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                            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 Outs90
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
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").  The 1996
Act amended or deleted numerous provisions of Title VI of the Communications Act of 1934, as amended,
("Communications Act"), 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.
    2.   Regulations to implement other provisions of the 1996 Act required notice and comment to
be fully and finally implemented.  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.  We now
adopt final rules and eliminate the interim rules.
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.  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.  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
government access ("PEG") channel required under the terms of a franchise agreement with the local
franchising authority ("LFA").  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.  Cable systems subject to
effective competition are not subject to rate regulation, including the uniform rate requirement.  The 1996
Act provides that all CPST rate regulation will end for services provided after March 31, 1999.  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.  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.
    5.   The 1996 Act adds a fourth test to Section 623(l).  Under the new test, a cable operator will
be subject to effective competition if comparable video programming is offered to subscribers within the cable
operator's franchise area by, or over the facilities of, a local exchange carrier ("LEC") or its affiliate. Section
623(l)(1)(D) ("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.  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.
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, the Notice sought comment as to whether we should adopt a uniform definition applicable in all
cases.  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.
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.
    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 "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]."   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.
We adopted this definition of offer in the Interim Order.  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.  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
few as two potential subscribers.  Others argue that consumers must have realistic or competitive choices
before effective competition can be found.  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.  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.  TCI argues that the 1996 Cable Act does not require consideration of whether the level of
competition is sufficient to restrain rates.
    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." 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."  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
at all."  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, their ubiquitous presence in the market.  "[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."
    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, 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."  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.  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.
    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.
The definition of "offer" incorporated into the LEC test requires that LEC service be both technically and
actually available to households, 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.  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.  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."  While we disagree
with commenters who argue that this and similar statements require cable rate deregulation on the basis of a
mere de minimis LEC presence in the franchise area, we find in such statements and their broader context
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.  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.  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.
    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.  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.  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.  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
reasonably aware the proposed service will be available to them.  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.  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."  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.  Some, however, also argue that satellite delivered superstations
should be treated as television broadcast signals if the interim definition is adopted.  Others point to ambiguity
in the Conference Report as to what Congress intended and advocate applying the existing definition in Section
76.905(g), which requires the inclusion of at least one channel of nonbroadcast service programming.
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.  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.  Other commenters
suggest that programming should not be deemed comparable unless it includes both broadcast and non-
broadcast programming, while still others argue that comparable video programming services must include
some PEG channels.
    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.  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
stations by direct microwave delivery or through a separate antenna.  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 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.  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.  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.  Our interim rules governing these
matters 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
operator.  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.   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.
         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":
                  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," the definition of "affiliate" in Title
VI of the Communications Act concerning cable television was unchanged.  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"
of an equity interest.  We established that affiliation could be demonstrated through de facto control regardless
of the actual ownership interest.
    25.  The Commission recently initiated a more general review of the ownership attribution rules
in CS Docket No. 98-82.  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, including the LEC test affiliation
rule in Section 76.1401(b).  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.  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.  The
Massachusetts Cable Commission favors aggregation, arguing that any LEC investment is motivated by a
desire to profit from video service delivery.  SBC opposes aggregation, asserting simply that the ownership
standard should apply to single LECs.  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.  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.
    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.
         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.  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.  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.  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.  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.  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."  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.
    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, or by filing with the
Commission a petition for reconsideration or revocation of the LFA's certification to regulate rates.  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.  In the Notice, we proposed to adopt a uniform
procedure applicable to all four tests for effective competition.  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.  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.  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.  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
    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."  The Interim Order revised Section 76.950 of the Commission's rules to implement this
provision.  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.  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.  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.
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.
    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.  Where appropriate the operator may submit
to the LFA a certification that it is not subject to rate regulation, in lieu of the rate justification forms.  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.  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.
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.   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.
    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.  Accordingly, we sought comment on possible time limits for LFAs to file complaints with the
Commission.  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).   Finally as part of revising our rules,
we amended the Commission rate complaint form, Form 329, 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
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.  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.
    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.  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.  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.  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.
