common  control  with  such  carrier  may  purchase  or 
 otherwise  acquire  directly  or  indirectly  more  than  a  10  percent  financial  interest,  or  any 
 management  interest,  in  any  cable  operator  providing  cable  service  within  the  local  exchange 
 carrier's  telephone  service  area. 
 (b)  Acquisitions  By  Cable  Operators.  No  cable  operator  or  affiliate  of  a  cable  operator  that 
 is  owned  by,  operated  by,  controlled  by,  or  under  common  ownership  with  such  cable  operator 
 may  purchase  or  otherwise  acquire,  directly  or  indirectly,  more  than  a  10  percent  financial 
 interest,  or  any  management  interest,  in  any  local  exchange  carrier  providing  telephone 
 exchange  service  within  such  cable  operator's  franchise  area.  249 


 91.  In  the  Interim  Order,  we  implemented  Section  652  by  adopting  its  terms  into  our  rules.  In  the 
 Notice,  we  solicited  comment  regarding  the  definition  of  "affiliate"  as  that  term  is  used  in  the  context  of  the 
 cable-  telco  buy-  out  provision.  250  Subsequent  to  the  Notice,  we  released  the  Cable  Attribution  Notice  initiating 
 a  broad  review  of  the  attribution/  affiliation  issue  as  it  pertains  to  cable.  251  As  we  are  doing  with  the  LEC 
 affiliate  definition  raised  in  the  effective  competition  context  in  this  proceeding,  we  are  referring  the  definition 
 of  "affiliate"  in  the  context  of  buy-  outs  to  the  Cable  Attribution  Notice  proceeding.  Relevant  comments 
 submitted  in  this  proceeding  will  be  considered  in  CS  Docket  98-  82. 
39
 Federal  Communications  Commission  FCC  99-  57 
 252  47  U.  S.  C.    543(  d);  see  47  C.  F.  R.    76.984. 
 253  1996  Act,    301(  b)(  2),  110  Stat.  115. 
 254  Interim  Order,  11  FCC  Rcd  at  5951. 
 255  Notice,  11  FCC  Rcd  at  5970-  5971. 
 256  Id. 
 257  Id. 
 258  Id. 


 40 


 VI.  UNIFORM  RATE  REQUIREMENT 
 A.  Background 
 92.  Section  623(  d)  of  the  Communications  Act  requires  that:  "A  cable  operator  shall  have  a  rate 
 structure,  for  the  provision  of  cable  service,  that  is  uniform  throughout  the  geographic  area  in  which  cable 
 service  is  provided  over  its  cable  system."  252  The  1996  Act  clarifies  that  the  uniform  rate  requirement  does  not 
 apply  where  the  cable  operator  is  subject  to  effective  competition  and  does  not  apply  to  programming  offered 
 on  a  per  channel  or  per  program  basis.  The  1996  Act  also  exempts  bulk  discounts  to  multiple  dwelling  units 
 ("  MDUs")  from  the  uniform  rate  requirement,  and  prohibits  a  cable  operator  from  charging  predatory  prices 
 to  an  MDU.  The  amendment  provides: 


 This  subsection  does  not  apply  to  (1)  a  cable  operator  with  respect  to  the  provision  of  cable 
 service  over  its  cable  system  in  any  geographic  area  in  which  the  video  programming  services 
 offered  by  the  operator  in  that  area  are  subject  to  effective  competition,  or  (2)  any  video 
 programming  offered  on  a  per  channel  or  per  program  basis.  Bulk  discounts  to  multiple 
 dwelling  units  shall  not  be  subject  to  this  subsection,  except  that  a  cable  operator  of  a  cable 
 system  that  is  not  subject  to  effective  competition  may  not  charge  predatory  prices  to  a 
 multiple  dwelling  unit.  Upon  a  prima  facie  showing  by  a  complainant  that  there  are 
 reasonable  grounds  to  believe  that  the  discounted  price  is  predatory,  the  cable  system  shall 
 have  the  burden  of  showing  that  its  discounted  price  is  not  predatory.  253 


 93.  The  Interim  Order  amended  Section  76.984  of  our  rules  to  conform  with  the  new  statutory 
 language.  254  The  Notice  sought  comment  on  several  aspects  of  this  amendment.  We  tentatively  concluded  that 
 the  bulk  rate  exception  does  not  permit  a  cable  operator  to  offer  discounted  rates  on  an  individual  basis  to 
 subscribers  simply  because  they  are  residents  of  an  MDU,  but  rather  requires  a  bulk  discount  agreement 
 negotiated  by  the  property  owner  or  manager  on  behalf  of  all  of  the  tenants.  255  We  sought  comment  as  to 
 whether  the  bulk  discount  exception  applies  where  MDU  residents  are  billed  individually,  or  only  where  the 
 discount  is  deducted  from  a  bulk  payment  paid  to  the  cable  operator  by  the  property  owner  or  manager  on 
 behalf  of  all  its  residents.  256  We  also  sought  comment  on  the  meaning  of  the  term  "multiple  dwelling  units."  257 


 94.  We  proposed  that  allegations  of  predatory  pricing  be  made  and  reviewed  under  principles  of 
 federal  antitrust  law  as  interpreted  and  applied  by  the  federal  courts.  258  We  requested  commenters  to  address 
40
 Federal  Communications  Commission  FCC  99-  57 
 259  Id.  at  5971-  72,  citing  Communications  Act    632(  d),  47  U.  S.  C.    543(  d). 
 260  See  47  C.  F.  R.    76.1003. 
 261  Notice,  11  FCC  Rcd  at  5972. 
 262  S.  Rep.  No.  92,  102d  Cong.,  1st  Sess.  76  (1991). 
 263  Rate  Order,  8  FCC  Rcd  at  5898. 
 264  Id. 
 265  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992:  Rate 
 Regulation,  Buy-  Through  Prohibition,  Third  Order  on  Reconsideration,  9  FCC  Rcd  4316,  4326  (1994)  ("  Third  Order 
 on  Reconsideration"). 


 266  1996  Act    301(  b)(  2),  amending  47  U.  S.  C.    543(  d);  Notice,  11  FCC  Rcd  at  5971. 


 41 


 what  standards  should  be  applied  to  determine  whether  a  complainant  has  made  out  a  prima  facie  case  "that 
 there  are  reasonable  grounds  to  believe  that  the  discounted  price  is  predatory  .  .  .  ."  259  Because  complaints  in 
 this  connection  could  involve  some  measure  of  discovery,  we  proposed  adopting  the  procedures  set  forth  in  our 
 rules  for  adjudication  of  program  access  complaints.  260  We  sought  comment  as  to  whether  the  program  access 
 procedures  or  some  modified  version  of  those  procedures,  should  apply  on  a  permanent  basis.  261 


 B.  Discussion 
 1.  Bulk  Discounts 
 95.  Congress  established  the  uniform  rate  requirement  in  the  1992  Cable  Act  "to  prevent  cable 
 operators  from  having  different  rate  structures  in  different  parts  of  one  cable  franchise  .  .  .  [and]  to  prevent 
 cable  operators  from  dropping  the  rates  in  one  portion  of  a  franchise  area  to  undercut  a  competitor 
 temporarily."  262  In  implementing  the  1992  Cable  Act,  the  Commission  concluded  that,  consistent  with  the 
 requirement  of  a  uniform  rate  structure,  a  cable  operator  could  establish  some  differences  in  rates  between 
 separate  categories  of  subscribers.  We  found,  for  example,  that  nonpredatory  bulk  discounts  to  multiple 
 dwelling  units  ("  MDUs")  were  permissible  if  offered  on  a  uniform  basis.  263  We  explained:  "[  W]  e  .  .  .  are 
 mindful  that  all  multichannel  distributors  can  realize  significant  efficiencies  and  cost  savings  by  service  [to] 
 multiple  dwelling  units  and  other  high-  occupancy  buildings,  and  we  do  not  wish  to  foreclose  the  prospect  that 
 those  savings  might  be  passed  on  to  consumers  in  those  dwellings."  264  Later,  we  clarified  that  cable  operators 
 could  offer  different  rates  to  MDUs  of  different  sizes  and  could  set  MDU  rates  based  on  the  duration  of  the 
 access  agreement  with  the  property  owner  or  manager,  provided  that  the  operator  could  demonstrate  that  its 
 cost  of  serving  MDUs  varied  with  the  size  of  the  building  and  the  duration  of  the  agreement.  265  However,  we 
 found  that  bulk  arrangements  on  a  variable  basis  between  like  MDUs  were  specifically  prohibited  by  the  1992 
 Cable  Act. 


 96.  The  1996  Act  retains  the  uniform  rate  requirement  for  cable  operators  not  subject  to  effective 
 competition  but  authorizes  affected  cable  operators  to  deviate  from  their  uniform  rate  structures  in  response 
 to  competition  at  MDUs.  266  The  House  Commerce  Committee  proposed  the  statutory  change  because  the 
41
 Federal  Communications  Commission  FCC  99-  57 
 267  H.  R.  Rep.  No.  204(  1),  104th  Cong.  1st  Sess.  109  (1995)  (emphasis  in  original). 
 268  New  Jersey  Ratepayer  Advocate  Comments  at  17. 
 269  According  to  the  State  of  New  York,  the  bulk  rate  exception  only  has  meaning  if  it  provides  regulated  operators 
 with  an  opportunity  to  respond  to  competition  at  MDUs.  State  of  New  York  Comments  at  31.  See  Cablevision 
 Comments  at  15. 


 270  ICTA  Comments  at  10;  OpTel  Comments  at  6. 


 271  WCA  Comments  at  3;  OpTel  Comments  at  6;  Allied  Associated  Partners,  LP  and  Geld  Information  Systems 
 Comments  at  3. 


 272  Id. 


 273  Cablevision  Comments  at  18. 
 274  Comcast  Comments  at  12. 
 275  Cox  Comments  at  10-  11;  Time  Warner  Comments  at  35.  See  also  Comcast  Comments  at  11;  NCTA  Comments 
 at  45. 


 276  Fleischman  Comments  at  30-  31. 


 42 


 Commission's  former  regulations  did  "not  serve  consumers  well  by  effectively  prohibiting  cable  operators  from 
 offering  lower  prices  in  an  MDU  even  where  there  is  another  distributor  offering  the  same  video  programming 
 in  that  MDU."  267  The  New  Jersey  Ratepayer  Advocate's  argument  for  uniform  discounts  much  like  the 
 uniformity  required  by  the  Commission's  former  rules  268  does  not  reflect  the  change  effected  by  the  1996  Act. 
 As  the  State  of  New  York  points  out,  the  bulk  rate  exception  only  has  meaning  if  it  provides  regulated  cable 
 operators  with  an  opportunity  to  respond  to  competition  at  MDUs.  269  Allowing  cable  operators  to  respond  to 
 competition  in  individual  MDUs  gives  consumers  the  benefit  of  lower  prices  from  incumbent  cable  operators. 


 97.  The  record  in  this  proceeding  reflects  disagreement  as  to  what  qualifies  as  a  bulk  discount. 
 SMATV  and  wireless  cable  operators  argue  that  "bulk  discount"  is  widely  understood  to  mean  a  negotiated 
 agreement  with  an  MDU  owner  or  manager  that  reflects  the  efficiencies  of  rendering  one  invoice  and  achieving 
 100%  penetration  of  the  MDU.  270  These  commenters  contend  that  a  true  "bulk  discount"  exists  only  if  the 
 property  owner  or  manager  pays  the  discounted  rate  directly  to  the  MVPD,  and  does  not  include  an 
 arrangement  where  subscribers  are  billed  individually.  271  An  individually  paid  "bulk  discount"  is  an  oxymoron, 
 according  to  ICTA.  272 


 98.  Cablevision  argues  that  the  discount  should  not  have  to  be  negotiated  with  the  property  owner 
 because  such  negotiations  enhance  the  power  of  the  landlord  over  the  residents  and  makes  the  landlord  the 
 gatekeeper  of  price  competition.  273  Comcast  argues  that  some  operators  may  not  need  agreements  to  gain  access 
 to  buildings  and,  therefore,  would  have  no  need  to  negotiate  with  the  building's  owner  or  management.  274  Some 
 cable  operators  explain  that  their  MDU  service  agreements  do  not  always  guarantee  100%  penetration.  275 
 Fleischman  argues  that  a  cable  operator  should  not  be  discouraged  from  offering  bulk  rates  to  MDU  residents 
 simply  because  the  residents  have  the  option  not  to  subscribe.  276 
42
 Federal  Communications  Commission  FCC  99-  57 
 277  Cole  Raywid  Comments  at  17. 
 278  Id.  at  17-  18;  see  Fleischman  Comments  at  31  n.  63. 
 279  Cole  Raywid  Comments  at  18. 
 280  Cablevision  Comments  at  16.  According  to  Cablevision,  services  from  a  competitor  in  its  New  York  and  New 
 Jersey  franchise  areas  have  been  accepted  in  MDUs  following  the  competitor's  guarantee  that  it  would  bill  residents 
 individually  and  solicit  newly  arrived  residents.  Id.  at  16-  17. 


 281  GTE  Comments  at  5;  Cole  Raywid  Comments  at  17;  Time  Warner  Comments  at  35-  36. 


 282  Cox  Comments  at  10-  11;  see  also  Comcast  Comments  at  11. 
 283  Cox  Comments  at  10-  11. 
 284  Cox  Comments  at  11;  see  also  Comcast  Comments  at  11. 
 285  Massachusetts  Cable  Commission  Comments  at  9-  10. 
 286  Id.  at  10. 


 43 


 99.  Cable  operators  explain  that  they  have  a  variety  of  billing  arrangements  with  owners  and 
 residents  of  MDUs.  In  some  instances,  the  operator  provides  services  to  all  the  residents  in  the  building  and 
 renders  a  single  bill  to  the  property  owner  or  manager.  277  Other  operators  bill  the  owner  or  manager  at  a  bulk 
 rate  for  basic  service  to  all  residents  and  bill  subscribers  individually  for  premium  or  other  optional  services 
 they  order.  278  According  to  Cole  Raywid,  there  has  been  an  increasing  trend  toward  direct  billing  to  the 
 individual  MDU  resident  to  promote  maximum  flexibility  and  consumer  choice.  279  Cablevision  states  that  some 
 MDU  managers  and  owners  negotiating  bulk  discounts  prefer  to  have  the  MVPD  provider  bill  residents 
 individually  and  may  make  the  billing  arrangement  a  consideration  in  deciding  to  accept  a  provider's  services.  280 
 Some  cable  operators  assert  that  the  method  of  billing  should  not  be  a  reason  for  disallowing  a  discounted  rate 
 that  would  otherwise  be  permissible.  281  Cox  suggests  that  as  long  as  MDU  residents  are  able  to  obtain  service 
 at  a  reduced  rate,  a  bulk  discount  exists.  282  Cox  argues  that  there  is  no  practical  or  economic  difference 
 between  serving  an  MDU  by  offering  services  under  a  rate  negotiated  with  the  owner  or  manager  of  the 
 development  or  by  simply  offering  service  to  all  residents  of  the  MDU.  283  Cox  also  argues  that  concern 
 regarding  predatory  pricing  does  not  warrant  restrictions  on  bulk  discounts  because  the  statute  allows  aggrieved 
 parties  to  file  a  predatory  pricing  complaint  with  the  Commission.  284  The  Massachusetts  Cable  Commission 
 opposes  any  restrictions  that  would  prevent  cable  operators  from  offering  discounts  to  individual  MDU 
 residents.  285  According  to  the  Massachusetts  Cable  Commission,  restricting  the  cable  operator's  ability  to  offer 
 discounts  hamstrings  the  operator's  ability  to  compete  with  other  providers  and  denies  consumers  who  reside 
 in  the  building  the  resulting  discount.  286  U.  S.  Wireless  and  Wedgewood,  on  the  other  hand,  advocate  requiring 
 that  bulk  discounts  be  offered  only  when  property  owners  negotiate  the  rate  and  pay  the  operator  directly,  in 
43
 Federal  Communications  Commission  FCC  99-  57 
 287  U.  S.  Wireless  Cable,  Inc.  and  Wedgewood  Communications,  Inc.  ("  U.  S.  Wireless  and  Wedgewood")  Reply 
 Comments  at  2.  See  US  WEST  Comments  at  9  (regardless  of  billing  arrangement,  all  tenants  should  receive  the  same 
 negotiated  rate).  ICTA  argues  that  negotiating  with  the  property  owner  is  the  industry  practice  and  should  not  be 
 changed.  ICTA  Comments  at  9. 


 288  Wireless  Cable  Ass'n  International,  Inc.  ("  WCA")  Comments  at  3. 


 289  We  do  not  mean  to  suggest  that  an  owner  or  manager's  control  over  access  to  the  building  is  in  any  way  altered 
 by  this  rule. 


 290  OpTel  Comments  at  6  n.  13;  ICTA  Comments  at  9-  10. 


 291  Cablevision  argues  that  an  operator's  ability  to  offer  bulk  discounts  "stems  from  its  ability  to  deliver  service  to 
 a  concentrated  locus  of  subscribers."  Cablevision  Comments  at  18  n.  40. 


 44 


 order  to  prevent  discrimination  among  tenants.  287  The  Wireless  Cable  Association  is  also  concerned  about  non-uniform 
 discounts  and  advocates  limiting  bulk  discounts  to  true  "bulk"  sales  to  MDUs.  288 


 100.  For  the  purpose  of  the  1996  Act,  a  bulk  discount  is  a  volume  discount,  available  to  all 
 residents  of  the  MDU.  Although  we  tentatively  concluded  in  the  Notice  that  a  bulk  discount  must  be  negotiated 
 with  the  MDU  owner  or  manager  before  the  exemption  from  the  uniform  rate  requirement  can  apply,  we  share 
 Cablevision's  concern  that  mandating  negotiations  would  make  the  MDU  owner  or  manager  the  gatekeeper  of 
 competition,  potentially  regulating  the  operator's  discounts  and  affecting  the  operator's  ability  to  respond  to 
 competition.  We  also  are  concerned  that  a  requirement  of  negotiated  discounts  applicable  only  to  cable 
 operators  may  limit  the  cable  operator's  ability  to  respond  to  competition.  We  conclude  that  Congress' 
 objective,  that  cable  operators  have  the  flexibility  to  offer  discounts  to  MDUs,  is  satisfied  if  the  discounted  rate 
 is  offered  to  all  residents  of  the  MDU.  Negotiation  about  the  discounted  rate  with  the  MDU  owner  or  manager 
 is  not  required.  289 


 101.  In  the  Notice,  we  tentatively  concluded  that  the  bulk  discount  must  be  negotiated  on  behalf  of 
 all  the  residents  in  the  MDU.  Upon  further  consideration,  we  conclude  that  bulk  discounts  should  not  be 
 premised  on  a  cable  operator's  exclusive  access  to  all  residents  or  its  level  of  penetration  of  the  MDU.  While 
 bulk  discounts  must  be  offered  to  all  residents  in  order  to  avoid  rate  discrimination  among  the  cable  operator's 
 subscribers  within  the  MDU,  we  are  also  mindful  that  Congress  enacted  the  bulk  discount  exemption  in 
 anticipation  of  price  competition  within  MDUs.  We  also  see  no  statutory  or  policy  reason  for  disallowing 
 variances  in  a  bulk  discount  to  reflect  introductory  offers  or  promotions,  and  we  see  no  reason  why  a  bulk 
 discount  cannot  be  adjusted  to  reflect  increases  in  penetration  levels  as  long  as  changes  based  on  penetration 
 levels  are  uniformly  applied  within  the  MDU. 


 102.  We  also  see  no  statutory  or  policy  reason  for  conditioning  a  bulk  discount  on  any  particular 
 billing  arrangement  with  the  building  owner  or  manager.  Although  as  OpTel  and  ICTA  argue,  290  bulk 
 discounts  have  been  justified  in  the  past  by  the  efficiencies  of  rendering  one  invoice  and  achieving  100  percent 
 penetration,  the  bulk  rate  exemption  was  codified  to  permit  competitive  responses  as  well  as  to  reflect 
 efficiencies  in  serving  subscribers  concentrated  in  an  MDU.  291  Most  commenters  addressing  this  issue  have 
44
 Federal  Communications  Commission  FCC  99-  57 
 292  City  of  New  York  Comments  at  19-  20;  New  Jersey  Ratepayer  Advocate  Comments  at  17;  State  of  New  York 
 Comments  at  31;  Massachusetts  Cable  Commission  Comments  at  9;  NCTA  Comments  at  45;  Fleischman  Comments 
 at  31;  Cablevision  Comments  at  16;  Comcast  Comments  at  12;  Time  Warner  Comments  at  36. 


 293  For  example,  cable  service  may  be  bundled  with  the  rent  in  some  buildings. 


 294  Notice,  11  FCC  Rcd  at  5971. 
 295  GTE  Comments  at  6. 
 296  ICTA  Comments  at  13;  see  OpTel  Comments  at  7. 
 297  OpTel  Comments  at  7;  accord  WCA  Reply  Comments  at  4-  5. 
 298  Cole  Raywid  Comments  at  18. 
 299  Id.  at  19. 


 45 


 argued  that  the  billing  arrangement  should  not  determine  whether  a  bulk  discount  can  be  offered.  292  To  the 
 extent  that  cable  operators  bill  subscribers  separately  for  optional  and  premium  services,  adding  services 
 covered  by  the  bulk  discount  to  the  bill  should  not  significantly  affect  the  cable  operator's  costs.  To  the  extent 
 that  billing  arrangements  affect  access  to  buildings,  as  Cablevision  argues,  or  have  other  competitive  impact,  293 
 we  do  not  wish  to  create  any  competitive  advantage  or  disadvantage  or  restrict  consumer  choice  in  services  or 
 service  providers  by  imposing  rules  regarding  the  billing  arrangements  used  by  cable  operators. 


 2.  Definition  of  MDU 
 103.  In  the  Notice,  we  sought  comment  on  the  meaning  of  MDU  for  the  purpose  of  the  bulk  rate 
 exception  and  specifically  on  whether  the  definition  should  be  revised  to  correspond  to  the  expanded  "private 
 cable"  exemption  to  the  definition  of  a  cable  system.  294  In  response  to  the  Notice  a  number  of  parties  urged 
 a  narrow  definition  of  the  exemption  from  the  uniform  rate  requirement  in  the  1996  Act.  GTE,  for  example, 
 stated  that  Congress  granted  no  authority  for  the  Commission  to  expand  the  established  definition  of  an  MDU. 
 To  the  contrary,  Congress  left  the  existing  definition  intact  while  it  explicitly  amended  the  definition  of  a  cable 
 system  because  it  desired  to  effect  a  change."  295  ICTA  argues  that  altering  the  "widely  understood  definition 
 [of  MDU]  would  defy  congressional  intent  by  changing  the  ground  rules  absent  any  congressional  directive  to 
 do  so."  296  OpTel  argues  that,  because  Congress  continued  to  use  the  MDU  limitation  when  describing  those 
 bulk  discounts  that  are  exempt  from  the  uniform  rate  requirement,  it  intended  to  retain  the  limitation  that  it 
 deleted  from  the  definition  of  a  cable  system.  297 


 104.  Other  parties  urge  that  the  Commission  use  a  revised  definition  of  MDU  more  closely  tracking 
 the  1996  Act's  "private  cable"  exemption.  Cole  Raywid  argues  that  this  would  "harmonize  two  provisions  of 
 the  1996  Act  that  further  the  same  goal  of  replacing  regulation  with  market  competition."  298  This  revision, 
 according  to  Cole  Raywid,  will  unleash  "fierce"  competition  at  all  properties  that  now  can  be  served  without 
 a  cable  franchise.  299  For  this  reason,  it  and  other  cable  interests  support  a  corresponding  expansion  in  the 
 definition  of  MDU  that  will  allow  cable  operators  to  respond  to  competition  by  deviating  from  their  uniform 
45
 Federal  Communications  Commission  FCC  99-  57 
 300  Id.  Accord  Fleischman  Comments  at  31-  32;  TCI  Comments  at  24;  Time  Warner  Comments  at  37,  Reply 
 Comments  at  48-  49. 


 301  Comcast  Comments  at  12-  13  citing  Rate  Order,  8  FCC  Rcd  at  5897-  99;  accord  Cox  Comments  at  11-  12. 


 302  Comcast  Comments  at  12-  13;  TCI  Comments  at  24. 
 303  Cox  Comments  at  11-  12. 
 304  Rate  Order,  8  FCC  Rcd  at  5897-  98. 
 305  Id.  at  5897. 


 46 


 rate  structure  at  such  properties.  300  Other  cable  parties  point  to  the  expanded  understanding  of  MDU  in  the 
 Rate  Order  implementing  the  uniform  rate  requirement  in  the  1992  Cable  Act.  301  Comcast,  TCI,  and  Time 
 Warner  urge  that  the  Rate  Order  interpretation  is  entirely  consistent  with  the  1996  Act's  expansion  of  the 
 private  cable  exemption.  302  Cox  distinguishes  service  to  the  private  and  quasi-  private  developments  listed  in 
 the  Rate  Order  from  service  to  single  family  homes,  and  argues  that  the  1996  Act  simply  expands  the  class  to 
 include  all  subscribers  located  wholly  on  private  property,  without  regard  to  the  nature  or  common  ownership 
 of  the  property  served.  303 


 105.  We  believe  that  following  the  1993  Rate  Order's  coverage  is  consistent  with  the  1996  Act 
 exemptions  from  the  uniform  rate  requirement.  In  the  1993  Rate  Order,  the  Commission  considered 
 exemptions  from  the  uniform  rate  requirement  based  on  reasonable  categories  of  customers  and  cable  service 
 rather  than  the  definition  of  a  cable  system.  304  The  Rate  Order  took  a  more  expansive  view  of  MDUs  than  we 
 had  taken  in  the  context  of  defining  cable  systems,  and  concluded  that  "bulk  discounts  to  multiple  dwelling 
 units,  including  apartment  buildings,  hotels,  condominium  associations,  hospitals,  universities,  and  trailer 
 parks,  could  form  a  valid  basis  for  distinctions  among  subscribers"  and  would  be  consistent  with  the  uniform 
 rate  requirement.  305  Although  the  1996  Act  removed  the  Commission's  requirement  that  bulk  discounts  be 
 offered  pursuant  to  a  uniform  rate  structure,  the  Act  does  not  broaden  the  class  to  which  bulk  discounts  can 
 be  offered  beyond  multiple  dwelling  units  and  does  not  require  a  different  interpretation  of  "MDU"  from  that 
 in  the  Commission's  Rate  Order.  We,  therefore,  conclude  that  the  exemption  from  the  uniform  rate  requirement 
 should  apply  in  situations  such  as  those  addressed  in  the  Rate  Order.  We  need  not  decide,  and  expressly  do 
 not  decide,  whether  and  how  the  definition  of  MDU  corresponds  to  the  private  cable  exemption  under  the  1996 
 Act. 


 3.  Predatory  Pricing 
 106.  Congress  provided  for  bulk  discounts  to  MDUs  in  the  context  of  its  broader  effort  in  the  1996 
 Act  to  create  an  environment  that  offered  consumers  the  benefits  of  competition,  including  better  quality  service 
 and  lower  prices.  At  the  same  time,  Congress  prohibited  cable  operators  offering  bulk  discounts  from  charging 
 predatory  prices  to  an  MDU.  Congress  further  provided  that,  if  a  complainant  makes  a  prima  facie  showing 
 that  there  are  reasonable  grounds  to  believe  that  the  discounted  price  is  predatory,  the  cable  operator  has  the 
 burden  of  showing  that  the  discounted  price  is  not  predatory.  We  believe  that,  by  addressing  predatory  pricing 
 in  the  context  of  the  bulk  discount  exception  to  the  uniform  pricing  requirement,  Congress  intended  to  make 
 available  a  timely,  cost  effective  review  of  predatory  pricing  complaints  separate  from  the  antitrust  review 
46
 Federal  Communications  Commission  FCC  99-  57 
 306  See  1996  Act    601(  b),  110  Stat.  143  (Act  does  not  modify,  impair,  or  supercede  the  antitrust  laws). 
 307  See  NCTA  Comments  at  47;  Fleischman  Comments  at  32;  Cole  Raywid  Comments  at  19-  20;  TCI  Comments  at 
 18;  Time  Warner  Comments  at  38;  Comcast  Reply  Comments  at  10;  see  U.  S.  Wireless  Reply  Comments  at  3 
 (commenter  supports  using  federal  antitrust  standards  "so  long  as  the  cost  analysis  accounts  for  a  cable  operator's  actual 
 costs"). 


 308  ICTA  Reply  Comments  at  13-  16;  OpTel  Comments  at  8-  9;  U.  S.  Wireless  and  Wedgewood  Comments  at  6-  7;  see 
 New  Jersey  Ratepayer  Advocate  Comments  at  17  (advocating  lenient  standards  to  determine  when  a  complainant  has 
 made  a  prima  facie  case). 


 309  Brooke  Group,  Ltd.  v.  Brown  &  Williamson  Tobacco  Corp.,  509  U.  S.  209,  226-  27  ("  Brooke"),  reh.  denied,  509 
 U.  S.  940  (1993). 


 310  Id.  at  222. 


 311  Id.  at  222,  224. 
 312  See  PanAmSat  Corp.  v.  COMSAT  Corp.  --  COMSAT  World  Systems,  12  FCC  Rcd  6952,  6957-  59  (1997) 
 ("  PanAmSat")  (the  offense  of  predatory  pricing  has  a  pricing  element  and  a  recoupment  element). 


 47 


 available  under  federal  or  state  antitrust  laws  or  other  state  consumer  laws.  306  We  conclude,  therefore,  that  our 
 consideration  of  predatory  pricing  complaints  should  be  guided  by  principles  of  federal  antitrust  law,  307  as 
 proposed  in  our  Notice,  but  should  not  replicate  or  replace  antitrust  litigation. 


 107.  We  disagree  with  those  commenters  who  argue  that  Congress  intended  to  provide  video 
 services  competitors  with  a  higher  degree  of  protection  than  is  provided  by  the  federal  antitrust  laws.  308 
 Nothing  in  the  statutory  language  or  the  legislative  history  suggests  that  Congress  wanted  this  Commission  to 
 limit  price  reductions  arbitrarily  if  the  discounts  cable  operators  offered  were  otherwise  not  predatory.  To 
 paraphrase  the  Supreme  Court,  it  would  be  ironic  indeed  if  the  standards  for  predatory  pricing  liability  were 
 so  low  that  predatory  pricing  complaints  themselves  became  a  tool  for  keeping  prices  high.  309 


 108.  In  considering  how  to  address  predatory  pricing  for  the  purpose  of  Section  623(  d),  we  have 
 looked  for  guidance  to  predatory  pricing  cases  in  other  areas  of  the  law,  particularly  judicial  decisions  relating 
 to  the  Sherman  and  Robinson-  Patman  Acts.  Under  both  the  Sherman  and  Robinson-  Patman  Acts,  the  essence 
 of  a  predatory  pricing  claim  is  a  business  rival's  pricing  of  its  products  in  an  unfair  manner  with  an  object  to 
 eliminate  or  retard  competition  and  thereby  gain  and  exercise  control  over  prices  in  the  relevant  market.  310  The 
 test  for  predatory  pricing,  therefore,  is:  (1)  whether  the  prices  complained  of  are  below  an  appropriate  measure 
 of  the  alleged  predator's  costs;  and  (2)  whether  the  alleged  predator  had  at  least  a  reasonable  prospect  of 
 recouping  its  investment  in  below-  cost  prices.  311  A  complainant  must  make  a  prima  facie  case  on  both  elements 
 to  substantiate  its  allegations.  312  As  commenters  point  out,  there  are  differences  among  the  federal  circuit 
 courts  about  what  is  the  appropriate  measure  of  cost  in  antitrust  litigation.  For  the  purpose  of  considering 
 whether  a  bulk  discount  to  an  MDU  is  predatory,  we  will  consider  whether  a  cable  operator's  price  to  an  MDU 
 recovers  at  least  the  incremental  costs  of  serving  that  MDU,  including  any  new  costs  from  constructing  or 
 upgrading  its  physical  facilities  in  order  to  offer  the  bulk  service  agreed  to  with  the  building's  owner  or 
 manager,  and  whether  the  cable  operator  has  a  reasonable  prospect  of  recouping  its  investment  in  below  cost 
 prices  in  the  MDU. 
47
 Federal  Communications  Commission  FCC  99-  57 
 313  Fleischman  Comments  at  33-  34;  Cole  Raywid  Comments  at  20;  Time  Warner  Comments  at  38;  OpTel  Comments 
 at  9;  ICTA  Comments  at  17;  U.  S.  Wireless  and  Wedgewood  Reply  Comments  at  4. 


 314  The  cash  flow  margin  is  the  ratio  of  cash  flow  to  revenue.  It  is  a  commonly  used  financial  analysis  tool  for 
 determining  an  MSO's  operating  efficiency,  profitability,  and  liquidity.  See  Annual  Assessment  of  the  Status  of 
 Competition  in  Markets  for  the  Delivery  of  Video  Programming,  Fourth  Annual  Report,  13  FCC  Rcd  1034,  1054  para. 
 25  &  n.  65  (1998)  ("  Fourth  Annual  Competition  Report"). 


 315  Time  Warner  Comments  at  40  (argues  that  a  prima  facie  case  might  be  made  where  the  cable  operator's  bulk 
 discount  to  an  MDU,  compared  to  the  retail  residential  rate,  is  greater  than  the  industry  cash  flow  margin);  Cole 
 Raywid  Comments  at  20. 


 316  ICTA  Comments  at  17. 


 317  OpTel  Comments  at  9. 
 318  See  Fourth  Annual  Competition  Report,  13  FCC  Rcd  1034,  1054  para.  25  &  n.  65,  1179  Table  B-  6.  The  data  used 
 in  determining  industry  revenues  and  cash  flow  were  from  public  filings  with  the  Securities  and  Exchange 
 Commission,  press  releases,  and  discussions  with  company  personnel  for  cable  firms  with  a  subscribership  of  500,000 
 or  more.  Id.  at  1180.  The  1996  industry  cash  flow  margin  reported  in  the  Fourth  Annual  Competition  Report  was  45% 
 after  rounding  to  the  nearest  whole  number.  Id.  at  1054,  1179  Table  B-  6.  1996  cash  flow  margins  for  the  individual 
 companies  in  the  survey  are  shown  in  Id.  at  1185,  Table  7B.  In  Annual  Assessment  of  the  Status  of  Competition  in 
 Markets  for  the  Delivery  of  Video  Programming,  Fifth  Annual  Report,  13  FCC  Rcd  24284  (1998),  the  Commission 
 reported  industry-  wide  figures  in  Table  B-  6  but  did  not  determine  firm-  specific  cash  flow  information.  The  cash  flow 
 figures  used  in  the  Fifth  Annual  Report  differed  somewhat  from  the  figures  used  previously.  The  revised  cash  flow 
 margin  for  1996  in  Table  B-  6  is  43%  rounded  to  the  nearest  whole  number.  The  cash  flow  margin  for  1997  is  44%. 


 48 


 109.  Many  commenters  expressed  concern  about  the  burden  of  filing  and  defending  complaints, 
 particularly  if  the  adjudicatory  process  replicates  antitrust  litigation.  To  avoid  this  burden,  several  commenters 
 support  using  some  objective  threshold  or  "quick-  look"  procedure  for  determining  whether  rate  reductions  are 
 either  presumptively  permissible  or  whether  the  complainant  has  made  a  prima  facie  case,  at  least  with  respect 
 to  the  pricing  factor.  313  Commenters  were  not  in  agreement  as  to  what  the  threshold  should  be,  however.  Cable 
 commenters  support  a  threshold  based  on  the  industry  cash  flow  margin  314  as  reported  in  the  Commission's 
 annual  competition  reports  or  specified  in  the  Commission's  cost  of  service  rules.  315  ICTA,  on  the  other  hand, 
 argues  that  if  discounted  prices  vary  among  like  MDUs  by  ten  percent  or  greater,  the  price  is  predatory.  316 
 OpTel  argues  that  discounts  greater  than  25  percent  off  rates  to  like  MDUs  should  be  deemed  predatory.  317 
 U.  S.  Wireless  argues  that  a  25%  discount  is  far  too  great. 


 110.  We  are  not  persuaded  that  a  ready  mechanism  exists  for  a  quick  look  at  a  cable  operator's  bulk 
 discount.  Costs  involved  in  serving  a  particular  MDU  are  likely  to  vary  considerably,  depending  on  the 
 location  involved  or  the  specifics  of  the  MDU.  We  recognize,  as  some  parties  suggest,  that  the  cash  flow 
 margin  is  likely  to  be  a  reasonable  surrogate  for  an  operator's  fixed  costs,  so  that  any  price  reduction  within 
 the  cash  flow  margin  could  be  assumed  to  recover  the  operator's  variable  or  incremental  costs.  Thus,  although 
 price  reductions  falling  within  the  cash  flow  margin  might  be  significant,  they  are  not  likely  to  be  predatory. 
 However,  the  data  readily  available  in  the  Commission's  annual  competition  reports  for  the  cable  industry 
 reflect  a  national  average  and  are  not  specific  to  individual  markets  or  MDUs.  318  For  this  reason,  the  industry 
 cash  flow  margin  provides  little  basis  for  drawing  conclusions  about  a  particular  discount.  Recommendations 
 that  the  Commission  set  the  threshold  at  some  percentage  variation  from  rates  of  like  MDUs  neither  include 
48
 Federal  Communications  Commission  FCC  99-  57 
 319  Brooke,  509  U.  S.  at  225. 
 320  47  U.  S.  C.    543(  d). 
 321  See  ICTA  Comments  at  17. 
 322  PanAmSat,  12  FCC  Rcd  at  6962,  citing  Vollrath  Co.  v.  Samni  Corp.,  1990-  91  Trade  Cases  (CCH)    68955  at 
 63133  (C.  D.  Cal.  1989). 


 323  See  Brooke,  509  U.  S.  at  220,  citing  Standard  Oil  Co.  v.  FTC,  340,  U.  S.  231,  250  (1951);  Great  Atlantic  &  Pacific 
 Tea  Co.,  v.  FTC,  440  U.  S.  69,  80  &  n.  13  (1979);  Automatic  Canteen  Co.  of  America  v.  FTC,  346  U.  S.  61,  63,  74 
 (1953).  In  its  Comments  at  19-  23,  TCI  advocated  that  a  "meeting  competition"  defense  be  recognized.  See  State  of 
 New  York  Comments  at  31  (bulk  rate  exception  only  has  meaning  if  the  operator  can  respond  to  competition).  But 
 see  U.  S.  Wireless  Reply  Comments  at  6  (opposing  a  "meeting  competition"  defense);  ICTA  Reply  Comments  at  8-  9 


 49 


 economic  support  for  the  percentages  advocated  nor  take  into  account  the  fact  that  the  1996  Act  ended  any 
 requirement  of  uniform  rates  for  like  MDUs.  Accordingly,  we  are  not  adopting  a  quick  look  mechanism  for 
 determining  whether  a  cable  operator's  discount  is  permissible. 


 111.  A  prima  facie  showing  of  predatory  pricing  under  Section  623(  d)  has  two  essential  elements. 
 First,  a  complainant  bears  the  burden  of  showing  reasonable  grounds  to  believe  that  the  cable  operator's 
 discounted  price  does  not  recover  the  cable  operator's  incremental  costs;  namely,  all  non-  fixed  costs  the 
 operator  incurs  that  are  directly  attributable  to  serving  the  particular  MDU,  but  also  including  any  new  costs 
 from  constructing  or  upgrading  its  physical  facilities  in  order  to  offer  the  bulk  service  for  the  MDU  at  issue. 
 Second,  a  complainant  must  meet  the  recoupment  requirement.  It  must  present  a  plausible  theory  showing  that 
 the  cable  operator  has  a  reasonable  prospect  of  ultimately  recouping  its  investment  in  below-  cost  prices, 
 including  the  time  value  of  the  money  invested  in  below-  cost  pricing.  319  Because  Section  623(  d)  of  the 
 Communications  Act  addresses  "predatory  prices  to  a  multiple  dwelling  unit,"  a  complainant's  showing  should 
 address  recoupment  of  below-  cost  prices  from  future  price  increases  in  the  same  MDU.  A  complainant  may 
 also  address  additional  profits  from  other  MDUs  where  entry  may  have  been  discouraged  by  the  same 
 predatory  pricing  strategy. 


 112.  Once  a  complainant  has  made  a  prima  facie  showing,  the  cable  operator  has  the  burden  of 
 showing  that  its  discounted  price  is  not  predatory.  320  The  cable  operator  can  meet  its  burden  under  the  cost 
 requirement  by  showing  its  price  recovers  the  incremental  costs  of  serving  the  particular  MDU,  including  the 
 cost  of  any  new  or  upgraded  facilities  installed  to  provide  the  discounted  service.  The  amount  of  any  royalty 
 or  revenue  sharing  benefit  that  the  MDU  owner  or  manager  receives  from  the  cable  operator  should  be  taken 
 into  consideration,  since  this  amount  effectively  reduces  the  rate  paid.  321  A  cable  operator  can  meet  its  burden 
 under  the  recoupment  requirement  by  showing  that  there  are  no  significant  barriers  to  reentry  or  the  appearance 
 of  new  entrants  and  that  it  cannot  raise  prices  sufficiently  to  recoup  its  investment  in  below-  cost  prices  without 
 creating  opportunities  for  a  competitor.  The  nature  and  duration  of  the  cable  operator's  bulk  rate  agreement 
 with  the  MDU  would  be  relevant  to  this  showing.  The  cable  operator  can  also  show  that  below-  cost  prices  are 
 justified  by  some  economic  efficiency,  such  as  promotional  pricing.  For  example,  low  prices  accompanying 
 new  product  introductions  and  temporary  price  promotions  to  induce  future  sales  have  not  been  viewed  as 
 predatory,  even  though  they  might  have  been  below  an  appropriate  measure  of  cost.  322  In  addition,  the  cable 
 operator  can  show  that  differences  in  prices  result  from  conduct  undertaken  in  good  faith  to  meet  an  equally 
 low  price  of  a  competitor.  323 
49
 Federal  Communications  Commission  FCC  99-  57 
 (a  "meeting  competition"  defense  is  inconsistent  with  Time  Warner,  56  F.  3d  at  191-  92).  The  court  in  Time  Warner, 
 however,  held  only  that  the  Commission  did  not  act  arbitrarily  or  capriciously  in  denying  a  "meeting  competition" 
 defense  when  applying  the  language  of  the  1992  Cable  Act.  56  F.  3d  at  191-  92. 


 324  Time  Warner  Comments  at  42. 


 325  See  generally  Third  Order  on  Reconsideration,  9  FCC  Rcd  at  4326  para.  22  (grandfathering  bulk  discounts  in 
 effect  when  Commission  implemented  uniform  rate  requirement  of  the  1992  Cable  Act). 


 326  47  C.  F.  R.    76.1003. 


 327  See  NCTA  Comments  at  48;  Fleischman  Comments  at  35;  Time  Warner  Comments  at  42;  WCA  Comments  at 
 8-  10. 


 328  E.  g.,  Fleischman  Comments  at  30-  35;  Time  Warner  Comments  at  42-  43. 


 329  47  C.  F.  R.    76.1003(  h). 
 330  1998  Biennial  Regulatory  Review,  FCC  98-  348  at  para.  15. 
 331  47  C.  F.  R.    76.7. 
 332  47  C.  F.  R.    0.457,  0.459. 
 333  47  C.  F.  R.    76.7(  f),  76.9,  as  amended  in  1998  Biennial  Regulatory  Review,  Appendix  A,    76.7(  f),    76.9. 


 50 


 113.  Time  Warner  has  asked  that  MDU  rates  based  on  regulations  promulgated  under  the  1992 
 Cable  Act  not  be  made  subject  to  new  provisions.  324  We  agree  that  bulk  discounts  permissible  under  the 
 standards  in  effect  when  they  were  implemented  should  not  become  impermissible  because  the  standards 
 changed  subsequently.  325  However,  any  contractual  changes  or  renewals  after  the  1996  Act  must  conform  to 
 Section  632(  d)  as  amended  by  the  1996  Act. 


 4.  Other  Issues 
 114.  Because  predatory  pricing  complaints  are  likely  to  involve  some  measure  of  discovery,  the 
 Notice  asked  for  comment  on  adopting  the  procedures  of  the  Commission's  program  access  rules  in  Section 
 76.1003.  326  Commenters  generally  agree  with  this  proposal.  327  Some  commenters  are  also  concerned  about 
 protections  against  disclosure  of  proprietary  information,  328  a  matter  also  addressed  in  our  program  access 
 rules.  329  Subsequent  to  our  proposal,  we  have  streamlined  our  procedural  rules  by  specifying  general 
 procedures  for  discovery  in  Section  76.7(  f)  of  our  rules  and  by  specifying  general  procedures  governing  the 
 confidentiality  of  information  in  new  Section  76.9  of  our  rules.  330  Complaints  about  predatory  pricing  should 
 be  filed  pursuant  to  the  general  filing  procedures  in  Section  76.7  of  our  rules.  331  Discovery  and  confidential 
 proprietary  information  shall  be  handled  as  they  are  under  the  Commission's  Freedom  of  Information  Act 
 rules  332  and  Sections  76.7(  f)  and  76.9  of  our  rules.  333 


 115.  Section  76.7(  f)  of  our  rules  provides  that  Commission  staff,  in  its  discretion,  may  order 
 discovery  limited  to  specific  issues  specified  by  the  Commission.  In  addition,  Commission  staff  has  the 
 discretion  to  direct  parties  to  submit  discovery  proposals,  together  with  a  memorandum  in  support  of  the 
50
 Federal  Communications  Commission  FCC  99-  57 
 334  NCTA  Comments  at  49. 
 335  Cablevision  Comments  at  19-  20. 
 336  Id.,  citing  Time  Warner  v.  FCC,  56  F.  3d  at  191. 
 337  See  47  C.  F.  R.,  Part  76,  Subpart  K. 
 338  1992  Cable  Act    16(  a),  106  Stat.  1490. 
 339  1996  Act,    301(  e),  110  Stat.  116;  47  U.  S.  C.    544(  e). 


 51 


 discovery  requested.  While  NCTA  has  suggested  that  discovery  should  be  available  only  after  a  complainant 
 has  met  the  prima  facie  showing  threshold,  334  our  rules  give  Commission  staff  the  discretion  to  permit  discovery 
 both  preceding  and  after  a  prima  facie  showing  has  been  made,  as  long  as  a  complaint  establishes  a  sufficient 
 factual  basis  to  proceed. 


 116.  Cablevision  encourages  the  Commission  to  make  clear  that  states  and  LFAs  may  not  impose 
 uniform  rate  requirements  that  are  inconsistent  with  federal  law.  335  Citing  the  decision  in  Time  Warner, 
 Cablevision  argues  that  allowing  local  authorities  to  adopt  uniform  rate  requirements  on  unregulated  services 
 or  in  areas  subject  to  effective  competition  would  be  not  only  inconsistent  with  the  1996  Act,  but  would  also 
 contravene  the  1992  Act  by  imposing  "a  form  of  rate  regulation"  in  circumstances  where  it  is  not  authorized 
 by  federal  law.  336  We  agree.  States  and  LFAs  may  not  adopt  uniform  rate  requirements  that  conflict  or  are 
 in  any  way  incongruent  with  the  statutory  provisions  or  our  rules. 


 VII.  TECHNICAL  STANDARDS 
 A.  Background 
 117.  Pursuant  to  Section  624(  e)  of  the  Communications  Act,  the  Commission  adopted  technical 
 standards  that  govern  the  picture  quality  performance  of  cable  television  systems.  337  Prior  to  enactment  of  the 
 1996  Act,  Section  624(  e)  provided,  in  part: 


 A  franchising  authority  may  require  as  part  of  a  franchise  (including  a  modification,  renewal, 
 or  transfer  thereof)  provisions  for  the  enforcement  of  the  standards  prescribed  under  this 
 subsection.  A  franchising  authority  may  apply  to  the  Commission  for  a  waiver  to  impose 
 standards  that  are  more  stringent  than  the  standards  prescribed  by  the  Commission  under  this 
 subsection.  338 


 118.  Section  301(  e)  of  the  1996  Act  amended  Section  624(  e)  by  replacing  this  language  with  the 
 following: 


 No  State  or  franchising  authority  may  prohibit,  condition,  or  restrict  a  cable  system's  use  of 
 any  type  of  subscriber  equipment  or  any  transmission  technology.  339 


 119.  In  the  Interim  Order,  we  eliminated  language  in  Note  Six  to  Section  76.605  of  the 
 Commission's  rules  that  permitted  an  LFA  to  apply  to  the  Commission  for  a  waiver  to  impose  more  stringent 
51
 Federal  Communications  Commission  FCC  99-  57 
 340  See  also  Committee  on  Science,  Technology  and  Energy  of  the  New  Hampshire  House  of  Representatives,  11 
 FCC  Rcd  10250  (1996)  ("  Committee  on  Science,  Technology  and  Energy").  In  that  item,  the  Cable  Services  Bureau 
 concluded  that  state  and  local  laws  prohibiting  the  use  of  converter  boxes  were  preempted  by  Section  301(  e)  of  the  1996 
 Act. 


 341  Note  6  to  Section  47  C.  F.  R.  76.605  now  reads:  "No  State  or  franchising  authority  may  prohibit,  condition,  or 
 restrict  a  cable  system's  use  of  any  type  of  subscriber  equipment  or  any  transmission  technology." 


 342  47  C.  F.  R.    76.601-  76.630. 


 343  47  C.  F.  R.    76.601(  a),  (d)  and  (Note). 
 344  47  C.  F.  R.    76.605  (Notes  1  and  2). 
 345  47  C.  F.  R.    76.607. 
 346  Id. 
 347  47  U.  S.  C.    546(  b)(  2). 
 348  47  U.  S.  C.    546(  c)(  1)(  B). 
 349  47  U.  S.  C.    541(  a)(  4)(  C). 


 52 


 cable  technical  standards  than  the  standards  prescribed  by  the  Commission.  340  We  replaced  this  language  with 
 the  new  language  from  Section  301(  e)  of  the  1996  Act.  341 


 120.  Current  Commission  rules  dictate  specific  technical  standards  and  provide  for  enforcement 
 by  LFAs.  342  Upon  request  by  an  LFA,  an  operator  must  be  prepared  to  demonstrate  compliance  with  the 
 Commission's  technical  standards.  343  In  addition,  the  rules  provide  that,  in  some  instances,  an  operator  may 
 negotiate  with  its  LFA  for  standards  less  stringent  than  otherwise  prescribed  by  the  Commission's  rules.  344 
 Section  76.607  of  the  Commission's  rules  requires  an  operator  to  establish  a  process  for  receiving  signal  quality 
 complaints.  345  Subscriber  complaints  regarding  compliance  with  the  Commission's  technical  standards  must 
 be  referred  to  the  LFA  and  the  operator  before  being  referred  to  the  Commission.  346 


 121.  In  the  Notice,  we  sought  comment  on  the  overall  scope  and  meaning  of  Section  624(  e)  of  the 
 Communications  Act,  as  amended  by  Section  301(  e)  of  the  1996  Act.  We  inquired  as  to  the  effect  of  this 
 provision  on  the  rules  cited  above,  and  on  the  cable  franchising,  renewal  and  transfer  processes.  We  noted  that 
 the  1996  Act  did  not  amend  the  franchising  or  the  renewal  provisions  of  the  Communications  Act.  Specifically, 
 we  observed  that  Section  626(  b)(  2)  of  the  Communications  Act  provides  that,  "[  s]  ubject  to  Section  624"  an 
 operator's  proposal  for  franchise  renewal  "shall  contain  such  material  as  the  franchising  authority  may  require, 
 including  proposals  for  upgrade  of  the  cable  system."  347  In  addition,  Section  626(  c)(  1)(  B)  provides  for  LFA 
 consideration  of  the  "quality  of  the  operator's  service,  including  signal  quality"  during  the  course  of  a  renewal 
 under  Section  626.  348  Section  621(  a)(  4)(  C)  provides,  in  part,  that  an  LFA  awarding  a  franchise  "may  require 
 adequate  assurance  that  the  cable  operator  has  the  .  .  .  technical  .  .  .  qualifications  to  provide  cable  service."  349 


 B.  Discussion 
52
 Federal  Communications  Commission  FCC  99-  57 
 350  NCTA  Comments  at  50-  51.  Accord  Time  Warner  Comments  at  49. 
 351  TCI  Reply  Comments  at  2. 
 352  Time  Warner  Comments  at  49. 
 353  See  Denver  Comments  at  7-  8;  Michigan,  Illinois,  and  Texas  Communities  Reply  Comments  at  7;  Los  Angeles, 
 League  of  Cities,  and  NATOA  Reply  Comments  at  15-  16. 


 354  Id. 


 355  Id.  See  also  Kramer,  Monroe  &  Wyatt,  LLC  ("  Kramer")  Comments  at  6-  8. 
 356  See  e.  g.,  Denver  Comments  at  14;  New  York  City  Comments  at  20;  New  Jersey  Board  Comments  at  7. 


 53 


 122.  Commenters  have  generally  focused  on  two  interrelated  aspects  of  amended  Section  624(  e) 
 of  the  Communications  Act.  The  first  is  whether  that  section  precludes  an  LFA  from  enforcing  the 
 Commission's  technical  standards.  The  second  is  the  effect  of  Section  624(  e)  on  the  ability  of  an  LFA  to 
 establish  franchise  requirements  for  facilities  and  equipment,  during  initial  franchising  or  renewal,  and  to 
 enforce  these  requirements.  Some  commenters  read  Section  624(  e)  broadly  (for  example,  that  Section  624(  e) 
 prohibits  all  local  regulation  and  enforcement  in  the  areas  of  cable  equipment,  facilities,  technical  standards 
 and  transmission  technologies),  while  others  interpret  the  ban  in  Section  624(  e)  on  local  restrictions  on 
 "subscriber  equipment"  and  "transmission  technology"  more  narrowly  (for  example,  the  ban  is  meant  to  refer 
 only  to  restrictions  on  converter  boxes,  remotes,  and  scrambling  and  trapping  technologies). 


 123.  Cable  operators  generally  rely  on  the  deletion  of  the  permissive  enforcement  language,  inserted 
 by  the  1992  Cable  Act,  as  unequivocal  proof  that  Congress  intended  to  eliminate  completely  LFA  enforcement 
 of  the  Commission's  technical  standards.  NCTA  states  the  Commission  must  eliminate  day-  to-  day  LFA 
 oversight  and  enforcement  of  technical  standards.  NCTA  asserts  that  the  elimination  of  enforcement  language 
 in  Section  624(  e)  is  confirmation  of  Congress'  "unambiguous  intent  to  preclude"  local  establishment  and 
 enforcement  of  technical  standards,  and  that  "no  other  Congressional  action  was  required."  350  Similarly,  TCI 
 states  that  Congress'  deletion  of  the  enforcement  language,  and  its  addition  of  language  forbidding  an  LFA  from 
 restricting  the  use  of  any  subscriber  equipment  or  transmission  technology,  "unequivocally  prohibits"  State  and 
 local  authorities  from  enforcing  technical  standards.  351  Time  Warner  asserts  that  Congress  would  not  have 
 deleted  the  enforcement  language  from  Section  624(  e)  if  it  had  wanted  LFA's  to  continue  enforcement  of  the 
 Commission's  technical  standards.  352 


 124.  As  several  LFA  commenters  have  noted,  prior  to  the  1992  Cable  Act's  addition  of  the 
 permissive  enforcement  language  in  Section  624(  e),  LFAs  were  the  primary  enforcers  of  cable  operator 
 technical  standards,  and  the  language  added  in  the  1992  Cable  Act  did  nothing  to  change  that  status.  353  The 
 Commission,  according  to  these  commenters,  has  long  recognized  the  importance  of,  and  relied  upon,  local 
 enforcement  in  the  area  of  technical  standards.  354  These  commenters  point  out  that  Section  624(  e),  as  amended, 
 does  not  expressly  prohibit  a  state  or  LFA  from  enforcing  the  national  technical  standards  established  by  the 
 Commission,  rather  it  is  silent  with  respect  to  this  issue.  355  According  to  these  commenters,  because  of  the 
 history  of  local  enforcement  in  this  area,  coupled  with  established  Commission  technical  standards  which  call 
 for  primary  enforcement  by  local  authorities,  Congress  would  have  included  a  prohibition  on  local  enforcement 
 in  the  language  of  the  statute  if  had  intended  to  end  local  enforcement.  356 
53
 Federal  Communications  Commission  FCC  99-  57 
 357  Denver  Comments  at  14  (emphasis  in  original). 
 358  New  York  City  Comments  at  20-  21,  citing  Conference  Report  at  168,  170. 
 359  New  Jersey  Board  Comments  at  7. 
 360  Denver  Comments  at  7 
 361  H.  R.  Rep.  No.  204(  1),  104th  Cong.,  1st  Sess.  110  (1995). 
 362  See  47  C.  F.  R.  pt.  76  subpt.  K--  Technical  Standards.  See  e.  g.,  Michigan,  Illinois  and  Texas  Communities  Reply 
 Comments  at  2;  Comcast  Comments  at  20-  22;  GMCC  Comments  at  2;  US  WEST  Reply  Comments  at  11.  We  note 
 that  franchising  authorities  may  petition  the  Commission  for  a  waiver  to  impose  "additional  or  different"  requirements, 
 pursuant  to  47  C.  F.  R.    76.7.  See  also  City  of  New  York  v.  FCC,  486  U.  S.  57,  108  S.  Ct.  1637  (1988).  In  that  decision, 
 the  Court  found  that  the  Commission  did  not  exceed  its  statutory  authority  by  preempting  state  and  local  technical 
 standards,  but  also  noted  that  state  and  local  authorities  remained  free  to  petition  the  Commission  for  individualized 
 waivers  pursuant  to  47  C.  F.  R.    76.7.  Id.  at  n.  5. 


 363  Competition,  Rate  Deregulation,  and  the  Commission's  Policies  Relating  to  the  Provision  of  Cable  Television 
 Service,  Report,  5  FCC  Rcd  4962,  5056  (1990). 


 54 


 125.  Denver  states,  "Simply,  all  Congress  did  in  the  1996  Act  is  to  keep  certain  technical  standards 
 development  at  the  federal  level."  357  New  York  City  emphasizes  that  the  Conference  Report  is  concerned  with 
 states  and  franchising  authorities  regulating  in  the  areas  of  technical  standards,  customer  equipment  and 
 transmission  technology.  358  According  to  the  New  Jersey  Board,  the  changes  to  Section  624(  e)  do  not  preclude 
 LFA  oversight  of  "a  minimum  level  of  technical  quality  relating  to  considerations  such  as  standards  for  visual 
 carrier  to  noise  ratios,  signal  leakage,  visual  and  aural  signal  levels  to  subscriber  equipment  or  safety 
 considerations  such  as  bonding  or  grounding."  359  Denver  states,  "If  Congress  wished  to  take  a  stance  directly 
 against  LFA  involvement  in  the  enforcement  of  technical  standards,  it  would  have,  for  example,  proactively 
 inserted  the  word  "not"  after  the  word  "may""  in  the  deleted  sentence.  360 


 126.  According  to  the  legislative  history  of  the  amendment  to  Section  624(  e): 
 Subsection  (j)  [now  section  301(  e)]  amends  section  624(  e)  of  the  Communications  Act  by 
 prohibiting  States  or  franchising  authorities  from  regulating  in  the  areas  of  technical 
 standards,  customer  equipment,  and  transmission  technologies.  The  Committee  intends  by  this 
 subsection  to  avoid  the  affects  of  disjointed  local  regulation.  The  Committee  finds  that  the 
 patchwork  of  regulations  that  would  result  from  a  locality-  by-  locality  approach  is  particularly 
 inappropriate  in  today's  intensely  dynamic  technological  environment.  361 


 127.  The  legislative  history  clearly  states  that  the  amendment  prohibits  states  or  LFAs  from 
 regulating  in  the  area  of  technical  standards.  We  agree  with  those  commenters  asserting  that  Section  624(  e) 
 now  precludes  an  LFA  from  enacting  and  enforcing  technical  standards  that  differ  from  those  established  by 
 the  Commission.  362  Prior  to  the  passage  of  the  1992  Cable  Act,  we  stated,  "uniformity  of  technical 
 standards  .  .  .  is  essential  to  prevent  the  inefficiency  and  confusion  that  threatened  the  cable  industry  during 
 the  period  when  local  authorities  .  .  .  could  set  stricter  standards  than  those  promulgated  by  the  Commission."  363 
 The  1996  Act  echoes  these  concerns. 
54
 Federal  Communications  Commission  FCC  99-  57 
 364  See  Cable  Television  Technical  and  Operational  Requirements,  Review  of  the  Technical  and  Operational 
 Requirements  of  Part  76,  Cable  Television,  Report  and  Order  ("  Technical  Order"),  7  FCC  Rcd  2021,  2035  (1992). 
 See  also  Cable  Television  Technical  and  Operational  Requirements,  Review  of  the  Technical  and  Operational 
 Requirements  of  Part  76,  Cable  Television,  Notice  of  Proposed  Rulemaking  ("  Technical  Notice"),  6  FCC  Rcd  3673, 
 3679  (1991). 


 365  See  Denver  Comments  at  7-  8,  citing  Technical  Order  and  Technical  Notice. 


 366  See  Technical  Order  at  2035.  See  also  Technical  Notice  at  3679  ("  our  previous  practice  upon  receiving 
 complaints  concerning  a  cable  system's  deviation  from  our  technical  standards  was  to  refer  the  complaint  for  local 
 resolution  .  .  ."). 


 367  Technical  Order  at  2035;  see  Technical  Notice  at  3679. 


 368  Los  Angeles,  NLC,  and  NATOA  Reply  Comments  at  17-  18. 
 369  See  City  of  Austin  Comments  at  2;  City  of  Lake  Forest  Comments  at  2;  City  of  Rolling  Meadows  Comments  at 
 1;  City  of  Lincolnwood  Comments  at  1.  See  also  GMCC  Comments  at  8. 


 370  Denver  Comments  at  13. 


 371  Id. 
 372  Kramer  Comments  at  9. 
 373  LSGAC  Recommendation  13(  B). 


 55 


 128.  The  Commission  has  long  relied  on  LFAs  to  enforce  technical  standards.  364  This  was  the  case 
 even  before  Congress  added  the  permissive  enforcement  language  to  the  Communications  Act  in  1992.  365  In 
 1992,  we  stated  that  "we  have  in  the  past  referred  complaints  concerning  service  quality  to  local  authorities  for 
 resolution,  and  this  practice  resulted  in  the  disposition  of  the  vast  majority  of  such  complaints."  366  In  addition, 
 we  stated  that  LFAs  are  "the  proper  initial  locus  of  any  complaint  about  the  quality  of  technical  service 
 provided  by  a  cable  operator,"  and  that  they  are  "most  familiar  with  the  local  system  operation  and  plant,  as 
 well  as  any  local  factors  which  could  impact  on  the  resolution  of  a  problem."  367  As  many  municipal 
 commenters  have  noted,  residents  rely  on  local  authorities  to  resolve  cable  picture  quality  problems,  and  expect 
 their  LFA  to  intercede  on  their  behalf.  368 


 129.  Commenters  also  have  pointed  to  the  difficulties  that  would  be  associated  with  Commission 
 enforcement  of  its  technical  standards.  Several  commenters  note  that  local  enforcement  of  the  Commission's 
 technical  standards  is  "the  only  practical  method  of  handling  complaints"  regarding  signal  quality  problems.  369 
 Denver  states  the  Commission  would  simply  lack  the  resources  to  enforce  its  technical  standards  on  a  system 
 by  system  basis.  370  According  to  Denver,  LFAs  have  been  involved  in  literally  thousands  of  technical  standard 
 enforcement  actions,  and  the  Commission  could  not  undertake  such  enforcement  without  a  significant  increase 
 in  Commission  personnel  and  funding.  371  Similarly,  Kramer  states  that  the  Commission  does  not  have  the 
 resources  to  be  "the  first  and  only  point  of  contact  in  resolving  the  many  thousands  of  technical  quality 
 complaints  that  are  filed  with  LFAs  annually."  372  The  FCC  Local  State  Government  Advisory  Committee 
 recommends  against  any  interpretation  of  Section  624(  e)  that  would  prevent  local  franchising  authorities  from 
 enforcing  the  Commission's  technical  standards.  373 
55
 Federal  Communications  Commission  FCC  99-  57 
 374  Los  Angeles,  League  of  Cities,  and  NATOA  Reply  Comments  at  15-  18. 
 375  Accord  Michigan,  Illinois,  and  Texas  Communities  Reply  Comments  at  5-  6. 
 376  Time  Warner  Comments  at  49-  51.  Time  Warner  states  that  determinations  of  compliance  with  the  Commission's 
 technical  standards  must  be  conducted  by  the  Commission.  Time  Warner  Comments  at  51.  See  also  NCTA  Comments 
 at  51-  52. 


 56 


 130.  Los  Angeles,  the  League  of  Cities,  and  NATOA  suggest  that  Congress'  deletion  of  the 
 language  in  Section  624(  e),  regarding  LFA  enforcement  of  the  Commission's  technical  standards,  can  be  seen 
 as  necessary  to  effectuate  the  added  language  prohibiting  LFA  restrictions  on  any  "subscriber  equipment"  and 
 "transmission  technology."  374  The  commenters  believe  that  the  terms  "subscriber  equipment"  and  "transmission 
 technology"  are  meant  to  refer  to  the  narrow  category  of  converter  boxes,  remotes,  and  scrambling  and  trapping 
 technologies.  Thus,  they  argue  that  any  restriction  on  local  enforcement  of  technical  standards  from  Congress' 
 change  to  Section  624(  e)  should  be  narrowly  construed.  375 


 131.  We  agree  as  a  practical  matter  that,  unlike  local  authorities,  the  Commission  is  not  in  a 
 position  to  attend  to  day-  to-  day  local  technical  problems  as  they  arise.  Thus,  were  we  to  interpret  Section 
 624(  e)  as  mandating  Commission  enforcement  of  its  technical  standards,  we  would  necessarily  change  the  very 
 nature  of  traditional  technical  standards  enforcement.  As  the  above  comments  illustrate,  the  impact  of  this 
 change  in  enforcement  entities  would  be  significantly  more  far  reaching  than  merely  representing  a  switch  in 
 the  proper  forum  for  a  subscriber  complaint.  Subscriber  reliance  on  timely  responses  to  their  complaints 
 regarding  technical  problems  would  be  thrown  into  considerable  doubt  if  local  authorities  were  not  permitted 
 to  engage  in  day-  to-  day  enforcement  of  the  Commission's  technical  standards. 


 132.  We  do  not  believe  that  Congress  meant  to  set  in  motion  such  a  fundamental  change  in  technical 
 standards  enforcement  without  affirmatively  stating  its  intent  to  do  so  either  in  the  language  of  the  1996  Act 
 or  in  the  legislative  history.  Nowhere  in  the  1996  Act  or  its  legislative  history  does  Congress  state  an  intent 
 to  end  local  enforcement  of  the  Commissions  technical  standards.  Rather,  as  noted  above,  the  legislative 
 history  clearly  states  that  the  amendment  to  Section  624(  e)  of  the  Communications  Act  prevents  states  or  LFAs 
 from  regulating  in  the  areas  of  technical  standards,  customer  equipment,  and  transmission  technologies.  Local 
 enforcement  of  uniform  national  standards  furthers  Congress'  intent.  While  Congress  sought  to  preclude  the 
 development  of  a  patchwork  of  technical  standards  varying  between  franchise  areas,  it  did  not  make  mention 
 of  any  additional  intended  effects  of  its  amendment  to  Section  624(  e). 


 133.  Additional  factors  help  clarify  the  intended  scope  of  new  Section  624(  e).  For  example,  the 
 1996  Act  did  not  alter  an  LFA's  ability  to  deny  a  franchise  renewal  based  on  deficient  signal  quality.  If  LFAs 
 were  unable  to  monitor  cable  operator  compliance  with  the  Commission's  technical  standards,  they  would 
 likewise  be  unable  to  give  an  operator  the  notice  and  opportunity  to  cure  signal  quality  defects  required  under 
 Section  626  of  the  Communications  Act  as  a  prerequisite  to  denying  a  franchise  renewal  based  on  the 
 documented  violations.  Thus,  interpreting  Section  624(  e)  as  precluding  LFA  oversight  and  enforcement  of  the 
 Commission's  technical  standards  would  render  meaningless  the  statutory  language  in  Section  626. 


 134.  Time  Warner  attempts  to  resolve  this  ambiguity  by  stating  that  while  Section  624(  e)  prohibits 
 an  LFA  from  monitoring  the  cable  operator's  signal,  an  LFA  may  still  take  into  account  compliance  with  the 
 Commission's  standards,  as  determined  by  the  Commission,  in  a  franchise  grant  or  renewal.  376  Time  Warner's 
56
 Federal  Communications  Commission  FCC  99-  57 
 377  Id.  at  23-  24;  Fleischman  Comments  at  38-  39  (LFAs  may  still  consider  compliance  with  the  Commission's 
 standards  in  the  context  of  franchising  and  renewal). 


 378  TCI  Reply  Comments  at  8  (Section  624  (b)  "allows  the  LFA,  for  example,  to  require  that  a  cable  operator  provide 
 certain  services  or  facilities  (such  as  minimum  channel  capacity)  but  does  not  empower  an  LFA  to  dictate  the  specific 
 technical  means  by  which  the  operator  meets  such  generic  requirements.");  Los  Angeles,  NLC,  and  NATOA  Reply 
 Comments  at  20-  21  (the  amendments  to  Section  624(  e)  do  not  interfere  with  LFA's  authority  to  establish,  during  the 
 franchising  process,  facilities  and  equipment  requirements,  including  upgrade  requirements).  See  also  Comcast 
 Comments  at  21;  NCTA  Comments  at  51;  SCBA  Comments  at  37-  39. 


 379  TCI  Comments  at  28-  32. 


 380  Id.  at  29. 
 381  Los  Angeles,  League  of  Cities,  and  NATOA  Reply  Comments  at  20  &  n.  43.  See  State  of  New  York  Comments 
 at  23. 


 57 


 views  as  to  elimination  of  LFA  day-  to-  day  review  and  enforcement  of  the  Commissions  standards,  coupled  with 
 its  belief  that  LFAs  may  consider  Commission  determined  compliance  with  these  standards  in  franchising  and 
 renewal  proceedings,  would  leave  franchising  authorities  in  the  position  of  being  able  to  deny  a  franchise  based 
 on  these  failures,  without  being  able  to  exercise  less  drastic  measures  to  ensure  compliance  as  commonly 
 provided  for  in  franchise  agreements.  We  do  not  believe  Congress  intended  such  a  result. 


 135.  Given  the  long  tradition  of  LFA  enforcement  of  technical  standards,  the  practical  difficulties 
 of  Commission  enforcement  of  technical  standards  at  the  local  level,  and  the  difficulties  in  reconciling  a  ban 
 on  LFA  enforcement  of  technical  standards  with  other  parts  of  the  Communications  Act  that  were  unaltered 
 by  the  1996  Act,  we  conclude  that  if  Congress  had  intended  to  end  local  enforcement  of  the  Commission's 
 technical  standards,  it  would  have  expressly  stated  such  a  prohibition  in  the  actual  language  of  the  1996  Act. 


 136.  With  respect  to  the  prohibition  against  State  or  franchising  authority  regulation  of  a  system's 
 use  of  subscriber  equipment  or  any  transmission  technology  added  to  Section  624(  e)  by  the  1996  Act,  Cole 
 Raywid  and  other  cable  commenters  assert  that  this  restriction  is  not  necessarily  inconsistent  with  the  unaltered 
 portions  of  the  Communications  Act  regarding  local  involvement  in  facilities  and  equipment.  377  As  several 
 cable  and  municipal  commenters  state,  an  LFA  may  still  require  upgrades  under  Section  626  in  conjunction 
 with  franchise  renewal.  378 


 137.  Although  agreeing  that  LFAs  can  require  upgrades,  TCI  argues  that  Section  624(  e) 
 "fundamentally  alters"  the  role  of  state  and  local  authorities  in  an  operator's  technical  decisions,  even  though 
 the  franchising  authority  can  still  require  system  upgrades.  379  TCI  asserts  that  LFAs  may  not  continue  to 
 require  standards  in  conjunction  with  upgrades  or  rebuilds,  such  as  channel  capacity  requirements  at  specific 
 MHz  levels,  numbers  of  optical  fibers  deployed,  homes  served  per  fiber  optic  node,  amplifiers  per  cascade,  and 
 the  amount  of  standby  power  at  the  headend.  380  Los  Angeles,  the  League  of  Cities  and  NATOA  disagree, 
 contending  that  the  negotiation  of  specific  terms  of  a  system  upgrade  (such  as  system  capacity,  homes  per  node, 
 and  amplifiers  per  cascade)  within  the  initial  franchising  or  renewal  process  is  necessary  to  implement 
 determinations  of  local  community  needs  and  interests,  and  is  also  critical  to  the  associated  LFA  authority  to 
 reject  a  franchise  for  failing  to  meet  these  needs  and  interests.  381 
57
 Federal  Communications  Commission  FCC  99-  57 
 382  Los  Angeles,  League  of  Cities,  and  NATOA  Reply  Comments  at  17-  18.  See  Michigan,  Illinois,  and  Texas 
 Communities  Reply  Comments  at  5-  6. 


 383  Los  Angeles,  League  of  Cities,  and  NATOA  Reply  Comments  at  17-  18,  referring  to  Committee  on  Science, 
 Technology  and  Energy,  11  FCC  Rcd  10250.  See  also  Kramer  Comments  at  4-  6;  State  of  New  York  Comments  at  25- 
 26. 


 384  Id. 


 385  LSGAC  Recommendation  13(  A):  Resolution  on  Technical  Standards  Amendment. 
 386  47  U.  S.  C.    544a,  Consumer  Electronics  Equipment  Compatibility. 
 387  47  U.  S.  C.    544  (in  requesting  proposals  for  a  franchise  or  franchise  renewal,  a  franchising  authority  "may 
 establish  requirements  for  facilities  and  equipment  .  .  ."  and  may  enforce  such  requirements). 


 58 


 138.  Los  Angeles,  NLC,  and  NATOA  argue  that  Section  624(  e)  is  intended  to  preclude  LFAs  from 
 adopting  and  enforcing  their  own  standards  regarding  subscriber  equipment,  such  as  converter  boxes,  and 
 transmission  technology,  such  as  the  scrambling  or  trapping  methods  used  to  secure  an  operator's  signals.  382 
 They  state  that  the  amendment  was  a  response  to  efforts  by  local  authorities'  to  restrict  the  use  of  converter 
 boxes  introduced  by  Time  Warner  in  several  New  England  communities,  and  therefore  that  the  terms 
 "subscriber  equipment"  and  "transmission  technology"  should  be  interpreted  narrowly.  383  They  contend  that 
 a  reasonable  interpretation  of  the  amendment  to  Section  624(  e)  is  that  it  clarifies  that  an  LFA,  when 
 establishing  equipment  and  facilities  requirements  under  Sections  624(  b)(  1)  and  624(  b)(  2),  may  not  specify 
 technologies  relating  to  converter  boxes  or  scrambling.  384 


 139.  The  Commission's  Local  State  Government  Advisory  Committee  ("  LSGAC")  likewise  argues 
 for  a  narrow  reading  of  the  prohibition  against  nonfederal  regulation  of  transmission  technology.  385  It  argues 
 that  the  prohibition  should  be  read  in  the  context  of  signal  protocols  and,  in  this  context,  is  consistent  with 
 Congress'  grant  of  authority  to  the  Commission  in  Section  624A  of  the  Communications  Act  386  to  address 
 equipment  compatibility  standards.  It  recommends  that  the  prohibition  should  be  limited  to  converter  boxes, 
 scrambler  and  unscrambler  devices,  and  similar  customer  reception  equipment,  and  that  franchising  authorities' 
 ability  to  negotiate,  include,  and  enforce  provisions  for  specific  cable  system  equipment  and  facilities  under 
 Section  624(  b)  of  the  Communications  Act  387  should  be  unrestricted. 


 140.  Section  624  of  the  Communications  Act  relates  to  the  regulation  of  services,  facilities,  and 
 equipment  of  cable  operators.  Paragraph  (a)  of  Section  624  states: 


 Any  franchising  authority  may  not  regulate  the  services,  facilities,  and  equipment  provided 
 by  a  cable  operator  except  to  the  extent  consistent  with  this  title. 


 Paragraph  (b)  of  Section  624  generally  provides  that  franchise  authorities  may  enforce  requirements  contained 
 within  the  franchise  -for 


 facilities  and  equipment 
 Paragraph  (e)  of  Section  624,  as  added  by  the  Telecommunications  Act  of  1996,  states: 
58
 Federal  Communications  Commission  FCC  99-  57 
 388  The  Conference  Report,  for  example,  simply  explains  that  Section  624(  e)  amends  the  Act  "by  prohibiting  States 
 or  franchising  authorities  from  regulating  in  the  areas  of  technical  standards,  customer  equipment,  and  transmission 
 technologies."  H.  R.  Conf.  Rep.  No.  458,  104th  Cong.,  1st  Sess.  168  (1996).  Section  3(  33)  of  the  Communications  Act 
 does  define  the  term  "radio  communications"  and  includes  within  it  "transmission"  by  radio  "including  all 
 instrumentalities,  facilities,  apparatus,  and  services  .  .  .  incidental  to  such  transmission."  47  U.  S.  C.    153(  33). 


 389  Thus,  for  example,  the  State  of  Tennessee  adopted  a  regulatory  reform  program  involving  the  replacement  of 
 existing  telephone  plant  with  fiber  optics  that  was  judicially  described  as  involving  a  change  in  "transmission 
 technologies."  See  Tennessee  Cable  Television  Association  v.  Tennessee  Public  Service  Commission,  844  S.  W.  2d  151, 
 156  (1992).  A  Commission  report,  Trends  in  Telephone  Service,  1999  WL  83930  (February  1999),  contains  a 
 discussion  of  "transmission  technology"  and  lists  "copper"  and  "fiber  optic  cables"  as  two  transmission  technologies. 
 The  Commission  has  discussed  satellites  and  undersea  cables  as  two  "transmission  technologies."  Communications 
 Satellite  Corp.,  56  FCC  2d  1101,  1161  (1975).  See  also  Comsat  Corp.,  13  FCC  Rcd.  14083,  para.  32  (1998)  (There 
 is  no  evidence  that  parties  "owning  or  controlling  both  satellite  and  cable  connections  .  .  .  are  favoring  the  use  of  one 
 transmission  technology."). 


 390  The  Commission  has  consistently  described  "analog"  and  "digital"  communications  as  well  as  various  modulation 
 schemes  as  different  "transmission  technologies."  See  e.  g.  Development  of  Wireline  Services  Offering  Advanced 
 Telecommunications  Capability,  1998  WL  458500,  para.  35  ("  xDSL  and  packet  switching  are  simply  transmission 
 technologies");  Public  Notice:  Commission  Staff  Seek  Comment  on  Spectrum  Issues  Related  to  Third  Generation 
 Wireless/  IMT-  2000,  13  FCC  Rcd  16221,  16222  (commercial  mobile  radio  service  licensee  has  flexibility  "to  change 
 their  existing  radio  transmission  technology.");  Application  for  Transfer  of  Control  of  MCI  Communications  to 
 Worldcom,  1998  WL  611053,  para.  45  ("  Qwest's  network  will  include  more  fibers  per  cable  than  the  current  average 
 national  network,  and  will  employ  high  capacity  transmission  technologies.");  Development  of  Operational,  Technical 
 and  Spectrum  Requirements  for  Meeting  Federal,  State  and  Local  Public  Safety  Agency  Communication  Requirements 
 through  the  Year  2010,  1998  WL  667599,  n.  315  (1998)  ("  In  the  Second  Notice,  we  entitled  sections  primarily 
 addressing  the  question  of  analog  versus  digital  modulation  `Transmission  Technology',  a  more  general  term  that 
 seemingly  could  encompass  many  other  issues  as  well.");  Creation  of  A  Low  Power  Radio  Service,  MM  Docket  No. 
 99-  25,  1999  WL  46878,  para.  29  (1999)  ("  We  are  also  concerned  whether  an  LP1000  service  would  limit  or  impair 
 the  ability  of  full  power  stations  to  implement  digital  transmission  technology  such  as  in-  band-  on-  channel  (`IBOC') 
 conversion."). 


 59 


 No  State  or  franchising  authority  may  prohibit,  condition,  or  restrict  a  cable  system's  use  of 
 any  type  of  subscriber  equipment  or  any  transmission  technology. 


 It  is  clear  from  the  above,  and  agreed  among  the  commenting  parties,  that  "subscriber  equipment"  may  no 
 longer  be  "prohibited,  conditioned,  or  restricted  "  by  local  authorities  under  Section  624.  "Transmission 
 technology"  may  also  not  be  "prohibited,  conditioned,  or  restricted  ."  The  question  remains,  however,  as  to 
 what  is  encompassed  in  the  phrase  "transmission  technology"  and  how  the  newly  added  limitation  can  be 
 reconciled  with  the  grant  of  authority  regarding  "facilities  and  equipment." 


 141.  "Transmission  technology"  is  not  a  defined  term  in  the  Communications  Act  nor  does  the 
 legislative  history  help  to  define  its  breadth.  388  Rather,  Congress  appears  to  have  used  the  phrase  in  the 
 everyday  sense  in  which  it  has  been  used  in  discussions  of  communications  policy  issues.  A  review  of  the 
 usage  of  the  phrase  indicates  that  it  has  been  frequently  used  to  include  both  the  transmission  medium,  i.  e. 
 microwave,  satellite,  coaxial  cable,  twisted  pair  copper  telephone  lines,  and  fiber  optic  systems,  389  and  the 
 specific  modulation  or  communications  format,  i.  e.  analog  or  digital  communications.  390  Based  on  the 
 foregoing,  we  believe,  for  example,  that  local  authorities  may  not  control  whether  a  cable  operator  uses  digital 
59
 Federal  Communications  Commission  FCC  99-  57 
 391  Section  624(  a),  47  U.  S.  C.    544(  a). 
 392  See  H.  R.  Rep.  No.  934,  98th  Cong.,  2d  Sess.  __  (1984),  P&  F  Radio  Reg.    1277,  p.  10:  779. 
 393  See  Section  626(  a)(  1),  47  U.  S.  C.    546(  a)(  1). 
 394  47  U.  S.  C.    544(  b). 
 395  47  U.  S.  C.    531,  541(  a)(  3),  (4),  (b)(  3)(  D),  546(  b)(  2),  552(  a)(  2). 
 396  See  Review  of  the  Technical  and  Operational  Requirements  of  Part  76,  Cable  Television,  Report  and  Order,  102 
 FCC2d  1372,  1380  n.  12  (1985);  TCI  Cablevision  of  Oakland  County,  Inc.,  12  FCC  Rcd  21396,  21441  (1997), 
 reconsideration  denied,  13  FCC  Rcd  16400.  In  TCI  Cablevision,  the  Commission  also  found  that  a  city  condition  that 
 cable  construction  permits  would  not  be  used  for  telecommunications  purposes  did  not  violate  Section  624(  e)  because 
 the  condition  concerned  the  nature  of  services  the  cable  operator  would  be  providing  over  its  facilities  pursuant  to  its 
 cable  franchise  rather  than  either  the  transmission  technology  or  subscriber  equipment  used  for  the  services.  12  FCC 
 Rcd  at  21430-  32. 


 60 


 or  analog  transmissions  nor  determine  whether  its  transmission  plant  is  composed  of  coaxial  cable,  fiber  optic 
 cable,  or  microwave  radio  facilities.  An  LFA's  authority  under  Section  624(  b)  to  establish  requirements  for 
 facilities  and  equipment  is  granted  only  "to  the  extent  consistent  with  this  title"  391  and  must  be  read  in  the 
 context  of  the  limits  imposed  by  the  revisions  to  Section  624(  e)  in  the  1996  Act.  392  As  noted  above,  the 
 legislative  history  of  the  amendment  to  Section  624(  e)  states  that  "the  patchwork  of  regulations  that  would 
 result  from  a  locality-  by-  locality  approach  is  particularly  inappropriate  in  today's  intensely  dynamic 
 technological  environment." 


 142.  While  the  1996  Act  imposes  some  specific  limits  of  the  role  LFAs  play  with  respect  to 
 subscriber  equipment  and  transmission  technology,  it  does  not  diminish  the  LFAs'  important  responsibilities 
 in  determining  local  cable-  related  needs  and  interests  and  seeing  that  those  needs  are  met  through  the 
 franchising  and  renewal  process.  393  Although  local  authorities  are  limited  in  dictating  the  use  of  transmission 
 technologies,  other  facility  and  equipment  requirements  can  still  be  enforced  under  Section  624(  b).  394  In 
 addition,  Section  611  of  the  Communications  Act  affirms  the  ability  of  an  LFA  to  establish  and  enforce 
 franchise  provisions  concerning  facilities  and  equipment  related  to  PEG  channels  and  for  educational  and 
 governmental  use  of  channel  capacity  on  institutional  networks.  Section  621(  a)(  3)  authorizes  franchising 
 authorities  to  ensure  access  to  cable  services  throughout  the  franchise  area,  regardless  of  the  income  levels  of 
 potential  residential  subscribers.  Section  621(  a)(  4)  authorizes  the  LFA  to  require  adequate  assurance  of  the 
 cable  operator's  financial,  technical,  and  legal  qualifications  to  provide  cable  service.  Section  621(  b)(  3)(  D) 
 allows  an  LFA  to  require  institutional  networks.  Section  626(  b)(  2)  states  that,  subject  to  Section  624,  a 
 franchise  renewal  proposal  "shall  contain  such  material  as  the  franchising  authority  may  require,  including 
 proposals  for  the  upgrade  of  the  system."  Section  632(  a)(  2)  enables  an  LFA  to  establish  and  enforce 
 "construction  schedules  and  other  construction-  related  performance  requirements."  395  The  Commission  likewise 
 has  long  acknowledged  areas  of  local  concern,  such  as  studio  capacities,  electrical  safety  codes,  construction 
 requirements,  and  management  of  public  rights-  of-  way.  396  Local  governments  perform  a  range  of  vital  tasks 
 necessary  to  preserve  the  physical  integrity  of  streets  and  highways,  to  control  the  orderly  flow  of  vehicles  and 
 pedestrians,  and  to  manage  facilities  that  crisscross  the  streets  and  public  rights-  of-  way,  which  are  unaffected 
 by  Section  624(  e).  The  1996  Act  also  does  not  preclude  LFA  review  of  the  adequacy  of  the  cable  operator's 
 plans  for  meeting  the  cable-  related  needs  identified  by  the  LFA. 
60
 Federal  Communications  Commission  FCC  99-  57 
 397  See,  e.  g.,  Pan  American  Life  insurance  Co.  v.  Blue  Cross  and  Blue  Shield,  127  F.  3d  1099  (4th  Cir.  1997) 
 (unpublished  disposition,  per  curium)  (finding  that  voluntary  agreement  was  enforceable,  even  if  agreement  was  based 
 on  parties'  mistaken  belief  that  ERISA  did  not  preempt  state  statute);  E.  Norman  Peterson  Marital  Trust  v. 
 Commissioner  of  Internal  Revenue,  78  F.  3d  795  (2d  Cir.  1996): 


 If  the  particular  language  used  in  a  statute  is  highly  susceptible  to  misunderstanding  by  a  lay  person,  and  if 
 the  clarification  which  the  regulations  are  intended  to  provide  is  available  only  after  ordinary  people  have 
 made  choices  in  reliance  on  the  more  common  meaning  of  the  statutory  term,  it  might  be  a  situation  of  such 
 substantial  unfairness  would  arise  that  it  would  be  permissible  to  apply  the  late-  coming  regulations  only 
 prospectively. 


 78  F.  3d  at  800. 
 398  1996  Act,    301(  k)(  1),  110  Stat.  118,  47  U.  S.  C.    543(  n). 


 61 


 143.  Although  this  Order  clarifies  to  some  extent  the  meaning  of  "transmission  technology"  for 
 purposes  of  Section  624(  e),  we  recognize  that  over  three  years  have  passed  since  the  1996  Act  was  signed  into 
 law.  We  also  recognize  that,  in  the  absence  of  a  final  federal  rule,  local  franchise  authorities  and  cable 
 operators  have  entered  into  agreements  based  on  their  own  understandings  of  the  language  of  Section  624(  e). 
 In  the  absence  of  today's  guidance,  parties  may  have  drafted  certain  franchise  provisions  in  a  way  that  they 
 believed  was  permissible  under  Section  642(  b),  but  that  now  would  be  found  impermissible  under  our  reading 
 of  Section  624(  e).  Had  the  parties  had  the  benefit  of  today's  Order,  these  provisions  could  have  been  drafted 
 in  a  way  that  would  have  permitted  local  authorities  to  exercise  their  legitimate  rights  under  Section  624(  b) 
 without  running  afoul  of  Section  624(  e).  We  have  received  no  formal  complaints  from  any  party  claiming 
 Section  624(  e)  has  been  violated.  Given  these  settled  contractual  arrangements,  nothing  in  this  Order  is 
 intended  automatically  to  preempt  or  affect  the  enforceability  of  existing  franchise  agreements.  397 


 VIII.  PRIOR  YEAR  LOSSES 
 A.  Background 
 144.  Section  301(  k)(  1)  of  the  1996  Act  amended  Section  623  of  the  Communications  Act  to 
 preclude  the  disallowance  of  certain  losses  incurred  by  original  franchisees  prior  to  September  4,  1992. 
 Specifically,  the  statute  provides: 


 (n)  Treatment  of  Prior  Year  Losses.  --  Notwithstanding  any  other  provision 
 of  this  section  or  of  section  612,  losses  associated  with  a  cable  system 
 (including  losses  associated  with  the  grant  or  award  of  a  franchise)  that  were 
 incurred  prior  to  September  4,  1992,  with  respect  to  a  cable  system  that  is 
 owned  and  operated  by  the  original  franchisee  of  such  system  shall  not  be 
 disallowed,  in  whole  or  in  part,  in  the  determination  of  whether  the  rates  for 
 any  tier  of  service  or  any  type  of  equipment  that  is  subject  to  regulation 
 under  this  section  are  lawful.  398 
61
 Federal  Communications  Commission  FCC  99-  57 
 399  1996  Act,    301(  k)(  2),  110  Stat.  118. 
 400  Notice,  11  FCC  Rcd  at  5974,  citing  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  and 
 Competition  Act  of  1992:  Rate  Regulation  and  Adoption  of  a  Uniform  Accounting  System  for  Provision  of  Regulated 
 Cable  Service,  11  FCC  Rcd  2220  (1996);  47  C.  F.  R.    76.922(  i)(  6). 


 401  Notice  at  5974.  To  the  extent  that  acquiring  operators  are  permitted  recovery  of  acquisition  premiums  as  part 
 of  the  rate  base,  operators  would  not  be  permitted  to  recover  start  up  losses  for  which  they  are  compensated  by 
 acquisition  premiums. 


 402  Id. 


 403  Id. 
 404  Id. 
 405  Applicability  of  Section  301(  k)(  1),  however,  remains  subject  to  the  conditions  contained  in  Section  301(  k)(  2)  of 
 the  1996  Act. 


 406  Massachusetts  Cable  Commission  Comments  at  11. 


 62 


 This  provision  was  effective  upon  enactment  and  applicable  to  rate  filings  made  after  September  4,  1993  that 
 had  not  been  acted  upon  by  December  1,  1995.  399 


 145.  In  the  Notice,  we  identified  apparent  distinctions  between  this  new  statutory  provision  and  the 
 treatment  of  start  up  losses  under  our  existing  cost-  of-  service  rules.  400  We  noted  that,  unlike  the  statute,  our 
 rules  do  not  preclude  recovery  of  start  up  losses  for  all  cable  operators,  while  the  recovery  of  prior  year  losses 
 under  Section  301(  k)(  1)  is  limited  to  original  franchisees.  401  We  also  noted  that  our  cost-  of-  service  rules  do 
 not  limit  the  years  for  recovery  of  such  losses,  while  Section  301(  k)(  1)  limits  recovery  to  losses  incurred  prior 
 to  September  4,  1992.  402  Finally,  we  noted  that  Section  301(  k)(  1)  does  not  limit  losses  to  those  incurred  in  the 
 early  years  of  a  system's  operation.  Instead,  it  allows  recovery  of  losses  for  all  years  up  to  the  September  4, 
 1992  cut-  off  date.  403  In  the  Notice,  we  requested  comment  on  these  tentative  conclusions  and  requested 
 comment  on  whether  Section  301(  k)(  1)  should  be  interpreted  to  allow  recovery  of  prior  year  losses  even  when 
 such  losses  are  attributable  to  unreasonable  or  imprudent  expenditures.  404 


 B.  Discussion 
 146.  We  affirm  the  tentative  conclusions  set  forth  in  the  Notice.  Under  Section  301(  k)(  1),  prior 
 year  losses  incurred  before  September  4,  1992  cannot  be  disallowed  in  determining  the  lawfulness  of  cable  rates 
 under  our  rules  when  such  losses  are  claimed  by  the  original  franchisee  of  the  system.  405  This  provision, 
 however,  is  not  applicable  to  losses  incurred  after  September  4,  1992,  and  does  not  apply  to  an  operator  that 
 is  not  the  original  franchisee  of  its  system. 


 147.  The  Massachusetts  Commission  suggests  that  the  scope  of  Section  301(  k)(  1)  should  not  be 
 limited  to  original  franchisees.  It  argues  that  the  statute  does  not  explicitly  prohibit  other  operators  from 
 recovering  start  up  losses  incurred  prior  to  September  4,  1992.  406  We  agree  that  the  statute  does  not  prohibit 
 the  recovery  of  start  up  losses  based  on  other  qualifying  criteria.  Indeed,  as  noted  above,  we  have  authorized 
62
 Federal  Communications  Commission  FCC  99-  57 
 407  See  note  400,  supra. 
 408  See  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  an  Competition  Act  of  1992:  Rate 
 Regulation,  and  Adoption  of  a  Uniform  Accounting  System  for  Provision  of  Regulated  Cable  Service,  Report  and  Order 
 and  Further  Notice  of  Proposed  Rulemaking,  9  FCC  Rcd  4563  (1994). 


 409  1996  Act    706(  a),  110  Stat.  153. 


 63 


 the  recovery  of  certain  start  up  losses  without  the  time  period  limitation  or  the  original  franchisee  requirement 
 contained  in  Section  301(  k)(  1).  Nevertheless,  we  find  no  basis  for  further  changing  the  rules  beyond  what  the 
 statute  directs.  The  existing  rules,  it  should  be  emphasized,  authorize  the  recovery  of  certain  start  up  losses 
 for  operators  who  are  not  original  franchisees,  and  these  rules  remain  available  to  such  operators  to  guide  their 
 recovery  of  start  up  losses.  407 


 148.  In  the  Notice,  we  requested  comment  on  whether  losses  claimed  pursuant  to  Section  301(  k)(  1) 
 are  subject  to  limitations  involving  the  reasonableness  or  prudence  of  expenditures.  No  commenters  addressed 
 this  issue  specifically.  Under  the  explicit  terms  of  Section  301(  k)(  1),  the  Commission,  in  determining  the 
 lawfulness  of  cable  rates,  is  prohibited  from  limiting  the  recovery  of  losses  "in  whole  or  in  part"  if  such  losses 
 are  associated  with  a  cable  system  and  incurred  before  September  4,  1992  by  an  original  franchisee.  Standards 
 of  prudence  and  reasonableness  have  long  characterized  the  review  of  regulated  rates.  408  We  have  incorporated 
 these  standard  regulatory  concepts  in  our  review  of  cost  based  rates.  Section  301(  k)(  1)  itself  specifies  that 
 losses,  to  be  recoverable,  must  be  "associated  with  a  cable  system."  We  believe  this  condition  underscores  that 
 a  reasonable  relationship  must  exist  between  the  amounts  claimed  as  losses  and  the  provision  of  regulated  cable 
 services.  We  further  note  that  the  statute,  despite  the  Commission's  historic  practice  of  excluding  unreasonable 
 or  imprudent  costs  from  rate  recovery,  is  silent  regarding  this  established  regulatory  approach.  Accordingly, 
 we  will  continue  to  apply  the  prudent  investment  standard  to  the  evaluation  of  cost-  based  rates,  including  rates 
 submitted  by  operators  that  otherwise  fall  within  the  terms  of  Section  301(  k)(  1). 


 IX.  ADVANCED  TELECOMMUNICATIONS  INCENTIVES 
 A.  Background 
 149.  Subsection  706(  a)  of  the  1996  Act  requires  the  Commission  to  "encourage  the  deployment  on 
 a  reasonable  and  timely  basis  of  advanced  telecommunications  capability  to  all  Americans  (including,  in 
 particular,  elementary  and  secondary  schools  and  classrooms)  by  utilizing,  in  a  manner  consistent  with  the 
 public  interest,  convenience  and  necessity,  price  cap  regulation,  regulatory  forbearance,  measures  that  promote 
 competition  in  the  local  telecommunications  market,  or  other  regulating  methods  that  remove  barriers  to 
 infrastructure  investment."  409  In  the  Notice,  we  sought  comment  on  how  we  could  advance  Congress'  goal 
 within  the  context  of  our  cable  services  regulation.  This  has  been  addressed  in  the  Commission's  report  into 
63
 Federal  Communications  Commission  FCC  99-  57 
 410  Inquiry  Concerning  the  Deployment  of  Advanced  Telecommunications  Capability  to  All  Americans  in  a 
 Reasonable  and  Timely  Fashion,  and  Possible  Steps  to  Accelerate  Such  Deployment  Pursuant  to  Section  706  of  the 
 Telecommunications  Act  of  1996,  Notice  of  Inquiry  (CC  Docket  98-  146),  13  FCC  Rcd  15280  (1998),  Report,  FCC  99-  5 
 (released  Jan.  28,  1999). 


 411  1996  Act    506(  a),  (b),  110  Stat.  136-  37,  codified  47  U.  S.  C.    531(  e),  532(  c)(  2). 


 412  Order,  11  FCC  Rcd  at  5960. 
 413  Alliance  for  Community  Media  v.  FCC,  56  F.  3d  105  (D.  C.  Cir.  1995). 
 414  Id.  at  5961. 
 415  Notice,  11  FCC  Rcd  at  5975. 
 416  See  1992  Cable  Act    10,  106  Stat.  1486,  codified  47  U.  S.  C.    532(  h). 
 417  116  S.  Ct.  2374  (1996). 
 418  The  Court  also  invalidated  Section  10(  b)  of  the  1992  Cable  Act,  which  required  cable  operators  to  place  indecent 
 programming  on  a  "blocked"  leased  access  channel  if  they  did  not  voluntarily  prohibit  indecent  programming.  The 
 Commission  eliminated  rules  implementing  Section  10(  b).  See  Implementation  of  Section  10  of  the  Cable  Television 
 Consumer  Protection  and  Competition  Act  of  1992,  12  FCC  Rcd  6390,  6393  (1997)  ("  Implementation  of  Section  10"). 


 64 


 the  deployment  of  advanced  telecommunications  capability  adopted  pursuant  to  Section  706(  b)  of  the  1996 
 Act.  410 


 X.  CABLE  OPERATOR  REFUSAL  TO  CARRY  CERTAIN  PROGRAMMING 
 A.  Background 
 150.  The  1996  Act  amended  Sections  611(  e)  and  612(  c)(  2)  of  the  Communications  Act  to  provide 
 that  a  cable  operator  may  refuse  to  transmit  any  leased  access  or  public  access  programming  containing 
 "obscenity,  indecency,  or  nudity."  411  In  the  Order,  the  Commission  amended  Sections  76.701  and  76.702  of 
 the  Commission's  rules  concerning  leased  access  and  PEG  access,  respectively,  to  incorporate  these 
 amendments.  412  Because  the  rules  had  originally  been  adopted  pursuant  to  Section  10  of  the  1992  Cable  Act 
 and  been  stayed  on  appeal,  413  the  Order  stayed  the  rules  as  amended  pending  Supreme  Court  review  of  the 
 constitutionality  of  Section  10.  414  The  Notice  solicited  comment  on  the  Commission's  tentative  conclusion  that 
 the  term  "nudity"  in  each  rule  should  be  interpreted  to  mean  nudity  that  is  obscene  or  indecent.  415 


 151.  The  Supreme  Court  later  issued  its  opinion  on  Section  10  of  the  1992  Cable  Act.  416  In  Denver 
 Area  Educational  Telecommunications  Consortium,  Inc.  v.  FCC  ("  Denver  Consortium"),  417  the  Court  held 
 that  language  in  Section  10(  a),  which  permits  cable  operators  to  adopt  prospective  rules  prohibiting  the 
 transmission  of  indecent  materials  over  leased  access  channels,  is  consistent  with  the  First  Amendment.  The 
 Court  held  that  language  in  Section  10(  c),  which  permits  cable  operators  to  refuse  to  transmit  indecent 
 programming  over  PEG  access  channels,  is  not  valid.  418 
64
 Federal  Communications  Commission  FCC  99-  57 
 419  Id.  at  6393-  94,  6398;  see  47  C.  F.  R.    76.702. 
 420  Implementation  of  Section  10  at  6393-  94,  6398;  see  47  C.  F.  R.    76.701. 
 421  Id.  at  6393  n.  10. 
 422  422  US  205  (1975).  See,  e.  g.,  Alliance  for  Community  Media  Comments  at  4. 
 423  Denver  Consortium,  116  S.  Ct.  at  2385-  86. 


 65 


 152.  In  response  to  Denver  Consortium,  the  Commission  amended  the  PEG  access  rule  in  Section 
 76.702.  419  The  rule  now  states  that  a  cable  operator  may  refuse  to  transmit  any  public  access  programming 
 that  the  operator  believes  contains  obscenity. 


 153.  The  Commission  amended  the  leased  access  rule  in  Section  76.701  to  respond  to  the  Court's 
 decision  in  Denver  Consortium,  and  clarified  in  Section  76.701(  b)  that  "[  a]  cable  operator  may  refuse  to 
 transmit  any  leased  access  program  or  portion  of  a  leased  access  program  that  the  operator  reasonably  believes 
 contains  obscenity,  indecency,  or  nudity.  420  The  Commission  left  the  interpretation  of  the  word  "nudity"  to  the 
 instant  docket.  421 


 B.  Discussion 
 154.  We  adopt  the  tentative  conclusion  in  the  Notice  that  "nudity"  in  the  leased  access  rule  should 
 be  interpreted  to  mean  nudity  that  is  obscene  or  indecent.  As  many  commenters  advise,  this  interpretation 
 avoids  the  overbreadth  problem  addressed  in  Erznoznik  v.  City  of  Jacksonville,  in  which  the  Supreme  Court 
 invalidated  a  city  ordinance  that  prohibited  showing  films  containing  nudity  at  drive-  in  theaters  visible  from 
 public  places.  422  This  interpretation  is  also  consistent  with  the  concern  the  Court  acknowledged  in  Denver 
 Consortium;  namely,  protecting  children  from  patently  offensive  depictions  of  sex  on  leased  access  channels.  423 
 Obscene  programming  is  unprotected  under  the  Constitution.  "Indecent"  programming  for  purposes  of  Section 
 76.701(  b)  is  the  kind  of  programming  a  cable  operator  may  prohibit  under  Section  76.701(  a);  namely, 
 programming  which  describes  or  depicts  sexual  or  excretory  activities  or  organs  in  a  patently  offensive  manner 
 as  measured  by  contemporary  community  standards.  Commenters  have  generally  supported  this  interpretation 
 of  "nudity." 


 XI.  SUBSCRIBER  NOTICE 
 A.  Background 
 155.  As  amended  by  Section  301(  g)  of  the  1996  Act,  Section  632  of  the  Communications  Act 
 includes  the  following  new  subsection: 


 (c)  Subscriber  Notice.  A  cable  operator  may  provide  notice  of  service  and  rate  changes 
 using  any  reasonable  written  means  at  its  sole  discretion.  Notwithstanding  Section  623(  b)(  6) 
 or  any  other  provision  of  this  Act,  a  cable  operator  shall  not  be  required  to  provide  prior 
 notice  of  any  rate  change  that  is  the  result  of  a  regulatory  fee,  franchise  fee,  or  any  other  fee, 
65
 Federal  Communications  Commission  FCC  99-  57 
 424  110  Stat.  117,  codified  47  U.  S.  C.    552(  c). 
 425  Interim  Order  at  11  FCC  Rcd  5952;  see  47  C.  F.  R.    76.309(  c)(  3)(  i)(  B),  76.964(  b). 
 426  Interim  Order,  11  FCC  Rcd  at  5952  (citing  47  C.  F.  R.  76.964(  c)).  See  also  Rate  Order,  8  FCC  Rcd  at  5713-  14. 
 427  Interim  Order,  11  FCC  Rcd  at  5952. 
 428  Id.  citing  Conference  Report  at  169. 
 429  Interim  Order,  11  FCC  Rcd  at  5952. 
 430  Id. 
 431  State  of  New  York  Comments  at  11-  15. 
 432  Id.  at  11-  12.  Accord  LSGAC  Recommendation  13(  D),  which  recommends  that  local  jurisdictions  be  able  to 
 define  "reasonable  written  means"  within  their  communities. 


 433  Los  Angeles,  League  of  Cities,  and  NATOA  Reply  Comments  at  14. 


 66 


 tax  assessment,  or  charge  of  any  kind  imposed  by  any  Federal  agency,  State,  or  franchising 
 authority  on  the  transaction  between  the  operator  and  the  subscriber.  424 


 156.  We  amended  Sections  76.309(  c)(  3)(  i)(  B)  and  76.964  of  our  rules  to  correspond  with  this 
 statutory  revision.  425  In  making  these  amendments,  we  noted  that  the  Commission  had  previously  distinguished 
 written  notice  sent  to  subscribers  from  written  announcements  on  the  cable  system  or  in  the  newspaper.  426  We 
 had  made  these  distinctions  as  necessary  to  ensure  that  notice  was  adequate  depending  on  the  circumstances.  427 
 However,  the  legislative  history  of  the  House  amendment  concerning  notice  to  subscribers  of  rate  increases 
 stated  that  "[  n]  otice  need  not  be  inserted  in  the  subscriber's  bill."  428  Accordingly,  in  the  Interim  Order,  we 
 determined  that  notices  of  rate  changes  provided  to  subscribers  through  written  announcements  on  the  cable 
 system  or  in  the  newspaper  will  be  presumed  sufficient.  429  We  stated  that  we  would  address  any  disputes  that 
 might  arise  in  this  area  on  a  case-  by-  case  basis.  430 


 B.  Discussion 
 157.  The  State  of  New  York  asserts  that  the  1996  Act  does  not  preempt  franchising  authorities  from 
 adopting  more  stringent  subscriber  notice  standards  than  are  required  by  Section  632(  c).  431  The  State  of  New 
 York  further  asserts  that  Section  632(  d)  specifically  preserves  the  authority  of  LFAs  to  impose  customer 
 service  standards  that  exceed  the  standards  adopted  by  the  Commission  under  other  provisions  of  Section 
 632.  432 


 158.  Los  Angeles,  the  League  of  Cities,  and  NATOA  argue  that  "reasonable  written  notice"  should 
 include  notice  directly  to  the  subscribers.  433  They  also  argue  that  notice  by  way  of  publication  in  a  newspaper 
 is  usually  prescribed  when  the  parties'  whereabouts  are  unknown.  Because  an  operator  knows  the  whereabouts 
 of  its  subscribers,  they  maintain  that  "reasonable  written  notice"  would  entail  giving  direct  notice  to  subscribers 
66
 Federal  Communications  Commission  FCC  99-  57 
 434  Id.  at  14-  15. 
 435  Id.  at  15.  Accord  LSGAC  Recommendation  13(  D). 
 436  Fleischman  Comments  at  41. 
 437  Id. 
 438  Id.  at  42  citing  Conference  Report  at  111-  112. 
 439  NCTA  Reply  Comments  at  18-  19. 
 440  Id.  citing  Section  632(  c). 
 441  Id. 
 442  Id. 
 443  Id. 
 444  Id. 


 67 


 via  a  bill  enclosure.  434  They  agree  with  the  State  of  New  York  that  the  new  statutory  language  does  not 
 preempt  more  stringent  state  or  local  notice  requirements.  435 


 159.  Fleischman  urges  the  Commission  to  clarify  that  the  new  statutory  language  preempts  state 
 and  local  consumer  protection  and  customer  service  requirements  specifying  the  means  by  which  cable 
 operators  must  notify  subscribers  of  rate  and  service  changes.  436  Absent  such  a  clarification,  Fleischman 
 asserts  that  disputes  regarding  subscriber  notice  requirements  will  almost  inevitably  arise  between  cable 
 operators  and  LFAs.  437  Fleischman  argues  that  its  position  is  supported  not  only  by  the  plain  language  of 
 Section  632(  c),  but  also  by  the  1996  Act's  legislative  history,  which  establishes  a  federal  policy  of  promoting 
 "increased  flexibility"  in  the  provision  of  subscriber  notice  and  which  declares  that  "[  t]  here  is  no  need  for 
 intrusive  regulations  to  dictate  how  cable  operators  communicate"  advance  notice  of  rate  and  service  changes 
 to  their  subscribers.  438 


 160.  NCTA  agrees  with  Fleischman  that  Section  632(  c)  is  preemptive  and  prohibits  states  and 
 LFAs  from  prescribing  specific  mechanisms  for  subscriber  notice.  439  According  to  NCTA,  Congress  would 
 not  have  used  the  phrase  "sole  discretion"  in  describing  a  cable  operator's  latitude  regarding  subscriber  notice 
 if  it  intended  state  and  local  governments  to  dictate  the  nature  of  such  notice.  440 


 161.  Furthermore,  NCTA  disputes  the  assertions  that  Section  632(  d)  permits  LFAs  to  impose 
 stricter  requirements  than  those  required  by  Section  632(  c).  441  NCTA  argues  that  Section  632(  d)  allows  state 
 law  or  municipal  ordinances  to  establish  customer  service  requirements  that  exceed  the  standards  the 
 Commission  is  authorized  to  establish.  442  In  the  case  of  customer  notice  standards,  NCTA  argues  that 
 Congress  has  prohibited  the  Commission  from  interfering  with  a  cable  operator's  decision  to  provide  notice  by 
 any  reasonable  written  means.  443  The  Commission  has  no  authority  to  establish  subscriber  notice  standards, 
 according  to  NCTA,  and  therefore  LFA's  lack  such  authority  as  well.  444 
67
 Federal  Communications  Commission  FCC  99-  57 
 445  Communications  Act    632(  d)(  1),  47  U.  S.  C.    632(  d)(  1). 
 446  See  H.  R.  Rep.  No.  204(  1),  104th  Cong.,  1st  Sess.  111-  112  (1995).  We  note  that  the  Commission  has  proposed 
 that  telephone  companies  provide  their  customers  with  clear  and  conspicuous  notification  of  changes  in  rates  and 
 services  in  their  telephone  bills.  See  Truth  in  Billing  and  Billing  Format,  Notice  of  Proposed  Rulemaking  in  CC 
 Docket  No.  98-  170,  FCC  98-  232  (released  September  17,  1998).  This  proposal  was  made  pursuant  to  the 
 Commission's  authority  under  Title  II  of  the  Communications  Act,  e.  g.,  47  U.  S.  C.    201(  b). 


 447  Los  Angeles,  League  of  Cities,  and  NATOA  Reply  Comments  at  14. 


 448  State  of  New  York  Comments  at  14. 
 449  Id.  at  13. 


 68 


 162.  Congress's  use  of  the  phrase  "sole  discretion"  indicates  that  Congress  intended  to  limit  the 
 Commission's  discretion  in  this  area.  Congress,  however,  did  not  completely  eliminate  the  role  of  regulatory 
 authorities.  In  Section  632(  d)(  1),  Congress  specifically  preserved  LFA  authority  to  enact  and  enforce 
 consumer  protection  laws  to  the  extent  not  specifically  preempted  by  Title  VI  of  the  Communications  Act.  445 
 Nor  did  Congress  grant  cable  operators  unbridled  discretion  regarding  the  means  used  to  notify  subscribers  of 
 changes  in  rates  and  service.  Congress  allowed  cable  operators  to  exercise  their  "sole  discretion"  within  the 
 constraints  of  "reasonable  written"  means.  LFAs  and  the  Commission  retain  the  authority  to  determine  that 
 a  particular  mechanism  is  not  reasonable.  Congress  also  generally  permits  LFAs  to  enforce  customer  service 
 standards  that  exceed  federal  requirements.  We  note,  however,  the  suggestion  in  the  legislative  history  that 
 cable  operators  need  not  give  subscribers  individual  written  notice  of  rate  and  service  changes  in  their  bills.  446 


 163.  Los  Angeles,  the  League  of  Cities,  and  NATOA  argue  that  reasonableness  of  a  notice  of  a  rate 
 change  appearing  in  a  newspaper  depends  upon  several  variables  such  as  its  location  in  the  newspaper,  the  size 
 of  the  notice,  and  the  font  of  the  print  used  in  the  notice.  447  We  agree.  We  do  not  believe  that  Congress 
 intended  to  set  uniform  national  standards,  however,  since  the  reasonableness  of  a  particular  manner  of  giving 
 notice  will  vary  from  community  to  community.  We  urge  cable  operators  and  LFAs  to  negotiate  notice 
 procedures  that  are  reasonable  in  light  of  local  circumstances. 


 164.  In  the  absence  of  an  agreement,  the  LFA  should  prescribe  notice  requirements  consistent  with 
 this  Order.  Local  requirements  should  leave  cable  operators  with  considerable  discretion  and  should  be 
 designed  primarily  to  identify  unreasonable  means  of  giving  notice,  rather  than  specifying  a  particular  means 
 that  the  cable  operator  must  follow.  An  aggrieved  cable  operator  may  file  a  petition  with  the  Commission 
 seeking  a  declaration  that  the  notice  requirements  are  unreasonable.  A  cable  operator  should  abide  by  local 
 notice  requirements  unless  granted  relief  from  them  by  the  Commission. 


 165.  We  adopt  the  State  of  New  York's  recommendation  to  amend  Section  76.964(  a)  to  require 
 cable  operators  to  inform  subscribers  of  their  right  to  file  complaints  with  the  LFA  within  90  days  of  the 
 effective  date  of  the  increase,  as  well  as  to  provide  the  name,  address  and  telephone  number  of  the  LFA.  448  We 
 also  agree  with  the  State  of  New  York's  suggested  amendment  to  add  the  word  "written"  to  Section  76.964(  b) 
 in  describing  the  reasonable  means  by  which  a  cable  operator  may  provide  notice  of  service  or  rate  changes. 
 These  changes  are  designed  to  more  accurately  conform  our  rules  with  the  new  statutory  language.  449 
68
 Federal  Communications  Commission  FCC  99-  57 
 450  Time  Warner  Comments  at  29-  30 
 451  Id. 
 452  Id. 
 453  Communications  Act    257(  a),  47  U.  S.  C.    257(  a). 
 454  Communications  Act    257(  b),  47  U.  S.  C.    257(  b). 
 455  Conference  Report  at  173. 
 456  See  5  U.  S.  C.    603.  The  RFA,  see  5  U.  S.  C.    601  et.  seq.,  has  been  amended  by  the  Contract  With  America 
 Advancement  Act  of  1996,  Pub.  L.  No.  104-  121,  110  Stat.  847  (1996)  (CWAAA).  Title  II  of  the  CWAAA  is  the  Small 
 Business  Regulatory  Enforcement  Fairness  Act  of  1996  (SBREFA). 


 457  11  FCC  Rcd  5937,  5976-  77  (1996). 


 69 


 166.  Time  Warner  suggests  that  operators  subject  to  effective  competition  not  be  required  to 
 provide  advance  notice  of  changes  in  service  and  rates.  450  According  to  Time  Warner,  such  operators  will  be 
 severely  disadvantaged  by  having  to  divulge  to  their  competitors  new  rate  and  services  initiatives  thirty  days 
 in  advance.  451  Competitors  will  have  sufficient  time  not  only  to  devise  a  marketing  strategy  to  respond  to  a 
 cable  operator's  initiative,  Time  Warner  asserts,  but  also  to  put  into  effect  their  own  counter  strategy  and 
 pricing  plans  before  the  cable  operator's  changes  even  become  effective.  452 


 167.  Section  632  is  not  in  the  rate  regulation  portion  of  the  Communications  Act,  and  as  a  result 
 applies  even  where  there  is  effective  competition.  Therefore,  we  will  not  adopt  a  blanket  rule  automatically 
 exempting  a  cable  operator  from  the  subscriber  notice  requirement  once  effective  competition  is  shown. 
 However,  advance  notice  will  not  be  required  in  the  case  of  a  rate  decrease.  In  that  case,  the  benefits  of  giving 
 advance  notice  to  consumers  are  minimal. 


 XII.  MARKET  ENTRY  ANALYSIS 
 168.  Section  257  of  the  Act  requires  the  Commission  to  complete  a  proceeding  to  identify  and 
 eliminate  market  entry  barriers  for  entrepreneurs  and  other  small  businesses  in  the  telecommunications 
 industry.  453  The  Commission  is  directed  to  promote  a  diversity  of  media  voices  and  vigorous  economic 
 competition,  among  other  things.  454  We  believe  that  this  Order  is  consistent  with  the  objectives  of  Section  257 
 in  that  it  implements  the  Cable  Act  Reform  provisions  of  the  1996  Act  which  were  designed,  in  part,  to 
 eliminate  provisions  of  the  Act  which  disadvantaged  new  competitors,  and  to  hasten  the  development  video 
 competition  in  order  to  provide  consumers  with  increased  program  choice.  455 


 XIII.  FINAL  REGULATORY  FLEXIBILITY  ACT  ANALYSIS 
 169.  As  required  by  the  Regulatory  Flexibility  Act  (RFA),  456  an  Initial  Regulatory  Flexibility 
 Analysis  (IRFA)  was  incorporated  in  the  Order  and  Notice  of  Proposed  Rulemaking  in  CS  Docket  No.  96-  85 
 ("  Notice").  457  The  Commission  sought  written  public  comment  on  the  proposals  in  the  Cable  Act  Reform  item, 
69
 Federal  Communications  Commission  FCC  99-  57 
 458  See  5  U.  S.  C.    604. 
 459  RFA,  5  U.  S.  C.    601(  3)  (1980). 
 460  Small  Business  Act,  15  U.  S.  C.    632  (1996). 


 70 


 including  comment  on  the  IRFA.  The  comments  received  are  discussed  below.  This  present  Final  Regulatory 
 Flexibility  Analysis  (FRFA)  conforms  to  the  RFA.  458 


 170.  Need  for,  and  Objectives  of,  Cable  Act  Reform  .  The  rulemaking  implements  portions  of 
 Sections  301  and  302  of  the  Telecommunications  Act  of  1996  (the  "1996  Act"),  Pub.  L.  No.  104-  104,  110 
 Stat.  56.  The  purposes  of  this  action  are  to  establish  final  rules  regulating  cable  television  service  and  cable 
 system  operators  pursuant  to  the  1996  Act,  which  amended  or  deleted  numerous  portions  of  Title  VI  of  the 
 Communications  Act  of  1934  (the  Communications  Act"),  47  U.  S.  C.    151-  614,  and  added  new  provisions 
 affecting  cable  television. 


 171.  Summary  of  Significant  Issues  Raised  by  Public  Commenters  in  Response  to  the  IRFA. 
 Municipal  parties  filed  a  comment  in  response  to  the  initial  regulatory  flexibility  analysis.  The  parties  state 
 that  the  Commission  failed  to  consider,  in  the  IFRA  to  the  Notice,  the  effect  of  the  proposed  rules  on  small 
 governmental  entities.  Specifically,  the  municipal  parties  state  the  Commission's  proposal  to  require  a  local 
 franchising  authorities  ("  LFA")  to  send  complaints  to  the  cable  operator,  wait  for  a  response,  and  then  forward 
 the  response  to  the  Commission,  would  impose  additional  burdens  on  small  government  entities.  Additionally, 
 municipal  commenters  state  that  burdens  for  small  governmental  entities  will  increase  if  operators  are  not 
 required  to  give  direct  notice  to  subscribers  of  rate  increases  (because  LFAs  will  receive  additional  complaints 
 from  subscribers  that  were  not  aware  that  rate  increases  were  taking  place),  and  that  LFAs,  if  unable  to 
 negotiate  facilities  and  equipment  requirements,  will  need  to  devise  indirect  means  of  assuring  community  needs 
 and  interests  are  met  under  renewal  portions  of  the  Communications  Act.  The  municipal  commenters  state  that, 
 in  the  alternative,  the  Commission  should  reinstate  its  original  process  for  rate  complaint  filings,  should  simply 
 redesign  the  rate  complaint  form  to  allow  an  LFA  to  certify  that  it  has  received  subscriber  complaints,  and 
 should  allow  a  franchising  authority  to  file  the  complaint  with  the  Commission  and  the  operator,  with  the 
 operator  filing  its  rate  justification  directly  with  the  Commission.  We  discuss  these  alternatives  in  the  body 
 of  the  Order,  and  in  the  below  analysis.  In  addition,  other  commenters  raised  issues  in  response  to  the  Notice 
 that  could  involve  small  entities.  These  comments  are  addressed  in  the  Order  and  below. 


 172.  Description  and  Estimate  of  the  Number  of  Small  Entities  to  Which  Rules  Will  Apply.  The 
 RFA  defines  the  term  "small  entity"  as  having  the  same  meaning  as  the  terms  "small  business,"  "small 
 organization,"  and  "small  governmental  jurisdiction,"  and  the  same  meaning  as  the  term  "small  business 
 concern"  under  Section  3  of  the  Small  Business  Act."  459  A  small  concern  is  one  which:  (1)  is  independently 
 owned  and  operated;  (2)  is  not  dominant  in  its  field  of  operation;  and  (3)  satisfies  any  additional  criteria 
 established  by  the  Small  Business  Administration  (SBA).  460 


 173.  The  Communications  Act  at  47  U.  S.  C.  543  (m)  (2)  defines  a  small  cable  operator  as  "a  cable 
 operator  that,  directly  or  through  an  affiliate,  serves  in  the  aggregate  fewer  than  1  percent  of  all  subscribers 
 in  the  United  States  and  is  not  affiliated  with  any  entity  or  entities  whose  gross  annual  revenues  in  the  aggregate 
 exceed  $250,000,000."  Under  the  Communications  Act,  at  47  U.  S.  C.  543  (m)  (1),  a  small  cable  operator  is 
 not  subject  to  the  rate  regulation  requirements  of  Sections  543  (a),  (b)  and  (c)  on  cable  programming  service 
70
 Federal  Communications  Commission  FCC  99-  57 
 461  47  C.  F.  R.    76.1403(  b). 
 462  Paul  Kagan  Associates,  Inc.,  Cable  TV  Investor,  Feb.  29,  1996  (based  on  figures  for  Dec.  30,  1995). 
 463  47  C.  F.  R.    76.901(  e).  The  Commission  developed  this  definition  based  on  its  determinations  that  a  small  cable 
 system  operator  is  one  with  annual  revenues  of  $100  million  or  less.  Implementation  of  Sections  of  the  1992  Cable 
 Act:  Rate  Regulation,  Sixth  Report  and  Order  and  Eleventh  Order  on  Reconsideration,  10  FCC  Rcd  7393. 


 464  Paul  Kagan  Associates,  Inc.,  Cable  TV  Investor,  Feb.  29,  1996  (based  on  figures  for  Dec.  30,  1995). 


 71 


 tiers  ("  CPSTs")  in  any  franchise  area  in  which  it  serves  50,000  or  fewer  subscribers.  The  Commission  has 
 determined  that  there  are  61,700,000  subscribers  in  the  United  States.  Therefore,  in  the  Interim  Order,  we 
 found  that  an  operator  serving  fewer  than  617,000  subscribers  shall  be  deemed  a  small  operator,  if  its  annual 
 revenues,  when  combined  with  the  total  annual  revenues  of  all  of  its  affiliates,  do  not  exceed  $250  million  in 
 the  aggregate.  461  Based  on  available  data,  we  find  that  the  number  of  cable  operators  serving  617,000 
 subscribers  or  less  totals  1,450.  462  Although  it  seems  certain  that  some  of  these  cable  system  operators  are 
 affiliated  with  entities  whose  gross  annual  revenues  exceed  $250,000,000,  we  are  unable  at  this  time  to  estimate 
 with  greater  precision  the  number  of  cable  system  operators  that  would  qualify  as  small  cable  operators  under 
 the  definition  in  the  Communications  Act.  We  are  likewise  unable  to  estimate  the  number  of  these  small  cable 
 operators  that  serve  50,000  or  fewer  subscribers  in  a  franchise  area.  We  can,  however,  assume  that  the  number 
 of  cable  operators  serving  617,000  subscribers  or  less  that  1)  are  not  affiliated  with  entities  whose  gross  annual 
 revenues  exceed  $250,000,000  or  2)  serve  50,000  or  fewer  subscribers  in  a  franchise  area,  is  less  than  1450. 


 174.  The  Commission  has  developed  its  own  definition  of  a  small  cable  system  operator  for  the 
 purposes  of  rate  regulation.  Under  the  Commission's  rules,  a  "small  cable  company,"  is  one  serving  fewer  than 
 400,000  subscribers  nationwide.  463  Based  on  our  most  recent  information,  we  estimate  that  there  were  1,439 
 cable  operators  that  qualified  as  small  cable  system  operators  at  the  end  of  1995.  464  Since  then,  some  of  those 
 companies  may  have  grown  to  serve  over  400,000  subscribers,  and  others  may  have  been  involved  in 
 transactions  that  caused  them  to  be  combined  with  other  cable  operators.  Consequently,  we  estimate  that  there 
 are  fewer  than  1,439  small  entity  cable  system  operators.  Under  the  Commission's  rules,  a  small  cable  system 
 is  a  cable  system  with  15,000  or  fewer  subscribers  owned  by  a  cable  company  serving  400,000  or  fewer 
 subscribers  over  all  of  its  cable  systems.  We  stated  in  the  Notice  that  we  were  unable  to  estimate  the  number 
 of  small  cable  systems  nationwide,  and  we  sought  comment  on  the  number  of  small  cable  systems.  No 
 comments  were  received  with  respect  to  this  number. 


 175.  SBA  has  developed  a  definition  of  small  entities  for  cable  and  other  pay  television  services, 
 which  includes  all  such  companies  generating  less  than  $11  million  in  revenue  annually.  This  definition 
 includes  cable  system  operators,  closed  circuit  television  services,  direct  broadcast  satellite  services,  multipoint 
 distribution  systems,  satellite  master  antenna  systems  and  subscription  television  services.  According  to  the 
 Census  Bureau,  there  were  1,323  such  cable  and  other  pay  television  services  generating  less  than  $11  million 
 in  revenue  that  were  in  operation  for  at  least  one  year  at  the  end  of  1992. 


 176.  The  term  "small  governmental  jurisdiction"  is  defined  as  "governments  .  .  .  districts,  with  a 
 population  of  less  than  fifty  thousand."  There  are  85,006  governmental  entities  in  the  United  States.  This 
 number  includes  such  entities  as  states,  counties,  cities,  utility  districts  and  school  districts.  We  note  that  any 
 official  actions  with  respect  to  cable  systems  will  typically  be  undertaken  by  LFAs,  which  primarily  consist 
71
 Federal  Communications  Commission  FCC  99-  57 
 72 
 of  counties,  cities  and  towns.  Of  the  85,006  governmental  entities,  38,978  are  counties,  cities  and  towns.  The 
 remainder  are  primarily  utility  districts,  school  districts,  and  states,  which  typically  are  not  LFAs.  Of  the 
 38,978  counties,  cities  and  towns,  37,566,  or  96%  have  populations  of  fewer  than  50,000.  Thus, 
 approximately  37,500  "small  governmental  jurisdictions"  may  be  affected  by  the  rules  adopted  in  this  Order. 


 177.  Reporting,  Recordkeeping  and  Other  Compliance  Requirements.  The  following  addresses 
 the  requirements  of  regulations  adopted,  amended,  modified  or  clarified  in  the  Order. 


 178.  Effective  Competition.  The  1996  Act  adds  a  fourth  test  for  effective  competition  to  Section 
 623  of  the  Communications  Act.  The  rules  adopted  in  this  Order  will  affect  municipalities  and  cable  operators, 
 including  those  that  are  small  entities.  The  rules  adopted  in  this  Order  require  that  a  finding  of  effective 
 competition  must  be  based  on  a  record  that  demonstrates  that  effective  competition  exists,  and  not  on  a  mere 
 claim  by  a  cable  operator  that  it  is  subject  to  effective  competition.  Our  rules  state  that  all  claims  of  effective 
 competition  should  be  filed  as  petitions  for  determinations  of  effective  competition  under  Section  76.7  of  our 
 rules.  We  do  not  believe  that  the  rules  adopted  here  today  will  require  any  specialized  skills  beyond  those 
 already  used  by  LFAs  and  operators  beyond  those  already  required  by  our  rules. 


 179.  CPST  Rate  Complaints.  The  1996  Act  amended  the  CPST  rate  complaint  procedures  in 
 Section  623(  c)(  3)  of  the  Communications  Act.  Under  our  rules  adopted  here  today,  we  clarify  that  an  LFA  may 
 decide  not  to  file  a  CPST  rate  complaint,  based  on  its  assessment  of  the  validity  of  the  underlying  subscriber 
 complaints  or  any  other  reason.  The  rules  adopted  here  today  clarify  that  the  LFA  should  not  file  a  complaint 
 with  the  Commission  that  is  based  on  subscriber  complaints  concerning  the  BAST  or  premium  services. 
 Furthermore,  the  LFA  must  determine  that  it  has  received  more  than  one  complaint  per  community  unit  served 
 by  the  operator  before  filing  a  complaint  against  the  operator's  rates  in  that  community  unit.  In  our  rules,  we 
 determine  that  for  purposes  of  triggering  the  LFA's  authority  to  file  a  CPST  rate  complaint  with  the 
 Commission,  Congress  intended  to  require  at  least  two  subscriber  complaints  be  properly  filed  for  each 
 community  unit  before  the  LFA  files  a  complaint  with  the  Commission.  We  allow  the  LFA  to  use  the  records 
 maintained  in  accordance  with  its  regular  business  practices  to  establish  that  it  has  received  the  requisite 
 subscriber  complaints  within  90  days  of  a  rate  increase.  However,  we  condition  the  filing  of  a  CPST  rate 
 complaint  upon  the  LFA's  certification  that  it  has  received  two  or  more  subscriber  complaints  about  CPST 
 rates  during  the  90  day  period  after  the  rate  became  effective.  LFAs  should  continue  to  use  Form  329  to  file 
 CPST  rate  complaints  with  the  Commission.  LFAs  should  use  Form  329  to  serve  notice  on  the  operator  of  its 
 intent  to  file  a  complaint  with  the  Commission.  When  providing  the  operator  with  notice  of  its  intent  to  file  a 
 complaint,  the  LFA  also  should  indicate  the  date  by  which  the  cable  operator  must  respond.  The  response  date 
 must  be  no  less  than  30  days  from  the  date  the  notice  of  intent  to  file  a  complaint  is  received  by  the  cable 
 operator.  The  notice  and  the  draft  Form  329  should  be  sent  to  the  cable  operator  simultaneously  via  certified 
 mail,  return  receipt  requested.  A  copy  of  the  return  receipt  showing  delivery  of  the  complaint  to  the  cable 
 operator  should  be  included  when  the  complaint  is  filed  with  the  Commission.  We  do  not  believe  that 
 determining  whether  subscriber  complaints  concern  the  BAST  or  premium  services  will  require  any  specialized 
 skills  beyond  those  already  used  by  LFAs  and  operators  beyond  those  already  required  by  our  rules. 
 Furthermore,  we  do  not  believe  that  the  determination  that  the  LFA  has  received  more  than  one  com;  plaint  per 
 community  unit  served  by  the  operator  before  filing  a  complaint  against  the  operator's  rates  in  that  community 
 unit  and  certifying  to  the  date  of  the  first  valid  complaint  will  require  any  specialized  skills. 


 180.  Small  Cable  Operators.  The  1996  Act  exempts  small  cable  operators  in  some  circumstances 
 from  the  rate  regulation  requirements  of  Section  623  of  the  Communications  Act.  The  Communications  Act 
72
 Federal  Communications  Commission  FCC  99-  57 
 465  Interim  Order  at  11  FCC  Rcd  5952.  See  47  C.  F.  R.    76.964(  b). 
 466  Id.  citing  Conference  Report  at  169. 


 73 


 at  47  U.  S.  C.  543(  m)(  2)  defines  a  small  cable  operator  as  "a  cable  operator  that,  directly  or  through  an  affiliate, 
 serves  in  the  aggregate  fewer  that  1  percent  of  all  subscribers  in  the  United  States  and  is  not  affiliated  with  any 
 entity  or  entities  whose  gross  annual  revenues  in  the  aggregate  exceed  $250,000,000."  Under  the 
 Communications  Act,  at  47  U.  S.  C.  543(  m)(  1),  a  small  cable  operator  is  not  subject  to  the  rate  regulation 
 requirements  of  Sections  543(  a),  (b),  and  (c)  on  cable  programming  service  tiers  (CPSTs")  in  any  franchise 
 area  in  which  it  serves  50,000  or  fewer  subscribers.  The  interim  rules  set  forth  a  procedure  that  enables 
 operators  to  assert  eligibility  for  small  operator  treatment.  The  rules  adopted  here  today  allow  LFAs  a  90  day 
 response  period  to  determine  eligibility  for  small  operator  treatment.  Our  rules  also  allow  operators  to  appeal 
 to  the  Commission  when  information  requests  from  LFAs  are  deemed  to  burdensome  and  the  LFA  refuses  to 
 drop  or  modify  the  information  request  in  response  to  the  operator's  challenge.  An  LFA  may  request  an 
 operator  seeking  certification  to  identify  in  writing  all  of  its  affiliates  providing  cable  service,  the  total  cable 
 subscriber  base  of  itself  and  each  affiliate,  and  the  aggregate  gross  revenues  of  all  its  cable  and  non-  cable 
 affiliates.  Small  operators  with  only  one  tier  of  service  subject  to  regulation  as  of  December  31,  1994  are 
 deregulated  on  all  tiers  of  service  if  they  otherwise  qualify  for  small  operator  treatment.  A  system  that  now 
 offers  more  than  one  tier  of  service  but  had  only  one  tier  subject  to  regulation  on  December  31,  1994  would 
 now  be  deregulated  on  its  BST  if  it  meets  the  relevant  numerical  thresholds  and  limits  of  the  statute.  Operators 
 claiming  eligibility  for  deregulatory  treatment  based  on  this  aspect  of  the  small  operator  provision  may  assert 
 such  eligibility  consistent  with  the  procedures  established  in  the  Order.  We  do  not  believe  that  the  rules 
 adopted  here  today  will  require  any  specialized  skills  beyond  those  already  used  by  LFAs  and  operators  beyond 
 those  already  required  by  our  rules. 


 181.  Transition  from  Small  Operator  Treatment.  In  the  Notice,  we  requested  comment  regarding 
 the  implementation  of  a  transition  process  for  operators  that  lose  eligibility  for  small  operator  treatment  and 
 become  subject  to  regulation.  The  1996  Act  mandates  such  an  exemption  for  small  cable  operators  in  franchise 
 areas  where  they  serve  fewer  than  50,000  subscribers  but,  with  respect  to  operators  that  do  not  meet  these 
 criteria,  gives  us  no  more  discretion  than  we  had  before.  When  a  system  no  longer  meets  the  small  cable 
 operator  criteria  for  deregulation,  the  statute  imposes  rate  regulation.  In  the  Order,  we  allow  small  operators 
 that  lose  eligibility  for  small  operator  treatment  to  maintain  the  rates  that  prevailed  prior  to  the  loss  of 
 eligibility.  We  do  not  believe  that  the  rule  adopted  here  today  will  require  any  specialized  skills  beyond  those 
 already  used  by  LFAs  and  operators  beyond  those  already  required  by  our  rules. 


 182.  Technical  Standards.  In  the  Notice,  we  sought  comment  on  whether  Section  624(  e)  of  the 
 Communications  Act,  as  amended  by  Section  301(  e)  of  the  1996  Act  precludes  an  LFA  from  enforcing  the 
 Commission's  technical  standards.  In  the  Order,  we  preclude  LFAs  from  specifying  the  technical  means  by 
 which  a  cable  operator  delivers  its  signal  to  subscribers. 


 183.  Subscriber  Notice.  Section  301(  g)  of  the  1996  Act  added  a  new  subsection  to  Section  632 
 of  the  Communications  Act.  We  amended  Sections  76.30  and  76.964  of  our  rules  to  correspond  with  this 
 statutory  revision.  465  The  legislative  history  of  the  House  amendment  concerning  notice  to  subscribers  of  rate 
 increases  stated  that  "[  n]  otice  need  not  be  inserted  in  the  subscriber's  bill."  466  Accordingly,  in  the  Interim 
 Order,  we  determined  that  notices  of  rate  changes  provided  to  subscribers  through  written  announcements  on 
 the  cable  system  or  in  the  newspaper  will  be  presumed  sufficient.  We  stated  that  we  would  address  any 
73
 Federal  Communications  Commission  FCC  99-  57 
 467  1996  Act    301(  b)(  3);  see  47  U.  S.  C.    543(  l)(  1)(  D);  see  also  47  C.  F.  R.    76.905(  b)(  4). 
 74 


 disputes  that  might  arise  in  this  area  on  a  case-  by-  case  basis.  In  the  Order,  we  allow  cable  operators  and 
 LFAs  to  negotiate  notice  procedures  that  are  reasonable  in  light  of  local  circumstances.  In  the  absence  of  an 
 agreement,  the  LFA  should  prescribe  notice  requirements  consistent  with  this  Order.  We  do  not  believe  that 
 the  rule  adopted  here  today  will  require  any  specialized  skills  beyond  those  already  used  by  LFAs  and  operators 
 beyond  those  already  required  by  our  rules. 


 184.  Steps  Taken  to  Minimize  the  Significant  Economic  Impact  on  Small  Entities  and  Significant 
 Alternatives  Rejected. 


 185.  Effective  Competition.  The  1996  Act  adds  a  fourth  test  for  effective  competition  to  Section 
 623  of  the  Communications  Act.  467  The  rules  adopted  in  this  Order  will  affect  municipalities  and  cable 
 operators,  including  those  that  are  small  entities.  The  rules  adopted  in  this  Order  require  that  a  finding  of 
 effective  competition  must  be  based  on  a  record  that  demonstrates  that  effective  competition  exists,  and  not  on 
 a  mere  claim  by  a  cable  operator  that  it  is  subject  to  effective  competition.  Our  rules  state  that  all  claims  of 
 effective  competition  should  be  filed  as  petitions  for  determinations  of  effective  competition  under  Section  76.7 
 of  our  rules.  Adopting  this  procedure  as  the  sole  means  of  establishing  effective  competition  eliminates 
 confusion  and  comports  with  the  statutory  requirement  that  such  determinations  be  made  by  the  Commission. 


 186.  CPST  Rate  Complaints.  A  number  of  cable  operators  contend  that  the  LFA  should  notify  the 
 operator  each  time  a  subscriber  complaint  is  received,  and  these  operators  suggest  proposals  for  implementation 
 of  this  contention.  In  many  instances,  these  proposals  would  place  unnecessary  burdens  on  both  LFAs  and 
 cable  operators.  We  see  no  purpose  in  requiring  an  LFA  to  notify  the  cable  operator  of  every  CPST  rate 
 complaint  the  LFA  receives  from  a  subscriber,  particularly  since  the  LFA  may  choose  not  to  file  a  complaint. 
 There  is  no  indication  in  the  1996  Act  or  its  legislative  history  that  Congress  sought  to  impose  additional 
 burdens  on  LFAs  in  this  regard.  Moreover,  we  presume  that  subscriber  complaints  are  matters  of  public  record 
 that  are  accessible  under  state  or  local  laws.  An  LFA  should  not  file  a  complaint  with  the  Commission  that 
 is  based  on  subscriber  complaints  concerning  the  BST  or  premium  services.  Furthermore,  the  LFA  must 
 determine  that  it  has  received  more  than  one  complaint  per  community  unit  served  by  the  operator  before  filing 
 a  complaint  against  the  operator's  rates  in  that  community  unit.  Beyond  measures  such  as  these,  which  merely 
 ensure  that  the  LFA's  complaint  is  not  procedurally  defective  under  Section  623(  c)(  3),  we  see  nothing  in  the 
 1996  Act  that  increases  the  role  of  LFAs  with  respect  to  substantive  review  of  CPST  rates.  Allowing  the  LFA 
 to  consider  both  the  subscriber  complaints  and  the  cable  operator's  rate  justification  will  enable  the  LFA  to 
 make  a  more  informed  decision  as  to  whether  or  not  to  file  a  complaint  with  the  Commission.  Furthermore, 
 the  90  day  window  for  the  Commission  to  consider  a  rate  complaint  is  triggered  when  the  complaint  is  filed. 
 We  do  not  believe  that  the  Commission  should  begin  its  proceeding  with  less  than  a  complete  record.  As  noted 
 elsewhere,  the  rules  we  are  adopting  here  impose  no  obligation  on  the  LFA  to  file  a  complaint,  nor  do  they 
 require  the  LFA  to  perform  any  in-  depth  analysis.  Rather  they  allow  LFAs  an  opportunity,  consistent  with 
 Congressional  intent,  to  participate  in  the  rate  regulation  process  to  the  degree  they  choose  to  do  so. 


 187.  Small  Cable  Operators.  The  1996  Act  exempts  small  cable  operators  in  some  circumstances 
 from  the  rate  regulation  requirements  of  under  Section  623  of  the  Communications  Act.  The  Communications 
 Act  at  47  U.  S.  C.  543  (m)  (2)  defines  a  small  cable  operator  as  "a  cable  operator  that,  directly  or  through  an 
 affiliate,  serves  in  the  aggregate  fewer  than  1  percent  of  all  subscribers  in  the  United  States  and  is  not  affiliated 
74
 Federal  Communications  Commission  FCC  99-  57 
 468  Notice,  11  FCC  Rcd  at  5969. 
 75 


 with  any  entity  or  entities  whose  gross  annual  revenues  in  the  aggregate  exceed  $250,000,000."  Under  the 
 Communications  Act,  at  47  U.  S.  C.  543  (m)  (1),  a  small  cable  operator  is  not  subject  to  the  rate  regulation 
 requirements  of  Sections  543  (a),  (b)  and  (c)  on  cable  programming  service  tiers  ("  CPSTs")  in  any  franchise 
 area  in  which  it  serves  50,000  or  fewer  subscribers.  The  interim  rules  set  forth  a  procedure  that  enables 
 operators  to  assert  eligibility  for  small  operator  treatment.  We  sought  comment  regarding  alternative 
 mechanisms  or  approaches  that  would  further  minimize  the  administrative  burdens  on  operators  and  franchising 
 authorities  in  cases  where  eligibility  for  small  operator  treatment  is  not  in  dispute.  468  Cable  operators  support 
 simplified  procedures  for  asserting  eligibility  for  small  operator  treatment.  The  SCBA  argues  that  a  simple 
 declaration  of  eligibility  should  be  sufficient  and  that  the  LFA's  failure  to  act  on  the  certification  declaration 
 within  60  days  would  render  the  certification  effective.  SCBA  requests  rules  that  would  allow  operators  to 
 appeal  to  the  Commission  when  information  requests  made  by  LFAs  are  considered  unduly  burdensome.  Under 
 the  1996  Act,  operators  qualifying  for  small  operator  treatment  are  exempt  from  certain  regulatory  provisions 
 on  the  date  of  enactment.  Operators  claiming  entitlement  to  such  treatment  may  operate  accordingly.  We 
 believe,  however,  that  LFAs  must  have  the  opportunity  to  assess  the  circumstances  of  each  case.  The  90-  day 
 response  period  adopted  here  today  allows  LFAs  sufficient  time  to  determine  eligibility  for  small  operator 
 treatment.  Our  rules  also,  however,  allow  operators  to  appeal  to  the  Commission  when  information  requests 
 from  LFAs  are  deemed  too  burdensome  and  the  LFA  refuses  to  drop  or  modify  the  information  request  in 
 response  to  the  operator's  challenge.  An  LFA  may  request  an  operator  seeking  certification  to  identify  in 
 writing  all  of  its  affiliates  providing  cable  service,  the  total  cable  subscriber  base  of  itself  and  each  affiliate, 
 and  the  aggregate  gross  revenues  of  all  its  cable  and  non-  cable  affiliates. 


 188.  Transition  From  Small  Operator  Treatment.  In  the  Notice,  we  requested  comment  regarding 
 the  implementation  of  a  transition  process  for  operators  that  lose  eligibility  for  small  operator  treatment  and 
 become  subject  to  regulation.  The  1996  Act  mandates  such  an  exemption  for  small  cable  operators  in  franchise 
 areas  where  they  serve  fewer  than  50,000  subscribers  but,  with  respect  to  operators  that  do  not  meet  these 
 criteria,  gives  us  no  more  discretion  than  we  had  before.  When  a  system  no  longer  meets  the  small  cable 
 operator  criteria  for  deregulation,  the  statute  subjects  the  small  operator  to  rate  regulation.  At  the  same  time, 
 we  are  concerned  that  the  prospect  of  rate  rollbacks  either  immediately  at  the  local  level  or  at  the  time  of  rate 
 adjustments  at  the  federal  level  will  create  an  incentive  for  operators  to  restrict  their  own  growth,  which  would 
 disserve  both  consumers  and  operators.  Accordingly,  in  the  Order,  we  allow  small  operators  that  lose 
 eligibility  for  small  operator  treatment  to  maintain  the  rates  that  prevailed  prior  to  the  loss  of  eligibility.  This 
 will  ensure  that  operators  are  not  subjected  to  sudden  and  disruptive  rate  rollbacks  that  create  a  perverse 
 incentive  for  small  operators  to  restrict  their  own  growth.  Our  objectives  are  to  minimize  disruption  to  newly 
 regulated  operators  and  to  assure  operators  that  successful  subscriber  growth  will  not  adversely  affect  their 
 economic  position. 


 189.  Technical  Standards.  In  the  Notice,  we  sought  comment  on  whether  Section  624(  e)  of  the 
 Communications  Act,  as  amended  by  Section  301(  e)  of  the  1996  Act  precludes  an  LFA  from  enforcing  the 
 Commission's  technical  standards.  In  the  Order,  we  agree  with  commenting  LFAs  that  local  enforcement  is 
 not  precluded.  In  the  Notice,  we  also  sought  comment  on  the  language  in  Section  624(  e)  that  provides  that  no 
 state  or  franchising  authority  may  prohibit,  condition,  or  restrict  a  cable  system's  use  of  any  type  of  subscriber 
 equipment  or  any  transmission  technology.  Municipal  interests  argue  that  burdens  for  small  governmental 
 entities  will  increase  if  LFAs  are  unable  to  negotiate  facilities  and  equipment  requirements,  because  the  LFAs 
 will  need  to  devise  indirect  means  of  assuring  community  needs  and  interests  are  met  under  renewal  portions 
75
 Federal  Communications  Commission  FCC  99-  57 
 469  Interim  Order  at  11  FCC  Rcd  5952.  See  47  C.  F.  R.    76.964(  b). 
 470  Id.  citing  Conference  Report  at  169. 


 76 


 of  the  Communications  Act.  In  the  Order,  we  note  the  lack  of  controversy  regarding  interpretation  of 
 "subscriber  equipment."  With  respect  to  "transmission  technology,"  we  note  that  the  term  is  commonly  used 
 to  include  both  the  transmission  medium  and  the  specific  modulation  or  communications  format,  and  find  that 
 it  is  reasonably  clear  that  local  authorities  may  not  control  whether  a  cable  operator  uses  digital  or  analog 
 transmission  nor  determine  whether  its  transmission  plant  is  composed  of  coaxial  cable,  fiber  optic  cable,  or 
 microwave  radio  facilities.  We  further  note  that  an  LFA's  authority  to  establish  requirements  for  facilities  and 
 equipment  must  be  read  in  the  context  of  the  limits  imposed  by  the  revisions  to  Section  624(  e).  As  stated  in 
 the  Order,  the  legislative  history  of  the  amendment  to  Section  624(  e)  states  that  the  patchwork  of  regulations 
 that  would  result  from  a  locality-  by-  locality  approach  (in  the  areas  of  technical  standards,  transmission 
 technology,  and  subscriber  equipment)  is  particularly  inappropriate  in  light  of  today's  intensely  dynamic 
 technological  environment.  Allowing  LFAs  to  specify  transmission  technology  would  be  inconsistent  with  the 
 clearly  stated  intent  of  Congress. 


 190.  Subscriber  Notice.  Section  301(  g)  of  the  1996  Act  added  a  new  subsection  to  Section  632 
 of  the  Communications  Act.  We  amended  Sections  76.30  and  76.964  of  our  rules  to  correspond  with  this 
 statutory  revision.  469  The  legislative  history  of  the  House  amendment  concerning  notice  to  subscribers  of  rate 
 increases  stated  that  "[  n]  otice  need  not  be  inserted  in  the  subscriber's  bill."  470  Accordingly,  in  the  Interim 
 Order,  we  determined  that  notices  of  rate  changes  provided  to  subscribers  through  written  announcements  on 
 the  cable  system  or  in  the  newspaper  will  be  presumed  sufficient.  We  stated  that  we  would  address  any 
 disputes  that  might  arise  in  this  area  on  a  case-  by-  case  basis.  In  the  Report  and  Order,  we  conclude  that 
 Congress  intended  to  limit  the  Commission's  discretion  in  this  area  but  that  Congress  did  not  intend  to  eliminate 
 completely  the  role  of  regulatory  authorities.  Congress  specifically  preserved  LFA  authority  to  enact  and 
 enforce  consumer  protection  laws  to  the  extent  not  specifically  preempted  by  Title  VI  of  the  Communications 
 Act.  We  also  concluded  that  Congress  did  not  give  cable  operators  unbridled  discretion  regarding  the  means 
 for  notifying  subscribers  of  changes  in  rates  and  service.  Congress  allowed  cable  operators  to  exercise  their 
 sole  discretion  within  the  constraints  of  "reasonable  written"  means  of  giving  notice.  LFAs  and  the 
 Commission  retain  the  authority  to  determine  that  a  particular  mechanism  is  not  reasonable.  We  noted, 
 however,  the  suggestion  in  the  legislative  history  that  cable  operators  need  not  give  subscribers  individual 
 written  notice  of  rate  and  service  changes  in  their  bills. 


 191.  Municipal  parties  argue  that  burdens  for  small  governmental  entities  will  increase  if  operators 
 are  not  required  to  give  direct  notice  to  subscribers  of  rate  increases,  because  LFAs  will  receive  additional 
 complaints  from  subscribers  that  were  not  aware  that  rate  increases  were  taking  place.  Municipal  parties  state 
 that  reasonableness  of  a  notice  of  a  rate  change  appearing  in  a  newspaper  depends  upon  several  variables  such 
 as  its  location  in  the  newspaper,  the  size  of  the  notice,  and  the  font  of  the  print  used  in  the  notice.  In  the  Order, 
 we  allow  cable  operators  and  LFAs  to  negotiate  notice  procedures  that  are  reasonable  in  light  of  local 
 circumstances.  In  the  absence  of  an  agreement,  we  allow  the  LFA  to  prescribe  notice  requirements  consistent 
 with  this  Order. 


 192.  Report  to  Congress:  The  Commission  will  send  a  copy  of  the  Report  and  Order,  including 
 this  FRFA,  in  a  report  to  be  sent  to  Congress  pursuant  to  the  Small  Business  Regulatory  Enforcement  Fairness 
 Act  of  1996,  see  5  U.  S.  C.    801(  a)(  1)(  A).  In  addition,  the  Commission  will  send  a  copy  of  the  Report  and 
76
 Federal  Communications  Commission  FCC  99-  57 
 77 
 Order,  including  FRFA,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration.  A  copy  of 
 the  Report  and  Order  and  FRFA  (or  summaries  thereof)  will  also  be  published  in  the  Federal  Register.  See 
 5  U.  S.  C.    604(  b). 


 XIV.  PAPERWORK  REDUCTION  ACT  OF  1995  ANALYSIS 
 193.  The  requirements  adopted  in  this  Report  and  Order  have  been  analyzed  with  respect  to  the 
 Paperwork  Reduction  Act  of  1995  (the  "1995  Act")  and  found  to  impose  modified  information  collection 
 requirements  on  the  public.  The  Commission,  as  part  of  its  continuing  effort  to  reduce  paperwork  burdens, 
 invites  the  general  public  and  the  Office  of  Management  and  Budget  ("  OMB")  to  take  this  opportunity  to 
 comment  on  the  information  collection  requirements  contained  in  this  Report  and  Order,  as  required  by  the 
 1995  Act.  Public  comments  are  due  30  days  from  date  of  publication  of  this  Order  in  the  Federal  Register. 
 OMB  comments  are  due  on  or  before  60  days  from  date  of  publication  of  this  Order  in  the  Federal  Register. 
 Comments  should  address:  (a)  whether  the  proposed  collection  of  information  is  necessary  for  the  proper 
 performance  of  the  functions  of  the  Commission,  including  whether  the  information  shall  have  practical  utility; 
 (b)  the  accuracy  of  the  Commission's  burden  estimates;  (c)  ways  to  enhance  the  quality,  utility,  and  clarity  of 
 the  information  collected;  and  (d)  ways  to  minimize  the  burden  of  the  collection  of  information  on  the 
 respondents,  including  the  use  of  automated  collection  techniques  or  other  forms  of  information  technology. 


 194.  Written  comments  by  the  public  on  the  modified  information  collection  requirements  are  due 
 30  days  from  date  of  publication  of  this  Report  and  Order  in  the  Federal  Register.  Written  comments  must 
 be  submitted  by  OMB  on  the  modified  information  collection  requirements  on  or  before  60  days  after  date  of 
 publication  in  the  Federal  Register.  In  addition  to  filing  comments  with  the  Secretary,  a  copy  of  any  comments 
 on  the  information  collections  contained  herein  should  be  submitted  to  Judy  Boley,  Federal  Communications 
 Commission,  Room  1-  C804,  445  12th  Street,  S.  W.,  Washington,  DC  20554,  or  via  the  Internet  to 
 jboley@  fcc.  gov  and  to  Timothy  Fain,  OMB  Desk  Officer,  10236  NEOB,  725  -  17th  Street,  N.  W.,  Washington, 
 DC  20503  or  via  the  Internet  to  fain_  t@  al.  eop.  gov. 
77
 Federal  Communications  Commission  FCC  99-  57 
 78 
 XV.  ORDERING  CLAUSES 
 195.  Accordingly,  IT  IS  ORDERED  that,  pursuant  to  Sections  4(  i),  4(  j),  303(  r),  as  amended,  47 
 U.  S.  C.    154(  i),  154(  j),  303(  r),  and  the  Telecommunications  Act  of  1996,  Sections  301  and  302,  the 
 requirements  and  policies  discussed  in  this  Report  and  Order,  ARE  AMENDED  as  set  forth  below. 


 196.  IT  IS  FURTHER  ORDERED  that  the  requirements  and  regulations  established  in  this  decision 
 shall  become  effective  upon  approval  by  OMB  of  the  new  information  collection  requirements  adopted  herein, 
 but  no  sooner  than  60  days  after  publication  in  the  Federal  Register. 


 197.  IT  IS  FURTHER  ORDERED  that  the  Commission's  Office  of  Public  Affairs,  Reference 
 Operations  Division,  SHALL  SEND  a  copy  of  this  Report  and  Order,  including  the  Final  Regulatory 
 Flexibility  Analysis,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration. 


 FEDERAL  COMMUNICATIONS  COMMISSION 


 Magalie  Roman  Salas 
 Secretary 
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 APPENDIX  A 
 COMMENTERS 
 Alliance  for  Community  Media,  Consumer  Project  on  Technology,  and  Alliance  for  Communication 
 s  Democracy 
 Allied  Associated  Partners,  LP  and  GELD  Information  Systems 
 Bell  Atlantic 
 BellSouth  Corporation  ("  BellSouth") 
 Cable  Telecommunications  Association  ("  CATA") 
 Cablevision  Systems  Corporation  ("  Cablevision") 
 California  Cable  Television  Association  ("  CCTA") 
 City  and  County  of  Denver,  CO  ("  Denver") 
 City  of  Fairfield,  CA  ("  Fairfield") 
 City  of  Indianapolis,  IN  ("  Indianapolis") 
 Cole,  Raywid,  &  Braverman  (on  behalf  of  Bresnan  Communications  Company,  L.  P.,  Charter 
 Communications,  Inc.,  Daniels  Communications,  Inc.,  Halcyon  Communications  Partners,  James  Cable 
 Partners,  L.  P.,  Jones  Intercable,  Inc.,  Rifkin  &  Associates,  Inc.,  TCA  Cable  TV,  Inc.  ("  Cole,  Raywid")) 
 Comcast  Cable  Communications,  Inc.  ("  Comcast") 
 Cook  Jr.,  William  A.  ("  William  Cook") 
 Cox  Communications,  Inc.  ("  Cox") 
 C-  Tec  Cable  Systems,  Inc.  and  Mercom,  Inc.  ("  C-  TEC  and  Mercom") 
 Falcon  Holding  Group,  L.  P.  ("  Falcon") 
 Fleischman  and  Walsh,  L.  L.  P  (on  behalf  of  Adelphia  Communications  Corporation,  Arizona  Cable 
 Telecommunications  Association,  Century  Communications  Corporation,  Charter  Communications,  Inc., 
 Insight  Communications  Co.,  State  Cable  TV  Corp.,  and  Suburban  Cable  TV  Co.  Inc.  ("  Fleischman")) 
 FrontierVision  Operating  Partners,  L.  P.  ("  FrontierVision") 
 Greater  Metro  Cable  Consortium,  Metro  Denver,  CO  ("  GMCC") 
 GTE  Service  Corporation  ("  GTE") 
 Independent  Cable  &  Telecommunications  Association  ("  ICTA") 
 Kramer,  Monroe  &  Wyatt  ("  Kramer") 
 Massachusetts  Cable  Television  Commission  ("  Massachusetts  Cable  Commission") 
 National  Cable  Television  Association,  Inc.  ("  NCTA") 
 National  League  of  Cities  and  National  Association  of  Telecommunications  Officers  and  Advisors 
 ("  League  of  Cities  and  NATOA") 
 National  Telephone  Cooperative  Association  ("  NTCA") 
 New  England  Cable  Television  Association,  Inc.  ("  NECTA") 
 New  Jersey  State  Board  of  Public  Utilites  ("  New  Jersey  Board") 
 New  Jersey  State  Division  of  the  Ratepayer  Advocate  ("  New  Jersey  Ratepayer  Advocate") 
 New  York  City  Department  of  Information  Technology  and  Telecommunications  ("  New  York  City") 
 New  York  State  Department  of  Public  Service  ("  State  of  New  York") 
 Optel,  Inc.  ("  OpTel") 
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 People  for  the  American  Way  and  Media  Access  Project 
 Residential  Communications  Network,  Inc. 
 SBC  Communications,  Inc.  and  Southwestern  Bell  Video  Systems,  Inc.  ("  SBC") 
 Small  Cable  Business  Association  ("  SCBA") 
 State  of  California  Agency  ("  SMATV") 
 Tele-  Communications,  Inc.  ("  TCI") 
 Time  Warner  Cable  (Time  Warner) 
 United  States  Small  Business  Administration  ("  SBA") 
 United  States  Telephone  Association  ("  USTA") 
 United  States  Wireless  Cable,  Inc.  and  Wedgewood  Communications,  Inc.  ("  U.  S.  Wireless  and 
 Wedgewood") 
 US  WEST,  Inc.  ("  U.  S.  WEST") 
 Wireless  Cable  Association  International,  Inc.  ("  WCA") 


 REPLY  COMMENTERS 
 Alliance  for  Community  Media 
 Ameritech  New  Media,  Inc.  ("  Ameritech") 
 Bell  Atlantic 
 City  of  Atlanta,  GA 
 City  of  Los  Angeles,  CA;  National  League  of  Cities;  and  National  Association  of  Telecommunications 
 Officers  &  Advisors  ("  Los  Angeles,  League  of  Cities,  and  NATOA") 
 City  of  Austin,  TX  ("  Austin") 
 City  of  Lake  Forest,  IL  ("  Lake  Forest") 
 City  of  Naperville,  IL  ("  Naperville") 
 City  of  Rolling  Meadows,  IL  ("  Rolling  Meadows") 
 Cole,  Raywid,  &  Braverman  (on  behalf  of  Bresnan  Communications  Company,  L.  P.,  Charter 
 Communications,  Inc.,  Daniels  Communications,  Inc.,  Halcyon  Communications  Partners,  James  Cable 
 Partners,  L.  P.,  Jones  Intercable,  Inc.,  Rifkin  &  Associates,  Inc.,  TCA  Cable  TV,  Inc.  ("  Cole,  Raywid")) 
 Comcast  Cable  Communications,  Inc.  ("  Comcast") 
 Fleischman  and  Walsh,  L.  L.  P  (on  behalf  of  Adelphia  Communications  Corporation,  Arizona  Cable 
 Telecommunications  Association,  Century  Communications  Corporation,  Charter  Communications,  Inc., 
 Insight  Communications  Co.,  State  Cable  TV  Corp.,  and  Suburban  Cable  TV  Co.  Inc.  ("  Fleischman")) 
 General  Electric  Capital  Corporation  ("  GE  Capital") 
 Independent  Cable  &  Telecommunications  Association  ("  ICTA") 
 J.  P.  Morgan  &  Company,  Brown  Brothers  Harriman  &  Co.,  Olympus  Partners,  and  First  Union  Capital 
 Partners,  Inc. 
 Massachusetts  Cable  Television  Commission  ("  Massachsetts  Cable  Commisssion") 
 Metropolitan  Area  Communications  Commission  representing  Oregon  communities  ("  MACC") 
 Michigan,  Illinois  and  Texas  Communities 
 National  Cable  Television  Association,  Inc.  ("  NCTA") 
 New  York  City  Department  of  Information  Technology  and  Telecommunications  ("  New  York  City") 
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 Optel,  Inc.  ("  OpTel") 
 Small  Cable  Business  Association  ("  SCBA") 
 Tele-  Communications,  Inc.  ("  TCI") 
 Time  Warner  Cable  ("  Time  Warner") 
 United  States  Telephone  Association  ("  USTA") 
 United  States  Wireless  Cable,  Inc.  and  Wedgewood  Communications,  Inc.  ("  U.  S.  Wireless  and 
 Wedgewood") 
 US  WEST,  Inc.  ("  U.  S.  WEST") 
 Viacom,  Inc.  ("  Viacom") 
 Village  of  Lincolnwood,  IL  ("  Lincolnwood") 
 Wireless  Cable  Association  International,  Inc.  ("  WCA") 
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 APPENDIX  B 
 Part  76  of  Title  47  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 PART  76  --  MULTICHANNEL  VIDEO  AND  CABLE  TELEVISION  SERVICE 
 1.  The  authority  citation  for  Part  76  continues  to  read  as  follows: 
 AUTHORITY:  47  U.  S.  C.  151,  152,  153,  154,  301,  302,  303,  303a,  307,  308,  309,  312,  315,  317,  325, 
 503,  521,  522,  531,  532,  533,  534,  535,  536,  537,  543,  544,  544a,  545,  548,  549,  552,  554,  556,  558, 
 560,  561,  571,  572,  573. 


 2.  Section  76.701  is  amended  by  adding  a  new  note  to  paragraph  701(  b)  as  follows: 
   76.701  Leased  access  channels. 
 *  *  *  *  * 
 NOTE:  "Nudity"  in  paragraph  (b)  is  interpreted  to  mean  nudity  that  is  obscene  or  indecent. 


 3.  Section  76.901  is  amended  by  adding  a  new  paragraph  (f)  to  read  as  follows: 
 Sec.  76.901  Definitions. 
 *  *  *  *  * 
 (f)  Small  Cable  Operator.  A  small  cable  operator  is  an  operator  that,  directly  or  through  an 
 affiliate,  serves  in  the  aggregate  fewer  than  1  percent  of  all  subscribers  in  the  United  States  and  is  not 
 affiliated  with  any  entity  or  entities  whose  gross  annual  revenues  in  the  aggregate  exceed  $250,000,000. 
 For  purposes  of  this  definition,  an  operator  shall  be  deemed  affiliated  with  another  entity  if  that  entity  holds 
 a  20  percent  or  greater  equity  interest  (not  including  truly  passive  investment)  in  the  operator  or  exercises 
 de  jure  or  de  facto  control  over  the  operator. 
 NOTE  1:  Using  the  most  reliable  sources  publicly  available,  the  Commission  periodically  will 
 determine  and  give  public  notice  of  the  subscriber  count  that  will  serve  as  the  1  percent  threshold  until  a 
 new  number  is  calculated. 
 NOTE  2:  For  a  discussion  of  passive  interests  with  respect  to  small  cable  operators,  see 
 Implementation  of  Cable  Act  Reform  Provisions  of  the  Telecommunications  Act  of  1996,  Report  and  Order 
 in  CS  Docket  No.  96-  85,  FCC  99-  57  (released  March  --,  1999). 
 NOTE  3:  If  two  or  more  entities  unaffiliated  with  each  other  each  hold  an  equity  interest  in  the 
 small  cable  operator,  the  equity  interests  of  the  unaffiliated  entities  will  not  be  aggregated  with  each  other 
 for  the  purpose  of  determining  whether  an  entity  meets  or  passes  the  20  percent  affiliation  threshold. 


 3.  Section  76.905  is  amended  by  revising  paragraph  76.905(  g)  to  read  as  follows: 
   76.905  Standards  for  identification  of  cable  systems  subject  to  effective  competition. 
 *  *  *  *  * 
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 (g)  In  order  to  offer  comparable  programming  as  that  term  is  used  in  this  section,  a  competing 
 multichannel  video  programming  distributor  must  offer  at  least  12  channels  of  video  programming, 
 including  at  least  one  channel  of  nonbroadcast  service  programming. 


 4.  A  new  Section  76.907  is  added  to  read  as  follows: 
 76.907.  Petition  for  a  determination  of  effective  competition. 
 (a)  A  cable  operator  (or  other  interested  party)  may  file  a  petition  for  a  determination  of  effective 
 competition  with  the  Commission  pursuant  to  the  Commission's  procedural  rules  in    76.7. 
 (b)  The  cable  operator  bears  the  burden  of  rebutting  the  presumption  that  effective  competition 
 does  not  exist  with  evidence  that  effective  competition,  as  defined  in    76.905,  exists  in  the  franchise  area. 
 NOTE:  The  criteria  for  determining  effective  competition  pursuant  to    76.905(  b)(  4)  are  described 
 in  Implementation  of  Cable  Act  Reform  Provisions  of  the  Telecommunications  Act  of  1996,  Report  and 
 Order  in  CS  Docket  No.  96-  85,  FCC  99-  57  (released  March  --,  1999). 
 (c)  If  the  evidence  establishing  effective  competition  is  not  otherwise  available,  cable  operators 
 may  request  from  a  competitor  information  regarding  the  competitor's  reach  and  number  of  subscribers.  A 
 competitor  must  respond  to  such  request  within  15  days.  Such  responses  may  be  limited  to  numerical 
 totals.  In  addition,  with  respect  to  petitions  filed  seeking  to  demonstrate  the  presence  of  effective 
 competition  pursuant  to    76.905(  b)(  4),  the  Commission  may  issue  an  order  directing  one  or  more  persons 
 to  produce  information  relevant  to  the  petition's  disposition. 


 5.  Section  76.911  is  amended  by  revising  paragraphs  (a)  and  (a)(  1)  to  read  as  follows;  by 
 deleting  paragraph  (b);  and  by  renumbering  paragraphs  (c),  (d),  and  (e)  to  read  (b),  (c),  and  (d), 
 respectively. 


   76.911  Petition  for  reconsideration  of  certification. 
 (a)  A  cable  operator  (or  other  interested  party)  may  challenge  a  franchising  authority's 
 certification  by  filing  a  petition  for  reconsideration  pursuant  to    1.106.  The  petition  may  allege  either  of 
 the  following: 
 (1)  The  cable  operator  is  not  subject  to  rate  regulation  because  effective  competition  exists  as 
 defined  in    76.905.  Section  76.907(  b)  and  (c)  apply  to  petitions  filed  under  this  section. 
 *  *  *  *  * 


 6.  Section  76.915  is  deleted. 
 7.  Section  76.934  is  amended  by  adding  a  note  at  the  end  of  the  rule  to  read  as  follows: 
   76.934  Small  systems  and  small  cable  companies 
 *  *  *  *  * 
 NOTE:  For  rules  governing  small  cable  operators,  see    76.990  of  this  Subpart. 


 8.  Section  76.950  is  amended  by  revising  paragraph  (b)  as  follows. 
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   76.950  Complaints  regarding  cable  programming  service  rates. 
 *  *  *  *  * 
 (b)  This  section  shall  not  apply  to  cable  programming  services  provided  after  March  31,  1999. 


 9.  Section  76.952  is  amended  by  revising  paragraph  (a)  as  follows: 
   76.952  Information  to  be  provided  by  cable  operator  on  monthly  subscriber  bills. 
 *  *  *  *  * 
 (a)  The  name,  mailing  address  and  phone  number  of  the  franchising  authority,  unless  the 
 franchising  authority  in  writing  requests  the  cable  operator  to  omit  such  information. 


 10.  Section  76.956  is  amended  by  revising  paragraph  (a)  to  read  as  follows: 
   76.956  Cable  operator  response. 
 (a)  Unless  otherwise  directed  by  the  local  franchising  authority,  a  cable  operator  must  file  with  the 
 local  franchise  authority  a  response  to  the  complaint.  The  response  shall  indicate  when  the  cable  operator 
 received  notice  of  the  complaint.  Service  by  mail  is  complete  upon  mailing.  See    1.47(  f)  of  this  chapter. 
 The  response  shall  include  the  information  required  by  the  appropriate  FCC  form,  including  rate  cards, 
 channel  line-  ups,  and  an  explanation  of  any  discrepancy  in  the  figures  provided  in  these  documents  and  the 
 rate  filing.  The  cable  operator  must  file  its  response  with  the  local  franchise  authority  via  first  class  mail. 


 11.  Section  76.961  is  amended  by  revising  paragraph  (b)  to  read  as  follows: 
   76.961  Refunds. 
 *  *  *  *  * 
 (b)  The  cumulative  refund  due  subscribers  shall  be  calculated  from  the  date  of  the  first  complaint 
 filed  with  the  franchising  authority  until  the  date  a  cable  operator  implements  a  prospective  rate  reduction 
 as  ordered  by  the  Commission  pursuant  to    76.960.  The  Commission  shall  calculate  refund  liability 
 according  to  the  rules  in  effect  for  determining  the  reasonableness  of  the  rates  for  the  period  of  time  covered 
 by  the  complaint. 


 12.  Section  76.964  is  amended  by  revising  paragraph  (b)  to  add  the  word  "written"  between 
 the  words  "reasonable"  and  "means"  as  follows: 


   76.964  Written  notification  of  changes  in  rates  and  services. 
 *  *  *  *  * 
 (b)  To  the  extent  the  operator  is  required  to  provide  notice  of  service  and  rate  changes  to 
 subscribers,  the  operator  may  provide  such  notice  using  any  reasonable  written  means  at  its  sole  discretion. 


 13.  Section  76.984  is  amended  by  deleting  the  last  sentence  of  paragraph  (b);  by  moving  the 
 last  2  sentences  of  paragraph  (c)(  2)  to  new  paragraph  (c)(  3);  and  by  adding  notes  1  and  2  as  follows: 


   76.984  Geographically  uniform  rate  structure. 
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 *  *  *  *  * 
 (c)(  2)  Any  video  programming  offered  on  a  per  channel  or  per  program  basis. 
 (c)(  3)  Bulk  discounts  to  multiple  dwelling  units  shall  not  be  subject  to  this  section,  except  that  a 
 cable  operator  of  a  cable  system  that  is  not  subject  to  effective  competition  may  not  charge  predatory  prices 
 to  a  multiple  dwelling  unit.  Upon  a  prima  facie  showing  by  a  complainant  that  there  are  reasonable 
 grounds  to  believe  that  the  discounted  price  is  predatory,  the  cable  system  shall  have  the  burden  of  showing 
 that  its  discounted  price  is  not  predatory. 
 NOTE  1:  Discovery  procedures  for  predatory  pricing  complaints.  Requests  for  discovery  will  be 
 addressed  pursuant  to  the  procedures  specified  in    76.7(  f). 
 NOTE  2:  Confidential  information.  Parties  submitting  material  believed  to  be  exempt  from 
 disclosure  pursuant  to  the  Freedom  of  Information  Act  (FOIA),  5  U.  S.  C.  552(  b),  and  the  Commission's 
 rules,    0.457,  should  follow  the  procedures  in    0.459  and    76.9. 


 14.  A  new  Section  76.990  is  added  to  read  as  follows: 
   76.990  Small  cable  operators. 
 (a)  Effective  February  8,  1996,  a  small  cable  operator  is  exempt  from  rate  regulation  on  its  cable 
 programming  services  tier,  or  on  its  basic  service  tier  if  that  tier  was  the  only  service  tier  subject  to  rate 
 regulation  as  of  December  31,  1994,  in  any  franchise  area  in  which  that  operator  services  50,000  or  fewer 
 subscribers. 
 (b)  Procedures.  (1)  A  small  cable  operator,  may  certify  in  writing  to  its  franchise  authority  at 
 any  time  that  it  meets  all  criteria  necessary  to  qualify  as  a  small  operator.  Upon  request  of  the  local 
 franchising  authority,  the  operator  shall  identify  in  writing  all  of  its  affiliates  that  provide  cable  service,  the 
 total  subscriber  base  of  itself  and  each  affiliate,  and  the  aggregate  gross  revenues  of  its  cable  and  non-  cable 
 affiliates.  Within  90  days  of  receiving  the  original  certification,  the  local  franchising  authority  shall 
 determine  whether  the  operator  qualifies  for  deregulation  and  shall  notify  the  operator  in  writing  of  its 
 decision,  although  this  90-  day  period  shall  be  tolled  for  so  long  as  it  takes  the  operator  to  respond  to  a 
 proper  request  for  information  by  the  local  franchising  authority.  An  operator  may  appeal  to  the 
 Commission  a  local  franchise  authority's  information  request  if  the  operator  seeks  to  challenge  the 
 information  request  as  unduly  or  unreasonably  burdensome.  If  the  local  franchising  authority  finds  that  the 
 operator  does  not  qualify  for  deregulation,  its  notice  shall  state  the  grounds  for  that  decision.  The  operator 
 may  appeal  the  local  franchising  authority's  decision  to  the  Commission  within  30  days. 
 (2)  Once  the  operator  has  certified  its  eligibility  for  deregulation  on  the  basic  service  tier,  the  local 
 franchising  authority  shall  not  prohibit  the  operator  from  taking  a  rate  increase  and  shall  not  order  the 
 operator  to  make  any  refunds  unless  and  until  the  local  franchising  authority  has  rejected  the  certification  in 
 a  final  order  that  is  no  longer  subject  to  appeal  or  that  the  Commission  has  affirmed.  The  operator  shall  be 
 liable  for  refunds  for  revenues  gained  (beyond  revenues  that  could  be  gained  under  regulation)  as  a  result  of 
 any  rate  increase  taken  during  the  period  in  which  it  claimed  to  be  deregulated,  plus  interest,  in  the  event 
 the  operator  is  later  found  not  to  be  deregulated.  The  one-  year  limitation  on  refund  liability  will  not  be 
 applicable  during  that  period  to  ensure  that  the  filing  of  an  invalid  small  operator  certification  does  not 
 reduce  any  refund  liability  that  the  operator  would  otherwise  incur. 
 (3)  Within  30  days  of  being  served  with  a  local  franchising  authority's  notice  that  the  local 
 franchising  authority  intends  to  file  a  cable  programming  services  tier  rate  complaint,  an  operator  may 
 certify  to  the  local  franchising  authority  that  it  meets  the  criteria  for  qualification  as  a  small  cable  operator. 
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 This  certification  shall  be  filed  in  accordance  with  the  cable  programming  services  rate  complaint 
 procedure  set  forth  in    76.1402.  Absent  a  cable  programming  services  rate  complaint,  the  operator  may 
 request  a  declaration  of  CPST  rate  deregulation  from  the  Commission  pursuant  to    76.7. 
 (c)  Transition  from  small  cable  operator  status.  If  a  small  cable  operator  subsequently  becomes 
 ineligible  for  small  operator  status,  the  operator  will  become  subject  to  regulation  but  may  maintain  the 
 rates  it  charged  prior  to  losing  small  cable  operator  status  if  such  rates  (with  an  allowance  for  minor 
 variations)  were  in  effect  for  the  three  months  preceding  the  loss  of  small  cable  operator  status. 
 Subsequent  rate  increases  following  the  loss  of  small  cable  operator  status  will  be  subject  to  generally 
 applicable  regulations  governing  rate  increases. 
 NOTE:  For  rules  governing  small  cable  systems  and  small  cable  companies,  see    76.934  of  this 
 Subpart. 


 15.  Section  76.1401  is  amended  by  deleting  paragraphs  (a),  (c),  and  (d)  and  by  renumbering 
 paragraph  (b)  as  paragraph  (a). 


 16.  Section  76.1403  is  deleted. 
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 DISSENTING  STATEMENT  OF 
 COMMISSIONER  HAROLD  FURCHTGOTT-  ROTH 


 Re:  Implementation  of  Cable  Act  Reform  Provisions  of  the  Telecommunications  Act, 
 CS  Docket  No.  96-  85 


 In  implementing  the  "effective  competition"  provision  of  the  1996  Telecommunications  Act,  Part  II 
 of  this  Report  and  Order  requires  that  a  local  exchange  carrier's  service  area  "substantially  overlap"  that  of  the 
 incumbent  cable  operator  in  a  franchise  area.  Because  the  plain  language  of  the  statute  reveals  no  substantiality 
 test,  and  because  other  statutory  definitions  of  effective  competition  expressly  include  such  tests,  I  respectfully 
 dissent  from  Part  II. 


 I  start  with  the  text  of  the  statute.  Section  623(  l)(  1)(  D)  states  that  "effective  competition"  exists  when: 
 a  local  exchange  carrier  or  its  affiliate  (or  any  multichannel  video  programming  distributor 
 ["  MVPD"]  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. 


 47  U.  S.  C.  section  543(  l)(  1)(  D)(  emphases  added). 
 I  now  turn  to  the  context  of  the  provision.  Section  623(  l)(  1)(  D)  was  not  the  first  time  that  Congress 
 defined  the  meaning  of  "effective  competition"  for  deregulatory  purposes.  The  subsections  immediately 
 preceding  the  LEC  effective  competition  provision,  which  were  enacted  in  1992,  also  define  that  term. 
 Significantly,  each  of  these  definitions  includes  some  kind  of  a  pass  or  penetration  rate  that  a  new  entrant  must 
 meet  before  a  finding  of  effective  competition  is  made  and  deregulation  follows.  In  particular,  these  definitions 
 provide  that  effective  competition  exists  when: 


 fewer  than  30  percent  of  the  households  in  the  franchise  area  subscribe  to  the  service  of  a 
 cable  system; 


 the  franchise  area  is  served  by  at  least  two  unaffiliated  MVPDs  each  of  which  offers 
 comparable  video  programming  to  at  least  50  percent  of  the  households  in  the  franchise  area 
 .  .  .  [and]  the  number  of  households  subscribing  to  programming  services  offered  by  MVPDs 
 other  than  the  largest  MVPD  exceeds  15  percent  of  the  households  in  the  franchise  area;  [or] 


 a  MVPD  operated  by  the  franchising  authority  for  that  franchise  area  offers  video 
 programming  to  at  least  50  percent  of  the  households  in  that  franchise  area; 
87
 Federal  Communications  Commission  FCC  99-  57 
 1  If  there  were  any  doubt  about  the  clarity  of  the  statute,  the  legislative  history  supports  the  view  that  subsection  (D) 
 contains  no  coverage,  pass,  or  penetration  test.  "Offer"  in  subsection  (D)  was  intended  to  mean  the  same  thing  as  in 
 47  CFR  section  76.905(  e).  See  H.  R.  Conf.  Rep.  No.  458,  104th  Cong.,  2d  Sess.  170  (1996).  That  regulation  includes 
 no  coverage,  pass,  or  penetration  rate.  To  be  sure,  the  regulation  establishes  some  requirements  for  an  "offering"  -- 
 e.  g.,  a  reasonable  awareness  on  the  part  of  potential  subscribers  of  the  availability  of  the  services  --  but  it  sets  no 
 threshold  limit  for  the  breadth  or  scope  of  the  offering. 


 2  If  there  is  any  basis  for  a  numerical  test  under  section  623(  l)(  1)(  D),  it  must  be  derived  from  the  statute  -- 
 specifically,  the  object  of  the  phrase  "offer  to,"  "subscribers."  The  plural  indicates  that  Congress  meant  two  or  more; 
 the  statute  states  nothing  more,  and  nothing  less,  than  this.  And  that  result  is  not  an  absurd  one,  given  the  broad 
 deregulatory  nature  of  the  Telecommunications  Act  of  1996.  Unfortunately,  the  majority's  reading  of  section 
 623(  l)(  1)(  D)  does  not  so  much  comport  with  Congressional  intent  as  with  their  own  policy  judgments,  as  Commissioner 
 Powell  ably  notes. 


 88 


 Id.  sections  623(  l)(  1)(  A)-(  C)  (emphases  added). 
 Two  things  about  the  above-  quoted  statutory  language  are  salient.  First,  nothing  in  subsection  (D) 
 states  that  the  LEC  must  provide  video  programming  to  substantially  the  same  number  of  households,  or  in 
 substantially  the  same  geographic  area,  as  does  the  incumbent  cable  operator.  There  is  simply  no  textual  basis 
 for  a  "substantial  overlap"  test.  In  terms  of  geography,  all  the  statute  requires  is  that  the  LEC  offer  service  "in 
 the  franchise  area,"  not  "in  a  substantial  part  of  the  franchise  area"  or  "in  most  of  the  franchise  area."  Notably, 
 the  definition  is  conditional  --  for  instance,  the  delivery  cannot  be  via  direct  satellite,  and  the  services  must  be 
 comparable  --  but  a  geographic  coverage  requirement  within  the  franchise  area  is  not  one  of  the  conditions  set 
 out  by  the  statute.  It  is  an  extra  condition  that  is  entirely  of  the  Commission's  making  and  wholly  extra-statutory.  1 


 Second,  the  absence  of  language  in  subsection  (D)  regarding  a  coverage  test  is  particularly  conspicuous 
 when  considered  in  the  context  of  the  surrounding  provisions.  The  other  subsections  defining  effective 
 competition  include  --  often  immediately  after  the  word  "offer"  --  some  kind  of  threshold  test  for  the 
 substantiality  of  the  offering  in  question.  But  after  the  word  "offer"  in  subsection  (D),  there  is  no  such  test. 
 "[  W]  here  Congress  includes  particular  language  in  one  section  of  a  statute  but  omits  it  in  another  section  of 
 the  same  Act,  it  is  generally  presumed  that  Congress  acts  intentionally  and  purposely  in  the  disparate  inclusion 
 or  exclusion."  Russello  v.  United  States,  464  U.  S.  16,  23  (1983)  (internal  quotation  marks  omitted).  Congress 
 clearly  knew  how  to  tack  a  numerical  threshold  onto  the  offering  requirement,  and  it  did  not  do  so  here.  We 
 cannot  conveniently  ignore  the  fact  of  this  exclusion.  2 


 The  Notice  in  this  matter  suggested  that  LEC  competition  cannot  be  "effective"  when  it  is  not  offered 
 to  a  significant  number  of  households  within  the  franchise  area.  Congress  has  not  asked  the  Commission  to 
 define  the  term  "effective  competition"  based  on  our  understanding  of  what  is  and  is  not  effective  in  terms  of 
 a  market  disciplining  presence.  Rather,  Congress  has  already  defined  the  term.  And,  under  that  definition, 
 if  a  LEC  offers  programming  comparable  to  that  of  the  local  cable  company  "directly  to  subscribers  .  .  .  in  the 
 franchise  area,"  by  any  means  except  direct-  to-  home  satellite,  each  and  every  element  of  the  definition  is  met. 
 Cable  rate  deregulation  then  must  follow  as  a  matter  of  law. 
88
 Federal  Communications  Commission  FCC  99-  57 
 89 
 *  *  *  *  *  *  * 
89
 Federal  Communications  Commission  FCC  99-  57 
 90 
 DISSENTING  STATEMENT  OF 
 COMMISSIONER  MICHAEL  POWELL 


 Re:  Implementation  of  Cable  Act  Reform  Provisions  of  the  Telecommunications  Act,  CS  Docket  No. 
 96-  85 


 During  my  confirmation,  I  was  asked  by  a  Senator  whether  I  would  implement  communications  law 
 as  written  by  Congress  even  if  I  personally  disagreed  with  the  outcome.  I  promised  that  I  would,  for  that  was 
 the  duty  of  a  regulator.  Consistent  with  that  promise,  I  respectfully  dissent  from  Part  II  of  this  Report  and 
 Order  which  requires  that  a  local  exchange  carrier's  (LEC)  service  area  must  "substantially  overlap"  that  of 
 the  incumbent  cable  operator  in  a  franchise  area  before  the  LEC  can  be  said  to  provide  effective  competition 
 under  Section  623(  l)(  1)(  D)  of  the  Communications  Act.  As  Commissioner  Furchtgott-  Roth  persuasively 
 argues  in  his  dissenting  statement,  this  result  cannot  be  squared  with  the  plain  language  of  the  statute. 


 Having  said  this,  I  will  note  that  I  can  appreciate  the  desire  of  the  majority  to  read  this  provision  more 
 broadly.  One  can  reasonably  argue  that  it  is  not  desirable  to  deregulate  a  monopoly  cable  provider  when  it 
 faces  only  minimal  competition  in  its  franchise  area.  I  would  also  concede  that  if  the  other  three  effective 
 competition  provisions  of  Section  623(  l)  did  not  specifically  include  pass  or  penetration  tests,  the  Commission 
 might  have  the  latitude  to  assume  that  Congress  intended  some  type  of  substantial  overlap  test.  Given  the 
 context  of  the  section  623(  l)(  1)(  D),  however,  I  see  no  such  latitude.  It  is  clear  from  the  text  of  section  623(  l) 
 that  where  Congress  intended  the  Commission  to  apply  a  pass  or  penetration  test,  it  included  the  test  in  the 
 statute.  Congress,  apparently,  chose  not  to  include  a  pass  or  penetration  standard  in  the  LEC  effective 
 competition  test  for  whatever  reason,  and  it  is  improper  for  the  Commission  to  assume  that  Congress  could  not 
 have  intended  what  it  wrote.  Although  we  might  think  that  some  possible  ramifications  of  interpreting  the 
 statute  as  written  are  extreme,  this  agency  cannot  substitute  its  judgement  for  that  of  Congress. 
90
 Federal  Communications  Commission  FCC  99-  57 
 91  91 
 SEPARATE  STATEMENT  OF  COMMISSIONER  GLORIA  TRISTANI 
 In  the  Matter  of  Implementation  of  Cable  Act  Reform  Provisions 
 of  the  Telecommunications  Act  of  1996  --  CS  Docket  No.  96-  85 


 I  write  separately  to  clarify  my  views  on  the  technical  standards  section. 
 First,  I  believe  that  the  Order  fails  to  adequately  acknowledge  the  ambiguity  of  the  term  "transmission 
 technology."  As  the  comments  reflect,  that  term  can  be  interpreted  in  several  different  ways,  each  plausible 
 on  its  face.  Neither  the  Communications  Act,  the  legislative  history,  nor  Commission  precedent  (until  today) 
 provide  any  clear  guidance  for  choosing  one  definition  over  another.  Thus,  while  I  do  not  disagree  with  the 
 interpretation  of  "transmission  technology"  ultimately  adopted  in  today's  Order,  it  is  not  the  only  plausible 
 interpretation  of  the  term. 


 Second,  I  would  have  made  it  clearer  that  parties  should  be  protected  from  piecemeal  abrogation  of 
 existing  franchise  agreements.  As  the  Order  notes,  Section  624(  e)  was  signed  into  law  over  three  years  ago. 
 Since  that  time,  the  Commission  failed  to  provide  any  guidance  as  to  the  meaning  of  Section  624(  e),  thereby 
 forcing  parties  to  enter  into  agreements  based  upon  their  own  interpretation  of  the  statute.  Given  Section 
 624(  e)  's  ambiguity,  parties  may  have  mistakenly  drafted  provisions  that  they  believed  were  permissible 
 regulation  of  facilities  and  equipment  under  Section  624(  b),  but  which  under  today's  Order  would  constitute 
 an  impermissible  regulation  of  transmission  technology.  These  mistakes  were  mutual:  as  the  item  notes,  we 
 have  not  received  a  single  formal  complaint  from  any  party  claiming  that  its  Section  624(  e)  rights  have  been 
 violated.  Moreover,  these  mistakes  were  avoidable.  Had  the  Commission  spoken  earlier,  parties  could  have 
 phrased  their  agreements  in  a  way  that  would  have  complied  with  today's  Order.  Thus,  given  the  Commission's 
 delay  and  the  parties'  mutually  mistaken  reading  of  an  ambiguous  statute,  I  believe  it  would  be  patently  unfair 
 for  these  provisions  to  simply  be  struck  from  existing  franchise  agreements  while  the  remainder  of  the 
 agreement  is  enforced.  I  express  no  opinion  on  whether  such  agreements  should  be  found  enforceable  or 
 rescinded  in  their  entirety,  or  reformed  pursuant  to  renegotiation  between  the  parties. 


 Indeed,  I  believe  that  simply  striking  contractual  provisions  that  may  now  violate  Section  624(  e), 
 without  the  opportunity  for  renegotiation,  would  violate  the  framework  that  Congress  established  in  Section 
 624.  Congress  granted  local  authorities  the  right  to  regulate  facilities  and  equipment  in  Section  624(  b),  so  long 
 as  they  did  not  step  over  the  vague  line  into  "transmission  technology."  For  three  years,  the  Commission 
 provided  no  guidance  regarding  where  that  line  was  located.  Now  it  appears  that  some  local  authorities  and 
 cable  operators  may  have  made  incorrect  --  albeit  reasonable  --  judgments  about  where  Section  624(  b)  ended 
 and  Section  624(  e)  began.  Had  they  had  the  benefit  of  today's  Order,  these  mistakes  could  have  been  corrected 
 in  the  drafting  stage.  Simply  striking  specific  franchise  provisions  would  deprive  local  communities  of  their 
 legitimate  rights  to  regulate  facilities  and  equipment  under  Section  624(  b).  It  would  find  that  because  they 
 inadvertantly  stepped  over  the  line  that  divides  Section  624(  b)  and  Section  624(  e),  that  they  have  lost  all  of 
91
 Federal  Communications  Commission  FCC  99-  57 
 1  Specifically,  the  Order  states  that  the  term  "transmission  technology"  has  been  used  to  include  both  the 
 transmission  medium  (i.  e.,  microwave,  satellite,  coaxial  cable,  twisted  pair  copper  telephone  line,  and  fiber  optic 
 systems)  and  the  specific  modulation  or  communications  format  (i.  e.,  analog  or  digital). 


 92  92 


 their  rights  under  Section  624(  b)  for  the  length  of  the  franchise  term.  Local  communities  should  not  pay  such 
 a  high  price  for  the  Commission's  indefensible  delay. 


 Finally,  I  would  be  opposed  to  extending  the  definition  of  "transmission  technology"  beyond  the 
 specific  examples  cited  in  the  Order.  1  For  instance,  I  would  be  opposed  to  extending  the  definition  to  prohibit 
 agreements  that  provide  for  a  certain  MHz  level  or  a  certain  number  of  homes  per  fiber  node.  I  believe  we  have 
 done  our  statutory  duty  to  fairly  interpret  the  meaning  of  "transmission  technology."  Any  expansion  of  that 
 definition,  I  believe,  would  tread  on  the  legitimate  rights  of  local  authorities. 
92