WPCe 2MB%RK<3|X Times New RomanTimes New Roman BoldP\  P6Q9XP#"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+99999999S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN/70v:1:2<toc 6toc 6/` hp x (#44` hp x (#toc 7toc 70 toc 8toc 81` hp x (#44` hp x (#toc 9toc 92` hp x (#44` hp x (#2F3>4A57C6UEindex 1index 13` hp x (#4 4 ` hp x (#index 2index 24` hp x (#4 4 ` hp x (#toatoa5` hp x (#` hp x (#captioncaption6;1#XP\  P6QXP##C\  P6QP#2J7KF8G9GKQH_Equation Caption_Equation Caption711#XP\  P6QXP##C\  P6QP#endnote referenceendnote reference844#XP\  P6QXP##C\  P6QP#footnote referencefootnote reference94#XP\  P6QXP#"i~'^:DpddȨDDDdp4D48ddddddddddDDpppd|Ld|pȐD8DtdDdpXpXDdp8Dp8pdppXLDpdddXP,PhD4htDDD4DDDDDDdDp8dddddȐXXXXXJ8J8J8J8pddddppppddpddddzpdddXXhXXXXXdddhdptL8LpLDLpphhp8ZDP8pppddƐXXXpLpLpLphfDtppppppȐhXXXpDppLDd4ddC6CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxHjdDdddddd/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""T1T1T1T1T1gNH1:3:3:3:3!!!!V8[:[:[:[:T8T8T8T8D5T1P=[:[:D5P:6:N9TBN9J9J9HBHBLE=9BBBB=9N=RBRBRBRBPBPBBBBB!>H3BBHB99$BB8'@%L=NL=VBP=ZBiYC&C&BBC56%C5BBA*A&BBT8L=TBTBL=T8cJDB?2@*?2JBBBVBBBBBD5E!55!!!WiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiixxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNLLL5BB!111BBYB))ccB)155Bc)!!88BciiBB@@Pi5i5L5>VV88c!85i)"iiiiLLiii5LiiicLLLLLLLLLL!i5T6:BciLiN5!8L5BLLLLiiiiiiLLL5LLiLLiiiLLL/LLLL/LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL+LLL+LLL-LLL-LLLLLLLLLLLLLT:<8:5N8:1@-P>/B1D8VJH3THNPT:P!B[DDN8:PHHM!!BBBBTPBBBDDDN!<5/#iimx_0q_xx||tJJ_;?qcqc______=TGGcc99_XXXvEXq\\EVNNLJT\___zoetccckatoRmNeN____0Ng_=oo___99______________________iiiiiiii"0"_____e0_______________________________mmmmiiiiiiiiiiTT______gg__RRRRoo__\\\\__VVoVRRRR2(CR__2e yO- X   ) X-w #Xj\  P6G;9XP# Federal Communications Commission`)(# DA 971172 ă  yxdddy )=d yO Draft 5/23/97 =v3 Before the Federal Communications Commission  yO} Washington, D.C. 20554 ă  XX-#Xj\  P6G;9XP# "G   XA-In the Matter of:R#Xj\  P6G;9XP#)hCUID Nos. NY0335, NY0336, NY0337,  X*-R)hNY0338, NY0339, NY0340, NY0670,  X-TIME WARNER CABLER)hNY1172, NY1566, NY1567, NY1586,(#(#X  X-R)hNY0796, NY0996, NY0836, NY0837,  X-Petition for Special Relief to RevokeR)hNY1167, NY1168, NY1534, NY0352,  X-the Certification of Various New YorkR)hNY0582, NY0509, NY0588, NY0589,  X-State Franchising Authorities to R)hNY0596, NY0643, NY0668, NY0742  X -Regulate Basic Cable Service Rates R)h  X -Thpp  X[ -  MEMORANDUM OPINION AND ORDER TP  X--X` hp x (#%'0*,.8135@8:Rulemaking contained in the Cable Act Reform Order of whether to aggregate the separate  xjinterests of LECs in the same MVPD for purposes of determining affiliation is immaterial to this  Xa- xkproceeding because Bell Atlantic and NYNEX hold the bulk of their interest in CAI through  XJ- xBANX.J {O -ԍTime Warner Petition at 6, n.16 (citing Cable Act Reform Order, 11 FCC Rcd at 5964). Thus, argues Time Warner, the LECs themselves have already chosen to aggregate  xtheir interest in CAI. Furthermore, Time Warner asserts that Bell Atlantic and NYNEX are  xactively pursuing plans to merge. Time Warner states that, taken together, these facts  xdemonstrate that "Bell Atlantic and NYNEX are clearly acting in concert with respect to their  X -CAI activities."H [ yO-ԍTime Warner Petition at 6, n.16.H  X - ` Ax5.` ` Time Warner argues that the 7,000 shares of CAI Senior Preferred Stock currently  xheld by Bell Atlantic and NYNEX, standing alone, constitute an equity interest in CAI in excess  X- xof the 10% threshold established by the Commission's interim rules."J  yO.-ԍAccording to Time Warner:  ` poXxX` ` Each share of Senior Preferred Stock presently is convertible into over 16.5 shares of CAI  ` pcVoting Preferred Stock. Each share of CAI Voting Preferred Stock is presently  ` pCconvertible into 100 Shares of CAI Common Stock. Accordingly, the 7,000 shares of  ` pCAI Senior Preferred shares held by Bell Atlantic and NYNEX presently are convertible  ` pinto over 115,000 shares of CAI Voting Preferred shares, which in turn are convertible  ` pinto more than 11,000,000 shares of CAI Common Stock. Thus, when converted into  ` pCommon Stock, the 7,000 shares of Senior Preferred Stock held by Bell Atlantic and  ` p5NYNEX would equal more than 14% of the fully diluted Common shares (or about  ` p23.41% of the total common shares presently outstanding) of CAI, assuming that only the 7,000 Senior Preferred shares were converted into Common Stock. `  xTime Warner Petition at 78 (footnotes omitted). Time Warner asserts that both the Senior PreferredtoVoting  x Preferred and the Voting PreferredtoCommon conversion ratios are subject to adjustment to provide customary anti xdilution protection, as well as protect the right of Bell Atlantic and NYNEX to acquire and hold at least 45% of  {O#-CAI's fullydiluted Common Stock. Id. at 7, n.20. " Thus, argues Time  x Warner, the LEC affiliation requirement is satisfied merely by reference to Bell Atlantic and"{,N(N(ZZi"  X- x{NYNEX's Senior Preferred Stock interest in CAI.iX yOy- xZԍTime Warner asserts that this analysis is further supported by a simple "reality check" Bell Atlantic's and  xNYNEX's $100 million cash investment in CAI represents 14.6% of CAI's total assets "again well above the 10% threshold established in the [1996] Act." Time Warner Petition at 8. i To further support its argument, Time  xjWarner states that Bell Atlantic's and NYNEX's remaining interests in CAI (in 14% Term Notes  xand a warrant to purchase shares of stock), standing alone, are again sufficient to satisfy the  xaffiliation requirement because they "constitute a beneficial interest which should be deemed the  xequivalent of equity within the meaning of the affiliate definition adopted in the [1996]  X- x]Act." {O& - xԍTime Warner Petition at 9; see supra note 10 (discussing the affiliation standard adopted in the Cable Act  {O -Reform Order). As support for this assertion, Time Warner states that, in their October 12, 1995  xAmendment No. 2 to Schedule 13D filed with the SEC, Bell Atlantic and NYNEX reported that  xNtheir affiliates hold a collective beneficial interest in CAI equivalent to 49.4% (if only the  XH- xconversion and warrant rights were exercised) of the shares of CAI Common Stock (or 45.3%  X1- xon a fully diluted basis).{Z1D yO&- x-ԍTime Warner Petition at 9. Time Warner also stresses that all of Bell Atlantic's and NYNEX's conversion  xrights in CAI are immediately exercisable there are no conditions precedent (other than payment of cash on the  {O-exercise of the warrant) and no dates which must come due. Id.{ Finally, Time Warner asserts, under a Business Relationship  X - xjAgreementX f  yO1- xԍPursuant to a Commission Staff request, Time Warner submitted copies of the most recent Forms 10K, 8K,  x10Q, 13D, S1 and S3 filed by CAI and its affiliate, CS Wireless Systems, Inc. ("CS") with the SEC. Exhibit 10.12 to CAI's Form 10K dated August 19, 1996 is a redacted version of the Business Relationship Agreement. between Bell Atlantic and NYNEX and CAI, CAI has granted to Bell Atlantic and  xNYNEX the ability, on a marketbymarket basis (including the Albany, New York area), to elect  X - x{to become the marketer and provider of wireless cable services using CAI's transmission  X - xsystems.   yO - x ԍThe markets available to Bell Atlantic and NYNEX under the Business Relationship Agreement are  xPhiladelphia, PA, Washington, DC, Pittsburgh, PA, Baltimore, MD, Norfolk/Virginia Beach, VA, New York, NY,  xBoston, MA, Long Island, NY, Buffalo, NY, Providence, RI, Albany, NY, Syracuse, NY, Hartford, CT, and Rochester, NY.  Where Bell Atlantic or NYNEX elect to provide service in a market, CAI will receive  X - x/contractual monthly service revenues based on the number of serviceable households and  xsubscribers in each market. Therefore, argues Time Warner, if it so elects, NYNEX would be  xa LEC actually providing video service to subscribers in Time Warner's AlbanyTroy, New York  xfranchise areas, instantaneously satisfying the affiliation requirement of the LEC effective  Xb-competition test.Fbn yO"-ԍTime Warner Petition at 1011.F  X4- ` x6.` ` In addition, Time Warner asserts that CAI offers comparable video programming  xLservice in the 27 Affected Communities, thus satisfying the remaining requirements of the LEC effective competition test. ",N(N(ZZ"Ԍ X- ` x7.` ` Neither CAI, Bell Atlantic, nor NYNEX filed comments in this proceeding.  X- xHowever, CAI filed comments and Bell Atlantic filed reply comments in a companion LEC  X- x[effective competition case involving a cable system owned by Cox Communications, Inc. {OK- xԍCox Communications Hampton Roads, Inc., Petition for Determination of Effective Competition, CSR4793E (filed July 17, 1996). To  X- x[the extent these comments discuss the CAI Investment, we take notice of these comments and  xincorporate them in the record of this proceeding. In its comments, CAI states that, because Bell  xAtlantic and NYNEX currently have no voting equity in CAI, have not exercised their warrants,  xand have not offered a LECrelated video service to one subscriber as a result of its investment  x=in CAI, Bell Atlantic and NYNEX should not be treated as affiliates of CAI for purposes of the  XH-LEC effective competition test.<H" yO -ԍCAI Comments at 23.<  X - ` x8.` ` In its Reply Comments in the Cox Communications proceeding, Bell Atlantic  X - xLgenerally supports CAI's comments. According to Bell Atlantic, $30 million of the $100 million  x>CAI Investment is in the form of a loan which must be repaid, and the remaining $70 million  X - x=is in the form of a "nonvoting preferred instrument which also must be repaid."J  yO8-ԍBell Atlantic Reply Comments at 2.J Bell Atlantic  xstresses that, while convertible into voting stock, Bell Atlantic and NYNEX's interests in CAI  xare not yet equity interests "[b]ecause no conversion to voting stock in CAI has been  X- xeffected.. "G Ԡ "G .."LB yO-ԍBell Atlantic Reply Comments at 23.L Bell Atlantic cites the Commission's regulations regarding MMDS/cable cross Xy- xownership as the appropriate guidance in this context and argues that "debt and instruments such  xas warrants, convertible debentures, options or other nonvoting interests with rights of conversion  XK- x-to voting interests are not attributable unless and until conversion is effected."K {O- xJԍBell Atlantic Reply Comments at 2 (quoting 47 C.F.R. 21.912, Note 1(A), adopting 47 C.F.R. 76.501, Note 2(f)). Finally, with  xregard to the Business Relationship Agreement, Bell Atlantic asserts that the agreement merely  xgives Bell Atlantic and NYNEX an option to lease transmission capacity from CAI a right that  X-neither Bell Atlantic nor NYNEX has exercised.L,  yO-ԍBell Atlantic Reply Comments at 34.L  X- ` x9 .` ` On January 30, 1997, in response to a request by Commission Staff, CAI submitted  x{a redacted version of the December 12, 1996 Modification Agreement (the "Modification  xAgreement") executed by CAI, BANX, and the BANX partners which modifies the Business  X- xRelationship Agreement. The Modification Agreement provides CAI, or its designee, a oneyear" ,N(N(ZZo"  X- xkoption to purchase all (but not less than all) of the $100 million CAI Investment in CAI.Cx yOy- xԍIf CAI, or its designee, exercises its option within the first 120 days, the purchase price is $121 million; if  xexercised within the following 120 days, the purchase price is $100 million, together with accrued interest and  xdividends, plus $10 million; and if exercised during the balance of the year, the purchase price is $100 million,  xJtogether with accrued interest and dividends, plus $20 million. In connection with the closing of any such purchase,  xBell Atlantic and NYNEX have agreed to return to CAI their shares in CS Wireless Systems, Inc. representing almost  xZ10% of the outstanding stock of CS Wireless, which CAI owns jointly with Heartland Wireless Communications, Inc.C In  xthe event that CAI, or its designee, does not purchase the CAI Investment within the first 270  xydays, Bell Atlantic and NYNEX have the right to sell the CAI Investment to any party, free and  xclear of the option granted to CAI. If CAI, or its designee, exercise CAI's option to purchase  xthe CAI Investment within the oneyear period, the Business Relationship Agreement concurrently  xterminates. The Modification Agreement requires CAI to make commercially reasonable efforts  xduring the option period to secure the funds required to exercise the option, or to otherwise find  xa purchaser for the CAI Investment. If CAI obtains sufficient funds to acquire the CAI  xInvestment, the Modification Agreement further requires CAI to use commercially reasonable  xefforts to obtain any consents or other authorizations necessary to permit it to exercise such option.  X - ` x10.` ` The Modification Agreement also suspends the Business Relationship Agreement  xfor one year. During the suspension period, Bell Atlantic and NYNEX give up their right to elect  xto become the video programming marketer of wireless cable service using CAI's wireless  xdelivery platform. All deadlines for construction and other obligations set forth in the Business  xRelationship Agreement are tolled for one year and will be reinstated in the event that the  xBusiness Relationship Agreement is not terminated pursuant to the terms of the Modification  xAgreement. The Modification Agreement also permits CAI to use its MMDS spectrum in  xmarkets subject to the Business Relationship Agreement during the oneyear suspension period  xfor businesses other than video transmission, and to enter into strategic relationships with third parties.  X- ` $x11.` ` At the request of Commission Staff, Time Warner filed comments updating its  xzpetition based on the effect of the Modification Agreement. Time Warner stated that it was  xaware of the Modification Agreement through filings with the SEC and press reports, but has no  xindependent knowledge regarding CAI and its financing that would alter the claims contained in  X- xTime Warner's petition. Time Warner asserts that, based on its limited knowledge, the  x<Modification Agreement does not affect its petition, and "the facts regarding CAI's structure and  Xe-financing are the same as they were when [Time Warner's petition was] filed." e yO#- xԍJanuary 30, 1997 letter from Arthur H. Harding, Counsel for Time Warner, to Meredith J. Jones, Chief Cable Services Bureau at 2.  XN-  X7- ` x 12.` ` On April 30, 1997, CAI announced that it had renegotiated its option to repurchase"7` ,N(N(ZZ{"  X- x.the CAI Investment.! {Oy- xZԍSee CAI Renegotiates Terms with RBOCs on Securities Repurchase Option. Move Could Save Company Up to $100 Million, WWW.CAIWIRELESS.COM/0430.htm (rel. April 30, 1997). The amendment provides CAI the option through February 28, 1998 to  xrepurchase the CAI Investment for $40 million and 100,000 shares of convertible junior preferred  X- xstock.1"" {O-ԍId.1 The junior preferred stock is nonvoting, carries no coupon, has no maturity, and is  xyconvertible into 250,000 shares of CAI common stock "in the hands of a subsequent purchaser  X- xNunrelated to [Bell Atlantic and NYNEX]."1# {O -ԍId.1 As part of the amendment, Bell Atlantic and  xNYNEX released CAI from its obligation under the Business Relationship Agreement to make  xits wireless MMDS spectrum available to Bell Atlantic and NYNEX in Boston, Pittsburgh,  X_- xAlbany, Syracuse and Buffalo.1$_F {OV-ԍId.1 If CAI purchases the CAI Investment, the Business Relationship  x-Agreement will terminate releasing CAI's obligations to provide wireless MMDS spectrum to Bell  X1- xmAtlantic and NYNEX in CAI's other markets.1%1 {O-ԍId.1 Finally, Bell Atlantic and NYNEX also  xLsuspended or released CAI from a number of covenant restrictions and governance rights and  xprovided CAI with a blanket proxy relating to Bell Atlantic and NYNEX's approximately 10%  X -interest in CS Wireless Systems, Inc.1& j  {O-ԍId.1  X -  X -III.xAnalysis  X- ` x13.` ` In the absence of a demonstration to the contrary, cable systems are presumed not  Xy- xto be subject to effective competition as defined in the Communications Act.='y  yO&-ԍ47 C.F.R. 76.906.= The cable  xoperator bears the burden of rebutting the presumption that effective competition does not exist  xand so must provide evidence sufficient to demonstrate that effective competition, as defined by  X4- xSection 76.905 of the Commission's rules, is present in the franchise area.C(4  yOq -ԍ47 C.F.R. 76.911(b)(1).C Time Warner has failed to meet this burden.  X-  X- ` x14.` ` We note that Bell Atlantic and NYNEX are unquestionably LECs as defined by  X- xthe Communications Act,)X yO%-ԍThe Communications Act defines the term "local exchange carrier" as:  ` pXxX` ` any person that is engaged in the provision of telephone exchange service or exchange"5'(,N(N(X'"  ` paccess. Such term does not include a person insofar as such person is engaged in the  ` p$provision of a commercial mobile service under section 332(c), except to the extent that the Commission finds that such service should be included in the definition of such term. ` Communications Act 3(26), 47 U.S.C. 153(26). and CAI meets the Commission's definition of the term MVPD.*x {O@- xԍSee supra note 11 (discussing the definition of MVPD). As there is no evidence presented to the contrary, we conclude that Time Warner is unaffiliated with Bell Atlantic, NYNEX and CAI. "*,N(N(ZZ"  xWe therefore address the issue of whether CAI is an affiliate of Bell Atlantic and/or NYNEX.  X- ` #x15.` ` When the Commission adopted interim rules regarding the affiliation requirement  xof the LEC effective competition test, it concluded that it would use the definition of affiliate set forth in Section 3 of the 1996 Act which states that:  ` pXxX` ` The term "affiliate" means a person that (directly or indirectly) owns or  X_- ` pcontrols, is owned or controlled by, or is under common ownership or  ` pcontrol with another person. For purposes of this paragraph, the term  ` p"own" means to own an equity interest (or the equivalent thereof) of more  X -than 10 percent.+\  {O- xԍCable Act Reform Order, 11 FCC Rcd at 5944 (quoting Communications Act 3(1), 47 U.S.C. 153(1)). The  xCommission further clarified that "effective competition under the new test may be established when a LEC owns  {O/-an active or passive equity interest, or the equivalent thereof, of more than 10% in a competing MVPD." Id.į `  xIn addition, affiliation can also be demonstrated through de facto control regardless of the actual  X -ownership interest.1,  {O|-ԍId.1  X - ` x16.` ` In arguing that there exists sufficient affiliation between CAI, Bell Atlantic, and  xNYNEX for purposes of the LEC effective competition test, Time Warner relies on the CAI  xMInvestment and the Business Relationship Agreement. We will examine each in light of the changes effected by the Modification Agreement, as amended. x  X4- ` x17.` ` Bell Atlantic and NYNEX have invested in CAI through a number of different  x>financial interests. Through whollyowned subsidiary corporations, both Bell Atlantic and  xNYNEX each owns Term Notes in the principal amount of $15 million and each holds 3,500  xshares of convertible Senior Preferred Stock, having an aggregate par value of $35 million. In  xaddition, the BANX Partnership owns a warrant permitting it to acquire CAI stock in the future.  xjThe parties had also entered into the Business Relationship Agreement pursuant to which Bell  xAtlantic and NYNEX (or their affiliates) would provide and market video services over certain  X- xiof CAI's facilities. Pursuant to the Business Relationship Agreement, CAI was to receive revenue  xin certain markets without incurring the usual capital expenditures required for subscriber  xequipment and installation by virtue of Bell Atlantic/NYNEX affiliates electing to become the"e ,,N(N(ZZ"  xmarketer and provider of service using CAI's MMDS transmission systems. However, the  xBusiness Relationship Agreement has now been suspended and is no longer relevant to this  xdecision. The issue here is whether separately or in combination, these interests involve "an  X- xequity interest (or the equivalent thereof) of more than 10 percent."1- {O4-ԍId.1 In this regard, we note that  xTime Warner argues that the investment contribution made in connection with the Senior  xPreferred Stock is equity. Time Warner further argues that the investment contribution made in connection with the Term Notes and warrant is an equity equivalent.  XH- ` x18.` ` We first examine the Senior Preferred Stock and its status as equity. Without  xattempting to resolve here definitional issues that remain somewhat ambiguous in terms of  xaccounting standards and securities law more generally, we conclude, bearing in mind the  xunderlying purposes of the present review, that CAI should not be treated as a LEC affiliate based  xupon the Senior Preferred Stock component of the CAI Investment. In support of this conclusion,  xwe note that for financial accounting purposes "preferred stock that by its terms must be  xredeemed by the issuing enterprise or is redeemable at the option of the investor" is generally  X - xexcluded from the definition of "equity security.". Z yO- xԍFASB Statement of Financial Accounting Standards No. 12, Accounting for Certain Marketable Securities, 7a (December 1975). The Securities and Exchange Commission  x|has also recognized that mandatorily redeemable preferred securities may properly be  xcharacterized as similar to debt for some purposes and that it is, from an economic point of view,  Xb- x/substantially different than capital stock that is not redeemable./ b yO- xԍPresentation in Financial Statements of Preferred Stocks Subject to Mandatory Redemption Requirements or  xWhose Redemption is Outside the Control of the Issuer, Preferred Stocks Which are Not Redeemable or are  xRedeemable Solely at the Option of the Issuer, and Common Stocks, Exchange Act Release Nos. 336000, 3415358, 3520791, IC10495 (November 28, 1978) (citing FASB Statement of Financial Accounting Standards No. 12).  Thus, for SEC reporting  x[purposes mandatorily redeemable preferred stock must not be presented under a stockholder's  X4- xequity caption.104 {O-ԍId.1 The balance sheet CAI filed with the SEC lists Bell Atlantic and NYNEX's  xySenior Preferred Stock not as "shareholder's equity" but in a separate "mandatorily redeemable  xpreferred stock" account. As these SEC and accounting guidelines reflect, investments of this  xtype are definitionally ambiguous in nature, holding some attributes of debt securities and some  X-attributes of common stock.  X- ` x19.` ` In the context of our LEC effective competition analysis, the nature of our review  xis necessarily fact specific. Our mandate does not permit us to merely observe that the Senior  xZPreferred Stock has attributes of both debt and equity, we must find one way or the other. Courts  Xe- xand the Commission have considered numerous factors in analyzing debt/equity definitional issues"e , 0,N(N(ZZ"  X- xfor a variety of other ownership attribution and tax purposes. 1 {Oy- xԍSee e.g., Roth Steel Tube Co. v. Commissioner, 800 F. 2d 625 (6th Cir. 1985), cert. denied 381 U.S. 1014  {OC- x(1987); Kadlec v. Commissioner of Internal Revenue Service, 71 T.C.M. (CCH) 2399 (1996); Fox Television Stations,  {O - xInc., 11 FCC Rcd 5714 (1995); NextWave Personal Communications, 12 FCC Rcd. 2030 (Wireless  x;Telecommunications Bureau, 1997). The factors used to evaluate whether particular investments are debt or equity  xhave included some or all of the following: (1) the intent of the parties; (2) the identity between creditors and  xshareholders; (3) the extent of participation in management by the holder of the instrument; (4) the ability of the  xcorporation to obtain funds from outside sources; (5) the "thinness" of the capital structure in relation to debt; (6)  x-the risk involved; (7) the formal indicia of the arrangement; (8) the relative position of the obligees as to other  xhcreditors regarding the payment of interest and principal; (9) the voting power of the holder of the instrument; (10)  xthe provision of a fixed rate of interest; (11) a contingency on the obligation to repay; (12) the source of the interest  xpayments; (13) the presence or absence of a fixed maturity date; (14) a provision for redemption by the corporation;  x(15) a provision for redemption at the option of the holder; and (16) the timing of the advance with reference to the  xorganization of the corporation. No one factor is said to be controlling or decisive, with the court looking to the  xparticular circumstances in each case. The Commission has indicated that it regards these factors as helpful  {Oo - xcomparisons but not controlling for Communications Act purposes. Fox Television Stations, Inc., 11 FCC Rcd 5714,  x5720 (1995). All of these decisions emphasize that it is necessary to examine the economic realities of the  xtransaction under review and not simply the labels attached by the parties. In light of the economic reality  xrepresented by the Modification Agreement, as amended, the factors set forth above that are relevant to the CAI Investment do not warrant a contrary conclusion. Given the unique circumstances  x/of this proceeding, we believe the most significant factor here is the intent of the parties as  X- xreflected in the Modification Agreement, as amended.2p {O-ԍSee supra nn.3138 and accompanying text, discussing the Modification Agreement, as amended. We first observe that neither CAI, Bell  xAtlantic, nor NYNEX characterize the CAI Investment as creating an affiliate relationship. Even  xKmore compelling is the conduct between the parties as evidenced by the Modification Agreement  xand the amendment thereto. The entire CAI Investment is now subject to the obligation of CAI  x/to purchase, or find a purchaser for, all of the CAI Investment. CAI has indicated in public  X_- xfilings that is actively seeking financing "to replace the BANX Partnership."j3_ yO-ԍCAI Form 10Q at p.11 (quarterly period ended December 31, 1996). j These facts  xZpersuade us that the nature of this investment and the ongoing business relationship is such that  xthe Bell Atlantic and NYNEX interest in CAI should be not be viewed here as an equity or equivalent interest for purposes Section 76.1401(b).  X - ` Qx20.` ` In evaluating whether the entire CAI Investment (Senior Preferred Stock, Term  xNotes and warrant) constitutes an equity equivalent, it is clear, even after execution of the  xModification Agreement, as amended, that Bell Atlantic and NYNEX have a continuing interest  xin CAI. However, it also seems that this interest is inconsistent with the apparent goal of the  xLEC affiliation requirement. With regard to the CAI Investment, the Modification Agreement,  xas amended, affirmatively requires CAI to use commercially reasonable efforts to purchase, or  xfind a purchaser for, Bell Atlantic and NYNEX's entire interest in CAI. Moreover, after 270  xLdays, the Modification Agreement affords Bell Atlantic and NYNEX the opportunity to market  xtheir CAI interest to any party. The Modification Agreement, as amended, indicates that Bell  X- xAtlantic and NYNEX are no longer interested in continuing their business relationship with CAI. " 3,N(N(ZZ"  xTherefore, we find that the CAI Investment, as amended by the Modification Agreement, is not  xan equity equivalent sufficient to satisfy the affiliation requirement of the LEC effective competition test.  X- ` x21.` ` The Modification Agreement, as amended, also suspends all obligations for a one x.year period under the Business Relationship Agreement, which defines Bell Atlantic, NYNEX,  xmand CAI's cooperative effort to provide wireless video programming. In addition, the  xjModification Agreement, as amended, provides that the Business Relationship Agreement will  xterminate upon the purchase of the CAI Investment in accordance with the option granted to CAI.  xThe Modification Agreement also releases CAI's obligations to make wireless MMDS spectrum  xavailable to Bell Atlantic and NYNEX in Boston, Pittsburgh, Albany, Syracuse, and Buffalo,  xfrees CAI of the obligation to reserve the use of its MMDS spectrum in the remaining markets  xsubject to the Business Relationship Agreement for Bell Atlantic and NYNEX's use, and permits  x>CAI to contract with third parties during the suspension period to use its spectrum in such  xmarkets for businesses in addition to video transmission. In addition, neither the CAI Investment,  xthe Business Relationship Agreement, or the two in combination, as amended by the Modification  xLAgreement, establish that Bell Atlantic and NYNEX have de facto control of CAI's operations.  xWe therefore conclude that CAI is not currently an affiliate of either Bell Atlantic or NYNEX  Xb- xfor purposes of the LEC effective competition test. 4b yO- xԍThis is not to infer that the relationship between Bell Atlantic, NYNEX, and CAI will not be sufficiently rekindled at some future point to satisfy the affiliation requirement of the LEC effective competition test.  We cannot relieve Time Warner of cable  xrate regulation based on the possibility that CAI will not be able to purchase, or find a purchaser  xfor, the CAI Investment, and that Bell Atlantic and NYNEX might contractually be required to  xresume its business relationship with CAI at the end of the oneyear suspension period. We  xcannot conclude that Congress intended that cable operators should be deregulated based upon such uncertain and tenuous grounds.  X- ` 2x22.` ` Because we find that Time Warner has failed to satisfy its burden of proving that  xkBell Atlantic and NYNEX are affiliates of CAI for purposes of the LEC effective competition  xtest, we need not address, and expressly reserve judgement on, the aggregation of Bell Atlantic  xand NYNEX's interest in CAI, and whether CAI is offering comparable programming to  xsubscribers in each of the Affected Communities. As Time Warner has not submitted sufficient  xevidence demonstrating that its cable systems serving the Affected Communities are subject to LEC effective competition from CAI, its petition is denied. "  4,N(N(ZZ>"  X- IV.xOrdering Clauses  X- ` x23.` ` Accordingly, IT IS ORDERED that the Petition for Special Relief filed by Time  X-Warner Cable IS DENIED. x  X- ` ~x24.` ` This action is taken pursuant to the interim rules adopted in Implementation of  Xx- xyCable Act Reform Provisions of the Telecommunications Act of 1996, and is without prejudice  xjto any further action taken by the Commission in adopting final rules pursuant to the Notice of  XL-Proposed Rulemaking contained therein.i5L {O -ԍCable Act Reform Order, 11 FCC Rcd at 593845, 6164.i  X - ` x25.` ` This action is taken pursuant to delegate authority under Section 0.321 of the  X -Commission's rules, as amended.;6 Z yO-ԍ47 C.F.R 0.321.; x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhMeredith J. Jones x` `  hhChief, Cable Services Bureau