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.  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.  Fleischman argues that cable operators must
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.  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.
    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.
    40.  CATA asserts that LFAs should act as a filter for subscriber complaints rather than simply
acting as a passive conduit.  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.  We
disagree.  Under the Communications Act, the Commission, not LFAs, has the responsibility and authority to
determine the reasonableness of CPST rates. 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.
    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.  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.  According to these commenters, the proposed deadline risks
imposing an unwarranted burden on the LFAs.  The League of Cities and NATOA argue that such a deadline
only serves to restrict the access of subscribers to legitimate rate relief.  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.  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.
    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.  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."  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.  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.  The Massachusetts Cable Commission and
the New Jersey Board agree that 180 days is reasonable.  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.  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
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.  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.  If the operator certifies that it is not subject to rate
regulation, it must accompany the certification with supporting evidence.  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.
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.  The statute also provides that the parties may agree to extend the Commission's 90
day review period.  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
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.  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.  Fleischman further suggests that operators no longer be required to list the LFA
name and address on each subscriber bill, as currently required.  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.
    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.  Consequently, New York City
recommends that we continue to require operators to include this information on subscriber bills.
    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.
         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.
    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.  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.
    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.
         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.  TCI advocates that the Commission require LFAs filing rate
complaints to use Form 329 with appropriate revisions.  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.  NCTA urges the Commission to continue requiring subscribers to use Form 329 when filing
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.
    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.   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.  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.
    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.  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.  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
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."  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.  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.  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.  The Interim Order also
established interim procedures for asserting small operator eligibility.
    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.
    B.   Discussion
         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.  Commenters generally support this proposal.  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.
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."
    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.  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.
    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.  Commenters addressing this issue generally agreed.  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, subscribers in MDUs should be counted by using the equivalent
billing unit methodology.  Households used solely for seasonal, occasional, or recreational use should not
be included in the customer count.
         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 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.  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."  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."  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.  In addition,
the Interim Order tentatively concluded that the statute requires aggregation of the revenue of all affiliates
toward the $250 million threshold.  We sought comment on whether the operator's own revenues and non-
cable revenues of affiliates should be counted toward the $250 million threshold.
    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.  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."  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.
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.  The SBA Office of Advocacy encourages the Commission to model its rules after the SBA's
affiliation rules to avoid discouraging inherently passive investment.
    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.  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
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.  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.
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.  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.  If passive investment is excluded, the SCBA argues that limited
investor oversight of the operator should not disqualify the investment from passive treatment.
    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.  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.  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.
Thus, passive investment does not afford operational advantages to the cable operator.  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.
    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.  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.  Moreover, Cole Raywid suggests Congress may have intended the $250 million figure as
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.  C-TEC and Mercom make a similar argument.
    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.  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.  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.  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.
    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.  In the alternative, SCBA advocates a proportional
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.  Cole Raywid also opposes aggregation, contending aggregation
will impair the ability to raise capital.  NCTA and the Michigan, Illinois and Texas Communities argue that
aggregation is appropriate because the statutory language clearly requires it.  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.
    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."  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.  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.
    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
for small operator treatment is not in dispute.  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.  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.  Fleischman supports filing certification requests directly with the
Commission to obviate multiple filings with several LFAs having jurisdiction over the system.  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.
    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.
    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."  Commenters agree with the Commission's tentative
conclusion in this regard.  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.
    84.  Cable operators advocate a transition rule similar to the rule applied in the Small System
Order.  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.  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.  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.  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.
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
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.
    86.  CATA advocates an extended transition period of two years to ensure the operator's financial
stability.  On the other hand, the City of Fairfield, California ("Fairfield") argues that the statute mandates
regulation when an operator loses small operator eligibility.  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.
    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.  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 . . . ."  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.
    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
governing increases.  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.
    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.  Subsequent to the Notice, we released the Cable Attribution Notice initiating
a broad review of the attribution/affiliation issue as it pertains to cable. 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.
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."  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.
    93.  The Interim Order amended Section 76.984 of our rules to conform with the new statutory
language.  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.  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.  We also sought comment on the meaning of the term "multiple dwelling units."
    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.  We requested commenters to address
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 . . . ."  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.  We sought comment as to whether the program access
procedures or some modified version of those procedures, should apply on a permanent basis.
    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."  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.  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."  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.  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.  The House Commerce Committee proposed the statutory change because the
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."  The New Jersey Ratepayer Advocate's argument for uniform discounts much like the
uniformity required by the Commission's former rules 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.  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.  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. An individually paid "bulk discount" is an oxymoron,
according to ICTA.
    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. 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.  Some
cable operators explain that their MDU service agreements do not always guarantee 100% penetration.
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.
    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.  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.  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.  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.
Some cable operators assert that the method of billing should not be a reason for disallowing a discounted rate
that would otherwise be permissible.  Cox suggests that as long as MDU residents are able to obtain service
at a reduced rate, a bulk discount exists.  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.  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.  The Massachusetts Cable Commission
opposes any restrictions that would prevent cable operators from offering discounts to individual MDU
residents.  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.  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
order to prevent discrimination among tenants.  The Wireless Cable Association is also concerned about non-
uniform discounts and advocates limiting bulk discounts to true "bulk" sales to MDUs.
    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.
    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, 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.  Most commenters addressing this issue have
argued that the billing arrangement should not determine whether a bulk discount can be offered.  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,
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.  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."  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."  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.
    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."  This revision,
according to Cole Raywid, will unleash "fierce" competition at all properties that now can be served without
a cable franchise.  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
rate structure at such properties.  Other cable parties point to the expanded understanding of MDU in the
Rate Order implementing the uniform rate requirement in the 1992 Cable Act.  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.  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.
    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.  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.  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
available under federal or state antitrust laws or other state consumer laws.  We conclude, therefore, that our
consideration of predatory pricing complaints should be guided by principles of federal antitrust law, 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.
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.
    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.  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.  A complainant must make a prima facie case on both elements
to substantiate its allegations.  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.
    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.  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 as reported in the Commission's
annual competition reports or specified in the Commission's cost of service rules.  ICTA, on the other hand,
argues that if discounted prices vary among like MDUs by ten percent or greater, the price is predatory.
OpTel argues that discounts greater than 25 percent off rates to like MDUs should be deemed predatory.
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.  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
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.  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.  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.  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.  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.
    113.  Time Warner has asked that MDU rates based on regulations promulgated under the 1992
Cable Act not be made subject to new provisions.  We agree that bulk discounts permissible under the
standards in effect when they were implemented should not become impermissible because the standards
changed subsequently.  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.  Commenters generally agree with this proposal.  Some commenters are also concerned about
protections against disclosure of proprietary information, a matter also addressed in our program access
rules.  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.  Complaints about predatory pricing should
be filed pursuant to the general filing procedures in Section 76.7 of our rules.  Discovery and confidential
proprietary information shall be handled as they are under the Commission's Freedom of Information Act
rules and Sections 76.7(f) and 76.9 of our rules.
    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
discovery requested.  While NCTA has suggested that discovery should be available only after a complainant
has met the prima facie showing threshold, 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.  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.  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.  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.
    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.
    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
cable technical standards than the standards prescribed by the Commission.  We replaced this language with
the new language from Section 301(e) of the 1996 Act.
    120. Current Commission rules dictate specific technical standards and provide for enforcement
by LFAs.  Upon request by an LFA, an operator must be prepared to demonstrate compliance with the
Commission's technical standards.  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.
Section 76.607 of the Commission's rules requires an operator to establish a process for receiving signal quality
complaints.  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.
    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."  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.  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."
    B.   Discussion
    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."  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.  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.
    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.  The
Commission, according to these commenters, has long recognized the importance of, and relied upon, local
enforcement in the area of technical standards.  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.  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.
    125. Denver states, "Simply, all Congress did in the 1996 Act is to keep certain technical standards
development at the federal level."  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.  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."  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.
    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.
    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.  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."
The 1996 Act echoes these concerns.
    128. The Commission has long relied on LFAs to enforce technical standards.  This was the case
even before Congress added the permissive enforcement language to the Communications Act in 1992.  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."  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."  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.
    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.
Denver states the Commission would simply lack the resources to enforce its technical standards on a system
by system basis.  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.  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."  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.
    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."  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.
    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.  Time Warner's
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.  As several
cable and municipal commenters state, an LFA may still require upgrades under Section 626 in conjunction
with franchise renewal.
    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.  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.  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.
    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.
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.  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.
    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.  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 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 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:
        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.  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, and the
specific modulation or communications format, i.e. analog or digital communications.   Based on the
foregoing, we believe, for example, that local authorities may not control whether a cable operator uses digital
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" and must be read in the
context of the limits imposed by the revisions to Section 624(e) in the 1996 Act. 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. 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).  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."  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.   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.
    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.
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.
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.
    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.  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.  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.  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.  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.
    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.  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.  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
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.
    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.  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."  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
the deployment of advanced telecommunications capability adopted pursuant to Section 706(b) of the 1996
Act.
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."  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.  Because the rules had originally been adopted pursuant to Section 10 of the 1992 Cable Act
and been stayed on appeal, the Order stayed the rules as amended pending Supreme Court review of the
constitutionality of Section 10.  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.
    151. The Supreme Court later issued its opinion on Section 10 of the 1992 Cable Act.  In Denver
Area Educational Telecommunications Consortium, Inc. v. FCC ("Denver Consortium"), 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.
    152. In response to Denver Consortium, the Commission amended the PEG access rule in Section
76.702.  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.  The Commission left the interpretation of the word "nudity" to the
instant docket.
    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.  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.
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,
    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.
    156. We amended Sections 76.309(c)(3)(i)(B) and 76.964 of our rules to correspond with this
statutory revision.  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.  We
had made these distinctions as necessary to ensure that notice was adequate depending on the circumstances.
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."  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.
    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).  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.
    158.  Los Angeles, the League of Cities, and NATOA argue that "reasonable written notice" should
include notice directly to the subscribers.  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
via a bill enclosure.  They agree with the State of New York that the new statutory language does not
preempt more stringent state or local notice requirements.
    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.  Absent such a clarification, Fleischman
asserts that disputes regarding subscriber notice requirements will almost inevitably arise between cable
operators and LFAs.  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.
    160. NCTA agrees with Fleischman that Section 632(c) is preemptive and prohibits states and
LFAs from prescribing specific mechanisms for subscriber notice.  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.
    161. Furthermore, NCTA disputes the assertions that Section 632(d) permits LFAs to impose
stricter requirements than those required by Section 632(c).  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.  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.  The Commission has no authority to establish subscriber notice standards,
according to NCTA, and therefore LFA's lack such authority as well.
    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.
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.
    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.  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.  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.
    166. Time Warner suggests that operators subject to effective competition not be required to
provide advance notice of changes in service and rates.  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.  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.
    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.  The Commission is directed to promote a diversity of media voices and vigorous economic
competition, among other things.  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.
XIII.    FINAL REGULATORY FLEXIBILITY ACT ANALYSIS
    169. As required by the Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility
Analysis (IRFA) was incorporated in the Order and Notice of Proposed Rulemaking in CS Docket No. 96-85
("Notice").  The Commission sought written public comment on the proposals in the Cable Act Reform item,
including comment on the IRFA.  The comments received are discussed below.  This present Final Regulatory
Flexibility Analysis (FRFA) conforms to the RFA.
    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."  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).
    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
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.  Based on available data, we find that the number of cable operators serving 617,000
subscribers or less totals 1,450. 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.  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.  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
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
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.  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."  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 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.  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
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.  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
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.  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."  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
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.
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

                           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")
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")
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")
                            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.
    *    *    *    *    *
    (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.
 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.
    *    *    *    *    *
    (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.
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.
                     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;
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.
    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.
    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.
                         * * * * * * *
                     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.

        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
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.  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.