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XP#у  X-In rex` `  hh@hpp ) x` `  hh@hpp )  X_-Falcon Holding Group, L.P., Falcon Cable Systems pp )  XH-Company, Falcon Classic Cable Income Properties, pp )CSR Nos: 4644D, 4635D,  X1-L.P., Falcon First Communications, L.P., Falcon Videopp )4634D, 4654D, 4653D,  X -Communications, L.P., Enstar VII, Enstar VIII,hpp )4639D, 4640D, 4643D,  X -Enstar IX, Enstar X, Enstar XI, Enstar Income Program pp )4641D, 4642D, 4662D,  X -19841, Enstar Income Program II1, Enstar Incomepp )4656D, 4664D, 4661D,  X -Program II2, Enstar Income Program IV3, Enstarpp )4657D, 4659D, 4663D,  X -IV/PBD Systems Venture, Enstar Cable of Cumberlandpp )4660D, 4658D  X -Valley, Enstar Cable of Macoupin County, Enstar Inc./pp ) Growth Program SixA, Enstar Inc./Growth Program SixB)  XK-|  MEMORANDUM OPINION AND ORDER TP  X-X` hp x (#%'0*,.8135@8:ԍxId. at 7407. More recently, Congress amended Section 623 of the Communications Act to allow greater  xideregulation for "small cable operators," defined as operators that "directly or through an affiliate, [serve] in the  xaggregate fewer than 1 percent of all subscribers in the United States and [are] not affiliated with any entity or  xKentities whose gross annual revenues in the aggregate exceed $250,000,000." Telecommunications Act of 1996  x-("1996 Act"), Pub. L. No. 104104,  301(c), 110 Stat. 56, approved February 8, 1996; Communications Act   x623(m), 47 U.S.C.  543(m). Pursuant to this amendment, the rate regulation requirements of Sections 623(a), (b)  xand (c) do not apply to a small cable operator with respect to "(A) cable programming services, or (B) a basic service  xhtier that was the only service tier subject to regulation as of December 31, 1994," in areas where the operator serves  {Ou-50,000 or fewer subscribers. Id.   X - ` #x3.` ` The Small System Order defines a small system as any system that serves 15,000  X - xor fewer subscribers.^ 8e {O-ԍxSmall System Order, 10 FCC Rcd at 7406.^ The Commission recognized that systems with no more than 15,000  xsubscribers were qualitatively different from larger systems with respect to a number of  x[characteristics, including: (1) average monthly regulated revenues per channel per subscriber;  x(2) average number of subscribers per mile; and (3) average annual premium revenues per  X- x[subscriber.Ke {O#-ԍXxId. at 7408.(#K The magnitude of the differences between the two classes of systems as to these  xcharacteristics indicated that the 15,000 subscriber threshold was the appropriate point of  XQ-demarcation for purposes of providing for substantive and procedural regulatory relief.; Q\e {O^'-ԍxId. ; "Q ,-(-(ZZg"Ԍ X- ` ԙx4.` ` Rate relief provided under the Small System Order and the Commission's rules is  X- x also available to a small system affiliated with a small cable company, which is defined as a  xcable operator that serves a total of 400,000 or fewer subscribers over all of its systems. The  xCommission adopted this threshold because it roughly corresponds to $100 million in annual  xregulated revenues, a standard the Commission has used in other contexts to identify smaller  X- x<entities deserving of relaxed regulatory treatment.F e {O-ԍxId. at 740911.F The Commission found that cable companies  xexceeding this threshold would find it easier than smaller companies to attract the financing and  Xa- xinvestment necessary to maintain and improve service.C aZe {Ol -ԍxId. at 7411.C In addition, the Commission determined  xthat cable companies that exceed the small company definition "are better able to absorb the costs  X3- xand burdens of regulation due to their expanded administrative and technical resources."C 3e {O -ԍxId. at 7409.C A  xsmall system will be deemed affiliated with a cable operator when the operator "holds more than  X - xa 20 percent equity interest (active or passive) in the system or exercises de jure control (such  X -as through a general partnership or majority voting shareholder interest)." ~e {O-ԍxSmall System Order, 10 FCC Rcd at 7412 n.88. See 47 C.F.R.  76.943(a). x` `  X - ` x5.` ` In addition to adopting the new categories of small systems and small cable  X - x\companies, the Small System Order introduced a form of rate regulation known as the small  X- xsystem costofservice methodology.Fe {OU-ԍxId. at 741828.F This approach, which is available only to small systems  xowned by small cable companies, is more streamlined than the standard costofservice  xmethodology available to cable operators generally. In addition, the small system rules include  xsubstantive differences from the standard costofservice rules to take account of the  xMproportionately higher costs of providing service faced by small systems. Eligible systems  x[establish their rates under this methodology by completing and filing FCC Form 1230. In order  xto qualify for the small system costofservice methodology, systems and companies must meet  X- x[the new size standards as of either the effective date of the Small System Order, or on the date  X-thereafter when they file the documents necessary to elect the relief they seek.e {O1 -ԍxId. at 7413. The effective date of the Small System Order was August 21, 1995.  X- ` x6.` ` Cable systems that fail to meet the numerical definition of a small system, or  xwhose operators do not qualify as small cable companies, may submit petitions for special relief  xLrequesting that the Commission grant a waiver of its rules to enable the petitioning systems to  xmutilize the various forms of rate relief available to small systems owned by small cable  XT- xcompanies.FT4 e {O9'-ԍxId. at 741213.F The Commission stated that petitioners should demonstrate that they "share relevant"T ,-(-(ZZ"  X- xKcharacteristics with qualifying systems.":e {Oy-ԍxId.: Other potentially pertinent factors include "the degree  x[by which the system fails to satisfy either or both definitions, whether the system recently has  xbeen the subject of an acquisition or other transaction that substantially reduced its size or that  x?of its operator, and evidence of increased costs (e.g., lack of programming or equipment  X- xdiscounts) faced by the operator.":Ze {O-ԍxId.: If the system fails to qualify for relief based on its affiliation  xLwith a larger cable company, the Commission will consider "the degree to which that affiliation  xexceeds our affiliation standards, and whether other attributes of the system warrant that it be  X_- x\treated as a small system notwithstanding the percentage ownership of the affiliate.";_e {O -ԍxId. ; The  xCommission specifically stated that this list of relevant factors was not exclusive and invited  xpetitioners to support their petitions with any other information and arguments they deemed  X -relevant.: ~e {OI-ԍxId.:  X -  X -III. xTHE PETITIONS  X - ` Bx 7.` ` Five of the 19 Petitioners are partnerships carrying the Falcon name. They are  xmanaged directly by a common entity that also owns equity interests in these partnerships. These petitioners include:  XK- ` x8.` ` Falcon Holding Group, L.P, ("FHGLP"), CSR No. 4644D: FHGLP requests a  X4- xydeclaration that it is a small cable company within the meaning of the Small Systems Order. By  xmeeting this definition, FHGLP claims that the 170 small systems within its partnership may use  X- xzprocedures for small system relief.."e yO-  >ԍxFHGLP and other Petitioners assert that they are eligible for small system regulatory relief immediately.  xhDespite opposition from local franchise authorities, each petitioner seeks a declaratory ruling confirming immediate  xeligibility for small system relief. Accordingly, we will treat these petitions as requests for rulings on a disputed  {O!-question under the special relief provision of our rules. See 47 C.F.R.  76.7(a)(1).. At the time the petition was filed, FHGLP, through four  X- xywhollyowned partnerships, served approximately 345,000 subscribers in 21 states. e yO!-  ԍxIn its Petition, FHGLP labels these four partnerships Cable Media, Cablevision, Community and Telecable. Petition of FHGLP, Table 1. Since the  xfiling of its petition, FHGLP acquired Falcon Cable Systems Company ("Systems"), increasing  xthe number of subscribers it now serves to approximately 480,000. FHGLP contends that the  xaverage numbers of subscribers and homes per plant mile for its systems bear a strong  xresemblance to the typical small operator. According to the petition, several institutional  X~- xjinvestors hold 62.1 percent of FHGLP's equity in the form of limited partnership interests. The"~R ,-(-(ZZP"  x Marc Nathanson family holds 26.2 percent in the form of limited partnership interests. The  X-Petition states that the 11.6 percent general partner is owned by "Falcon management."e yOb-  ԍxPetition of FHGLP at 2. In FHGLP's Securities and Exchange Commission Form 10K for the Fiscal Year Ending December 31, 1995 at 3, the general partner is listed as Falcon Holding Group, Inc. ("FHGI").  X- ` Bx9.` ` Falcon Cable Systems Company ("Systems"), CSR No. 4635D: At the time its  xpetition was filed with the Commission, Systems was a California master limited partnership that  xowned and operated 42 cable television systems in California and Oregon. As of June 30, 1995,  Xv- x-Systems served approximately 135,000 subscribers._v e yOG -ԍxPetition of Falcon Cable Systems Company at 2._ Nearly 70% of the equity was publicly held  xin the form of limited partnership interests traded on the American Stock Exchange. About 29%  xof the equity was held by members of the Marc Nathanson family and a one percent interest was  X1- x.held by FHGLP which served as the general partner.1e {O-ԍxId. at 12; Reply of Falcon Cable Systems Company to Oppositions to Petition for Special Relief at 4. In July, 1996, FHGLP acquired Systems  X -for approximately $247 million.X Be {O -ԍxCable World, July 22, 1996 at 53.X  X - ` x10.` ` Falcon Classic Cable Income Properties, L.P. ("Classic"), CSR No. 4634D:  xClassic describes its partnership as having ten systems. Each system within the partnership  xserves fewer than 15,000 subscribers. The partnership's total subscribership is approximately  x[47,000. Classic is managed by FHGLP pursuant to a management contract. Under the contract  xOFHGLP receives a management fee and reimbursement of expenses. Classic requests  x[confirmation that it is not affiliated with a larger entity under the "Falcon umbrella" and that its  Xb- xsystems are eligible for small system treatment.qbe yO-ԍxPetition of Falcon Classic Cable Income Properties, L.P. at 23.q According to Classic's Petition, "the 1%  xigeneral partner is majorityowned by various individuals and entities associated with the umbrella  X4-Falcon organization."B4d e {OI-ԍxId. at 12.B The Classic Petition explains that this one percent entity is FHGLP.q|4 e {O-  ?ԍxId. at 3. In FHGLP's Securities and Exchange Commission Form 10K, filed for the fiscal year ended  xDecember 31, 1995, FHGLP listed Marc B. Nathanson as 100% owner of the general partnership interest in FHGLP.  xThe 10K also shows that limited partnership interests are held by: Marc B. Nathanson (35.3%); Hellman & Friedman  xCapital Partners and Hellman & Friedman Capital Partners II, L.P. ( 35.9%); Leeway & Co. (10.9%); and Boston  xVentures (6.9%). Other limited partnership interests are held in smaller percentages by various officers of Falcon  {O"- xiHolding Group, Inc. and members of the Board of Representatives of FHGLP. See FHGLP Form 10K for Fiscal Year Ending December 31, 1995 at 5152.q  X- ` `x11.` ` Falcon First Communications, L.P. ("First"), CSR No. 4654D: First operates 20  xcable systems in three states. Its total subscribership exceeds 75,000. All but one of these 20  xsystems serves fewer than 15,000 subscribers. First is managed by FHGLP pursuant to a":,-(-(ZZ"  xmanagement contract that pays a fee to FHGLP and reimburses expenses. Corporate and  xpartnership venture investors hold 95 percent of the equity as limited partnership interests. The  xfive percent general partner "is majorityowned by various individuals and entities associated with  X-the umbrella Falcon organization."fe yO4-ԍxPetition of Falcon First Communications, L.P. at 12.f  X- ` x12.` ` Falcon Video Communications, L.P. ("Video"), CSR No. 4653D: Video owns  xand operates 17 systems in six states. As of June 30, 1995, Video served approximately 66,000  xbasic subscribers. A diverse group of investors hold 95.1 percent of the equity in the form of  xlimited partnership interests. The 4.9 percent general partnership is "majorityowned by various  X1-individuals and entities associated with the umbrella Falcon organization."f1Xe yO: -ԍxPetition of Falcon Video Communications, L.P. at 12.f  X - ` x13.` ` Fourteen of the Petitioners in this proceeding are Falcon partnerships that carry  x the Enstar name. The systems they operate, however, carry the Falcon brand label and are  xknown in their respective communities as "Falcon Cable TV." Each of these partnerships  X - xrepresents that it operates its systems "within the penumbra of the Falcon name." Z e yOW-  ԍxPetition of Enstar XI at 2. Page two of all of the Enstar petitions contain the same representation that each  {O- xxEnstar partnership operates its systems "within the penumbra of the Falcon name." See, e.g., Petition of Enstar IV/PBD Systems Venture at 2; Petition of Enstar VII at 2. Most of the  xequity in these partnerships is held by limited partners. The general partner for the Enstar  xjpartnerships, however, is Enstar Communications Corporation ("ECC") which is owned by one  xof the FHGLP partnerships. As described in the respective petitions, the Enstar partnerships include:  X4- ` Bx14.` ` Enstar VII, CSR No. 4639D: Enstar VII operates one cable system serving 685  xsubscribers in Pageland, South Carolina. Individuals hold 95 percent of the equity in the form  xof limited partnership interests. The five percent general partner, ECC, "is indirectly wholly X-owned by various individuals and entities associated with the umbrella Falcon organization."O! e yO-ԍxPetition of Enstar VII at 12.O  X- ` x15.` ` Enstar VIII, CSR No. 4640D: Enstar VIII owns and operates one system serving  X- x475 subscribers in Chesterfield, South Carolina. Individuals hold 99 percent of the equity as  xlimited partnership interests. The one percent general partner, ECC, "is indirectly whollyowned  X|-by various individuals and entities associated with the umbrella Falcon organization."P"|e yO#-ԍxPetition of Enstar VIII at 12.P  XN- ` x16.` ` Enstar IX, CSR No. 4643D: Enstar IX owns and operates one system serving  x[approximately 3,000 subscribers in Mobile, Alabama. Individuals hold 99 percent of the equity"7* ",-(-(ZZ"  x\as limited partnership interests. ECC holds a one percent interest and serves as the general  X-partner.N#e yOb-ԍxPetition of Enstar IX at 12.N  X- ` x17.` ` Enstar X, CSR No. 4641D: Enstar X owns and operates a cable system serving  xapproximately 3,400 subscribers in Ripley, Tennessee. Individuals hold 99 percent of the equity  X-as limited partners, and one percent of the equity is held by its general partner, ECC.M$Xe yO-ԍxPetition of Enstar X at 12.M  X_- ` x18.` ` Enstar XI, CSR No. 4642D: Enstar XI owns and operates a cable system serving  xMapproximately 2,000 subscribers in Ashdown, Arkansas. Individuals hold 99 percent of the  X1-equity in the form of limited partnership interests. The one percent general partner is ECC.N%1e yO -ԍxPetition of Enstar XI at 12.N  X - ` x19.` ` Enstar Income Program 19841, CSR No. 4662D: Enstar Income Program 19841  xowns and operates six systems in three states Tennessee, North Carolina and South Carolina.  xCollectively, the systems serve 12,000 subscribers. Individuals hold 99 percent of the equity as  X -limited partnership interests. One percent of the equity is held by the general partner, ECC.a& xe yO-ԍxPetition of Enstar Income Program 19841 at 12.a  X- ` x20.` ` Enstar Income Program II1, CSR No. 4656D: Enstar Income Program II1 owns  xand operates three systems serving approximately 7,000 subscribers in Illinois. Individuals hold  xM99 percent of the equity as limited partnership interests. The one percent general partner is  XK-ECC._'Ke yO-ԍxPetition of Enstar Income Program II1 at 12._  X- ` x21.` ` Enstar Income Program II2, CSR No. 4664D: Enstar Income Program II2 owns  xand operates five systems in two states Illinois and Missouri. Together, the systems serve  xapproximately 8,900 subscribers. Individuals hold 99 percent of the equity as limited partnership interests. The general partner, ECC, owns a one percent equity interest.  X- ` 4x22.` ` Enstar Income Program IV3, CSR No. 4661D: Enstar Income Program IV3  xjowns and operates three systems in two states Illinois and Kentucky. Together the systems  x=serve approximately 6,200 subscribers. Individuals own 99 percent of the equity in the form of  Xe-limited partnership interests. The one percent general partner is ECC._(ee yO$-ԍxPetition of Enstar Income Program IV3 at 12._ "N( (,-(-(ZZ"Ԍ X- ` %x23.` ` Enstar IV/PBD Systems Venture, CSR No. 4657D: Enstar IV/PBD Systems  x=Venture owns and operates three systems in two states Illinois and Missouri. Together, the  x=systems serve approximately, 13,600 subscribers. Individuals own 99 percent of the equity as  X-limited partnership interests. The one percent general partner is ECC.b)e yO4-ԍxPetition of Enstar IV/PBD Systems Venture at 12.b  X- ` cx24.` ` Enstar Cable of Cumberland Valley, CSR No. 4659D: Enstar Cable of  xCumberland Valley owns and operates 10 systems in three states Kentucky, Tennessee and  xKMissouri. Together, the systems serve approximately 17,000 subscribers with the largest of these  xsystems serving approximately 3,300 subscribers. Two limited partnerships own 50 percent each  x[of this petitioner. In turn, 99 percent of the equity of each of these two partnerships is held by  X -individuals in the form of limited partnership interests. The one percent general partner is ECC.f* Xe yO# -ԍxPetition of Enstar Cable of Cumberland Valley at 12.f  X - ` x25.` ` Enstar Cable Macoupin County, CSR No. 4663D: Enstar Cable Macoupin County  xowns and operates two systems serving approximately 4,400 subscribers in Illinois. Individuals  xhold 99 percent of the equity in the form of limited partnership interests. The one percent  X -general partner is ECC.a+ e yO@-ԍxPetition of Enstar Cable Macoupin County at 12.a  Xy- ` x26.` ` Enstar Inc./Growth Program SixA, CSR No. 4660D: Enstar Inc./Growth Program  xSixA owns and operates nine systems in two states Tennessee and Illinois. Together the  xsystems serve approximately 10,000 subscribers. Individuals own 99 percent of the equity as  X4-limited partnership interests. The one percent general partner is ECC.e,4xe yO]-ԍxPetition of Enstar Inc./Growth Program SixA at 12.e  X- ` x27.` ` Enstar Inc./Growth Program SixB, CSR No. 4658D: Enstar Inc./Growth Program  xSixB owns and operates six systems in three states Missouri, Utah and Georgia. Together,  xthe systems serve approximately 6,500 subscribers. Individuals hold 99 percent of the equity as  X-limited partnership interests. The one percent general partner is ECC.e-e yOc -ԍxPetition of Enstar Inc./Growth Program SixB at 12.e  X|- "|-,-(-(ZZ2"Ԍ X- IV.xDISCUSSION  X- ` x28.` ` A common premise runs throughout the petitions._.e yOK-  ԍxThroughout this Order, when referring collectively to all Petitioners and the partnerships and systems they  xrepresent, we will follow the references used by the petitioners themselves in their filings with the Commission.  x<Accordingly, where appropriate, we will refer to these entities as the "Falcon entities," "Falcon systems," or the  x"Falcon partnerships." When referring only to the Falcon partnerships carrying the Enstar name, we will refer to them as the "Enstar partnerships."_ The petitions assert that  xeach respective partnership is, for the most part, a collection of small systems with all the  x economic and financial concerns that are characteristic of a small system. Collectively, systems  xMwithin the Falcon partnerships average just over 2,400 subscribers, and only five of the 311  xsystems have more than 15,000 subscribers. These Petitioners assert that the average number of  xjsubscribers per plant mile is only 27 compared to the 35.3 average for the average small system  XH- xkserving fewer than 15,000 subscribers.z/Hxe {Oq-ԍxSee, e.g., Petition of Falcon First Communications, L.P. at 3, n.2.z Financing arrangements are based not on the total  xoperations of Falcon entities, according to the Petitioners, but on the individual financial  X - xicondition and operating results of each partnership.0 e {O-  ԍxSee, e.g., Petition of Falcon Classic Cable Income Properties, L.P. at 5; Petition of Enstar IV/PBD Systems Venture at 5. These characteristics, they claim, establish  xthe inherent small system nature of hundreds of Falcon systems, justifying their eligibility for  xLrelaxed regulatory treatment. In essence, the requests set forth in all of these petitions turn on  x.the same fundamental issue whether the systems within the Falcon partnership are affiliated  xwith other Falcon entities that collectively serve a subscriber base beyond the 400,000 ceiling for  X -special rate relief under the Small System Order.  X{- ` x29.` ` The various Falcon partnerships assert that the systems they operate match the  xtypical characteristics of small cable systems. Each partnership contends that financing is  xextended based solely on its own resources and operating results. According to the Petitioners,  xresources and funds are not commingled between or among the partnerships and none of the  X- x partnerships executes guarantees to assist the financing of any other Falcon entity.1d e {O4-  ԍxSee, e.g., Petition of Falcon Classic Cable Income Properties, L.P. at 45; Enstar Cable of Cumberland Valley at 5. The  xpartnerships argue that these independent financial arrangements prevent the sharing of resources.  xAlthough all Falconrelated entities together serve over 760,000 subscribers, these individualized  xfinancial arrangements, according to the respective partnerships, foreclose a finding of  X-affiliation.W2 e {O2$-  ԍxSee, e.g., Petition of Falcon First Communications, L.P. at 34: "All of the Falconrelated entities have a  xI total of over 760,000 subscribers; however, their small system character and their attenuated relationship to each other  xbelie characterizing Falcon as one MSO. Indeed, each of the Falcon partnership entities individually qualifies as a  xsmall cable company. In this petition and a series of parallel petitions, First and various other Falcon entities  xdemonstrate that the connection between Falcon and these entities is sufficiently attenuated that they should fall"T'1,-(-(z'" outside the purview of the Commission's affiliation rules regarding small cable companies."W" X2,-(-(ZZq"Ԍ X- ` ԙx30.` ` A number of municipal entities oppose the petitions relevant to their respective  xfranchise areas. In its opposition to the FHGLP petition, the Georgia Municipal Association  x("GMA") cites media reports in which Falcon is described as an operator serving more than one  xmillion customers, suggesting that the Falcon entities are sufficiently related to undermine claims  X- xof nonaffiliation set forth in the Falcon petitions.f3Xe yO-ԍxGeorgia Municipal Opposition to FHGLP Petition at 12.f GMA also cites a 1993 Securities and  xExchange Commission ("SEC") filing in which the head of FHGLP describes Falcon as "one of  xthe largest cable television operators in the United States" which owns systems with 476,900  xsubscribers and "controls, holds varying equity interests in, and manages" systems serving  XH- x630,400 subscribers.A4He {O -ԍxId. at 13.A In addition, GMA argues that the Falcon entities are managed as one  xbusiness, have access to sophisticated cable system expertise, and obtain programming discounts  X -due to large volume transactions encompassing multiple Falcon entities.D5 ze {OE-ԍxId. at 1417.D  X - ` x31.` ` The Regional Cable Commission ("RCC"), an association of franchise authorities  xyin Oregon, also opposes FHGLP's petition. RCC contends that FHGLP is the general partner of  x-Falcon entities serving at least 760,000 subscribers, including the partnerships within FHGLP and  xthe systems under Falcon Cable Systems Company. As general partner, RCC asserts, FHGLP  X- xhas de jure control over systems with subscriber totals well in excess of the 400,000 threshold.Z6 e yOM-ԍxRCC Opposition to Petition of FHGLP at 4.Z  x In Opposition to the Petition of Enstar Income Program 19841, Pitt County, North Carolina  Xd- x[contends that FHGLP exercises de jure control over Enstar because administrative matters and  XO-correspondence involving the system are coordinated through FHGLP personnel.{7Oe yO-ԍxPitt County Opposition to Petition of Enstar Income Program 19841 at 78.{  X!- ` x32.` ` The Naval Postgraduate School, which has granted a franchise to one of the  xsystems within the Falcon Cable Systems Company partnership, claims that the local Falcon  xsystem itself has represented that it provides service to more than one million households. It  x[cites a franchise renewal proposal filed by the system for the La Mesa Housing Complex at the  xNaval Postgraduate School in Monterey, California. The excerpt provided from that proposal states in part:  ` XxPxX` ` Falcon Cable TV and its affiliated entities currently provide a wide range of cable  ` #services to over one million households in more than 700 small and medium sized  ` communities located in 27 states. As a large national company with diverse  ` Presources and an accomplished and experienced staff, Falcon Cable takes pride in"; , 7,-(-(ZZ"  ` its ability to bring urbantype services to small and rural markets. Clearly, our  ` company has all the necessary experience, qualifications, and financial strength  ` needed to provide the system and services we are proposing for the La Mesa  X-Village Housing Complex.8e yO4-ԍxOpposition of Naval Postgraduate School to Petition of Falcon Cable Systems Company at 6.(#`  X- ` x33.` ` Several California and Oregon cities have filed their oppositions to the Systems  xyPetition, incorporating the opposition comments of other entities, including the Regional Cable  X_- x[Commission and the Navel Postgraduate School.9_Xe {Oh -ԍxSee, e.g., Opposition of City of Gilroy at 1; Opposition of Monterey County at 5. These municipalities further state that they  xgranted franchises to individual systems that are the subject of the petitions based on  X1- xrepresentations that these systems were affiliated with a national concern.4:Z1e {O -  ԍxSee, e.g., Comments opposing Systems Petition filed by the Oregon communities of Cannon Beach, Drain,  xGaribaldi and Lake County, and the California communities of Gilroy, Hollister, Morgan Hill and San Luis Obispo County.4 In addition, a number  xKof municipalities have requested the Commission to obtain additional information from the Falcon  x partnerships, including the partnership agreements themselves, to enable a more thorough  X -evaluation of the respective claims for small system regulatory relief.t;Z e {O-  LԍxSee, e.g., Oppositions to Systems Petition filed by the Regional Cable Commission at 11, Monterey County,  xCalifornia at 5, and Lincoln City, Oregon at 3; Oppositions to Petition of Enstar Cable of Cumberland Valley filed by Greensburg, Kentucky at 23, and Monticello, Kentucky at 4. t  X - ` ox34.` ` In reply comments, FHGLP states that it owns between one and five percent of  xeach of the 17 Falcon partnerships apart from the Systems partnership and the four partnerships subsumed within FHGLP. It further notes:  ` XxX` ` FHGLP manages all of the cable systems contained in the 22 partnerships under  ` a series of management contracts. When decisions need to be made affecting one  ` or more systems in a partnership and these decisions involve matters where  ` specialized experience needs to be brought to bear, the decisions are deferred to  ` pFHGLP. FHGLP has a staff with extensive experience in the cable television  ` industry. It would be folly to have the various regions and partnerships making  ` Bdivergent decisions on important matters which affect the operation of a cable  ` rsystem. Indeed, it would be a dereliction of FHGLP's duties under its  X-management contracts to permit this to happen.N<. e yO#-ԍxReply Comments of FHGLP at 3.N(#`  x.FHGLP again emphasizes that it does not assist the financing of other Falcon entities and that  x-funds loaned to FHGLP from banks and other credit institutions cannot be applied to any entities  xother than FHGLP. This kind of standalone credit agreement, FHGLP explains, suggests that"N <,-(-(ZZ"  x[FHGLP, like other Falcon partnerships, does not obtain whatever capital benefits that could be  x/derived from the commingling of funds or the execution of crossguarantees among Falcon  X-entities.=e yOK-ԍxReply Comments of Falcon Cable Systems Company at 4; Reply Comments of FHGLP at 4.  X- ` x35.` ` In the Small Systems Order, the Commission sought to target regulatory relief to  xsmall cable entities lacking access to the financial resources, purchasing discounts and other  Xx- xefficiencies of larger companies.D>xXe yO -ԍx10 FCC Rcd at 7408.D A system is eligible for relief if it serves 15,000 or fewer  Xa- xsubscribers and is unaffiliated with an operator that serves more than 400,000 subscribers.C?ae {O -ԍxId. at 7406.C  xDespite a combined subscribership within the Falcon universe of at least 760,000 subscribers,  x\Petitioners claim they are entitled to small system treatment because none of the affiliations  xbetween or among Falcon partnerships reach 400,000 subscribers under the 20 percent equity  x.standard. While acknowledging the pervasiveness of the Falcon brand, the Petitioners seek a  x\declaration that they are unaffiliated under our rules. Referring to the Commission's goal of  xiraising the capital attractiveness of small cable systems, the partnerships explain that the financial  xselfsufficiency of each partnership prevents the individual partnerships from obtaining the capital access benefits of large operators.  X{- ` x36.` ` We decline to grant the relief requested in these petitions. Without the need to  xdissect the complex equity arrangements that exist among the Falcon partnerships, we conclude  XM- xthat all of the partnerships fall under the de jure control of FHGLP, a cable operator with a  xysubscriber base far above the ceiling for small cable companies. Accordingly, the partnerships  xwhose petitions are consolidated in this proceeding are affiliated with FHGLP for purposes of  X -the Small System Order.  X- ` x37.` ` As explained in the Small System Order, de jure control means a controlling  X- xinterest "such as through a general partnership or majority voting shareholder interest."I@ze yO-ԍx10 FCC Rcd at 7412 n.88.I Here,  x=through its own representations, FHGLP is the general partner of Falcon Classic Cable, Falcon  X- xFirst Communications, and Falcon Video Communications.A e {OV!-  ԍxSee Reply Comments of FHGLP, Exhibit A. See also Petition of Falcon Classic Cable Income Properties, L.P. at 12; Petition of Falcon First Communications, L.P. at 12; Falcon Video Communications, L.P. at 12.  Although FHGLP is not the  ximmediate general partner of the 14 Enstar partnerships, one of FHGLP's wholly owned  x<partnerships holds a controlling equity interest in Enstar Communications Corporation, the entity  XV- xthat serves as the general partner for all of the Enstar partnerships.BVd e {Ok&-  ԍxSee Reply Comments of FHGLP, Exhibit A. See also FHGLP SEC Form 10K for Fiscal Year Ending December 31, 1995 at 40. Accordingly, FHGLP,"V B,-(-(ZZ"  X- x"through a general partnership or majority voting shareholder interest," exercises de jure control over the Enstar partnerships (emphasis added).  X- ` x38.` ` The various partnerships benefit from their relationships with FHGLP. All of the  xpartnerships have entered management contracts that confer on FHGLP the authority to render  X- xmanagement decisions on behalf of hundreds of Falcon systems.Ce yO-  ԍxWe note that some of the partnerships may have entered management contracts with entities under the control or direction of FHGLP. FHGLP itself explains that  xMit has implemented consolidated management of the Falcon systems in order to provide the  xNvarious systems the benefits of "a staff with extensive experience in the cable television  XJ- xindustry."KDJ e yO -ԍxFHGLP Reply Comments at 3.K FHGLP acknowledges that it buys programming on behalf of the various Falcon  X3- xpartnerships in order to obtain volume discounts.@E3e {O-ԍxId. at 6.@ Moreover, at least one Falcon partnership has  xKrepresented in a franchise application that "Falcon Cable TV and its affiliated entities" serve more  xjthan one million households and have the associated expertise and financial strength that flow  xfrom being "a large national company with diverse resources and an accomplished and  X - xjexperienced staff."F Be yO-  ԍxComments of Naval Postgraduate School at 6 (citing Franchise Renewal Proposal for La Mesa Housing Complex, Monterey, California). These factors distinguish the Falcon partnerships from small entities that  X -lack the "purchasing discounts, and other efficiencies of larger companies."DG e yO -ԍx10 FCC Rcd at 7408.D  X- ` x39.` ` Our decision in Insight Communications Company, L.P. is instructive.HH* e yOm-ԍx11 FCC Rcd 1270 (1995).H There,  xwe agreed with a petitioner's claim of nonaffiliation with Continental Cablevision, Inc., a large  xmultiple system operator ("MSO"), based on several factors, including the absence of contacts  xbetween respective managements, the lack of common officers and directors, and the lack of  X8- xinvolvement in routine operations like programming and property dispositions.JI8 e yO-ԍx11 FCC Rcd at 1273.J Moreover, we  xnoted that Continental had no interest in the general partner that operated the petitioner's  X - xsystems.:J J e {O#-ԍxId.: We therefore concluded that the petitioner did not benefit from Continental's  X- xmanagement expertise or experience.:Ke {O%-ԍxId.: Unlike the circumstances in Insight, the Falcon  xpartnerships share the benefits of common management, operational expertise, and other  x.efficiencies such as high volume programming discounts. Although FHGLP argues that some" nK,-(-(ZZ"  X- xlarge MSOs receive even better discounts,MLe yOy-ԍxFHGLP Reply Comments at 67.M the efficiencies and leverage relevant to the affiliation  X- xinquiry are present.MXe yO-  jԍxWe do not suggest that the mere existence of high volume program discounts controls the affiliation inquiry.  {O- xFor example, in Insight Communications, the Petitioner obtained access to some programming discounts through a  {O- xLlarge MSO. Unlike the circumstances here, however, the large MSO in Insight Communications did not hold  {ON- xmanagement contracts with the Petitioner or own equity interests in the Petitioner's general partner. In re Insight  {O-Communications, 11 FCC Rcd at 1272. And, unlike the large cable operator in Insight, FHGLP holds an ownership  X-interest in the petitioning entity's general partner.;Ne {O -ԍxId. ;  X- ` ox40.` ` The use of the Falcon brand by the Petitioners' systems illustrates the value of  xcentralized control. FHGLP acknowledges that the "Falcon Cable TV" brand is used by all of the partnerships.  ` XxX` ` This is done because FHGLP manages these partnerships and the use of a  ` 6common name creates a brand identity which helps in marketing and  ` communications, and sends the message that FHGLP has the resources and  X -expertise to successfully manage the partnerships' systems.aO\ e {OX-  ԍxReply Comments of FHGLP at 5. See also Reply Comments of Falcon Cable Systems Company at 5. The  {O"- xsystems owned by the Enstar partnerships also operate under the Falcon Cable TV name. See, e.g., Petition of Enstar Cable Macoupin county at 2.a(#`  X - xFHGLP, in its Reply Comments, suggests that the public perception arising from widespread use  X - xzof the Falcon Cable TV brand is not relevant to the regulatory definition of affiliation.:P e {O7-ԍxId.: We  xdisagree. The Falcon brand confers on systems using it a measure of expertise and operating  xcredibility in the eyes of consumers and investors. FHGLP acknowledges this utility by stating  xthat use of the brand assists the partnerships in their marketing and communications efforts.  xFHGLP, by attaching the Falcon label to the systems it manages, confers intangible economic  x-benefits on these systems, even if the benefits come in the form of assistance with marketing and  X6-communications.]QZ6X e yO?!-  ԍxIndeed, individual Falcon systems have emphasized their association with the Falcon umbrella organization  {O"- xin an effort to secure local franchises. See, e.g., Opposition of Naval Postgraduate School to Petition of Falcon Cable Systems Company at 6. ]  X- ` ~x41.` ` We are unpersuaded by assertions of nonaffiliation based on claims that each  xFalcon partnership is little more than disparate, independent entity for financial purposes. Despite  xassertions that provisions in the various partnership agreements require financial independence  x0and insularity, we cannot conclude that such provisions by themselves should defeat a"zQ,-(-(ZZ"  xdetermination of affiliation. First, as noted above, the authorized use of the Falcon Cable TV  xbrand confers some economic benefit on all systems that use it. Second, we note that the Falcon  xpartnerships are not claiming a shortage of needed capital. Indeed, some of the Falcon systems  X- x!are finding investors with an interest in acquiring them.xRe yO4-ԍxCable World, July 22, 1996 at 53 (noting FHGLP acquisition of Systems).x Third, the factors of common  xmanagement and operating efficiencies are inherently related to capital attractiveness. Investors  X- xlook to the reliability and experience of management in making investment decisions.ZSZXe {O-  \ԍxSee, e.g., Reply Comments of FHGLP, Exhibit B (Letter from Banque Paribas): "Banque Paribas has had  xa long and positive relationship with the management of Falcon Cable TV, and consider (sic) them to be one of the top management teams in the cable industry."Z  xjSimilarly, operating efficiencies like programming discounts lead to cost savings that affect the  xbottom line. Lower costs mean higher cash flows which enhance capital attractiveness. We do  xknot base our finding of affiliation on the availability of capital or financial assistance among  xFalcon entities. We note, however, that the record does not indicate that the asserted financial  xindependence provisions in the partnership agreements have actually foreclosed the "ability to  X -attract capital."DT ze yO.-ԍx10 FCC Rcd at 7407.D  X - ` x42.` ` We also examined the asserted claims of financial independence made by the  xyEnstar partnerships. Each Enstar partnership states that it is controlled and partially owned by  x\ECC and that its partnership agreement "specifically limits the comingling (sic) of corporate  X- xfunds and disallows crosscapitalization."nU e {OK-ԍxSee, e.g., Petition of Enstar Income Program IV3 at 4.n Each Enstar partnership also states that it "cannot  Xy- xguarantee, directly or indirectly, the financial commitments of other Falcon entities."@Vye {O-ԍxId. at 4.@ We note,  x>however, that in the SEC Form 10K filed by FHGLP for the fiscal year ending December 31,  x]1995, FHGLP states that ECC, "a whollyowned subsidiary" of one of the FHGLPowned  xpartnerships, "has guaranteed the debt obligations of certain Enstar partnerships in which it  X- x.[FHGLP] acts as general partner."tW. e yO-ԍxFHGLP SEC Form 10K for Fiscal Year Ending December 31, 1995 at 40.t At a minimum, this indirect guarantee of individual Enstar  x[partnership debt obligations by other Enstar partnerships through ECC evidences a sharing of  xfinancial resources. The assets of ECC are the collective equity interests it holds in the various  x=Enstar partnerships. As noted earlier, ECC itself is owned by a partnership entity that, in turn,  X-is owned and controlled by FHGLP.lX e {O0$-ԍxId.. See also FHGLP Reply Comments, Exhibit A.l  X- ` x43.` ` Thus, despite assertions that each partnership's capital terms depend solely on the  xassets and operations of that partnership, we conclude that FHGLP, through its series of equity"|P X,-(-(ZZn"  xrelationships and its management and operational control of the various Falcon partnerships,  X- xmaintains de jure control over these partnerships. This level of control is sufficient to  xdemonstrate that the petitioners are affiliated with FHGLP, an entity whose subscriber totals well exceed the 400,000 ceiling for small cable companies.  X- ` px44.` ` Finally, we note that FHGLP, emphasizing the small system attributes of the  xsystems it owns directly, has requested a waiver of the 400,000 ceiling to enable small system  Xa- xiregulatory treatment of the FHGLP systems.HYae yO-ԍxPetition of FHGLP at 6.H One of the factors relevant to our decision to grant  x-or deny such a request is the degree to which the operator fails to satisfy the definition of a small  X3- x[cable company.Z3Xe {O< -ԍx10 FCC Rcd at 7412; In re Marcus Cable Properties, Inc., DA 96395 (June 11, 1996) at 7. The size of the operator is "a relevant factor in all cases," and the operator's  X - xsize will weigh strongly against the request when it significantly exceeds the 400,000 ceiling.a[ e {O-ԍxIn re Marcus Cable Properties, Inc. at 10.a  xHere, the excess beyond 400,000 is substantial as the total subscribership within the relevant  xjFalcon universe, based on our analysis in this proceeding, exceeds 760,000. Moreover, in light  x1of other benefits conferred on Falcon systems by affiliation with FHGLP, "we see no  X -countervailing circumstances of equal weight.":\ |e {O-ԍxId.: The waiver request is denied.  X{- 0# X-0V.xORDERING CLAUSES  XM- ` x45.` ` Accordingly, IT IS ORDERED that the Petitions for Special Relief filed by the  X6- xFalcon partnerships requesting a declaration of eligibility for small system rate relief ARE  X-DENIED .  X- ` ox46.` ` This action is taken pursuant to delegated authority under Section 0.321 of the  X-Commission's rules.F]e yO-ԍx47 C.F.R.  0.321.F x` ` x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  x` `  hhMeredith J. Jones x` `  hhChief, Cable Services Bureau