$/ FOR FCC RECORD ONLY /$ $// MO&O, Cable Act of 1992, DA 95-85//$ $/ 300.623 Regulation of Rates /$ $/ 1.106 Petitions for Reconsideration /$ $/ 76.906 Presumption of no effective competition /$ $/ 76.910 Franchising authority certification /$ $/ 76.911 Petition for reconsideration of certification /$ Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of : ) DA 95-85 ) TEL-COM, INC. ) ) Petition for Reconsideration of Certification ) ) of the certification of the West ) Virginia Cable Television Advisory ) Board to regulate basic cable rates ) (WV0630 & WV0628) ) MEMORANDUM OPINION AND ORDER Adopted: January 20, 1995 Released: January 20, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On November 17, 1993, Tel-Com, Inc. ("Tel-Com") filed a timely Petition for Reconsideration of Certification challenging the certification of the West Virginia Cable Television Advisory Board (the "Board") to regulate rates for basic cable service and associated equipment in portions of Mingo County, West Virginia (WV0630) and the City of Matewan, West Virginia (WV0628). On December 30, 1993, the Board filed a Response to Petition for Reconsideration of Tel-Com, Inc, to which Tel-Com filed a Reply. At the Commission's request, Tel-Com filed additional information on November 28, 1994. 2. Section 623(a)(4) of the Communications Act of 1934, as amended, allows franchising authorities to become certified to regulate basic cable service rates of cable operators that are not subject to effective competition as defined in the Communications Act of 1934, as amended. For purposes of the initial request for certification, franchising authorities may rely on a presumption that cable operators within their jurisdiction are not subject to such effective competition, unless they have actual knowledge to the contrary. Certification becomes effective 30 days from the date of filing unless the Commission finds that the franchising authority does not meet the certification requirements. Cable operators may file petitions for reconsideration of the franchising authority's certification within 30 days from the date such certification becomes effective. Rate regulation is automatically stayed pending review of a timely-filed petition for reconsideration alleging the presence of effective competition as defined in the Communications Act of 1934, as amended. II. DISCUSSION Facts 3. In its Petition, Tel-Com argues that its cable system is subject to effective competition as defined in the Communications Act of 1934, as amended, because: "1) at least 50% of the households in Tel-Com's franchise area have access to another unaffiliated [multichannel video programming distributor], in this case Triax Communications Corporation ("Triax"); and 2) at least 15% of those households subscribe to Triax's cable service." Tel-Com states that it provides cable television service in Mingo County, West Virginia and the City of Matewan, West Virginia "[p]ursuant to two separate franchise agreements." Tel-Com claims that it passes approximately 1500 "homes" and serves a total of 849 subscribers in an area which includes a portion of its Mingo County franchise area and a portion of its Matewan franchise area. According to Tel-Com, although it has county-wide franchise operating rights, it is not obligated to serve all of Mingo County. Tel- Com asserts that its de facto franchise area for purposes of determining whether effective competition as defined in the Communications Act of 1934, as amended, exists is the area containing the 1500 homes passed in the portions of Mingo County and Matewan that Tel- Com currently serves. Tel-Com states that, in this area (consisting of portions of two separate franchise areas), its competitor, Triax, passes 50 percent of the homes and provides service to more than 15 percent of those households. Tel-Com bases this claim on its "estimate" of Triax's cable plant in this particular area. 4. The Board in its Response opposes Tel-Com's effective competition claim. The Board first argues that Tel-Com inappropriately redefined its franchise area because the issue of franchise area redefinition is applicable solely to another of the three tests for effective competition as defined in the Communications Act of 1934, as amended, namely the "low penetration" effective competition test. Next, the Board argues that the Commission intended the issue of franchise area redefinition to be left solely to the prerogative of the franchising authority and that cable operators are prohibited from raising the issue. Tel-Com filed a Reply to the Board's Response arguing that the Board's Response is untimely and should be dismissed, as well as opposing the Board's arguments. Disposition of Tel-Com's Effective Competition Claim 5. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition as defined in the Communications Act of 1934, as amended. The cable operator bears the burden of rebutting the presumption that such effective competition does not exist and so must provide evidence sufficient to demonstrate that effective competition, as defined by Section 76.905 of the Commission's rules, is present within the franchise area. Tel-Com has failed to meet this burden. 6. Tel-Com's claim is not appropriately based on a franchise area as that term has been defined by the Commission. The 1992 Cable Act defines each of the three alternative effective competition tests in terms of the franchise area. Thus, the Commission has determined that a claim of effective competition must be demonstrated on a franchise area-by-franchise area basis. The Commission has generally defined the term "franchise area" as "the area a system operator is granted authority to serve in its franchise." The Commission has recognized a limited exception to this general rule. Specifically, the Commission stated that "a more restricted franchise area definition" may be appropriate under limited circumstances, such as when an operator "has itself, through its own conduct, self-defined the areas to be served to such an extent that this redefined area accurately portrays the operator's 'franchise area.'" 7. Tel-Com bases its case on this redefined franchise area exception. Tel-Com contends that its redefined franchise area is an area consisting of approximately 1500 homes located in a portion of Mingo County and a portion of Matewan. Tel-Com misapplies the redefined franchise area exception. 8. In the First Reconsideration Order, while generally reaffirming its conclusion that the presence of effective competition as defined in the Communications Act of 1934, as amended, would be evaluated on a franchise area basis, the Commission recognized that there might be situations where the relevant area for purposes of such effective competition might be something less than the entire legally authorized franchise area. In explaining the application of this exception, the Commission offered the example of a situation where a cable operator has "county-wide operating rights but has determined to serve only a specific named community within that area." Thus, in creating the franchise area redefinition exception, the Commission clearly intended to address situations where a cable operator has a single franchise to serve a larger area, but has made an affirmative decision to serve only a portion thereof. This is not the situation in this case. Here, Tel-Com is not claiming that it has redefined its franchise area to constitute a portion of its larger authorized area. Rather, Tel-Com has attempted to make its effective competition claim based on portions of two separate franchise areas. After creating this alleged redefined franchise area, Tel-Com claims that it faces effective competition as defined in the Communications Act of 1934, as amended, therein from another cable operator. Tel-Com points to nothing in the 1992 Cable Act or our rules that indicates that either Congress or the Commission intended or contemplated that a cable operator could claim effective competition across franchise area lines. Unlike the exception contemplated by the Commission, Tel-Com does not seek to demonstrate the presence of effective competition in an area redefined within one particular franchise area. Rather, the area in which Tel-Com contends it is subject to effective competition is drawn from portions of two separate franchise areas. The aggregation of portions of two distinct franchise areas cannot be inferred from the limited exception recognized by the Commission. 9 In light of these facts, we find that Tel-Com inappropriately relied upon consolidated data from portions of two independent franchise areas to support its effective competition claim. In order to demonstrate effective competition, Tel-Com should have used data applicable solely to its Mingo County franchise area, or to its Matewan franchise area. In light of Tel-Com's failure to do so, we must deny its Petition. 10. Finally, we note that, in enacting the 1992 Cable Act, it was Congress' policy "to promote the availability to the public of a diversity of views and information;" and to "rely on the marketplace, to the maximum extent feasible, to achieve that availability." In this case, Tel-Com argued that its cable system was subject to effective competition as defined in the 1992 Cable Act. However, because Tel-Com failed to support this effective competition claim, we deny its Petition. Nonetheless, we take this occasion to state our view that in the case of the cable programming service tiers ("CPSTs") there may be circumstances where a cable system, although not subject to effective competition as defined in the 1992 Cable Act, may be charging cable rates that are constrained by the presence of one or more other multichannel video programming distributors ("MVPD") in the franchise area. In such situations, the presence of one or more such MVPDs may ensure that the rates the operator charges subscribers for CPSTs are not "unreasonable." In such instances, the public interest may be served by relying on the market forces instead of our rate rules to ensure that the operator's rates are not "unreasonable." In this case, Tel-Com has not submitted sufficient economic analysis and evidence regarding its competitor's presence in its franchise area or any other market forces to allow us to determine that its rates are constrained by competition. Should Tel-Com or any other operator choose to submit information pertaining to the impact of competitive market forces on its rates, we could consider such a showing in the context of a petition for special relief filed pursuant to Section 76.7 of the Commission's rules. III. ORDERING CLAUSES 11. Accordingly, IT IS ORDERED that the Petition for Reconsideration filed by Tel-Com, Inc. challenging the Certification of the West Virginia Cable Television Advisory Board applicable to portions of Mingo County, West Virginia (WV0630) and the City of Matewan, West Virginia (WV0628) IS DENIED. 12. IT IS FURTHER ORDERED that the automatic stay imposed by Section 76.911(c) of the Commission's rules, as amended, IS TERMINATED. 13. IT IS FURTHER ORDERED that Tel-Com SHALL FILE the required rate justifications on the applicable forms with the West Virginia Cable Television Advisory Board within thirty days of the release date of this Memorandum Opinion and Order or within thirty days of receipt of notice from the West Virginia Cable Television Advisory Board that it is regulating Tel-Com's rates in these franchise areas, whichever is later. 14. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau