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A. a.(1)(a) i) a)DocumentgPleadingHeader for Numbered Pleading PaperE!n    X X` hp x (#%'0*,.8135@8:@0",tB^ f ^;C]ddCCCdCCCCddddddddddCCdxN`xoCCCddCdoYoYFdo8Co8odooYNCodddYdddd4dddddCddddddddo8dddddYYYYYN8N8N8N8oddddooooddpddddxodddXXddXddXdddddooL8doddNorddo8PdN8ppoddXXdpLoNpLodPDdopoopodXYXodoodddCddCCCWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNdddCdUUddddddFddddFCCssd44ddzzddd~ooCsdF"dsd9dCCzCddoddCdYds`zUvdddCCCCzozoYNYYYN8YooYdYzzdzddYYzozzzNdzYzzzzCCdddddddzCzdYC\   pxtll\tll@\@\`L2|: Y-  #sPXP#  X-` `  hhCqpp  ) FCC 95147  Y-(f Before the ă  Y-W  FEDERAL COMMUNICATIONS COMMISSION ă  Yx-3 Washington, D.C. 20554 ă  YK-In the Matter of hhCq) ` `  hhCq)  Y -Implementation of Section 11(c)hhCq)  Y -of the Cable Television Consumer hhCq)MM Docket No. 92264  Y -Protection and Competition Act of 1992q) ` `  hhCq)  Y -Vertical Ownership LimitshhCq)  Y|-}  MEMORANDUM OPINION AND ORDER ă  Yf-' ON RECONSIDERATION OF   THE SECOND REPORT AND ORDER  Y9-  Y -Adopted: April 5, 1995hhCqppReleased: April 6, 1995 By the Commission:     Y-M Table of Contents  Xk-` `  hhCqpp  )xxX Paragraph  Y=-ԛI.INTRODUCTIONp>"(# 1  Y-X\II.BACKGROUND p>"(# 4  Y-X\III.PETITIONS FOR RECONSIDERATION p>"(# 9  Y!-XX` ` A.` ` CME Petition ` p!(# 10  Y#-` ` 1. `  Percentage Limitation(#p!(# 11  YW%-XX` ` 2.  Calculation of Channel Capacity p"(# 20  Y)'-XX` ` 3.  Local and Regional Networks p"(# 28")'0*((P("Ԍ")'0*((P("Ԍ Y)'-XX` ` 4.  75Channel Cap p"(# 31")'0*((P("Ԍ Y-ԙXX` ` 5.  Grandfathering of Existing Vertical Relationships p"(# 36  Y-XX` ` B.` ` Bell Atlantic Petition ` p"(# 41  Y-X\IV.CONCLUSION p"(# 50  Yv-V.REGULATORY FLEXIBILITY ANALYSISp"(# 51  YH-X\VI.ORDERING CLAUSES p"(# 55 Appendix A: List of Commenters Appendix B: Survey Summary  X - "0*(("  X-I.INTRODUCTION   Y- I. A. 1. a.(1)(a) i) a) 1. A. 1. a.(1)(a) i) a)1.` ` This Memorandum Opinion and Order disposes of petitions for reconsideration filed by the Center for Media Education/Consumer Federation of America ("CME") and Bell  Y-Atlantic Corporation ("Bell Atlantic"). Y-ԍA list of the parties responding to the petitions on the issue of channel occupancy limits is attached as Appendix A. The petitions seek reconsideration of certain aspects  Y-of the Second Report and Order in MM Docket 92264 ("Second Report and Order"),Gb Y -ԍ8 FCC Rcd 8565 (1993).G in  Yz-which the Commission, among other things, established rules limiting the number of cable channels that a cable operator can devote to video programming services in which the cable  YL-operator has an attributable interest ("channel occupancy limits").L Y-ԍAlso currently under reconsideration in MM Docket No. 92264 are the Commission's horizontal ownership limits, 47 C.F.R.  76.503, and the attribution standard we adopted for both the horizontal ownership rules and the channel occupancy limits. This  Y-Memorandum Opinion and Order only deals with the cable channel occupancy rules, 47 C.F.R.  76.504.  Y -2.` ` Generally, CME asks the Commission to reconsider the Second Report and  Y -Order by: (1) reducing the channel occupancy limit from 40% to 20% of activated channels;  Y -(2) reversing our decision to include overtheair broadcast,U j  Y-ԍCME seems to use the terms "broadcast channels" and "mustcarry channels" interchangeably. In the interest of consistency, we will use the term "broadcast channel" to refer to any overtheair broadcast station being carried by a cable system, whether they are "mustcarry" stations or not. U public, educational and government ("PEG"), and leased access channels when calculating total channel capacity; (3) reversing our decision to exempt local and regional networks from channel occupancy limits; (4) reversing our decision not to apply channel occupancy limits beyond a system's first 75 channels; and (5) reversing our decision to grandfather all vertically integrated programming services being carried as of December 4, 1992, the effective date of the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). Bell Atlantic asks us to reconsider our decision to apply the channel occupancy limits to cable systems that face actual headtohead competition.  Y-3.` ` For the reasons set forth below, we deny CME's and Bell Atlantic's petitions  Y-and reaffirm our decision in the Second Report and Order.  X- "0*(("Ԍ X-ԙII.BACKGROUND   Y-4.` ` Section 11(c)(2)(B) of the 1992 Cable Act YK-ԍCable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102385, 106 Stat. 1460 (1992). requires the Commission "to prescribe rules and regulations establishing reasonable limits on the number of channels on a cable system that can be occupied by a video programmer in which a cable operator has an  Y-attributable interest."1b Y -ԍ #sP=XP#Section 11(c)(2)(B) of the 1992 Cable Act, 47 U.S.C. 533(f)(1)(B). Congress complemented Section 11's structural constraints on vertical integration with prohibitions on specific types of unfair or discriminatory behavior. For example, Section 12 of the 1992 Cable Act prohibits, among other things, cable operators from discriminating against unaffiliated programmers in the selection, terms, or conditions of carriage ("program carriage" rules); Section 19 prohibits unfair methods of competition, and proscribes several specific practices by verticallyintegrated cable operators and programming services, in order to make such programming services available to cable's competitors ("program access" rules). This provision grew out of Congress' concern that vertical integration in the cable industry had given cable operators the incentive and ability to favor their  Y_-affiliated programmers over unaffiliated programmers.>_[  Yk-ԍ #sP=XP# See, e.g., Section 2(a)(5), 1992 Cable Act. Section 11's legislative history is  YV-discussed at length in the Second Report and Order. We restate part of that history here for the convenience of the reader.> As a result, Congress found that unaffiliated programmers may have difficulty in obtaining carriage on vertically integrated cable systems. In addition to impeding competition, the record before Congress indicated that vertical integration could limit the diversity of cable programming and reduce the  Y -number of voices available to the public.f5  Y-ԍSee Report of the House Committee on Energy and Commerce, H.R. Rep. No. 102628 ("House Report"), 102d Cong., 2d Sess. 41, 43 (1992). The House Report also stated that some vertically integrated cable operators discriminated against unaffiliated programming  YS-services regarding price, channel positioning, and promotion. Id.#sP=XP# at 41. Likewise, the Senate Report examined cable operators' exercise of "market power derived from their de facto exclusive franchises and lack of local competition" and stated that "[t]hese concerns are exacerbated by the increased vertical integration of the cable industry." Report of the Senate Committee on Commerce, Science, and Transportation, S. Rep. No. 10292 ("Senate Report"), 102d Cong., 1st Sess. 24 (1991).f  Y -5. ` ` However, there was also evidence before Congress that vertical integration is not necessarily anticompetitive. The House Report cited a 1988 study by the National Telecommunications and Information Administration which concluded that common ownership of cable systems and cable programmers did not appear to have adversely affected"0*((<" the amount or diversity of programming choices, and that the largest cable operators did not  Y-show a pattern of favoring the programmers with which they were affiliated.E  Yb-ԍHouse Report at 41. E  Y-6.` ` At the same time, the record before Congress demonstrated that vertical integration could produce certain legitimate benefits. For instance, the Senate Report cited testimony that "vertical integration has been the means by which we have stimulated the development of programming that was necessary to flesh out the promise of cable . . . when  Y_-nobody else was really willing to step up and put up the money." _y Y -ԍ#sP=XP# Senate Report at 27, citing testimony of James Mooney (NCTA), "Oversight of Cable TV," pp. 17879. Similarly, the House Report cited testimony that the financial support of vertically integrated cable operators made  Y1-the creation of innovative and risky programming possible.F 1 Y-ԍHouse Report at 41. F In particular, these witnesses pointed to CSpan, Cable News Network ("CNN"), Black Entertainment Television ("BET"), Nickelodeon, and the Discovery channel as examples of innovative programming services  Y -that would not have been feasible without the financial support of cable operators.<  Ya-ԍId. <  Y -7.` ` In light of these competing interests, Congress expressly directed the Commission to consider and balance the following factors in establishing "reasonable" ownership limits under Section 11: (1) ensure that no cable operator or group of cable operators can unfairly impede the flow of video programming from the programmer to the consumer; (2) ensure that cable operators do not favor affiliated video programmers in determining carriage and do not unreasonably restrict the flow of video programming of affiliated video programmers to other video distributors; (3) take account of the market structure, ownership patterns, and other relationships of the cable industry, including the market power of the local franchise, joint ownership of cable systems and video programmers, and the various types of nonequity controlling interests; (4) take into account any efficiencies and other benefits that might be gained through increased ownership or control; (5) make rules and regulations that reflect the dynamic nature of the communications marketplace; (6) impose no limitations that would prevent cable operators from serving previously unserved rural areas; and (7) impose no limitations that would impair the  Y|-development of diverse and high quality programming.J |w Y#-ԍ47 U.S.C.  533(f)(2).J  YN-8.` ` Pursuant to the statutory requirements of Section 11, the Second Report and"N( 0*((k"  Y-Order Yy-ԍPrior to the Second Report and Order, we issued a Notice of Proposed Rulemaking  Yd-and Notice of Inquiry, 8 FCC Rcd 210 (1992)("Notice"), seeking comment on various issues  YO-relating to channel occupancy limits. Subsequently, we issued a Report and Order and  Y:-Further Notice of Proposed Rulemaking, 8 FCC Rcd 6828 (1993)("Further Notice"), seeking additional comment on specific proposals regarding the adoption and implementation of the  Y-issues identified in the Notice, including those issues raised by Petitioners here.  established channel occupancy rules, including the following rules relevant here: X(#  Y-` ` (a) Percentage Limitation Cable operators may devote no more than 40% of their activated channels to the carriage of programming services in which they have an  Y-attributable interest. Yi -ԍ A cable operator may devote two additional channels, or up to 45% of its channel capacity, whichever is greater, to the carriage of video programming owned by or attributable to the operator provided such video programming is minoritycontrolled. The petitions do not directly ask us to reconsider this aspect of the channel occupancy rules. After consideration of the comments and the competing interests identified by Congress, the Commission found that the 40% limit "is appropriate to balance the goals of increasing diversity and reducing the incentive and ability of vertically integrated cable operators to favor their affiliated programming, with the benefits and efficiencies  YL-associated with vertical integration."L|  Yy-ԍ #sP=XP#Second Report and Order at  6871.#xH6X@>fX@#Ѩ The Commission adopted the broadcast attribution rules for purposes of determining when a vertical ownership interest would be  Y -"attributable."z /  Y-ԍId. at  6163; See also 47 C.F.R.  73.3555.z  Y -` ` (b) Calculation of Channel Capacity All activated channels will be included  Y -in calculating channel capacity, including broadcast, PEG and leased access channels.  Yn-ԍ #sP=XP#Id. at  54.#xH6X@>fX@#э Among other reasons, we noted that these channels promoted diversity and provided alternative sources of unaffiliated programming to subscribers in furtherance of the 1992  Y-Cable Act's objectives.: Y -ԍId.:  Yh-` ` (c) Local and Regional Networks Channel occupancy limits will apply only to "national" programming services (i.e., local and regional programming services are  Y<-exempt).<H Y5&-ԍ #sP=XP#Id. at  78.#xH6X@>fX@#э We considered such an exemption to be an important means of encouraging continued investment by multiplesystem operators ("MSOs") in the development of local"%0*((" cable programming, which is responsive to the needs and tastes of local audiences and serves  Y-Congress' objectives of promoting localism.: Yb-ԍId.:  Y-` ` (d) 75Channel Cap Channel occupancy limits will apply to a maximum of  Y-75 channels per system.{ Y-ԍ I#sP=XP#d. at  8384.#xH6X@>fX@#є We found that since exceeding this level was possible only with the deployment of emerging technologies such as fiber optic cable or digital signal compression, the greatly expanded channel capacities provided by these technologies would help obviate the need for channel occupancy limits as a means of encouraging cable operators  YJ-to carry unaffiliated programming.:J. Y) -ԍId.:  Y -` ` (e) Grandfathering of Existing Vertical Relationships All vertically integrated programming services carried as of the effective date of the 1992 Cable Act  Y -(December 4, 1992) could continue to be carried.  Y-ԍ #sP=XP#Id. at  9394.#xH6X@>fX@#є We found that the public interest would be disserved by requiring cable operators to delete vertically integrated programming in order to comply with the new channel occupancy caps. We believed that permitting the continuation of existing relationships would prevent subscriber confusion, and would  Y-minimize the disruption to existing programming services and existing carriage agreements.: Y-ԍId.: However, once additional capacity becomes available on such a system, the cable operator may not add any additional affiliated programming until its system fully complies with the  YO-channel occupancy limits.:OG  YG-ԍId.:  Y!-` ` (f) Effective Competition Channel occupancy limits will not be eliminated in  Y -communities where actual headtohead competition exists.   Y -ԍ #sP=XP#Id. at  88.#xH6X@>fX@#э We found that the competition standard in the 1992 Cable Act was not adopted for the same purpose as the vertical ownership limits, and thus it may not address all of Section 11's relevant concerns.  X- III.PETITIONS FOR RECONSIDERATION   Y-9.` ` We have again reviewed the record in light of Petitioners' arguments on  Yk-reconsideration and find no reason to depart from our prior rulings in the Second Report and"k 0*(("  Y-Order. We briefly address Petitioners' contentions below.  X- A.` ` CME Petition   Y- 10.` ` CME filed a joint Petition for Reconsideration asking the Commission to  Y-reconsider several issues decided in the Second Report and Order. Specifically, CME asks the Commission to: (1) reduce the channel occupancy limit from 40% to 20%; (2) require that broadcast, PEG, and leased access channels be subtracted from the number of activated channels before calculating total channel capacity; (3) eliminate our exemption for local and regional networks; (4) apply channel occupancy limits beyond a system's first 75 channels; and (5) reverse our decision to grandfather all vertically integrated programming services carried as of December 4, 1992.  Y - 11.` ` Percentage Limitation. In asking that the Commission lower its channel occupancy limit from 40% to 20%, CME argues that the Commission overstated the benefits of vertical integration. For instance, CME asserts that "there has been no successful launch of an unaffiliated video programmer since the cable industry began the trend toward vertical  Y-integration,"= Y-ԍ CME Petition at 19.= and that MSO investment is not vital because programming services like  Yj-CNN, BET and Nickelodeon were successful prior to any operator affiliation.:jy Y-ԍId.: CME also states that the Commission ignored a potential scenario submitted during the rulemaking proceeding by the Motion Picture Association of America ("MPAA"), showing that a 40% channel occupancy limit applied to a 36channel system could result in no channels being  Y-available for unaffiliated programmers.:, Y-ԍ Id. at 15.: Finally, CME contends that its proposal would not harm investment in programming services. By lowering the channel occupancy limit to 20%, CME states that many MSOs could still invest in new programming, while retention of the 40% limit "will likely chill the development of independent programming by providing a disincentive to independent investors who may want to invest in video programming but feel there would be no way to get carriage on a cable system that also owns a substantial  Y-percentage of programming."? Y!-ԍ Id. at 1920. ?  YV- 12.` ` Comments. Several parties dispute CME's contentions regarding the consequences of vertical integration. Liberty Media Corporation ("Liberty Media") states that services like CNN and BET "credit their very existence to timely investments by cable  Y-operators when no one else was willing to make a similar investment,"I  YV'-ԍ Liberty Media Opposition at 17.I and that CME's"C 0*((," proposed channel occupancy limits would "stifle investment in new programming services  Y-and disrupt existing program schedules.":! Yb-ԍ Id. at 18.: Turner Broadcasting System, Inc. ("TBS") cites ESPN2, FLIX, and the SciFi Channel as examples of unaffiliated programming which  Y-became successful even after the industry trend towards vertical integration.>"{ Y-ԍ TBS Opposition at 2.> On the other hand, the National Cable Television Association ("NCTA") contends that CME gives no support for its conclusion that the 40% limit will not prevent discrimination against  Yv-unaffiliated programmers.@#v, YS -ԍ NCTA Opposition at 16.@ TeleCommunications, Inc. ("TCI") takes issue with CME's assertion that the 40% limit could result in no channels being made available to unaffiliated video programmers, and states that "[m]any services unaffiliated with TCI, such as the Nashville Network, Lifetime, the USA Network, and ESPN, have nearly universal carriage on TCI systems. By contrast, a number of services in which TCI has an attributable interest, such as the Learning Channel, Courtroom Television Network, and E! Entertainment, are  Y -carried on less than onethird of TCI's systems."D$  Yz-ԍ TCI Opposition at note 23.D  Y - 13.` ` In reply, CME states that while it agrees that Congress required a balance to  Y -be struck in Section 11,N%  Y-ԍ CME Reply to Oppositions at 2.N Congress rejected the notion that ownership limits were not needed  Y-because the benefits of vertical integration outweighed the dangers.3&?  Y-ԍ Id.3 By giving too much  Yy-weight to the alleged benefits of vertical integration, CME argues that the Commission did  Yb-not adhere to the regulatory scheme contemplated by the 1992 Cable Act.3'b  Y-ԍ Id.3  Y4- 14.` ` Discussion. After consideration of the various submissions, we decline to modify the 40% channel occupancy limit. As CME acknowledges, in requiring the Commission to establish "reasonable" channel occupancy limits, Congress directed us to balance the risks of vertical integration against benefits such as the development of diverse and high quality video programming. We continue to believe that the 40% limit strikes the appropriate balance between these competing objectives. We note, in this regard, that CME filed the only petition seeking reconsideration of the 40% limit. No cable operator or cable programmer filed for reconsideration claiming that the channel occupancy limit was set too low to encourage continued investment. Conversely, none of the parties that previously"~ '0*(("  Y-proposed a lower occupancy limit,(x Yy- 1. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#sP=XP#čSee, e.g., Comments of the Association of Independent Television Stations, Inc., filed February 9, 1993 (proposing to impose an immediate channel occupancy limit of 20%, and to prohibit cable operators prospectively from acquiring equity interests in additional programming services); Comments of the Motion Picture Association of America, filed February 9, 1993 (advocating a 20% occupancy limit for affiliated programming in which a cable operator has a 15% ownership interest). and no unaffiliated programmers (with the partial  Y-exception of Viacom International, Inc. ("Viacom")),U)  Y -ԍ#sP=XP#Viacom supports CME's request for a 20% channel occupancy limit only if we do not adopt Viacom's proposed 15% horizontal ownership limit; even then Viacom would only apply the 20% occupancy limit to those cable operators exceeding a 15% horizontal  Y] -ownership level. See Viacom Comments at 1518. In today's market, that means that Viacom would apply a 20% channel occupancy limit only to TCI, and possibly to Time  Y1-Warner Entertainment Company, L.P. ("Time Warner"). See First Report on the Status of  Y-Competition in the Market for the Delivery of Video Programming, CS Docket No. 9448  Y-(released September 28, 1994) ("First Competition Report"), Appendix G1, G2. To the extent Viacom's suggestion requires a response, we decline to adopt a stricter channel occupancy limit for a small number of the largest cable operators on the same grounds that we decline to adopt a stricter occupancy limit for all cable operators.U has joined CME in claiming that the limit was set too high to deter discriminatory conduct.  Y- 15.` ` We are not persuaded by CME's arguments to reduce the channel occupancy  Y-limit from 40% to 20%. First, CME claims that the Second Report and Order "erroneously ignored evidence provided by the Motion Picture Association of America ("MPAA") that a 40% limit could result in instances where no channels are available to unaffiliated  YJ-programmers."k*J Y-ԍ#sP=XP#CME Petition at 15.k However, CME then quotes at length from our response (which we hereby reaffirm) to MPAA's hypothetical scenario. Generally, we pointed out that MPAA's calculation failed to take into account that broadcast, PEG and leased access channels already provided substantial unaffiliated programming, and assumed that large cable operators would  Y -drop popular, unaffiliated programming in favor of less popular affiliated services.]+  Y+ -ԍSee Second Report and Order, at n. 88.] Indeed, despite vertical integration, 8 of the top 25 programming services have no cable ownership affiliation, while the identity of these popular services has remained relatively stable since  Y -1990., ? Y$-ԍFirst Competition Report,  16263; Appendix at G14. Since 1990, only three new programming services have entered the top 25; of those services, one is vertically integrated and two are not. Also since 1990, cable operators have acquired ownership interests in two  YV'-of the top 25 services and divested interests in one. Id. " ,0*((L"Ԍ Y-ԙ16. ` ` Moreover, CME may have overstated the practical effect of mustcarry, PEG and leased access requirements. In the absence of record evidence on this point, the Commission examined an unscientific sampling of 25 TCI and Time Warner Entertainment Company, L.P. ("Time Warner") cable systems (those being the most vertically integrated cable operators) in order to determine whether, in fact, broadcast, PEG and leased access  Y-channels occupied all, or nearly all, of the systems' unaffiliated programming channels.- Y-ԍThe Commission sampled 9 TCI systems and 5 Time Warner systems of 3541 activated channels ("smaller systems"), and 6 TCI systems and 5 Time Warner systems of 4857 activated channels ("larger systems"). The survey was based on information supplied by the cable operators themselves in the Television and Cable Factbook, Vol. 62 (1994 ed.).  Y -See Appendix B. Generally, the Commission found that, even after excluding broadcast, PEG and leased access channels (and even assuming the presence of two local or regional networks), all of  YH-the systems had capacity remaining for additional unaffiliated programming.x.H Y-ԍId. TCI smaller systems had between 5 and 11 channels available for additional unaffiliated programming; TCI larger systems had between 6 and 20 such channels available; Time Warner smaller systems had between 6 and 9 such channels available; and Time Warner larger systems had between 10 and 17 such channels available.x The disparity between our findings and CME's hypothetical scenario is largely due to the fact that a cable operator's theoretical mustcarry requirement typically well exceeds the channels that are actually required to be devoted to that obligation. While the Commission's survey was admittedly unscientific, we do believe it lends some credence to our view that CME's worstcase scenario may have limited real world significance.  Y -17.` ` Next, CME claims that we overstated the benefits of vertical integration. As proof, CME states that CNN, BET, and Nickelodeon were successful prior to their relationship with cable operators, and that "there has been no successful launch of an unaffiliated video programmer since the cable industry began the trend toward vertical integration." Whether or not CNN, BET and Nickelodeon achieved some initial independent success, there is evidence in the record that these and other programmers would have had  Y-difficulty sustaining their success had it not been for cable operator investment.(/|  Y[-ԍSee, e.g., Comments of Turner Broadcasting System, Inc., filed 2/9/93, at 12 (at a time when TBS's "independence was very much at stake," cable operators were willing to  Y/!-provide longterm equity under terms others were not); Opposition of Black Entertainment  Y"-Television, Inc. to Comments of Viacom International, Inc., filed 2/22/94, at 2 ("[C]able investment has been crucial to establishing BET as a viable and valuable programming service.").( Likewise, CME's assertion that there has been no successful launch of an unaffiliated programmer since vertical integration has taken hold was disputed by TBS, citing the recent successes of" /0*(("  Y-ESPN2, FLIX and the SciFi Channel. 0 Yy-ԍIn fact, ESPN2, a service with no cable ownership, had the highest initial market  Yb-penetration of any programming service launched in the last four years. First Competition  YM-Report, at 81. It is unclear to what extent this success is related to "retransmission consent" negotiations between ESPN2's network corporate affiliate, ABC/Capital Cities, Inc., and  Y!-cable operators. See 47 U.S.C.  325(b).  CME did not take issue with TBS's examples on reply.  Y-18.` ` Similarly, there is no evidence in the record to substantiate CME's claim that the 40% limit will deter independent investors from investing in video programming, or that independent investors are currently deterred from investing in cable programming by our channel occupancy limits.  YH-19.` ` Finally, we disagree with CME's assertion that the Senate Report "suggested"  Y1-a 20% channel occupancy limit. The Senate Report stated: "For example, the FCC may  Y -conclude that each MSO should control no more than 20 percent of the channels on any cable  Y -system . . .."}1 # Y-ԍ#sP=XP#Senate Report at 80 (emphasis added).} Thus, the Report used the 20% figure for illustrative purposes only, while clearly acknowledging that the Commission was free to choose a different limit. This interpretation is supported by the actual wording of the statute, which simply requires the Commission to establish "reasonable" channel occupancy limits.  Y-20.` ` Calculation of Channel Capacity. CME asks that the Commission reverse its decision to include broadcast, PEG, and leased access channels when calculating system  Yd-capacity.=2d Y-ԍ CME Petition at 17.= CME asserts that these channels should not be counted because broadcast channels are only available to local broadcast stations, PEG channels are available only to public, educational, and governmental institutions, and leased access has limited capacity and  Y-requires unaffiliated programmers to pay for carriage.@3  YU-ԍ CME Petition at 1618.@ CME also maintains that the legislative history indicates that these channels should be subtracted before application of  Y-channel occupancy limits.4_ 6  Y!-ԍThe Senate Report stated in relevant part: XX` ` The intent of this provision is to place reasonable limits on the number of channels that can be occupied by each MSO's programming services. For example, the FCC may conclude that each MSO should control no more than 20 percent of the channels on any cable system, with a minimum of 6 channels"N'30*(('" being permissible. The FCC should establish [channel occupancy] rules based on the number of activated channels less the numbers of overtheair broadcast signals carried and the number of public, educational and governmental and leased access channels carried. On a system with 54 channels, 14 of which are occupied by overtheair signals or access channels, the limit then would be eight channels that could be occupied by programming owned by an MSO . . . "x` Senate Report at 80. Finally, CME argues that because Congress enacted three" 40*((" separate provisions channel occupancy limits, broadcast carriage requirements and leased access to increase the diversity of ownership and ideas in the cable industry, it would contravene Congress' regulatory intent to use two of those provisions as grounds for  Y-weakening the third.F5  Y-ԍ CME Petition at 1618.F  Y-21.` ` Comments. In opposition, TCI states that it is "unaware of any case where it has been deemed appropriate to exclude from the market being examined a particular quantity of output merely because it is produced by a firm other than a vertically integrated  YJ-firm,"?6J[  YV-ԍ TCI Opposition at 11.? and that: XX` ` [L]eased access, PEG and must carry channels themselves constitute significant channel occupancy limits and clearly dilute the ability of a cable operator to exercise market power over all channels on it system. Therefore, such channels are properly included in the universe of channels for determining channel  Y -occupancy limits.=7  Yf-ԍ Id. at 1112.= x`  Y{-22.` ` NCTA argues that "excluding such channels would penalize those operators who offer a wide array of broadcast and access services by limiting their options in  YM-programming their remaining channels."K8M Y"-ԍ NCTA Opposition at 1213. K Further, NCTA states that mandated carriage of PEG, mustcarry and leased access channels promotes the same goals (such as diversity) as  Y-channel occupancy limits.:9p Y@&-ԍ  Id. at 13.: In addition, Time Warner asserts that Congress' objective was diversity of programming sources, and that PEG, leased access and broadcast programming" #90*(("  Y-are as "diverse" as any other unaffiliated programmers.G: Yy-ԍ Time Warner Opposition at 12.G Time Warner states that as a result of mustcarry, PEG and leased access requirements, it can no longer select the programming  Y-on an average of 30%, and in some cases as much as 50%, of its systems' channels.:;y Y-ԍ  Id. at 13.: Finally, Liberty Media asserts that simply because PEG, mustcarry and leased access "also serve other objectives does not detract from their effectiveness in ensuring that cable subscribers receive programming and information from sources unaffiliated with the cable  Yv-operator."L<v, YS -ԍ Liberty Media Opposition at 1516.L  YH-23.` ` CME replies that the purpose of channel occupancy caps was to "give  Y1-independent commercial programmers a chance to get on the wire."?=1 Y-ԍ CME Reply at 7.? Thus, while MSOs may view PEG, mustcarry, and leased access as "lost" channels, they do not benefit  Y -independent programmers, and should be excluded when calculating channel capacity.;>  YB-ԍ CME Reply at 78.;  Y -24.` ` Discussion. We deny CME's petition to reconsider our treatment of overtheair broadcast, PEG and leased access channels. CME correctly notes that the channel occupancy limits are intended to keep cable operators from filling every available channel with their own programming. But from this premise, CME draws the conclusion that channel occupancy limits must therefore be intended to give "independent commercial programmers a chance to get on the wire." The statute, however, does not distinguish between "independent" unaffiliated programmers and other types of unaffiliated programmers. Section 11 simply ensures that subscribers will have access to some kind of unaffiliated programming on a prescribed number of channels. CME does not dispute that broadcast, PEG and leased access channels are "unaffiliated" with cable operators, or that the 1992 Cable Act requires cable operators to reserve channel space for such unaffiliated  Y-programming. Thus, we reaffirm our holding in the Second Report and Order that it would be unreasonable to subtract such channels before calculating the system's channel capacity, since they provide the type of diverse, unaffiliated programming contemplated by the 1992  Y-Cable Act. Further, as we noted in the Second Report and Order, it would be unfair to penalize those cable operators who carried the widest array of broadcast, PEG and leased access channels by decreasing the number of channels available for affiliated programming.  Y=-25. ` ` Moreover, there is no evidence in the record that "independent" commercial programmers (i.e., those with no cable ownership interests at all) are unable to obtain carriage because of our treatment of broadcast, PEG and leased access channels. To the"? >0*((;" contrary, in the Commission's sampling of 25 TCI and Time Warner cable systems described above, we found that all of the systems carried some "independent" unaffiliated  Y-programmers, with most systems carrying between 7 and 11 such channels.}?c YK-ԍSee Appendix B. TCI smaller systems (approximately 36 channels) carried between 7 and 10 "independent" programmers; TCI larger systems (approximately 54 channels) carried between 9 and 13; Time Warner smaller systems carried between 5 and 14; and Time Warner larger systems carried between 9 and 14. Among the independent unaffiliated programming services being carried by the 25 systems sampled were: A & E, ESPN, CNBC, Lifetime, Prevue, The Weather Channel, WGN, Univision, Faith and Value,  Y -EWTN, Spice, The Travel Channel and National Jewish TV. Id.}  Y-26.` ` In addition, although the Senate Report's sample calculation excluded broadcast and access channels in calculating channel capacity, CME's reliance on it as an  Yv-expression of Congressional intent is misplaced. As we stated in the Second Report and  Ya-Order: XX` ` The Senate Report language [ . . . ] appears to be included merely as an example to illustrate how the Commission may decide to calculate channel occupancy limits and therefore does not prohibit the Commission from adopting an alternative approach if it finds such an approach to be reasonable to promote the legislative objectives. In any event, this language is  Y -not included in the statute itself.Z@  YO-ԍSecond Report and Order at  54.Zx`  Y}-27.` ` Finally, we do not believe that we are weakening Congress' statutory scheme by considering the impact of other provisions of the 1992 Cable Act in establishing channel occupancy limits. Section 11 expressly gives the Commission broad discretion to fashion "reasonable" channel occupancy limits. In our view, establishing "reasonable" limits  Y!-requires us to consider all factors bearing on the dangers or benefits of vertical integration. Thus, for instance, we believe that not only should we take into account the impact of broadcast, PEG and leased access channels, but also the impact of Sections 12 and 19 in deterring the types of discriminatory conduct that may be caused by vertical integration. Only by considering the whole of Congress' scheme can we determine the level of vertical  Y-structural limits that are "reasonable."q  Y-28.` ` Local and Regional Networks. In a footnote, CME implies that the Commission should reconsider its decision that local and regional networks will not be  YV-subject to channel occupancy limits.BAV  Y&-ԍ CME Petition at note 10.B CME contends that Congress did not allow for such an exception, and quotes comments of the National Association of Telecommunications"?W A0*((=" Officers and Advisors ("NATOA") during the rulemaking proceeding that "most local and regional networks are owned by large MSO's, and as such are part of the trend of vertical  Y-integration Congress meant to address with the Cable Act."B YK-ԍ Id., quoting NATOA Reply Comments, MM Docket No. 92264, at 10 (March 3, 1993).  Y-29.` ` Comments. Affiliated Regional Communications, Ltd. ("ARC"), Time Warner and Liberty Media argue that CME's proposal is contrary to the fundamental goals of the 1992 Cable Act, especially Section 2(a)(10), which states that there is a "substantial  Ya-government interest" in the "local origination of programming."Cad Yv -ԍ ARC Opposition at 4; Time Warner Opposition at note 11; Liberty Media Opposition at 16. ARC also cites the Congressional objective of promoting "diversity of views and information" contained in Section 2(b)(1) of the 1992 Cable Act, and asserts that regional sports programming has promoted both diversity and localism by being an outlet for local and regional sporting events  Y -which do not traditionally receive coverage from broadcast or cable.@D  Y-ԍ ARC Opposition at 34.@ ARC and Liberty Media point out that there is no basis to conclude that local news or sports programming provided by an MSO affiliate would contribute less to the goals of localism and diversity than similar programming provided by a broadcast station owned by a national network or  Y -large group owner.cE  Y -ԍ ARC Opposition at 78; Liberty Media Opposition at 1617.c  Y{-30.` ` Discussion. We deny CME's petition to reconsider our exception for local and regional programming. CME's approach overlooks Congress' direction that we consider the benefits as well as the dangers of vertical integration in establishing "reasonable" channel  Y8-occupancy limits. As we stated in our Second Report and Order, the exception for local and regional networks was "an important means of encouraging continued MSO investment in the development of local cable programming, which is responsive to the needs and tastes of local  Y-audiences and serves Congress' objectives of promoting localism."F`  Y -ԍ Second Report and Order at  78, citing Section 2(a)(10) of the 1992 Cable Act. CME does not challenge the value of local and regional programming, or our conclusion that given the cost and limited appeal of such programming, an exception may be necessary to encourage continued MSO investment. We continue to believe that consideration of these benefits of vertical integration more accurately reflects Congressional intent, and fully justifies the exception.  Yk-31.` ` 75Channel Cap. CME asks that the Commission reconsider its decision not"k F0*(({"  Y-to apply channel occupancy limits beyond a cable system's first 75 channels.=G Yy-ԍ CME Petition at 20.= CME asserts that the danger of discrimination against unaffiliated programmers exists no matter how many channels a cable operator offers, and that "expanded channel capacity will simply mean more opportunities for MSO's to offer affiliated programming to the detriment of unaffiliated  Y-programming."=Hy Y-ԍ CME Petition at 20.= CME states that without channel occupancy limits, there is "a strong likelihood" that all new capacity beyond 75 channels will be filled with channels affiliated  Yv-with the cable operator.:Iv* YQ -ԍ Id. at 21.:  YH-32.` ` Comments. Liberty Media responds that CME offers no support for its assertion that cable operators would fill any new capacity with affiliate programming, and that such discrimination would, in any case, be prohibited by Section 12 of the 1992 Cable  Y -Act.LJ  Y-ԍ Liberty Media Opposition at 1920.L Similarly, Time Warner states that cable operators will not have enough affiliated services to fill the space created by new technologies and will need programming from many  Y -other sources.JK  Y-ԍ Time Warner Opposition at 1718.J NCTA, Time Warner and Liberty Media argue the 75channel cutoff is  Y -reasonable since it reflects the current maximum capacity of most cable systems,~L ?  Y-ԍ NCTA Opposition at 14; Time Warner Opposition at 17; Liberty Media Opposition at 20.~ while Liberty Media states that lifting channel occupancy limits after the first 75 channels gives "cable operators an incentive to deploy new technologies and improve service to the  Y{-public."IM{  Y-ԍ Liberty Media Opposition at 20.I  TCI argues that "[s]ignificantly increased channel capacity will result in greater program diversity and expanded consumer choice because cable operators have the incentive  YM-to maximize the use of system capacity by seeking out innovative programming services."?NM  Y -ԍ TCI Opposition at 13.?  Y- 33.` ` On reply, CME argues that "[i]f increased capacity will render the limits superfluous, they are not the slightest disincentive to the MSOs [to expand capacity]. And if they do affect incentive (i.e. prevent MSOs from counting on more than 40 percent of even greatly increased capacity), then the former argument is disingenuous, and the limits will be";N0*(("  Y-as necessary as ever."9O Yy-ԍ CME Reply at 9.9  Y-!34.` ` Discussion. On reconsideration, we decline CME's invitation to eliminate our 75channel cap. There is no evidence in the record to support CME's claim that "there is a strong likelihood that all of the newly available channels will be filled by services affiliated with the MSO." Indeed, we note that in our informal survey of 25 TCI and Time Warner cable systems, none of the systems were approaching the current 40% channel occupancy  Ya-limit for affiliated programming.Pxay Y -ԍSee Appendix B. TCI smaller systems devoted between 47% and 79% of the channels available within the 40% limit to affiliated programming; TCI larger systems devoted between 41% and 55%. Time Warner smaller systems devoted between 29% and 53% of the channels available within the 40% limit to affiliated programming; Time Warner larger systems devoted between 25% and 43%.  However, even if there were some basis for CME's prediction, we still believe that the vast expansion of channel capacity may obviate the need  Y3-for a rigid occupancy limit. As we noted in the Second Report and Order, although information on how multichannel video distributors will use the additional capacity "is necessarily somewhat speculative," the record indicates that the capacity will likely be used to deliver targeted "niche" video programming services aimed at correspondingly smaller  Y -audience sizes, such as payperview and "multiplexed" channels.cQ  YC-ԍSee Second Report and Order,  8384.c Occupancy limits in these circumstances do not parallel occupancy limits for more restricted capacity systems where most services are distributed on discrete channels to a significant portion of a system's  Y-subscribership. Accordingly, the occupancy limits can be relaxed.Rl  Y-ԍ#sP=XP#Of course, the prohibitions against discriminatory conduct contained in Sections 12 and 19 will remain in full effect regardless of the number of channels added.  Yf-"35.` ` In sum, we continue to believe that the introduction of advanced technologies such as signal compression and fiber optics will reduce the need for structural occupancy limits in order to ensure programming diversity and access for unaffiliated programmers.  Y!-Nevertheless, as we noted in the Second Report and Order, the 75channel cap will be subject to periodic review and will be eliminated if developments warrant.  Y-#36.` ` Grandfathering of Existing Vertical Relationships. CME requests that the Commission reconsider its decision to grandfather all vertically integrated programming  Y-services carried as of December 4, 1992 (the effective date of the 1992 Cable Act).=S  Yi&-ԍ CME Petition at 21.= CME argues that because the Commission does not know how many systems would exceed the"S0*((" channel occupancy caps, the Commission has "no basis for its claim that application of the  Y-limits is outweighed by the need to avoid disruption of consumer service."3T Yb-ԍ Id.3 Moreover, CME asserts that grandfathering existing vertically integrated programmers is contrary to Congress' desire to limit channel capacity "based on the market power that derives from  Y-existing levels of vertical integration."=U{ Y-ԍ Id. at 2122.=  Yv-$37.` ` Comments. Time Warner argues that grandfathering is appropriate, since Congress requires the Commission to prescribe regulations that "take particular account of  YJ-the market structure, ownership patterns, and other relationships in the cable industry"oVJ.: Y -ԍ Time Warner Opposition at 19; see also TCI Opposition at 1415.o In addition, Time Warner, TCI and Liberty Media assert that the rule prevents subscriber  Y -confusion and unhappiness, and minimizes disruption to carriage and service agreements.W  Y-ԍ TCI Opposition at 1415; Time Warner Opposition at 19; Liberty Media Opposition at 21. Finally, Time Warner and Liberty Media argue that grandfathering does not dilute the purpose of channel occupancy limits because operators must come into compliance as new  Y -space becomes available on cable systems.gX { Y-ԍ Time Warner Opposition at 19; Liberty Media Opposition at 21.g   Y -%38.` ` CME replies that the amount of disruption that would ensue without grandfathering merely highlights the size of the problem Congress was trying to address; to the extent such disruption is avoided, Congress' intent in enacting Section 11 is  Yd-"undermined."?Yd,  YA-ԍ CME Reply at 9.?  Y6-&39.` ` Discussion. We deny CME's petition to reconsider our decision  Y!-grandfathering existing vertical relationships. We still believe, as we held in the Second  Y -Report and Order, that the public interest would be disserved by requiring cable operators to delete vertically integrated programming services to comply with the channel occupancy caps. We continue to believe that grandfathering existing arrangements will limit consumer confusion and the disruption of existing programming relationships, and is, as Time Warner points out, consistent with Congress' direction that our channel occupancy limits "take particular account of the market structure, ownership patterns, and other relationships of the  Y-cable television industry."PZ  Y'-ԍ Communications Act,  613(f)(2)(C).P" Z0*(("Ԍ  Y-'40.` ` We also reject CME's contention that our decision to grandfather existing vertical arrangements "has rendered impotent" the intent of Congress to limit excessive  Y-vertical integration.=[ Y4-ԍ CME Petition at 22.= First, we reiterate that Congress directed us to establish "reasonable" channel occupancy limits based on a balancing of competing interests; if Congress wished to require the divestiture of existing channels it could have done so. More importantly, our  Yv-decision did not grandfather noncompliance in perpetuity. Rather, the Second Report and  Ya-Order provided that when a grandfathered cable system adds channel capacity, it cannot add an affiliated programming service until its system is in full compliance with our channel occupancy rules. Thus, the difference is more one of timing than of ultimate objectives. While CME suggests immediate divestiture of existing services to bring systems into compliance, our approach is to grandfather existing services and remedy noncompliance prospectively. We continue to believe that our approach better reflects the various interests  Y -at stake, and thus better reflects Congress' intent.   X -  X -B.` ` Bell Atlantic Petition  ` `  Y}-(41.` ` Competition. Bell Atlantic filed a Petition for Limited Reconsideration requesting that the Commission reconsider its decision to apply the channel occupancy limits to cable systems that face actual headtohead competition. Bell Atlantic states that although Congress was concerned that cable operators might block independent programmers from reaching consumers, this concern is relevant only in the absence of local competition. If such competition does exist, Bell Atlantic argues that independent programmers will have alternate means of delivering their programming, and that competing distributors will have strong incentives to ensure that consumers receive valued programming, regardless of the  Y-source.M\y Y-ԍBell Atlantic Petition at 3.M  Y-)42.` ` According to Bell Atlantic, the only effect of applying channel occupancy limits to competitive systems will be that particular programs will be banned from delivery and competition and diversity will be reduced. In fact, Bell Atlantic notes that requiring new entrants to maintain a warehouse of unused capacity in the event that someone may later want to use it would impede competitive entry and prevent the development of competition in  Y&-the first instance.;]&* Y#-ԍId. ; Finally, Bell Atlantic adds that in markets where one of the competitors is a video dialtone system, which is required to provide access to all programmers on a nondiscriminatory basis, there is even further assurance that independent programmers will have  Y-a means of delivering their programming.@^ Yo'-ԍId. at 4.@"^0*(( "Ԍ Y-ԙ*43.` ` Comments. Only CME filed an Opposition to Bell Atlantic's Petition. CME states that Bell Atlantic's argument rests on unsupported speculation about the future of the industry, and thus presents no justification as to why the Commission should drop the  Y-channel occupancy limits at this time.E_ Y6-ԍCME Opposition at 2.E CME also argues that because Congress specifically stated in the 1992 Cable Act that rate regulation will be lifted where there is effective competition, but did not similarly call for the lifting of ownership limits if competition developed, Congress must have intended ownership limits to apply in both competitive and  Ya-monopoly markets.@`ay Y -ԍId. at 3.@  Y3-+44.` ` CME also disagrees with Bell Atlantic's claim that local competition diminishes the incentive or ability of cable operators to favor affiliated programmers over  Y -independent programmers.@a , Y-ԍId. at 4.@ First, CME points to the legislative history of the 1992 Cable Act which found that large MSOs have disfavored independent programmers through discriminatory pricing, channel positioning and promotion or outright denial of access. CME notes that Bell Atlantic has presented no evidence that local competition will eliminate this discrimination. Second, CME agrees with the point made by MPAA that competitors may themselves be vertically integrated and thus provide no alternative for an independent  Y{-programmer.b{ Y -ԍMPAA Reply Comments to Notice of Proposed Rulemaking and Notice of Inquiry at 9. CME also does not believe that new entrants will be unable to find sufficient programming to fill their channels; in fact, there is a plethora of new programming. CME states that it is not aware of any existing video dialtone system and that such systems will take years and billions of dollars to become operational, let alone a competitive alternative to  Y-cable, and thus cannot justify the removal of ownership restrictions.@c{ YK-ԍId. at 5.@ Finally, CME notes that Congress apparently did not believe that a payforcarriage service such as video dialtone  Y-would vitiate the need for ownership limits, because it included both leased access and  Y-ownership limits in the 1992 Act.@d.  Y!-ԍId. at 6.@  Y-,45.` ` In its Reply, Bell Atlantic states that the point of its Petition was not that ownership limits should be removed whenever there is some "theoretical" possibility of competition in the future, but that ownership limits should not apply to any competition whether a traditional cable system or a common carrier video dialtone system "where"i d0*(("  Y-actual headtohead competition exists."Je Yy-ԍBell Atlantic Reply at 2.J Bell Atlantic also points out that while there are approximately 90 national programming channels, the competitive video distribution networks being developed will have many times this capacity, thus potentially forcing new entrants to  Y-leave a large portion of their capacity lie fallow.fy Y-ԍFor example, Bell Atlantic's proposed video dialtone system in New Jersey will be  Y-capable of providing a minimum of 384 channels upon completion. Id. at 3.  Y--46.` ` Discussion. On reconsideration, we decline to modify our decision to enforce channel occupancy limits in systems which face actual headtohead competition. With respect to Bell Atlantic's argument that channel occupancy limits are even less necessary in markets where competition exists and one of the competitors is a video dialtone service, we cannot find, at this time, that video dialtone will completely eliminate the problems caused by vertical integration. Under video dialtone, a telephone company must provide sufficient capacity to serve multiple video programmers, and must expand capacity as demand increases to the extent technically feasible and economically reasonable. At this point, there are only eight commercially licensed video dialtone services in the country. None of these systems is yet operational; until that time, it is unclear whether a video dialtone system will fully  Y -address the concerns raised by channel occupancy limits. In addition, the practical effect of several recent court cases is that certain telephone companies may now provide their own  Y{-programming to subscribers in their service areas.?g { YA-ԍChesapeake & Potomac Tel. Co. of Virginia v. United States, 42 F.3d 181 (4th Cir.  Y,-1994); US West, Inc. v. United States, No. 9435775, D.C. No. CV9301523BJR (9th Cir.  Y-Dec. 30, 1994); BellSouth Corp. v. United States, 868 F. Supp. 1335 (N.D. Ala. Sept. 23,  Y-1994); Ameritech Corp. v. United States, 867 F.Supp. 721 (N.D. Ill. 1994); NYNEX Corp.  Y-v. United States, Civil No. 93323PC (D. Me. Dec. 8, 1994); GTE South, Inc. v. United  Y-States, C.A. No. 941588A (E.D. Va. Jan. 13, 1994); United States Tel. Assoc. v. United  Y-States, Civ. No. 1:94CV01961 (D.D.C. Feb. 14, 1995); Southwestern Bell v. United States, No. 3:94CV0193D (N.D. Tex. March 27, 1995). In light of these decisions, on January  Y-20, 1995, the Commission issued a Fourth Further Notice of Proposed Rulemaking in CC Docket No. 87266 (FCC 9520) to consider changes in its video dialtone rules and to consider the extent to which Title II and Title VI of the Communications Act apply to telephone companies providing video programming directly to subscribers in their telephone service areas over video dialtone facilities. ? Thus, we do not believe that video dialtone in its current state can provide sufficient justification to reconsider our decision to enforce our channel occupancy limits in systems which face actual headtohead  Y6-competition."h6 Y%-ԍWe also note that Bell Atlantic's argument that new multichannel video programming distributors with expanded capacity may be forced to leave channels fallow is irrelevant because our channel occupancy limits do not apply beyond 75 channels." "6Eh0*(("Ԍ.47. The remaining arguments raised in Bell Atlantic's Petition have already been  Y-considered and rejected in our Second Report and Order.i Yb-ԍIn the Comments filed in response to our Further Notice, operators took essentially the same position as Bell Atlantic and argued for the elimination of the vertical ownership limits in communities where effective competition has been established. MPAA and NATOA opposed eliminating these limits, for basically the same reasons advanced by CME. In the Second Report and Order,  Y-we concluded that we should not eliminate channel occupancy limits in communities where effective competition exists because we found that the effective competition standard was not adopted for this specific purpose and because it is not clear that the presence of effective competition for any cable system will address all of the relevant concerns that Congress  Yx-expressed in enacting Section 11 of the 1992 Cable Act.Ijx6 Y_ -ԍ8 FCC Rcd at 8603.I For example, we noted that if a  Ya-competing multichannel distributor is also vertically integrated, without channel occupancy limits, unaffiliated programming services may continue to be denied access from either  Y3-outlet, thus frustrating the diversity and competition objectives of the 1992 Act.:k3 Y-ԍId.:  Y -/48.` ` Finally, we also agree with the point raised by CME that the statutory exemption from regulation for cable systems subject to effective competition is very limited: Congress explicitly stated in the statute that, in systems which faced effective competition,  Y -rate regulation would not be necessary. Thus, it is reasonable to assume that had Congress  Y -intended for all cable regulations to be eliminated where systems became subject to actual headtohead competition, this statutory exemption would have been drafted much more broadly. Nowhere in either the language of Section 11 or its legislative history does it state that the presence of actual headtohead competition will render the channel occupancy limits unnecessary.  Y#-049.` ` We therefore conclude that there is insufficient evidence in the record before  Y -us to warrant elimination or modification of our channel occupancy limits in systems that  Y-face actual headtohead competition. However, as we indicated in the Second Report and  Y-Order, we remain aware that Congress has indicated that a primary objective of the 1992 Act was to rely on the marketplace to the maximum extent possible, and that the legislation was intended to protect consumer interests in the receipt of cable service "where cable television  Y-systems are not subject to effective competition."Il Y"-ԍ8 FCC Rcd at 8603.I Thus, as competition develops and we gain more experience with the rules, we will further analyze our rules and the industry as a whole to see whether vertical ownership limits should be phased out.  XA- "*K l0*((<"Ԍ X-(E150.(IV.CONCLUSION  Y-150.` ` For the reasons stated above, we deny CME's and Bell Atlantic's petitions for reconsideration. At the present time, we believe that our channel occupancy rules continue to represent an appropriate balance of the various statutory objectives identified by Congress. We will reexamine these rules in the future, however, should it be warranted by new evidence or a change in the cable marketplace.  X_-   XH-V.REGULATORY FLEXIBILITY ANALYSIS   Y -251.` ` Pursuant to Sections 601602 of the Regulatory Flexibility Act, Pub. L. No.  Y -96354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981), the Commission's final analysis is as follows:  Y -  Y -352.` ` Need and Purpose for Action: This action is being taken to address petitions for reconsideration of the channel occupancy rules adopted by the Commission to implement Section 11(c) of the 1992 Cable Act.  Yf-453.` ` Summary of Issues Raised by the Public Comments in Response to the Initial  YQ-Regulatory Flexibility Analysis: There were no comments received in response to the Initial Regulatory Flexibility Analysis.  Y-554.` ` Significant Alternatives Considered: We have analyzed the comments submitted in light of our statutory directives and have, to the extent possible, minimized the regulatory burden on entities covered by the ownership provisions of the 1992 Cable Act.  Y-  X- V.ORDERING CLAUSES  655. Accordingly, IT IS HEREBY ORDERED that pursuant to the authority in Sections 1, 4 and 613 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154, and 533, the petitions for reconsideration filed in this proceeding by the Center for Media Education/Consumer Federation of America and Bell Atlantic Corporation ARE DENIED. ` ` hhCFEDERAL COMMUNICATIONS COMMISSION  Y"- ` ` hhCWilliam F. Caton ` ` hhCActing Secretary "D&l0*((`'"  X- ZAPPENDIX A   X-A MM DOCKET 92264 \  X- Petitions for Reconsideration of Second Report and Order in MM Docket No. 92264, 8 FCC Rcd 8565 (1993)  YK- Bell Atlantic Center for Media Education/Consumer Federation of America  X - Comments/Oppositions to Petitions for Reconsideration Affiliated Regional Communications, Ltd Center for Media Education/Consumer Federation of America Liberty Media Corporation National Cable Television Association TeleCommunications, Inc. Time Warner Entertainment Co., L.P. Turner Broadcasting System, Inc. Viacom International, Inc.  X- Replies to Comments/Oppositions to Petitions for Reconsideration Bell Atlantic Black Entertainment Television, Inc. Center for Media Education/Consumer Federation of America Liberty Media Corporation National Cable Television Association Time Warner Entertainment Co., L.P. Turner Broadcasting System, Inc.