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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $/ FOR FCC RECORD ONLY /$ $// MO&O, Cable Act of 1992, FCC 95-269//$ $/ 300.623 Regulation of Rates /$ $/ 1.115 Applications for Review /$ $/ 76.906 Presumption of no effective competition /$ $/ 76.910 Franchising authority certification /$ FCC 95-269 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) ) ) VALLEY CENTER ) CABLESYSTEMS, L.P. ) ) ) Application for Review of Order of ) the Cable Services Bureau Granting ) Petition for Reconsideration of ) San Diego County to Regulate ) Basic Cable Service Rates ) (CA0620, CA1298) ) MEMORANDUM OPINION AND ORDER Adopted : June 27, 1995 Released: June 29, 1995 By the Commission: I. INTRODUCTION 1. In this Order, we deny the timely Application for Review of San Diego County (the "County") filed on January 20, 1995, in which the County seeks review of the December 23, 1994 Memorandum Opinion and Order ("MO&O") adopted by the Cable Services Bureau (the "Bureau") granting Valley Center Cablesystems, L.P.'s ("VCC") Petition for Reconsideration of the Certification of San Diego County. II. BACKGROUND 2. On November 2, 1993, VCC filed a timely petition for reconsideration of the certification of the County to regulate basic cable service rates. VCC argued that its cable system was subject to effective competition because it served fewer than 30% of the households in its franchise area. Specifically, VCC stated that there are 127,665 households (that is, occupied housing units) in the unincorporated sections of the County, its franchise area. In addition, it stated that it serves 2,041 subscribers or 1.5% of the households in the franchise area. 3. The County's Opposition did not challenge VCC's statistical data, but argued that VCC's applicable franchise area was less than all of unincorporated San Diego County. Although the franchise agreement between the County and VCC establishes the franchise area as county-wide, the County argued that VCC had made an affirmative decision to limit its franchise area to include only its Pauma Valley and Valley Center service areas. Within its redefined franchise area, consisting of an unspecified but fewer number of households, the County argued that VCC is not subject to effective competition because its penetration level exceeded 30%. 4. In its Reply, VCC stated that the boundaries of its franchise area are explicitly set forth in its franchise agreement with the County. Moreover, VCC asserted that it had not taken any affirmative actions to restrict the scope of its franchise area. VCC detailed its attempts to expand the service area of its system beyond Pauma Valley and Valley Center, including the ongoing construction of a system some twenty miles north of Valley Center. 5. On December 23, 1994, the Bureau issued a MO&O granting VCC's Petition for Reconsideration of the certification of San Diego County. The Bureau concluded that VCC had submitted sufficient evidence demonstrating that its cable system serving the unincorporated sections of San Diego County serves 2,041 of the 127,665 households, or 1.5% of the households -- significantly below the 30% threshold of the low penetration effective competition test. In considering the County's claim that VCC affirmatively redefined its franchise area, the Bureau, in pertinent part, stated that: The franchise agreement between VCC and the County designates VCC's authorized service area to be county-wide with primary responsibility for providing service to [the] Valley Center and Pauma Valley general area. VCC states that it is attempting to expand its coverage, but claims costs are slowing its efforts. The County concedes that VCC is in fact expanding its cable service but argues that it has not extensively built outside its service area. However, as the Commission has stated previously, the fact that a franchise area has not as yet been filled out entirely by system construction, would not by itself be evidence that the service area has been redefined. Therefore, we find that the County has failed to sustain its burden of proof that VCC has redefined its franchise area. III. THE PLEADINGS 6. In its Application for Review of the Bureau's December 23, 1994 MO&O, the County argues that the Bureau's actions are in conflict with the Commission's effective competition regulations, that the Bureau's MO&O contains erroneous findings regarding material questions of fact, that the Bureau's MO&O was decided in an arbitrary and capricious manner, and that the Bureau's MO&O is not based on realistic assumptions. 7. The County argues that the Bureau acted erroneously in accepting VCC's evidence regarding its penetration rate (1.5% of households) and VCC's statement that it has not chosen to limit its franchise area. The County argues that, in rendering its decision, the Bureau neglected to acknowledge that the majority of occupied housing units within the areas not served by VCC are already passed by other cable operators and that, with limited exceptions, none of these cable operators, including VCC, has chosen to overbuild into another's service territory. As such, many of the subscribers within the franchise area have only one cable operator from which to choose cable service. The County asserts that VCC's failure to expand into areas already served by other cable operators represents evidence that VCC has made an affirmative decision to limit its service area and that therefore the Bureau's use of the total number of occupied housing units in the franchise area (127,665) is "unrealistic." 8. In addition, the County argues that the Bureau's decision fails to take into account the unique circumstances of San Diego County's franchising policies. The County concedes that the franchise agreement executed between it and VCC "does not restrict the cable service area of the cable company." The County explains that the reasoning behind its decision to issue county-wide franchises was two-fold. First, it believed that county-wide franchises would promote competition between cable providers within unincorporated San Diego County. Second, the County states that because of the "extensive rural nature of the County's unincorporated land," it was necessary for the County to establish flexibility in its cable licensing to allow cable operators to adjust to the progress of developers. The issuance of county-wide franchises furthered that goal. The County argues that the Bureau's decision runs afoul of these goals because it curtails the ability of the County to enforce necessary consumer protections to discourage anti-competitive behavior. The County does not offer specific examples of how the Bureau's decision prevents the County from enforcing its consumer protection law or discouraging anti-competitive behavior. 9. In its opposition, VCC argues that the County has not alleged grounds warranting reversal of the Bureau's decision. VCC argues that none of the Bureau's franchise area redefinition decisions has found that a cable operator affirmatively redefined its franchise area solely because the operator had not expanded to serve its entire franchise area or overbuilt a competitor's service area. As such, the County's arguments that the Bureau's decision is arbitrary and capricious lack merit. VCC asserts that the County offered no "meaningful factual support" to the Bureau, offers no new evidence in its Application for Review, and is "essentially asking that the Commission presume," that the County has met its burden of proof that VCC affirmatively redefined its franchise area. VCC states that the County's disagreement with the Bureau's decision is more accurately characterized as disagreement with the language of the low penetration effective competition test which is set forth in the 1992 Cable Act and directs the Commission to analyze low penetration effective competition using the number of "households in the franchise area." VCC argues that the County contradicts itself by stating in its Application for Review that it granted county-wide franchises to encourage cable operators to extend service beyond their existing service areas, while concurrently arguing to the Bureau, and now to the Commission, that such growth will never occur. VCC also disputes the relevance of the County's public policy arguments and reminds the Commission that the Bureau's task is to determine a cable operator's penetration rate in its appropriate franchise area, not to inquire why a particular franchise territory was granted. IV. DISCUSSION 10. Upon review of the pleadings, we uphold the Bureau's decision. First, the County argues that the Bureau, in addressing the County's franchise area redefinition argument, inappropriately failed to consider that VCC has not expanded its cable service into parts of its franchise area served by other cable operators. We disagree. As we have stated previously, effective competition must be demonstrated on a franchise area basis. Generally, a franchise area is defined as the area a system operator is authorized to serve in its franchise. Thus, demonstrations of effective competition must be made using household and subscriber data for the authorized area in the franchise. We also have stated that, for purposes of the low penetration effective competition test, a more restricted definition of a franchise area may be appropriate under limited circumstances, such as when an operator, "through its own conduct, self-defined the areas to be served to such an extent that this redefined area accurately portrays the operator's 'franchise area.'" The franchising authority has the burden of showing that the operator has made an "affirmative decision...to restrict service...." However, as the Commission cautioned, the fact that a franchise had not yet been filled out entirely by system construction by the operator would not by itself be evidence that the service area had been redefined. 11. We find that the County's argument that VCC has failed to expand into areas served by other cable operators is immaterial to the issue of whether VCC has redefined its franchise area. The County's argument, without more, is simply an argument that a cable operator has not yet filled out its entire franchise area. This fact, if true, is insufficient to constitute evidence by which we could conclude that a cable operator has redefined its franchise area. Indeed, we note that the instant proceeding is not a case where the cable operator has engaged in no expansion. The record reveals that VCC has expanded in an area more than 20 miles outside of Pauma Valley and Valley Center (the two areas to which the County claimed, in its opposition to VCC's original petition, that VCC has limited its service area). In light of these facts, we find that VCC's alleged failure to expand into areas served by other cable operators, by itself, is not grounds upon which to reverse the Bureau's decision. As the County has not pointed to any other facts in the record to support this claim, we find that the County has not met its burden of showing that VCC has made an affirmative decision to restrict service. 12. Next, the County argues that the Bureau's decision inappropriately fails to take into consideration various public policy concerns of the County, including the special circumstances of San Diego County's efforts to bring about competition in mostly rural, unincorporated areas. As a preliminary matter, we note that, to a certain degree, the County's public policy arguments may more accurately be characterized as a critique of the low penetration effective competition test set forth in the Communications Act of 1934 and the general requirement that effective competition under this test be measured relying on data for the entire franchise area. As we have stated previously, "we are not in a position to alter the plain language of the statute through our regulations." 13. Moreover, the Commission believes that it has addressed in the First Recon. Order, to the extent permitted by the Communications Act, the public policy concerns raised by the County. After considering the arguments of various franchising authorities that the Commission should define the term "franchise area" as the number of homes passed by a cable operator rather than its authorized service area, we stated that "the substitution of a 'homes passed' for [a] 'homes in the franchise area' test does not appear to be consistent with the plain language of the statute." However, in response to concerns raised by franchising authorities on this issue, we stated that we would, in "limited situations," use a more restricted definition of the term "franchise area" for purposes of effective competition where a franchising authority is able to demonstrate that the cable operator in question has, through it own conduct, limited its service area to such an extent that "this redefined area accurately portrays the operator's 'franchise area.'" The County argues that this language is expansive enough that, in determining whether a cable operator has redefined its franchise area, we should accommodate the public policy of a particular franchising authority. The Commission did not intend this broad reading, and declines to adopt the County's expansive interpretation in this proceeding. The Commission reiterates that the requisite for a successful franchise area redefinition argument is that the franchising authority satisfy its burden of proving that the cable operator, through affirmative action, has redefined its franchise area. Here, the record reveals that the County has submitted no evidence that would allow us to conclude that VCC has made an affirmative decision to redefine its franchise area. To the contrary, the record indicates that VCC continues to expand its service area in unincorporated San Diego County, its franchise area. Accordingly, the County's argument that the Bureau's decision should be reversed is rejected, and its Application for Review is denied. V. ORDERING CLAUSES 14. Accordingly, IT IS ORDERED, that the Application for Review of the Cable Services Bureau's December 23, 1994 Memorandum, Opinion and Order granting the Petition for Reconsideration of Valley Center Cablesystems, L.P., filed by the County of San Diego, California IS DENIED. 15. IT IS FURTHER ORDERED, that the Cable Services Bureau send, by certified mail, return receipt requested, a copy of this Memorandum Opinion and Order to each of the parties. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary