$// MO&O, Ector Cable, T.V., SMATV-Cable Cross-Ownership, DA 94-1596 //$ $/ 300.533 Ownership Restriction /$ $/ 76.501 Cross-Ownership /$ ///newjob/// $///DA 94-1596,1/13/95///$ DA 94-1596 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Application of ) ECTOR CABLE T.V. ) File No. CSR-4275 ) For Waiver of Section 76.501(d) ) of the Commission's Rules, ) 47 C.F.R.  76.501(d) ) MEMORANDUM OPINION AND ORDER Adopted: December 21, 1994 Released: January 19, 1995 By the Chief, Cable Services Bureau: 1. On June 24, 1994, Ector Cable T.V. ("Ector"), filed a petition for special relief, requesting a waiver of the Commission's rules, to permit the sale of two satellite master antenna television ("SMATV") systems owned and operated by Ector to Post- Newsweek Cable, Inc. ("PNC"). Ector supplemented its request on October 28, 1994. Ector's SMATV systems serve Sunset Apartments and Trestles Apartments in the city of Odessa in Ector County, Texas. PNC provides franchised cable service in the city of Odessa. Ector's waiver request is unopposed. 2. Legal and Regulatory Framework. Sections 76.501(d) and (e) of the Commission's Rules implement Section 613(a)(2) of the Communication's Act. That section of the Communications Act prohibits a cable operator from offering SMATV service separate and apart from any franchised cable service in any portion of the franchise area served by that cable operator's cable system. In the First Report and Order adopting rules implementing the statutory cross-ownership provisions, the Commission determined that Congress intended a narrow restriction with respect to SMATV-cable cross-ownership. Accordingly, the Commission adopted rules that prohibit franchised cable operators from acquiring existing SMATV facilities within the franchised cable operators' actual service areas for the purpose of providing cable service. 3. However, as the Commission observed, the statutory provision does not prohibit all SMATV-cable cross-ownerships within a cable operator's franchise area or even within its actual service area. A cable operator is permitted to construct a stand-alone or integrated SMATV system within its actual service area, provided that service from that facility is offered in accordance with the terms and conditions of the cable franchise agreement. In addition, in the unserved portions of the franchise area, a cable operator is permitted to build or acquire a stand-alone SMATV system, provided such cable-owned SMATV system is operated in accordance with the terms and conditions of the cable franchise agreement. 4. Factual Background. According to the information provided in the petition and supplement, Lennel H. (Herman) Kincaid, the sole owner of Ector, operates two SMATV systems located in the City of Odessa in Ector County, Texas. Ector serves 76 subscribers in the Trestles apartment complex, a 280-unit complex located on the eastern edge of Odessa, and 71 subscribers in the Sunset apartment complex, a 264-unit complex located on the north edge of Odessa. Ector states that the SMATV systems were installed in the complexes in the early 1980's when new construction outpaced PNC's ability to extend service to the outskirts of town. Ector represents that PNC's coaxial cable lines do not pass either the Trestles or the Sunset complex. 5. Ector represents that Mr. Kincaid acquired the two SMATV systems in April of 1993 as a result of the former owner's default on a loan guaranteed by Mr. Kincaid. Ector represents that at the time it acquired the SMATV systems, PNC expressed an interest in purchasing the systems, but was unable to obtain access to the buildings from the complex owners. According to Ector, both complexes have new owners, each of whom has expressed a preference that PNC, rather than Ector, provide multichannel video programming service to their tenants. Ector states that PNC has indicted its continuing interest in purchasing the SMATV systems, and that the apartment owners have indicated their interest in providing the requisite access to PNC. 6. Ector states that since its initial acquisition of the SMATV systems, it has attempted to locate an appropriate buyer. Ector represents that it has run advertisements in newspapers in Odessa and Midland, Texas, written letters to all local cable operators, and contacted several cable brokers and wireless companies, but has been unsuccessful in attracting a prospective purchaser other than PNC. 7. Ector's Arguments. Ector asserts that it never intended to hold the SMATV systems as an investment, and that it has endeavored to sell the systems since it "involuntarily" became the owner of the systems. Ector further asserts that the tenants of the buildings will be better served by PNC than by Ector. In support, Ector states that it only offers one level of programming service comprised of eleven or twelve channels at a monthly rate of $15.50, compared with PNC's forty-nine channels and three levels of monthly service offered at rates of twelve channels for $6.19, forty-two channels for $21.66, and seven premium channels at varying rates. Ector contends that updating the SMATV systems is not a viable alternative because upgrading would require: (1) the expenditure of $75,000 to increase the systems' capacity by just eight channels; (2) the expenditure of an additional $35,000 to $45,000 on each system to add a single pay-per-view channel; and (3) an increase in subscriber rates to $22.00 per month just for cost recovery. Finally, Ector notes that the local newspaper lists PNC's channel line-up, but not Ector's, rendering the systems' subscribers unable to use the local newspaper to select viewing choices. 8. Discussion. Ector currently operates its two SMATV systems in Odessa, Texas, without competition from any other multichannel video distributor. Although the two systems are in PNC's franchise area, it appears that they are not served by PNC. The Commission's rules permit a cable operator to construct or acquire SMATV facilities within its franchise area in areas not served by the cable system. Indeed, the Commission expressly stated that "if a cable operator has not wired its entire franchise area, the cross- ownership ban does not prevent the operator from building or acquiring a stand-alone SMATV system." The Commission's rules state that the "term `area served by a cable system' shall mean any area actually passed by a cable system and which can be connected for a standard connection fee." 9. We need not decide the precise distance that must exist between a SMATV system and a franchised cable operator's cable plant in order to resolve Ector's petition. Ector represents in its unopposed petition that its two SMATV systems are located in apartment complexes situated on the edges of Odessa and that PNC does not pass either complex. We conclude that Ector has established that the two SMATV systems are in areas of the franchise which are not served by the franchised cable operator. Accordingly, the cross-ownership restriction does not preclude their acquisition by PNC. 10. For the reasons specified above, we conclude that the proposed acquisition of Ector by PNC falls within the parameters of Section 76.501(e)(2) of our rules. We therefore grant Ector's request, conditioned upon PNC's operation of the acquired SMATV systems pursuant to all of the terms and conditions of PNC's franchise agreement with the city of Odessa, Texas. 11. In view of the foregoing, IT IS ORDERED that, pursuant to 47 C.F.R.  0.321, and in accordance with 47 C.F.R.  76.501(e)(2), we hereby GRANT Ector Cable TV's request for a waiver of the SMATV-cable cross-ownership rules, conditioned upon Post-Newsweek Cable, Inc.'s operation of the acquired SMATV systems pursuant to all of the terms and conditions of its franchise agreement with the city of Odessa, Texas. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau