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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. CS 98-9 CABLE SERVICES ACTION June 30, 1998

COMMISSION GRANTS ECI MOTION: DECLARES THAT ECI IS NOT A CABLE SYSTEM OPERATOR


The Commission has ruled Entertainment Connections, Inc. ("ECI") is not a cable operator required to obtain a franchise under Section 621 of the Communications Act of 1934. The Commission determined that ECI did not meet the definitions of a "cable operator" and "cable system" established in the Act.

ECI is a satellite master antenna television ("SMATV") provider that serves multiple dwelling units ("MDUs") in Michigan. ECI subscribes to a tariffed video service provided by Ameritech, the local telephone provider to distribute its programming to various MDUs. ECI owns and controls the headend and interior wiring facilities and exercises editorial control over the content of its programming. Ameritech owns and controls the transmission facilities that use public rights-of-way. The City of East Lansing sought to have ECI obtain a franchise agreement as a cable operator. In response, ECI filed with the Commission a petition for a declaratory ruling that it is not a cable operator.

The Commission determined that ECI's facilities and Ameritech's facilities do not constitute a single, integrated cable system. The Commission also determined that, because Ameritech, and not ECI, "uses" the public rights-of-way as contemplated by the Communications Act, ECI also satisfies the private cable exemption of Section 602(7)(B). In granting ECI's motion for a declaratory ruling, the Commission notes that: (1) there is an absolute separation of ownership between ECI and Ameritech and there is nothing more than the carrier-user relationship between them; (2) ECI's facilities are located entirely on private property; (3) Ameritech provides service to ECI pursuant to a tariffed common carrier service; (4) Ameritech has no editorial control over the content of ECI's programming; (5) the facilities primarily used by Ameritech to provide service to ECI were not constructed at ECI's request; (6) there is capacity to serve several other programming providers; and (7) ECI has committed to make its drops available to other programming providers. The Commission notes that while other multichannel video programming providers have advocated a similar interpretation as ECI, its decision is expressly limited to the facts before the Commission as presented by ECI.

Action by the Commission June 4, 1998, by Memorandum Opinion and Order (FCC 98-111). Chairman Kennard, Commissioners Ness, Furchtgott-Roth and Powell issuing a joint statement. Commissioner Tristani dissenting and issuing a statement.

News Media contact: Morgan Broman at (202) 418-0852.

Cable Services Bureau contact: Steve Broeckaert at (202) 418-7200. TTY: (202) 418-7172

Separate Statement of Chairman Kennard, Commissioner Ness, Commissioner Furchtgott-Roth, and Commissioner Powell

In the Order we issue today, we decide that Entertainment Connections, Inc., is not a cable operator as defined by the Communications Act and therefore is not required to obtain a cable franchise.

Although strong arguments have been presented on both sides of the question of whether a franchise is required by ECI, a video provider who leases video trunking service from Ameritech, we ultimately conclude that no franchise is required. This decision, while difficult, hinges on our factual judgment that the facilities of ECI and Ameritech are separate and cannot be considered as one, integrated facility that would trigger the franchise requirements of Section 621(b)(1) of the Communications Act. Thus, with due respect to the points made by Commissioner Tristani in her dissent, because we differ on this fundamental view of the facts, we reach an opposite conclusion on the application of the law.

There are three key reasons that compel our legal judgment. First, ECI is exempt from the franchise requirement by Section 602(7)(B) of the Act, which provides that "a facility that serves subscribers without using any public rights of way" does not constitute a cable system. Second, the Ameritech facilities comprise a large majority of the distribution network used by ECI. ECI does not manage, control, or otherwise direct the use of Ameritech's facilities and the two unaffiliated companies are in a "carrier-user" relationship to one another. Third, the Ameritech facilities -- twelve-strand fiber trunks of which ECI uses no more than two strands -- are available to other video providers that might serve some or all of the same locations served by ECI, and ECI has offered to make its facilities available to competitive providers.

With regard to policy, as Commissioner Tristani's dissent notes, the decision highlights important issues surrounding dual federal-local jurisdiction under the Communications Act. This is an area where proper deference to local officials is critical in light of the extensive physical facilities and substantial construction upon and use of public rights-of-way. We remain committed to upholding the legitimate rights of local governments to manage their rights of way and receive compensation for their use.

Under the facts presented here, however, we believe the local government can and must exercise these rights in the context of its relationship with the local exchange carrier that owns, installs, and maintains the facilities in the public rights-of-way, rather than via franchising and regulation of the video programmer that makes no such use of the rights-of-way. We believe this reasoning, and today's decision, follow from the judicial precedent cited in the order and are consistent with the decision by Congress, in the Telecommunications Act of 1996, to expand the "private cable" exception to the cable franchising requirement. See 47 U.S.C. 522(7)(B). Our decision makes clear our commitment to ensure competitive opportunity while safeguarding the discretion and responsibilities of local officials.

June 30, 1998

PRESS STATEMENT OF COMMISSIONER GLORIA TRISTANI

In the Matter of Entertainment Connections, Inc., Motion for Declaratory Ruling

Today's decision is wrong as a matter of law and misguided as a matter of policy. Moreover, by concluding for the first time that a wireline video distribution service with a single editorial voice need not obtain a cable franchise, I fear that the majority has opened a Pandora's box that will prove difficult and time-consuming to close.

As a legal matter, ECI should be required to obtain a Title VI cable franchise. As described at length in my dissenting statement, as a technical, editorial and practical matter, ECI is operating a cable system. The majority's analogy to the Commission's repealed video dialtone framework is misplaced and strained.

Several policy considerations also argue against granting ECI's petition. First, today's decision upsets the careful regulatory balance struck by Congress in the Communications Act. The Act establishes several distinct methods for entering the video marketplace, each with its own specific benefits and obligations. ECI will have virtually all of the benefits of being a cable operator with none of the obligations. Regardless of how much we want to promote competition in the multichannel video marketplace, we cannot do so by creating loopholes in the regulatory scheme created by Congress.

Second, today's decision undermines the vital franchising role that Title VI reserves for local governments. Under Title VI, local franchising authorities can ensure that the needs of their particular communities are met, such as requiring that all neighborhoods be served and that capacity for PEG access be provided. We should not lightly deprive local governments of the ability to protect their communities in this regard, and certainly not without a fuller analysis than is presented here.

Third, today's decision poses a substantial risk of unintended consequences. For instance, I see no legal basis for limiting the decision solely to entities that want to serve MDUs. If ECI's system is not a "cable system," it would not be a cable system whether it serves MDUs or single family homes. The next case before us could be an overbuild of an entire cable franchise area that would look exactly like a cable system in every respect -- except that no Title VI obligations would apply. Moreover, the next case may not involve a small entity like ECI; telephone companies, incumbent cable operators and others have already expressed an interest in obtaining similar treatment if ECI's petition is granted. We should not underestimate the incentive that today's decision gives companies to artificially restructure their ownership arrangements to evade Title VI regulation. Unfortunately, by failing to articulate a clear legal or factual standard of review for future cases, the majority has done little to discourage such behavior.

(Commissioner Tristani's full dissenting statement is available upon request.)