Before the FEDERAL COMMUNICATIONS COMMISSION FCC 95-21 Washington, D.C. 20554 In the Matter of ) ) Implementation of Sections 11 ) and 13 of the Cable Television ) Consumer Protection and ) MM Docket No. 92-264 Competition Act of 1992 ) ) Horizontal and Vertical Ownership ) Limits, Cross-Ownership Limitations ) and Anti-Trafficking Provisions ) MEMORANDUM OPINION AND ORDER ON RECONSIDERATION OF THE FIRST REPORT AND ORDER Adopted: January 12, 1995 Released: January 30, 1995 By the Commission: Table of Contents Paragraph I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 II. Statutory SMATV Ownership Restrictions. . . . . . . . . . . . . . . 10 A. Cable Operators' Acquisitions of Existing SMATV Systems. . . . 15 B. Cable Operators' Use of SMATV Facilities Within Their Franchise Areas . . . . . . . . . . . . . . . . 33 C. SMATV Operators' Sales or Assignments of Access Rights to Cable Operators. . . . . . . . . . . . . 41 D. Grandfathering . . . . . . . . . . . . . . . . . . . . . . . . 42 III. Anti-Trafficking. . . . . . . . . . . . . . . . . . . . . . . . . . 44 A. Local Franchise Authority Consideration of Transfer Requests . 47 1. The 120-Day Period for Review of Transfer Requests for Cable Systems Held for Three Years. . . . . . . . . 47 2. FCC Form 394. . . . . . . . . . . . . . . . . . . . . . . 54 3. Review Premised Upon State or Local Law . . . . . . . . . 58 4. Certifications of Compliance with the Anti-Trafficking Provision. . . . . . . . . . . . . 60 B. The Three Year Holding Period. . . . . . . . . . . . . . . . . 64 1. Calculation of the Holding Period for Exempt Transactions . . . . . . . . . . . . . . . . 64 2. Multiple System Transfers . . . . . . . . . . . . . . . . 69 C. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 IV. Regulatory Flexibility Analysis . . . . . . . . . . . . . . . . . . 80 V. Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 85 VI. Ordering Clauses. . . . . . . . . . . . . . . . . . . . . . . . . . 86 Appendix A: Parties Filing Comments Appendix B: Final Rule Changes I. INTRODUCTION 1. In the Report and Order and Further Notice of Proposed Rule Making in this proceeding (the "First Report & Order"), we adopted rules implementing the cross-ownership and anti-trafficking provisions of Sections 11 and 13 of the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). We address herein petitions for reconsideration of that First Report & Order. 2. In the First Report & Order, we adopted a rule that prohibited cable system operators from acquiring satellite master antenna television ("SMATV") systems within their actual service areas. On reconsideration, we find that such a prohibition is inconsistent with the statutory provision upon which it was based. Consequently, we herein revise that part of our rules that governs cable operators' ownership of SMATV systems within their franchise areas. We believe our analysis in this order on reconsideration, and our determination to revise the ownership rules we adopted in June of 1993, more accurately reflect the intent of Congress and comport with the meaning of Section 613(a)(2) of the Communications Act of 1934, as amended by the 1992 Cable Act (the "Communications Act"). 3. We further affirm our decision in the First Report & Order to adopt a regulatory framework implementing the anti-trafficking provision of Section 13 of the 1992 Cable Act, finding that our rules fulfill Congress' mandate and are consistent with the goal of promoting competition in the multichannel video marketplace. We take this opportunity, however, to clarify the manner in which those rules apply to various transactions. 4. Section 11(a) of the 1992 Cable Act amended the Communications Act by adding an ownership provision restricting multichannel multipoint distribution service ("MMDS") and SMATV ownership interests by cable operators. That provision, now Section 613(a)(2) of the Communications Act, prohibits a cable operator from holding a license for MMDS, or from offering SMATV service that is separate and apart from any franchised cable service, in any portion of the franchise area served by that cable operator's cable system. It grandfathers all such service in existence as of the date of enactment of the 1992 Cable Act, and authorizes the Commission to waive the requirements of the provision to the extent necessary to ensure that all significant portions of a franchise area are able to obtain video programming. 5. Section 13 of the 1992 Cable Act amended the Communications Act by establishing a three-year holding requirement for cable systems (the "anti-trafficking provision"). That provision, now Section 617 of the Communications Act, restricts the ability of a cable operator to sell or otherwise to transfer ownership in a cable system within thirty-six months following either the acquisition or initial construction of the system by such operator. It also delineates specific exceptions to the general rule and provides waiver authority to the Commission. 6. In the First Report & Order, we adopted rules implementing the ownership and anti-trafficking provisions of the 1992 Cable Act. In particular, we: (a) revised the existing MMDS-cable cross-ownership rules; (b) adopted SMATV ownership rules; and (c) adopted rules implementing the statutory anti-trafficking provision. 7. In this Memorandum Opinion and Order (the "MO&O"), we address the various petitions for reconsideration and/or clarification, oppositions and replies that have been filed with respect to those ownership and anti-trafficking rules. For the reasons stated below, we clarify and modify the regulations adopted in the First Report & Order in several respects. These modifications are in furtherance of the statutory objectives of the 1992 Cable Act, and are consistent with our intent to eliminate artificial regulatory barriers to competitive and efficient delivery of multichannel programming services to the American public. In addition to responding to the parties' petitions, we take this opportunity to clarify several matters that have arisen during the course of our administration of those regulations. 8. First, with respect to the SMATV ownership rules, we remove the prohibition against cable operators' acquisitions of SMATV systems within their actual service areas based upon a revised interpretation of the language of Section 11(a) of the 1992 Cable Act. Second, we affirm that any SMATV system owned by a cable operator within the operator's franchise area must be operated in accordance with the terms and conditions of the local franchise agreement. We conclude that our revised rules are more fully supported by the statute and Congressional statements of intent than were the rules adopted in the First Report & Order. We further find, based on the record before us, that the policy of promoting competition to traditional coaxial cable systems is at least as well served, if not better served, by the revisions we make today. 9. With respect to anti-trafficking, we first affirm the Commission's rules regarding action by franchise authorities on requests for approval of transfers or assignments of cable systems that have been held for three or more years. Second, we clarify certain aspects of FCC Form 394. Third, we clarify that a franchise authority may require approval of cable system transfers or assignments if so required by state or local law. Fourth, we clarify that the holding period does not recommence upon the consummation of a transaction that is exempt from the statutory three-year holding period. Fifth, we clarify certain aspects of calculating the holding period. Sixth, we affirm our decision to grant a blanket waiver of the anti-trafficking rules to small systems. Finally, based on our experience to date, we conclude that in the future we will generally look favorably on requests for waiver of the anti-trafficking rules unless the request raises serious concerns on its face or any objections we receive to grant of the waiver provide evidence of other public interest bases for concern. II. STATUTORY SMATV OWNERSHIP RESTRICTIONS 10. Overview. SMATV systems (also known as "private cable systems") are multichannel video programming distribution systems that serve residential, multiple-dwelling units ("MDUs"), and various other buildings and complexes. A SMATV system typically offers the same type of programming as a cable system, and the operation of a SMATV system largely resembles that of a cable system -- a satellite dish receives the programming signals, equipment processes the signals, and wires distribute the programming to individual dwelling units. The primary difference between the two is that a SMATV system typically is an unfranchised, stand-alone system that serves a single building or complex, or a small number of buildings or complexes in relatively close proximity to each other. 11. A SMATV system is defined under the Communications Act by means of an exception to the definition of a cable system: (7) the term "cable system" means a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment . . . but such term does not include . . . (B) a facility that serves only subscribers in 1 or more multiple unit dwellings under common ownership, control, or management, unless such facility or facilities uses any public right-of-way; . . . . Therefore, a SMATV system is different from a cable system only in that it does not use "closed transmission paths" to: (a) serve buildings that are not commonly owned, controlled, or managed; or (b) use a public right-of-way. 12. Thus, the distinction between a SMATV system and a cable system is based on the limited manner in which a SMATV system provides its services. When the service is no longer so limited, the SMATV system ceases to be eligible for the statutory exception set forth in Section 602(7)(B) and becomes a cable system. If a system's lines interconnect separately owned and managed buildings or if the system's lines use public rights of way, the system is a cable system for purposes of the Communications Act. Closed transmission path interconnection of a cable system and a SMATV system will, therefore, cause the SMATV system to become a part of the cable system. 13. Section 613(a)(2) of the Communications Act makes it "unlawful for a cable operator . . . to offer satellite master antenna television 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 & Order, we interpreted this provision as restricting franchised cable operators from acquiring existing SMATV systems within their actual service areas. We concluded, however, that Section 613(a)(2) does not prohibit all SMATV- cable cross-ownership within cable operators' actual service areas. In particular, we determined that cable operators are permitted to construct stand-alone or integrated SMATV systems in their actual service areas, provided such SMATV service is offered in accordance with the terms and conditions of agreements with the local franchise authorities. We found that common ownership of a SMATV system that itself qualifies as a "cable system under Section 602(7)(B) of the Communications Act and a separate stand-alone SMATV system" would also be permitted. We also determined that a cable operator is permitted to acquire, or build, a stand-alone SMATV system located in the unserved portions of the franchise area, provided such cable-owned SMATV system is operated in accordance with the terms and conditions of the cable franchise agreement. 14. However, we further determined that a cable operator would not be allowed to acquire existing SMATV facilities within the cable operator's actual service area for the purpose of providing cable service. In reaching this conclusion we observed that in "light of the important statutory objectives of promoting competition and encouraging diverse sources of programming," such acquisitions would undermine the goals of a provision that we viewed as a traditional cross-ownership restriction and "eliminate an important potential source of competition for established cable operators." We concluded that allowing cable operators to acquire existing SMATV facilities would undermine competition between cable operators and SMATV providers, reinforce existing cable monopolies, and reduce competitive opportunities for SMATV providers within the cable service area. A. Cable Operators' Acquisitions of Existing SMATV Systems 15. Pleadings. Several parties argue that it was an error to prohibit cable operators from acquiring existing SMATV systems within their service areas. Those parties generally assert that the ban on such acquisitions is not supported by the 1992 Cable Act or overall Congressional objectives. In fact, Time Warner Entertainment Company, L.P., ("Time Warner") believes it is significant that parties from both the cable television and SMATV industries share this belief. 16. The National Private Cable Association, MSE Cable Systems, Cable Plus and Metropolitan Satellite (hereinafter referred to collectively as "NPCA") and Time Warner argue that so long as the cable operator offers SMATV service that is not "separate and apart" from its franchised service, it is in compliance with the statute, regardless of whether the cable operator acquired or installed the facilities. Although NPCA agrees with the Commission's determination that the "separate and apart" language refers to service that does not comply with local franchise requirements, it argues that the language cannot also be the basis for an unrelated distinction created by the Commission between a cable operator who installs SMATV facilities and a cable operator who acquires such facilities. NPCA maintains that the statute restricts the manner in which a cable operator may offer SMATV service, not the manner in which the cable operator acquires the facilities in order to offer such services. 17. Cablevision Systems Corporation ("Cablevision") and Time Warner both argue that it is not necessary to make a distinction between the acquisition and construction of SMATV systems, or between the served and unserved portions of franchise areas, to ensure competition in the video distribution marketplace (they assert that nothing precludes a second video distributor from offering service to a building). 18. Time Warner and the National Cable Television Association ("NCTA") argue that the Commission's notion that a restriction on cable operator's ability to purchase SMATV systems fosters competition is misplaced because cable operators and SMATV systems usually do not compete once an MDU owner has decided which multichannel video programming distributor ("MVPD") will serve the building. Rather, Time Warner and NCTA contend that competition occurs when MVPDs seek rights from the MDU owner to provide multichannel video programming service within a building, and that once such a contract is entered into, the competitive environment is not adversely affected if a SMATV operator is allowed to sell its business as a going concern to the franchised cable operator. 19. NPCA, Cablevision, Time Warner and NCTA all argue that the Commission's broad acquisition prohibition discourages investment in SMATV operations, and threatens their overall viability. NPCA further contends that a SMATV operator who tries to sell one SMATV system may actually be primarily interested in generating the cash necessary to make worthwhile investments in its other properties, thereby increasing the competitive pressure it places on the franchised cable industry as a whole. 20. Taking an even stronger position in their petition, Multivision Cable TV Corporation and Providence Journal Company (hereinafter referred to collectively as "Multivision") argue that when Congress intended to enlarge governmental control over the acquisition of media competitors in the same market, it did so explicitly and precisely, and that no grant of authority was given to the Commission with regard to a cable system's acquisition of SMATV facilities. Multivision points out that the Notice of Proposed Rule Making in this proceeding did not address a possible distinction between the acquisition and construction of SMATV facilities by cable operators, thereby precluding interested parties from having notice of such a distinction or an opportunity to comment. Multivision further notes that none of the commenters argued that cable operators should not be allowed to acquire, as opposed to construct, SMATV facilities. 21. Discussion. On reconsideration, we modify our rules based upon a revised analysis of the language of Section 613(a)(2) and the Congressional intent underlying that provision. We also note that our modified rules are consistent with the diversity and competitive considerations associated with the statutory ownership restriction. In light of our action today with respect to cable operators' acquisitions of SMATV systems, Multivision's contention that parties were not provided adequate notice and opportunity for comment on our prior distinction is moot. 22. We begin by reexamining the language of Section 613(a)(2), which provides that a cable operator may not "offer satellite master antenna television service separate and apart from any franchised cable service, in any portion of the franchise area served by that cable operator's cable system." On reconsideration we believe that this language means that a cable operator may not offer SMATV service anywhere in its franchised service area unless such service is offered together with or as part of the cable service provided pursuant to its local cable franchise agreement. In other words, if a cable operator offers SMATV service to subscribers within its franchised service area, it must offer this otherwise unregulated multichannel video programming service to those subscribers pursuant to the same terms and conditions upon which the regulated cable television service is offered to subscribers within that same franchise. Thus, cable operators may not use facilities that meet the statutorily-created SMATV exception to the definition of a cable system to provide multichannel video programming service that does not comply with franchise obligations or the Commission's rules. 23. We do not believe Congress used the words "separate and apart" to require the physical interconnection of commonly-owned cable systems and facilities that would otherwise qualify for the SMATV exception. Rather, the words "separate and apart" refer to the service, not the delivery system, and are used to limit cable operators' ability to offer the unregulated SMATV service. Accordingly, we believe the statutory language requires cable operators to comply with all franchise requirements in their delivery of multichannel video programming without regard to whether any part of the facilities used might qualify as a SMATV system. 24. In the First Report & Order, we reviewed the legislative history of the 1992 Cable Act, which reflected Congress' concern that the "common ownership of different media may limit the number of different voices available to the public." Congress believed that certain ownership restrictions were necessary to "enhance competition" and "[t]o further diversity and prevent cable (operators) from warehousing its potential competition." Based on these general policies underlying the 1992 Cable Act, we concluded that Congress intended to prohibit cable operators' acquisitions of SMATV systems within their actual service areas. 25. However, neither the statutory provision nor the legislative history address the manner in which cable operators obtain the SMATV facilities over which they "offer" service. We believe that, had Congress intended to draw a distinction between the offering of service through a SMATV system that was acquired as opposed to one that was constructed, it would have done so. Indeed, Congress included specific references to construction and acquisition in the anti-trafficking provision of Section 13 of the 1992 Cable Act. It is therefore reasonable to conclude that in the context of the SMATV provision, Congress was unconcerned with the manner in which SMATV systems are obtained by cable operators and was mostly concerned with the manner in which such service is "offered" to subscribers in the cable operator's franchised service area; i.e., "separate and apart from any franchised cable service." Accordingly, on further analysis we conclude that revising our rule to eliminate the regulatory distinction between the acquisition and construction of SMATV systems accurately and appropriately interprets the statutory provision. 26. We further believe the revisions we adopt in this MO&O more closely comport with Congressional intent in enacting the SMATV ownership restriction. Our current interpretation of the statute is consistent with language in the report of the committee of conference that accompanied the 1992 Cable Act (the "Conference Report"), and in the report of the Senate Committee on Commerce, Science and Transportation that accompanied the Senate bill containing the provision that was ultimately adopted and included in the 1992 Cable Act (the "Senate Report"). The conference committee wrote that the final bill contained the relevant Senate provision, and that the Senate provision "amends Section 613(a) . . . by adding a new paragraph (2) which prohibits a cable operator from owning . . . a satellite master antenna television service (SMATV) in the same areas in which it holds a franchise for a cable system." The Senate Report contains the same explanation of the provision. 27. We believe that Congress's intent to preclude franchised cable operators from owning SMATV services in their franchise areas was not directed at the technology involved, which is simply a cable headend that is not interconnected by wire with a building that is separately-owned or with property on the other side of a public right-of-way. Cable operators may use facilities that could otherwise qualify for the SMATV exception to provide franchised cable service to hotels, MDUs or large apartment complexes. Rather, we believe that the conference committee's statement that cable operators would not be permitted to own SMATV service within their franchise areas meant that they cannot use the SMATV exception to offer service that does not comply with federal law and franchise obligations. 28. We continue to believe that the language of the statute, as supported by the conference committee's statement prohibiting a cable operator from owning a SMATV "in the same areas in which it holds a franchise for a cable system," evidences Congress's intent to prohibit SMATV-cable cross-ownership by requiring that a cable operator's offer of multichannel video programming throughout the entire franchise area be made only pursuant to the terms and conditions of its franchise agreement. This interpretation ensures competitive opportunities for SMATV operators and is consistent with the interpretation proffered in the First Report & Order where we also required cable operators to comply with the terms and conditions of their franchise agreements if they offered multichannel video programming services through SMATV facilities in the unserved portions of their service areas. Thus, we believe our interpretation accurately reflects Congressional intent and properly promotes the underlying statutory goals of promoting competition throughout the franchise area. 29. We further believe that the revisions we adopt today are consistent with the overall policy goals of the 1992 Cable Act. For example, we believe diversity continues to be preserved and promoted through a number of regulatory rules implementing the 1992 Cable Act, including the program access and carriage rules, must carry, and franchise requirements. The revisions we adopt today that permit cable operators to acquire SMATV systems in their franchised service area are also consistent with the policy goals underlying our decision in the First Report and Order. 30. In the First Report & Order we concluded that cable operators' acquisitions of SMATV systems within their service areas would eliminate an important potential source of competition for established cable operators. In reaching that conclusion, we viewed existing SMATV systems as engaged in direct competition with incumbent cable systems. On reconsideration, we find that the record contains insufficient evidence on which to base an economic analysis as to the workings of the SMATV marketplace and on which to conclude with any degree of certainty that either the rule we adopted in the First Report & Order or the revision we adopt today would have particular economic consequences. 31. Notwithstanding our prior recognition that the concern underlying the statutory provision is the preservation and enhancement of competition in the delivery of multichannel video programming, several commenters argued that adverse competitive consequences are engendered by the rule we adopted in the First Report & Order. For example, these commenters argue that the availability of capital necessary to construct a SMATV system is often dependent upon the availability of exit strategies, and in particular the ability to recoup sunk costs by being able to sell to a locally-franchised cable operator when that operator is the only potential buyer. The revision we adopt today would eliminate that constraint and level the competitive field for initial entry. We note, however, in view of the inconclusive economic evidence our determination to revise the rule rests on our interpretation of the language of the statute. 32. Accordingly, we reconsider our decision in the First Report & Order that cable operators may not acquire SMATV systems located within their service areas, and in this order, modify our rules by permitting cable operators to purchase SMATV systems located within their franchise areas, provided they operate such systems in accordance with the terms and conditions of their local franchise agreements. We therefore eliminate the regulatory distinction drawn in the First Report & Order that accorded disparate regulatory treatment based upon distinctions between the construction and acquisition of SMATV systems. We conclude that the revised rule we adopt today is more consistent with and more accurately and appropriately interprets the language of Section 613(a)(2) than the rule adopted in the First Report & Order. B. Cable Operators' Use of SMATV Facilities Within Their Franchise Areas 33. Pleadings. With respect to whether "integrated SMATV systems" must comply with the cable system's local franchise requirements, Time Warner argues that because a SMATV system is defined in terms of an exclusion from the "cable system" definition, one system can never constitute both a SMATV and a cable system "as the Report & Order erroneously suggests." Once a SMATV loses the SMATV exemption (e.g., by interconnection), Time Warner believes that the SMATV system then becomes a cable system subject to all the regulatory requirements applicable to cable systems. Time Warner goes on to state that stand-alone SMATV systems operated in accordance with local franchise requirements are not providing service that is "separate and apart" from franchised cable service, and are thus not subject to the cross-ownership prohibition. 34. In support of its position, Time Warner cites cases in which the Commission has refused to extend unregulated SMATV status to facilities that serve only single family homes, and a Commission decision finding that interconnected systems that are comprised of a cable system portion and a "SMATV portion" are subject to regulation as cable systems in their entirety. Time Warner further proposes that even where a cable system provides a commonly-owned SMATV system with at least seventy-five percent of its programming by microwave or other non-hardwired means, the two should be deemed to be a single system, thereby subjecting the SMATV system to all of the cable system's franchise obligations. 35. Multivision, on the other hand, asserts that neither stand-alone, nor integrated, SMATV systems should be subject to local cable franchise requirements because SMATV facilities that serve subscribers in one or more MDUs under common ownership, control, or management and do not use public rights of way are excluded from the definition of a cable system (Section 602(7) of the Communications Act), and are not subject to the franchise requirement of Section 621(b) of the Communications Act. According to Multivision, because SMATV systems are not "cable systems," the Communications Act does not confer authority on the Commission or local governments to force SMATV systems owned by cable operators to comply with local franchise requirements. 36. Multivision argues that there are no public policy reasons for subjecting SMATV systems to the franchise terms because: (a) local governments do not have jurisdiction since SMATV systems do not use public rights of way; (b) the entity in control of the development (i.e., the landlord, developer, condominium board or homeowner's association) does not need the protection of the local government because it has bargaining power equivalent to that of the cable operator, and it is better positioned to determine the needs of the development's multichannel video subscribers; and (c) the terms of the SMATV system's service agreement are the result of arm's length negotiations. Further, Multivision adds that it is inappropriate to impose another level of regulatory requirements on SMATV service because economies of providing service to customers in MDUs are different, and franchise requirements will conflict with the terms and conditions of the private SMATV service contracts, thereby creating confusion and legal ambiguity. Multivision also believes that requiring SMATV systems to be operated in accordance with franchise agreements will deny residents of buildings where SMATV service is offered of amenities and benefits they would otherwise be able to enjoy. 37. Discussion. As we discussed above, Time Warner is correct in its assertion that a SMATV system that is interconnected with a franchised cable system ceases to be a SMATV system, and customers that receive programming through the former SMATV facilities must be served by the cable operator in accordance with its franchise obligations. By adding Section 613(a)(2) to the Communications Act, Congress has required cable operators to comply with their franchise obligations even where the facilities used would otherwise qualify for the SMATV exception to the definition of a cable system. Therefore, Time Warner and NPCA are correct in their assertions that a franchised cable operator's use of "SMATV facilities" in accordance with franchise obligations does not constitute service "separate and apart" from franchised cable service, and therefore, does not constitute a violation of the cross-ownership restriction. 38. We reject Multivision's argument that we lack authority to require franchised cable operators to operate SMATV systems under their ownership, control or management within their franchise areas in accordance with their franchise obligations. As we discussed more fully above, we conclude that Section 613(a)(2) clearly restricts cable system operators from offering SMATV service inconsistent with its franchised cable service. Moreover, we believe that Section 613(a)(2) applies to all parts of the particular franchise area served by the cable system that is prohibited from offering SMATV service separate and apart from its franchised cable service. The revised rules that we adopt today are, therefore, fully consistent with Section 613(a)(2). 39. We also reject Multivision's argument that there are no public policy reasons for requiring cable operators to operate SMATV systems in accordance with their franchise obligations. Absent the requirement that cable operators who seek to offer multichannel video service within their franchise area through SMATV facilities must operate such system in accordance with their contract with that municipality and applicable laws, franchised cable operators could construct, acquire, or operate unregulated multichannel video programming distribution systems within their franchise areas, thereby avoiding the rate regulation provisions of the 1992 Cable Act, and our bulk discount regulations. We further note that the record in this proceeding does not contain evidence supporting Multivision's contentions regarding service contract negotiations or the bargaining power of the entities in control of MDUs. 40. We further reject Multivision's contention that the economies of providing SMATV service in an MDU are sufficiently different from those involved in providing franchise-wide cable service that a cable operator acquiring a cable system should not be required to operate the SMATV system in accordance with its franchise agreement requirements. Multivision's argument is premised on two flawed assumptions: (a) that SMATV systems attain 100% subscriber penetration within MDUs; and (b) cable operators are unable to offer bulk rates. Multivision provides no evidence to support its suggestion that SMATV systems typically reach 100% penetration. In fact, we recently found evidence that indicates this assumption is incorrect. Furthermore, we note that although Section 623(d) of the Communications Act requires a cable operator to have a uniform rate structure throughout the area served by its cable system, cable operators are permitted to offer bulk discount rates if they are made available to all similarly sized MDUs in the franchise area, and the cable operator demonstrates that it receives some economic benefit from offering the discount. C. SMATV Operators' Sales or Assignments of Access Rights to Cable Operators 41. NPCA seeks clarification of a footnote in the First Report & Order, which provides that "where a SMATV contract has been terminated by either party, we would not prohibit a cable operator from providing cable service over preexisting facilities." NPCA states that "[w]ithin the CATV and SMATV industries, this language has been interpreted as prohibiting a SMATV operator from assigning its contractual rights in favor of the local cable operator since the assignment of a contract does not cause its termination." NPCA argues that SMATV operators should be subject to the same rules that apply to MMDS operators, who can sell or assign access rights and internal wiring. We conclude that our decision to permit cable operators to acquire SMATV facilities within their service areas renders moot NPCA's concerns regarding conveyances of access contracts and distribution facilities. Therefore, we do not further address those issues. D. Grandfathering 42. Section 613(a)(2)(A) of the Act provides that the Commission shall waive the ownership restrictions for all existing MMDS and SMATV services that were "owned by a cable operator on the date of enactment of this paragraph." The Wireless Cable Association International, Inc. ("WCA") and Oklahoma Western Telephone Company ("Oklahoma Western"), request reconsideration or clarification of the rules adopted in the First Report & Order pertaining to the appropriate dates for grandfathering of permissible combinations. In addition, Time Warner argues that we should permit cable operators to consummate any transactions involving the acquisition of SMATV systems within their service areas, if those acquisitions had been agreed to prior to the effective date of the 1992 Cable Act. 43. Discussion. In two separate Erratum to the First Report & Order the Mass Media Bureau responded to WCA's and Oklahoma Western's concerns and corrected the relevant MMDS-cable and SMATV-cable cross-ownership rules to grandfather authorized combinations in existence as of October 5, 1992. However, we decline to follow Time Warner's suggestion that we also grandfather arrangements between private parties that were agreed to prior to December 4, 1992. First, the statutory language refers to interests "owned" on the enactment date. We believe this language restricts grandfathering to cross- ownerships actually in existence at that time, not to merely contemplated or planned arrangements. Second, Congress expressly provided for the grandfathering of MMDS and SMATV cross-ownership interests as of the enactment of Section 613. We believe that this was intentional: most other provisions of the 1992 Cable Act went into effect on its effective date -- December 4, 1992. Had Congress envisioned allowing additional cross-ownership, it would have set the effective date of the cross-ownership provision at the effective date of the 1992 Cable Act, not the enactment date, in order to allow parties negotiating transactions an opportunity to close by December 4, 1992. We believe that the fact that Congress specified the enactment date of the statute as the effective date for this provision demonstrates its intent that only cross-ownership arrangements in existence and authorized as of October 5, 1992, were to be grandfathered. III. ANTI-TRAFFICKING 44. Background. Section 617 of the Communications Act establishes a three-year holding requirement for cable systems that, with certain exceptions, restricts the ability of a cable operator to sell or otherwise transfer ownership in a cable system within a thirty-six month period following either the acquisition or initial construction of the system. The statute expressly exempts from the restriction: "(1) any transfer of ownership interest in any cable system which is not subject to Federal income tax liability; (2) any sale required by operation of any law or any act of any Federal agency, any State or political subdivision thereof, or any franchising authority; and (3) any sale, assignment, or transfer, to one or more purchasers, assignees, or transferees controlled by, controlling, or under common control with, the seller, assignor, or transferor." Section 617 also authorizes the Commission to grant waivers in cases of default, foreclosure or other financial distress, and on a case-by-case basis where a waiver serves the public interest; provides that certain subsequent transfers of systems are not subject to the holding requirement; and imposes a 120-day time limit on local franchise authority action on a request for approval of a transfer of a cable system held for three or more years. 45. In the First Report & Order, we adopted rules that: (a) implement the statutory anti-trafficking provision; (b) delineate specific instances where waiver requests will be favorably reviewed; and (c) institute a blanket waiver for small systems. We concluded that Congressional intent underlying the anti-trafficking provision was to restrict profiteering transactions and other transfers that are likely to adversely affect cable rates or service in the local franchise area, but not to inhibit investment in the cable industry or delay or disrupt legitimate cable transactions. 46. Specifically, we determined that the three-year holding requirement applies to transactions involving changes in ownership that constitute a transfer of control. We interpreted the exemptions as applying to changes of control that are the result of tax exempt transactions, involuntary transfers and transfers involving municipally-owned cable systems, and pro forma transfers or assignments. We determined that the statutory 120-day time period for local franchise authority review of a request for approval of the transfer of a cable system owned for three or more years commences when the cable operator submits a transfer request to the local franchise authority that contains all the information required by Commission regulations and by the terms of the franchise agreement or applicable state or local law. We adopted a blanket waiver of the Commission's anti-trafficking rules for transfers of cable systems serving 1,000 or fewer subscribers. We also adopted a rule providing for favorable consideration of requests by multiple system operators ("MSOs") for waivers of the anti-trafficking rules for the purpose of facilitating the transfer or sale of multiple systems if two-thirds of the subscribers of the systems being sold or transferred are served by systems owned for three or more years. A. Local Franchise Authority Consideration of Transfer Requests 1. The 120-Day Period for Review of Transfer Requests for Cable Systems Held for Three Years 47. Pleadings. The National Association of Telecommunications Officers and Advisors, the National League of Cities, the United States Conference of Mayors and the National Association of Counties (collectively, "NATOA") believe that although the anti- trafficking rules are based on a recognition of the role local franchising authorities have with respect to approving transfer requests, certain of the rules may encroach upon the traditional right of franchising authorities to review transfer requests, in contravention of the plain language and intent of Section 617. NATOA argues that Section 617 of the Communications Act contains no limit on the information a franchising authority may require a cable operator to submit in connection with a request for approval of a sale or transfer, and challenges the propriety of the Commission's implementation of rules that limit the amount and type of information the local franchise authority may obtain from the cable operator to information specifically required by FCC Form 394, the terms of the franchise agreement or applicable state or local law. 48. NATOA also argues that the 120-day period should not begin to run until all information requested by the local franchise authority has been submitted and the local franchise authority so notifies the cable operator. The current rule, according to NATOA, inappropriately limits the duration of local franchising authorities' power to disapprove cable system transfers. 49. Time Warner and NCTA oppose NATOA's petition, asserting that extending the 120-day period for franchise authority approval of transfers of control would provide local franchising authorities with extraordinary authority to require virtually any type of information from cable operators, thereby effectively eviscerating the statutory time limit. NCTA contends that the time limitation ensures that transfers of cable properties are not subjected to protracted approval processes, and that a definitive starting point for the 120-day statutory period is necessary to prevent unwarranted and abusive delays. Time Warner also contends that a time limitation is necessary to help ensure that local franchise authorities do not use the transfer approval process to extract concessions or effect inappropriate policy objectives. Time Warner further contends that the Commission's current rule is consistent with Congressional intent. 50. Discussion. Section 617(e) of the Communications Act sets a 120-day time frame for local franchise authority action on requests for approval of transfers or assignments of control over cable systems held for more than three years, provided the local franchise agreement requires local franchise authority approval of a sale or transfer. Our implementing rules provide for commencement of the 120-day period when the cable operator has submitted a completed FCC Form 394 and any additional information required by the terms of the franchise agreement or applicable state or local law. We concluded in the First Report & Order that local franchise authorities are permitted to request additional information they deem reasonably necessary to determine the qualifications of the proposed assignee or transferee, but that requests for information not explicitly required by the franchise agreement or local law will not toll the statutory 120-day limitation unless the franchise authority and the cable operator agree to an extension of time. The rationale underlying this rule is to provide cable operators some degree of assurance and certainty that local franchise authorities will act promptly and not unduly delay consummation of proposed transactions. We affirm the rule we adopted in the First Report & Order and, accordingly, deny NATOA's request that the 120-day period not commence until the cable operator is affirmatively advised that the franchise authority has received all information it seeks. 51. Section 617(e) provides that when a local franchise agreement grants the local franchise authority the right to review sales or transfers of cable systems held for three or more years, the franchise authority shall have 120 days to act upon any such request that contains the information required by Commission regulation or by the franchise authority. We have interpreted this language as a limitation on the information a cable operator must provide to trigger the 120-day time period. While this language arguably could be interpreted to allow unlimited requests for information by the franchise authority, we do not believe that such an interpretation comports with the intent of Congress. 52. In enacting Section 617(e), Congress imposed a 120-day approval period on the sale or transfer of cable systems held for three or more years because Congress wanted to ensure that the local franchise approval process not unduly delay the consummation of transactions that do not implicate the concerns underlying the anti-trafficking provision. The language of the statute and the legislative history reflect Congress' expectation that the Commission establish regulations designed to ensure that franchising authorities that possess the right to review transfer requests receive the information required to begin an evaluation of a request for approval of a sale or transfer of such a cable system. Accordingly, we created FCC Form 394 with the expectation that the information required by the form would establish the legal, technical, and financial qualifications of the proposed transferee or assignee. The legislative history also clearly establishes that Congress intended to allow local franchise authorities to request information that is required by the franchise agreement, in addition to that required by Commission regulation. Consequently, we adopted rules requiring a cable operator seeking local franchise authority approval of a proposed transfer to submit any additional information provided by the terms of the franchise agreement. The rules we adopted provide that the franchise authority shall have 120 days from the submission of a completed FCC Form 394 and any additional information required by the terms of the franchise agreement or applicable state or local law, to act upon the waiver request. Thus, the cable operator is on notice that information requirements may exist in three locations and that the submission of all such information is necessary for the franchise authority to be bound by the 120-day time period. To the extent the local franchise authority seeks additional information, as we stated in the First Report & Order, cable operators are required to respond promptly by completely and accurately submitting all information reasonably requested by the franchise authority. 53. We believe Congress sought to provide a degree of regulatory certainty to cable operators when it established the 120-day time period for franchise authority action on transfer requests pertaining to cable systems held for three or more years. We also believe that submission of the information required by FCC Form 394, the franchise agreement and state or local law, is sufficient to commence the 120-day time period for local franchise authority action on the request. This conclusion provides a degree of certainty to the parties, comports with the legislative history and is consistent with our rulings with respect to franchise authority action on rate regulation matters. 2. FCC Form 394 54. Pleadings. Multivision requests that the Commission delete from FCC Form 394 the question that asks the transferee/assignee about "any plans to change current terms and conditions of service and operations of the system as a consequence of the transaction for which approval is sought." Multivision asserts that the inquiry is difficult to answer; subjects the transferee to penalties under Section 1001 of Title 18 of the United States Code, and allegations of violating the transfer consent if plans do change; provides the local franchise authority an opportunity to weigh in on the transferee's plans; and does not focus on the transferee's qualifications. 55. Discussion. Form 394 specifies the information requirements we deemed sufficient to establish the legal, technical and financial qualifications of the proposed transferee of a cable system held for three years. In developing the information requirements contained in Form 394, we looked to the information required by the Commission in connection with transfer requests for broadcast licenses and CARS (microwave cable antenna relay service) authorizations. We also looked at the legislative history of Section 617 in developing the information requirements. We note that the House Report stated that such information may include "information concerning the transferee's plans for expanding (or eliminating) services to subscribers" and "detailed financial information showing the effect of the transfer or sale on rates and services." We believe that the information sought in Form 394 regarding plans to change the terms and conditions of service and operation of the system is appropriate. The question is directed at the transferee's current plans. We do not expect cable operators to be prescient, nor is the question intended to elicit uncertain future possibilities. We do not foresee cable operators being held to unreasonable or unrealistic expectations to foretell future events, or being held accountable for failing to predict the future course of events, as Multivision suggests. Moreover, truthful answers are not subject to the penalties of 18 U.S.C.  1001. 56. We note as a matter of clarification that transferees and assignees responding to the inquiry in Form 394 regarding their legal qualifications, in particular Question 5 of Section II pertaining to adverse findings or actions by courts and administrative bodies, should be guided by the character qualification policy statements adopted by the Commission in 1986 and 1990. 57. We also take this opportunity to clarify that Form 394 is to be used to apply for franchise authority approval to assign or transfer control of a cable system owned for three or more years. Form 394 is not intended for use by a cable operator seeking local franchise authority approval of an assignment or transfer of a cable system held for less than three years. 3. Review Premised Upon State or Local Law 58. Pleadings. NATOA asserts that franchise authorities' right to review transfer requests may arise from state or local law or ordinance and that the Commission's rules should be clarified to expressly state that a local franchise authority has the right to review a transfer request if permitted under applicable state or local law. In support of its argument, NATOA asserts that the Commission recognizes the rights conferred by state or local law in other aspects of its rules, for example, by providing that a small system waiver of the three-year holding period does not become effective until the transfer is approved by the local franchise authority where such approval is required by the terms of the franchise agreement or applicable state or local law. 59. Discussion. We agree with NATOA that where local or state law requires franchise authority approval of cable system transfers or assignments, local franchise authorities may require cable operators to obtain their approval, regardless of whether the franchise agreement so requires. We recognize in other aspects of the anti-trafficking rules that local or state law may impose obligations upon the franchise authority, and extending express recognition to basic transfer decisions merely clarifies this matter. We are revising our rules accordingly. 4. Certifications of Compliance with the Anti-Trafficking Provision 60. Pleadings. Multivision requests clarification as to whether cable operators must file certifications of compliance with the anti-trafficking provision in connection with transactions that are exempt from the three-year holding period. It further requests that cable operators be authorized to submit certifications of compliance to the Commission rather than to local franchise authorities. Multivision asserts that cable operators should be permitted to submit anti-trafficking certifications to the Commission in every instance, but that, at a minimum, submission of the certification to the Commission should be permitted when the local franchise agreement does not require local consent to the transfer of the cable system. Multivision argues that providing the certification to the local franchise authority serves no useful public policy purpose, interjects a federal issue into local processes, and invites delays because it offers local franchise authorities an opportunity to scrutinize and delay transactions outside the scope of local jurisdiction, and to interject their own inconsistent rulings which will adversely impact buyers, sellers, investor and lenders who need predictability and certainty. 61. Discussion. We stated in the First Report & Order that every assignment or transfer of a cable system requires a certification of compliance with the anti-trafficking statutory provision. In particular, we required that a cable operator seeking to sell or transfer a cable system certify to the local franchise authority that: (a) the transfer complies with the anti-trafficking rule; (b) the transferror is seeking or has obtained a waiver of the anti-trafficking rule from the Commission; or (c) the transfer is otherwise exempt from the anti-trafficking rule. We also stated that, in the case of transactions that are exempt from the holding period, the certification submitted to the local franchise authority should "describe the nature of the transaction and identify the applicable exemption accompanied by a statement of the facts giving rise to the claimed exemption." We further provided that "[l]ocal decisions regarding . . . eligibility for one of the exemptions . . . are reviewable by the FCC . . . ." 62. We reject Multivision's suggestion that certifications of compliance should be filed with the Commission rather than the local franchise authority. We determined in the First Report & Order, consistent with the dual regulatory framework adopted in the 1992 Cable Act, to vest primary responsibility for enforcement of the statutory anti-trafficking provision with local authorities. We affirm that conclusion. Most cable systems must be authorized by local authorities in order to provide service. Thus, nearly every cable system is subject to local jurisdiction. The fact that a local franchise agreement may not expressly provide for local franchise authority approval of a proposed sale or transfer of a cable system does not diminish the fact that local jurisdiction exists, or as noted in the First Report & Order, that local authorities are best positioned to monitor compliance with the holding period in the first instance. Moreover, as noted in the First Report & Order, we believe this procedure simplifies enforcement and minimizes administrative burdens on both cable operators and the Commission. Multivision offers no new reasons for reversing our conclusion, and we reject the unsupported notion that local franchise authorities will interject uncertainty into the process. We thus reiterate that cable operators are obligated to submit anti-trafficking certifications to the local franchise authorities for all proposed transfers, assignments or sales of cable systems. 63. We also take this opportunity to clarify that if local franchise authority approval of an assignment or transfer of a cable system is not required and the system has been held for three or more years, the cable operator is not required to use FCC Form 394 solely for purposes of submission of the anti-trafficking certification. Rather, in that circumstance, the cable operator may submit its certification of compliance with the anti- trafficking provision as a separate document. B. The Three Year Holding Period 1. Calculation of the Holding Period for Exempt Transactions 64. Pleadings. No party seeking reconsideration raised an issue regarding the timing of the commencement of the holding period. However, we have received a number of informal questions regarding this matter. Therefore, we take this opportunity to clarify the application of the rules in this area. The issue is whether the three-year holding period commences anew when the transaction involves the transfer of a cable system that qualifies for one of the three exemptions. It has been informally suggested that such transactions do not invoke any of the concerns underlying Congress' adoption of the anti-trafficking provision, and that imposing a new three-year holding period on every exempt transaction would impede necessary and desirable transactions, frustrate Congress' purpose in granting the exemptions, and limit cable operators' "exit" strategies. 65. Discussion. As noted above, we concluded in the First Report & Order that the statutory exemptions from the three-year holding period apply to pro forma, tax exempt, and involuntary transfers, and to transfers involving municipally-owned cable systems. However, we did not address the calculation of the holding period for transactions that utilize one of the three statutory exemptions. In the NPRM, we alluded to the fact that a pro forma transfer would not cause a new three-year holding period to commence, but were silent as to tax exempt and involuntary transactions. For the reasons set forth below, and consistent with the public interest and our broad waiver authority under Section 617(d), we clarify that consummation of an exempt transaction does not restart the calculation of a new three-year holding period. 66. First, we believe that no sound basis exists to require a new three-year holding period to begin after every pro forma transfer. A pro forma transfer is, by its terms, not a substantial change of control. Such transactions do not raise the specter of speculation or exploitation of short-term ownership that concerned Congress when it adopted the anti- trafficking provision. Moreover, imposing a new holding period every time pro forma restructuring occurs would impose unnecessary burdens on the cable industry without providing any commensurate benefits. 67. Second, we note that Congress exempted involuntary transfers of control from the minimum holding requirement in part because it did not want to tie the hands of the courts or local franchise authorities, or unnecessarily create a defense against foreclosure. We concluded in the First Report & Order that involuntary transfers are generally necessitated by changed or unforeseen circumstances. Indeed, we noted that such transfers would likely include involuntary transfers to effect bankruptcy, divorce or probate proceedings. We believe that we would be imposing unnecessarily costly and burdensome obligations on those persons who acquire cable systems through involuntary transfer procedures if we were to require them to hold those systems for three years, or to obtain waivers of the statutory three-year holding period in order to sell those systems. Consequently, we conclude that the holding period should not recommence upon the consummation of an involuntary transfer. 68. Third, Congress provided an exemption for tax exempt transactions because it concluded that such transactions do not implicate the concerns underlying the three-year holding requirement. We believe applying the exemption to systems acquired pursuant to a tax exempt transaction is consistent with Congress' intent regarding treatment of such transactions. Moreover, we have seen no evidence to suggest that transactions that do not incur income tax liability will adversely affect cable subscriber rates and services. Consequently, we see no compelling basis to insist that such transactions be treated differently than pro forma and involuntary transfer transactions. 2. Multiple System Transfers 69. Pleadings. In a footnote, NATOA suggests that we should reconsider our decision to provide favorable treatment to MSO waiver requests, arguing that permitting the transfer of one-third of an MSO's systems that have not been held by the MSO for three or more years will have a greater impact on subscribers than even the small system blanket waiver simply because of the number of subscribers served by MSO's. 70. Discussion. We concluded in the First Report & Order that application of a separate three-year holding period to each system owned by a particular MSO may be inappropriate in some circumstances because common ownership may create economies of scale that benefit subscribers and common ownership of nearby cable systems may create operating efficiencies and allow expansion of service to previously unserved areas. We therefore determined that we would look favorably upon waiver applications if two-thirds or more of the MSO's subscribers are served by systems owned for three or more years, and if an MSO transfers several systems in a single transaction and two-thirds of the subscribers of the systems being transferred are served by systems the MSO owned for three years or more. NATOA does not offer any evidence that our MSO rules have had any adverse impact on subscribers nor does NATOA assert we erred in the rationale underlying the rules. Other than asserting that a large number of subscribers are served by MSOs, NATOA proffers no basis for reconsideration of our MSO transfer rules and we see no reason to revise these rules. 71. We take this opportunity, however, to clarify two aspects of our MSO transfer rules. First, Section 617(b) of the Communications Act provides that in the case of MSO transfers, "if the terms of the sale require the buyer to subsequently transfer ownership of one or more such systems to one or more third parties, such transfers shall be considered a part of the initial transaction." In the First Report & Order, we determined that subsequent transfers must be completed within a reasonable amount of time following completion of the original transaction in order to qualify for the treatment provided by the statutory provision. Our rules specify that in order to qualify as part of the initial transaction, a request for approval of the subsequent transfer must be filed with the local franchise authority within ninety days of the closing date of the original transfer and the closing date of the subsequent transfer must be no later than ninety days following the grant of the transfer approval by the local franchise authority. If local franchise approval is not required, our rules specify that the subsequent transfer must be completed within 180 days of the date of the closing of the original transaction in order to qualify as part of the original transaction. 72. Our rules do not address the situation where the subsequent transfer involves multiple systems with differing franchise approval requirements. For example, if franchise authority approval is required for some but not all of the transfers, our rules could require the subsequent transfer of the system not requiring franchise authority approval to close within 180 days, while the subsequent transfer to the same party of the system requiring franchise authority approval could conceivably consume 300 or more days (90 days to file the request, 120 days or more for franchise approval and 90 days to close). Although we recognize that the parties could hold separate closings, or could complete the entire transaction within 180 days, we are concerned that such a requirement would be inconsistent with our determination that the anti-trafficking provisions are not intended to impede MSO transactions. While we continue to believe that subsequent transfers should occur within a reasonable amount of time, we conclude that where a subsequent transfer involves both systems that require franchise approval and systems that do not, the original transferee must complete the subsequent transfers of all affected systems within 90 days of the date the last system involved receives franchise authority approval of the transfer. 73. Second, notwithstanding our determination to treat MSO transfers in a favorable fashion, some clarification is warranted regarding the basis for calculating subscribers served by systems held for three years. Generally, the commencement of the holding period is relatively straightforward, i.e., calculation of the holding period relates back to the date of activation of the system's first subscriber or the effective date of the closing of the transaction in which the system was acquired. The three-year holding period does not begin anew when the system extends lines into existing or new communities, or when the system integrates previously separate communities through line extension. In other words, a large system that interconnects multiple communities via wire from a single headend calculates its holding period from either the date of activation of the system's first subscriber or the effective date of the closing of the transaction in which the system was acquired. However, a large system with multiple headends calculates the holding period for each system served by each headend. Our rule providing for favorable treatment of MSO transfers can be invoked in the event a multiple-headend MSO system is sold. 74. If a cable operator acquires an adjoining system served by a separate headend, the holding period for the adjoining system commences upon the date of the closing of the acquisition. The holding period attendant to the original system does not extend to the newly acquired system; rather, the newly acquired system maintains a separate three-year holding period. If, however, the purchaser removes the headend serving the acquired system and interconnects the acquired system with the original system through line extension, the holding period for that particular system becomes the same as the holding period for the system into which it was integrated. In other words, when systems are interconnected and served from a single headend, they maintain a uniform holding period. 75. We believe this clarification renders our rules neutral as to system upgrades, and permits expansion and deployment of new technologies without potentially adverse regulatory consequences. We further note that calculation of the holding period is for the purpose of determining whether it is necessary to seek a waiver from the Commission. The ultimate decision to approve a proposed transfer rests with the local franchise authority, if such authority is provided in the local franchise agreement or by state or local law. C. Waivers 76. Pleadings. NATOA contends that the Commission's blanket waiver of the three-year holding requirement for small systems circumvents the "public interest" intent behind the statutory waiver provision and should be eliminated. NATOA argues that by focusing on the "financial and administrative burdens" the holding period places upon small system operators as justification for the blanket waiver, the Commission ignored that the holding requirement is intended to protect subscribers from transactions that will likely have an adverse impact on cable rates or service. NATOA asserts that the impact is significant: more than half of all cable systems serve less than 1,000 subscribers; small systems serve approximately 1.9 million subscribers nationwide; and the value of such systems is conservatively placed at $3.8 billion. Time Warner contends that the Commission properly weighed numerous public interest considerations before adopting the blanket small system waiver and notes that the waiver is anticipated to cover only 3.6% of all cable subscribers nationally. 77. Discussion. In assessing the impact of the anti-trafficking provision upon small business, pursuant to our obligations under the Communications Act, we determined in the First Report & Order that: (a) cable systems serving rural areas with low population density are unlikely to be the subject of transactions that implicate the anti-trafficking concerns; (b) the anti-trafficking rules would create significant costs and impose administrative burdens on small systems, and may deter expansion of cable service to rural areas; (c) the expense and delay attendant to individual waiver requests may be prohibitive to small systems; and (d) a blanket waiver would reduce the burden on the Commission and affect only a small number of cable subscribers. Consequently, we adopted a blanket anti- trafficking waiver for small systems. We continue to believe that this weighing and assessing of costs and benefits was precisely the type of consideration of the public interest required under our waiver authority under the Communications Act, and consequently we affirm our small system blanket waiver. We reiterate, however, that the small system blanket waiver does not affect the rights of local franchise authorities to approve transfers or sales of small systems, to the extent such approval is provided for in local franchise agreements or by local or state law. Thus, while the blanket waiver provision exempts small systems from obtaining anti-trafficking waivers from the Commission, the ultimate decision to approve or deny a transfer and assignment rests, in most cases, with the local franchise authority. 78. Small systems are defined as systems that serve 1,000 or fewer subscribers from a single headend. This definition currently applies throughout Part 76 of our rules. However, we note that we are in the process of reviewing this definition. To the extent any definitional changes are adopted, we will also consider appropriate changes to the small system waiver rule unless such changes would alter the fundamental basis of our analysis. In that event, we will address the continuing viability of the blanket anti-trafficking waiver in light of those changes. 79. Finally, we take this opportunity to note that our experience to date with requests for waiver of the anti-trafficking rule has demonstrated that systems owned less than three years are not being transferred or assigned purely for purposes of quick economic gain. Rather, those waiver requests have been premised upon proposed transfers involving bankruptcy, systems barely over the subscriber limit established for the small system blanket waiver, a system with no change in de facto control and systems qualifying for treatment under our MSO transfer rules. We believe that it is appropriate, after one year of strictly scrutinizing waiver requests, to revise our approach to waiver requests. In the future, we generally will look favorably on waiver requests unless the transaction raises serious concerns on its face or any objections we receive to grant of the waiver provide other public interest bases for concern. IV. REGULATORY FLEXIBILITY ANALYSIS 80. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.  601-602, the Commission's final analysis is as follows: 81. Need and purpose of this action: This action is taken to address petitions for reconsideration of the anti-trafficking and cross-ownership rules adopted by the Commissions to implement Sections 11 and 13 of the 1992 Cable Act. 82. Summary of the issues raised by the pubic comments in response to the Initial Regulatory Flexibility Analysis: There were no comments submitted in response to the Initial Regulatory Flexibility Analysis. 83. Significant alternatives considered: We have analyzed the comments submitted in light of our statutory directives and have formulated regulations which, to the extent possible, minimize the regulatory burden placed on entities covered by the ownership and anti-trafficking provisions of the 1992 Cable Act. The Commission modifies its restriction on cable operators' acquisitions of SMATV systems within the portion of the franchised service area served by the cable operator. We affirm the limitation on the tolling of the statutory time frame for local franchise authorities' action on requests to approve the transfer of cable systems held for three or more years. These actions are aimed at reducing unnecessary regulatory restrictions and promoting competition within the multichannel video distribution marketplace. 84. Federal rules that overlap, duplicate or conflict with these rules: None. V. EFFECTIVE DATE 85. Effective Date: The changes to the rules adopted in this Memorandum Opinion and Order on Reconsideration of the First Report and Order will become effective thirty (30) days from the date of publication in the Federal Register. VI. ORDERING CLAUSES 86. Accordingly, IT IS ORDERED, that pursuant to the authority contained in Sections 2(a), 4(i), 4(j) and 303 of the Communications Act of 1934, as amended, and in the Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, the rules contained in Part 76 of the Commissions Rules, 47 C.F.R. Part 76, ARE AMENDED as set forth in Appendix B below, and will become effective 30 days after publication in the Federal Register. 87. IT IS FURTHER ORDERED that, pursuant to the authority contained in Sections 2, 4, 303, 405 and 601 of the Communications Act of 1934, as amended, the Memorandum Opinion and Order on Reconsideration of the First Report and Order, affirming in part and modifying in part, the First Report & Order in this proceeding, IS ADOPTED, as provided herein. 88. IT IS FURTHER ORDERED THAT the petitions for reconsideration or clarification, set forth in Appendix A, are granted and denied to the extent indicated above. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A MM Docket No. 92-264 Parties Requesting Reconsideration or Clarification Wireless Cable Association International, Inc. ("WCA") Multivision Cable TV Corp. and Providence Journal Company ("Multivision") Time Warner Entertainment Company, L.P. ("Time Warner") National Association of Telecommunications Officers and Advisors, the National League of Cities, the United States Conference of Mayors, and the National Association of Counties (collectively referred to as "NATOA") Oklahoma Western Telephone Company ("Oklahoma Western") National Private Cable Association, MSE Cable Systems, Cable Plus and Metropolitan Satellite (collectively referred to as "NPCA") Parties Filing Oppositions National Cable Television Association ("NCTA") Time Warner Parties Filing Replies NATOA Cablevision Systems Corporation ("Cablevision") NCTA Ex Parte Contacts Cole Raywid & Braverman Gardner, Carton & Douglas Wiley, Rein & Fielding APPENDIX B Part 76 of Title 47 of the United States Code of Federal Regulations is amended to read as follows: 1. The authority for Part 76 continues to read as follows: AUTHORITY: 47 U.S.C.   152, 153, 154, 301, 303, 307, 308, 309, 532, 535, 542, 543, 552, 554. 2. Section 76.501 is amended by revising subsections (d) and (e), redesignating subsection (e)(2)(i)-(ii) as Note 5 and subsection (e)(2)(iii) as subsection (f), and moving the Notes to the end of the rule, as follows: * * * * * (d) No cable operator shall offer satellite master antenna television service ("SMATV"), as that service is defined in Section 76.5(a)(2), separate and apart from any franchised cable service in any portion of the franchise area served by that cable operator's cable system, either directly or indirectly through an affiliate owned, operated, controlled, or under common control with the cable operator. (e) (1) A cable operator may directly or indirectly, through an affiliate owned, operated, controlled by, or under common control with the cable operator, offer SMATV service within its franchise area if the cable operator's SMATV system was owned, operated, controlled by or under common control with the cable operator as of October 5, 1992. (2) A cable operator may directly or indirectly, through an affiliate owned, operated, controlled by, or under common control with the cable operator, offer service within its franchise area through SMATV facilities, provided such service is offered in accordance with the terms and conditions of a cable franchise agreement. (f) The Commission will entertain requests to waive the restrictions in paragraphs (d) and (e) of this section when necessary to ensure that all significant portions of the franchise area are able to obtain multichannel video service. Such waiver requests should filed in accordance with the special relief procedures set forth in Section 76.7. Note 1: * * * * * Note 5: In applying the provisions of paragraphs (d) and (e), control and an attributable ownership interest shall be defined by reference to the definitions contained in Notes 1 - 4, provided however, that: (a) The single majority shareholder provisions of Note 2(b) and the limited partner insulation provisions of Note 2(g) shall not apply; and (b) The provisions of Note 2(a) regarding five (5) percent interests shall include all voting or nonvoting stock or limited partnership equity interests of five (5) percent or more. 3. Section 76.502 is amended by deleting section (b), renumbering the remaining sections accordingly, adding sections (d)(3) and (f), revising section (g), and making grammatical language clarifications in sections (c), (c)(2), (h) and (i), as follows: Sec. 76.502 Three-year holding requirement. [Revised] (a) Except as otherwise provided in this section, no cable operator may sell, assign, or otherwise transfer controlling ownership of a cable system within a three-year period following either the acquisition or initial construction of such cable system by such cable operator. (b) For initially constructed cable systems, the three-year holding period shall be measured from the date on which service is activated to the system's first subscriber through the proposed effective date of the closing of the transaction assigning or transferring control of the cable system. The holding period for acquired systems shall be measured from the effective date of the closing of the transaction in which control of the cable system was acquired through the proposed effective date of the closing of the transaction assigning or transferring control of such cable system. (c) A cable operator who seeks to assign or transfer control of a cable system is required to certify to the local franchise authority that the proposed assignment or transfer of control of such cable system will not violate the three-year holding requirement. Such certification shall be submitted to the franchise authority at the time the cable operator submits a request for transfer approval to the local franchise authority. If local transfer approval is not required by the terms of the franchise agreement, certification of compliance with the three-year holding requirement must be submitted to the franchise authority no later than 30 days in advance of the proposed closing date of the transfer or assignment. (1) Receipt by the local franchise authority of a certification containing a description of the transaction and indicating that the cable system has been owned for three or more years, or that the transferor has obtained or is seeking a waiver from the Commission, or that the transaction is otherwise exempt under this section, shall create a presumption that the proposed assignment or transfer of the cable system will comply with the three-year holding requirement. (2) A franchise authority that questions the accuracy of a certification filed pursuant to this section must notify the cable operator within 30 days of the filing of such certification, or such certification shall be deemed accepted, unless the cable operator has failed to provide any additional information reasonable requested by the franchise authority within 10 days of such request. (d) If an assignment or transfer of control involves multiple systems and the terms of the transaction require the buyer to subsequently transfer or assign one or more such systems to one or more third parties, such subsequent transfers shall be considered part of the original transaction for purposes of measuring the three-year holding period. (1) In order to qualify as part of the original transaction, a request for approval of the subsequent transfer must be filed with the local franchise authority within 90 days of the closing date of the original transfer and the closing date of the subsequent transfer must be no later than 90 days following the grant of transfer approval by the local franchise authority. (2) If local transfer approval is not required by the terms of the cable franchise agreement, then a subsequent transfer must be completed within 180 days of the date of the closing of the original transaction in order to qualify as part of the original transaction. (3) If a subsequent transfer involves transfers of multiple systems to the same party, at least one of which requires local transfer approval and at least one of which does not require local transfer approval, the subsequent transfer must then be closed within 90 days of the date the last system involved in the subsequent transfer receives franchise authority approval of the transfer. (e) Paragraph (a) of this section shall not apply to: (1) any assignment or transfer of control of a cable system that is not subject to Federal income tax liability under the Federal Income Tax Code; (2) any assignment or transfer of control of a cable system required by operation of law or by any act, order or decree of any Federal agency, any State or political subdivision thereof or any franchising authority; (3) any assignment or transfer of control to one or more purchasers, assignees or transferees controlled by, controlling, or under common control with, the seller, assignor or transferor. (f) Paragraph (a) of this section shall not apply to any assignment or transfer of a cable system subject to paragraph (e) of this section. (g) The Commission will consider requests for waivers from the three-year holding requirement and, consistent with the public interest, will grant waivers in appropriate cases of default, foreclosure and financial distress. Waiver requests under this section should be filed in accordance with the special relief procedures set forth in Section 76.7. Waivers granted by the Commission will not become effective, however, unless local franchise authority approval of a transfer is obtained when such approval is required by the terms of the franchise agreement or state or local law. (1) The Commission will look favorably upon waiver requests involving multiple system operators or transfers of multiple systems if at least two-thirds of the subscribers of the system being transferred are served by systems owned by the cable operator for three-years or more. (2) Conditioned upon receipt of local franchise authority transfer approval, where such approval is required by the terms of the franchise agreement or applicable state or local law, transfers of cable systems serving 1,000 or fewer subscribers shall be subject to a blanket Commission waiver. (h) A cable operator may seek Commission review of a franchise authority's decision regarding the application of the three-year holding period to a particular transaction pursuant to the special relief procedures set forth in Section 76.7. (i) A cable system operator seeking to assign or transfer a cable system it has held for three or more years must submit a completed copy of FCC Form 394 to the local franchise authority if franchise authority approval of the transfer is required by the terms of the franchise agreement. (1) A franchise authority shall have 120 days from the date of submission of a completed FCC Form 394, together with all exhibits, and any additional information required by the terms of the franchise agreement or applicable state or local law to act upon such transfer request. (2) If the franchise authority fails to act upon such transfer request within 120 days, such request shall be deemed granted unless the franchise authority and the requesting party otherwise agree to an extension of time. --