$/ For FCC Record Only/$ $// Order, Cable Act of 1992, certification, DA 95-569//$ $/ 600.623 Regulation of Rates/$ $/ 76.905 Standards for Effective Competition/$ $/ 76.906 Presumption of No Effective Competition/$ $/ 76.910 Franchising Authority Certification/$ $/ 76.911 Petition for Reconsideration/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-569 ) PRIME CABLE OF CHICAGO, INC. ) ) Petition for Reconsideration ) ) of Cable Services Bureau Order ) Denying Petitions for Reconsideration ) of the City of Chicago's Certification ) to Regulate Basic Cable Service Rates ) (IL0984, IL0985) ) ORDER ON RECONSIDERATION Adopted: March 21, 1995 Released: March 22, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On December 19, 1994, Prime Cable of Chicago, Inc. ("Prime Cable") filed a timely petition requesting reconsideration of a Memorandum Opinion and Order ("Order") adopted by the Cable Services Bureau ("the Bureau") pursuant to delegated authority. The Order denied two petitions for reconsideration filed by Prime Cable challenging the certification of the City of Chicago ("the City") to regulate Prime Cable's rates for basic cable service and associated equipment in two franchise areas. In its petition, Prime Cable requests that the Bureau grant its petition for reconsideration and rescind the City of Chicago's certification to regulate Prime Cable's rates. The City did not file an opposition to Prime Cable's petition. The City, however, did file a response to the Bureau's request for clarifying information. 2. Section 405 of the Communications Act of 1934, as amended, allows parties to petition for reconsideration of an order issued by the Commission or its delegated authority. Such a petition must be filed within 30 days from the date of public notice of that action. To warrant consideration, a petition for reconsideration must state the specific form(s) of relief sought by the petitioner and allege with particularity the respects in which the contested action should be changed. The petition should also cite findings of fact or conclusions that the petitioner believes to be in error and indicate how the petitioner believes they should be changed. II. BACKGROUND 3. Section 623 (a)(4) of the Communications Act of 1934, as amended, allows franchising authorities to become certified to regulate the basic cable service rates of cable systems that are not subject to effective competition. For purposes of the initial request for certification, local franchising authorities may rely on a presumption that cable operators within their jurisdiction are not subject to 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 statutory 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 (filed pursuant to Section 76.911 of the Commission's Rules) alleging the presence of effective competition. 4. In its original petition for reconsideration, Prime Cable argued that its system was subject to effective competition in each of its two franchise areas, designated as IL0984 and IL0985. Prime Cable based its claim of effective competition on the allegation that its system's subscriber penetration rate was less than 30% in each franchise area. To support its claim with respect to franchise area IL0985, Prime Cable submitted evidence indicating that its system serves 54,510 subscribers in the franchise area consisting of 233,640 "households." With respect to franchise area IL0984, Prime Cable submitted evidence indicating that its system serves 61,619 subscribers in the franchise area consisting of 227,768 "households." By using these figures, Prime Cable argued that the ratio of total Prime Cable subscribers in relation to the total number of homes in each franchise area yielded a subscriber penetration rate of 23.3% and 27.1%, respectively. Because each number was below 30%, Prime Cable argued that its system should be exempt from rate regulation and that the City's certification to regulate Prime Cable's basic rates and associated equipment should be rescinded. 5. In its Order, the Bureau denied Prime Cable's petitions for reconsideration because Prime Cable, in deriving its penetration rates, inappropriately relied upon commercial establishments and housing unit data, rather than "occupied housing unit" data, to determine the total number of households in its franchise areas. Because our rules require the use of household data, the Bureau rejected Prime Cable's claim of effective competition. As a result, the automatic stay imposed on the City's certification to regulate rates was terminated and Prime Cable was ordered to file the applicable rate justifications with the City. 6. In this petition, Prime Cable now claims, for the first time, that its two franchise areas (which Prime Cable itself treated as separate areas in its original petitions) should actually be treated as a single franchise area. Prime Cable argues that despite the issuance of two separate CUID numbers (IL0984 and IL0985), "its system, in reality, has a single franchise area because 1) it serves each franchise area by way of a single integrated cable system; 2) the separation of CUID numbers by franchise area is merely a matter of administrative convenience and historical record; and 3) its system cannot charge customers different rates in either CUID area." Prime Cable further argues that, because "the Commission has recently clarified that multiple CUID numbers together may constitute a single franchise area for purposes of rate regulation, Prime Cable's franchise area, for purposes of determining effective competition, should include the combination of areas IL0984 and IL0985." 7. Prime Cable then states that, although it disagrees with the use of occupied housing unit data rather than commercial and housing unit data, its system still qualifies for an exemption from rate regulation because it serves fewer than 30% of the households in the consolidated areas designated as IL0984 and IL0985, the alleged franchise area. Specifically, Prime Cable now claims for the first time that its system serves 114,936 of the 392,423 households (that is, occupied housing units) in the alleged franchise area, or 29.29% of the total number of households. As supporting documentation, Prime Cable submits a computer print-out with sufficient subscriber information to support its claim that it serves 114,936 subscribers in the alleged franchise area. In addition, Prime Cable also provides household information from its data base of billed or billable customers which, Prime Cable claims, "has been developed and maintained using the most objective standards available, including a detailed visual count of serviceable homes and other buildings and comparison to U.S. Postal Records." Prime Cable acknowledges that this database does not exclude vacant housing units. Thus, in order to calculate the number of occupied housing units in the alleged franchise area, Prime Cable takes the number of housing units according to its database (433,617) and applies a vacancy rate of 9.5%. Prime Cable states that applying this rate to Prime Cable's data base results in an occupied housing unit count of 392,423 for the consolidated areas of IL0984 and IL0985, the alleged franchise area. 8. Next, Prime Cable argues that the Commission has adopted an unduly restrictive definition of households for its effective competition test. Prime Cable argues that "the effective competition test measures the number of actual customers ( subscribers') against the number of potential customers ( households') in a particular franchise area." Therefore, it argues that commercial entities should be counted as households for purposes of effective competition, because they are potential customers. Prime Cable further suggests that, "although the Commission has not yet determined the appropriate treatment of commercial accounts in terms of rate regulation, at least in this case, commercial establishments must be counted as households' for purposes of applying the effective competition test because the City considers commercial establishments to be subscribers' to the cable system." Prime Cable argues that, in order to preserve the integrity of the effective competition test, the "household" definition must be flexibly applied to include all potential customers (i.e., business addresses as well as residential homes) in the franchise area. 9. Finally, Prime Cable argues that the definition of "households," for purposes of effective competition, should also include vacant housing units. It suggests that "[i]ntuitively, all homes in a cable franchise area represent potential cable customers just as all homes in areas served by electric, gas and telephone companies represent potential customers to those businesses." Prime Cable claims that "the Commission has never distinguished vacant from occupied homes in its various proceedings," and further suggests that the Commission's definition of households is inconsistent with certain standards set in the Commission's horizontal ownership proceeding and subscriber count guidelines. Specifically, Prime Cable suggests that the Commission's use of a homes passed standard in its horizontal ownership proceeding is inconsistent with its requirement that households (i.e., occupied housing units) be used when determining the presence of effective competition. Prime Cable also suggests that the Commission's definition of households is inconsistent with its treatment of multiple dwelling units ("MDUs") under its subscriber count guidelines. It alleges that the Commission "counts each unit of an MDU as a separate household regardless of whether it is occupied or vacant." III. DISCUSSION 10. Generally, reconsideration is appropriate where the petitioner shows either a material error or omission in the original order or raises additional facts not known or not existing until after the petitioner's last opportunity to present such matters. A petition for reconsideration which relies on facts or information not previously presented to the Commission or its delegated authority may be considered if the Commission or delegated authority determines that consideration of such facts is required in the public interest. 11. In its original petitions, Prime Cable based its effective competition claims on housing data which inappropriately included both commercial and vacant housing units. However, in this petition, Prime Cable now bases its claim on certain "household" data. In addition, for purposes of effective competition, Prime Cable initially treated its two franchise areas separately. In this petition, however, it now seeks to treat its two separate franchise areas as a single area. Prime Cable does not provide sufficient reason as to why it failed to demonstrate effective competition using household data in its original petition. It also does not adequately explain why it is now seeking different treatment of its franchise area for purposes of effective competition. Nonetheless, we believe that the public interest requires consideration of these new arguments and information. 12. First, we reject Prime Cable's argument that the term "household" should be defined to include commercial entities. As the Commission stated in the Third Recon. Order, "[a]s used in the Cable Act, we presume that Congress did not intend "households" to have a different meaning than in the 1990 census ..." The 1990 Census defines the term "household" to include only occupied housing units. Thus, as this definition does not include commercial entities, such entities may not be counted for purposes of effective competition. Prime Cable also argues that commercial entities should be included in this case because the City of Chicago considers these entities to be subscribers. This argument lacks merit. The fact that a franchising authority considers a particular group of entities to be subscribers for particular purposes is not the basis for determining whether such entities constitute a "household" for purposes of effective competition under federal law. 13. Second, we reject Prime Cable's argument that the term "household" should include vacant housing units. As we previously stated, the Commission has determined that the term "household" as used in the Cable Act does not "have a different meaning than in the 1990 census ..." As the 1990 Census defines the term "household" to include only occupied housing units, we do not agree that vacant housing units should qualify as households. We also do not agree that the Commission has adopted an unduly restrictive definition of the term, by defining "households" as occupied housing units. The Commission has clearly distinguished between vacant and occupied homes in reference to the effective competition tests. It has stated that permitting "an operator to include dwelling units that are empty for a significant portion of the year in determining its penetration rate would eviscerate the validity of this measure as an indicator of the presence of effective competition. People who are not present cannot be presumed to be choosing local competitive alternatives." We are not persuaded, by Prime Cable's reference to alleged practices among electric, gas and telephone companies, that the Commission's definition of households should change. Prime Cable has failed to provide any evidence that electric, gas and telephone companies in fact regard vacant homes as potential customers for purposes of measuring competition. Moreover, Prime Cable has not demonstrated that the same concerns over the availability of choice between local competitive alternatives exist with regard to the provision of the public utilities mentioned. We also are not persuaded that the Commission's definition of households is inconsistent with certain standards set in the Commission's horizontal ownership proceeding and subscriber count guidelines. In a previous effective competition case, the Bureau considered and rejected these same arguments. As the Bureau explained in Barden, our analysis of the ownership restrictions in Section 613(f)(1)(A) of the Communications Act of 1934, can be distinguished from our analysis of effective competition. Section 613(f)(1)(A) of the Communications Act of 1934, refers to the number of subscribers any one owner, or party with an attributable interest, can "reach" through cable systems. The Commission has explained that this language can be construed to mean the share of homes passed by a cable operator. No similar language exists with respect to the low penetration standard for measuring effective competition. Also, with regard to our treatment of multiple dwelling units, we note, as we did in Barden, that the petitioner has failed to point to any Commission rule which requires that vacant dwelling units be counted as subscribers. 14. Finally, we find that Prime Cable's new argument that its two franchise areas should be treated as a single franchise area lacks merit. As the Commission has stated previously, effective competition must be demonstrated on a franchise area by franchise area basis. Moreover, the Commission has defined "franchise area" as "the area a system operator is granted authority to serve in its franchise." Where a cable system serves more than one separate area, it must demonstrate that effective competition exists in each separate franchise area. Here, the City granted Prime Cable separate franchises to provide cable service in two separate areas: Franchise Area 2 (IL0985) and Franchise Area 3 (IL0984). Therefore, Prime Cable must demonstrate effective competition in each separate franchise area, using data applicable solely to Franchise Area 2 and data solely applicable to Franchise Area 3. 15. With respect to the franchise area designated as IL0985, we find that Prime Cable has demonstrated the presence of effective competition. In its original petition, Prime Cable submitted evidence indicating that there were 217,690 housing units in this franchise area. Applying the 9.5% vacancy rate for the City of Chicago indicates a count of 197,009 households (i.e., occupied housing units). A comparison of the number of subscribers (53,808) in relation to the number of households (197,009) yields a penetration level of 27.31%. Thus, we find that Prime Cable's system serving IL0985, its franchise area, is subject to effective competition. Thus, its petition is granted with respect to this franchise area. 16. With respect to franchise area IL0984, we find that Prime Cable has not demonstrated the presence of effective competition. In its original petition, Prime Cable submitted evidence indicating that there were 215,927 housing units in this franchise area. Applying the 9.5% vacancy rate for the City of Chicago indicates a count of 195,414 households (i.e., occupied housing units). A comparison of the number of subscribers (61,128) in relation to the number of households (195,414) yields a penetration level of 31.28%. In light of this, we find that Prime Cable has not demonstrated that its cable system, serving franchise area IL0984, is subject to effective competition. Accordingly, its petition is denied with respect to this franchise area. IV. ORDERING CLAUSES 17. Accordingly, IT IS ORDERED that the petition for reconsideration filed by Prime Cable of Chicago, Inc. challenging the certification of the City of Chicago, Illinois to regulate its basic cable rates in the franchise area designated as FCC Community ID No. IL0984 IS DENIED. 18. IT IS FURTHER ORDERED that the petition for reconsideration filed by Prime Cable of Chicago, Inc. challenging the certification of the City of Chicago, Illinois to regulate its basic cable rates in the franchise area designated as FCC Community ID No. IL0985 IS GRANTED. 19. IT IS FURTHER ORDERED that the certification of the City of Chicago, Illinois to regulate basic cable service rates in the franchise area designated as FCC Community ID No. IL0985 IS RESCINDED. 20. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau