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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) ) CSR 4724-E TRI-LAKES CABLE, ) MONUMENT, COLORADO ) ) CUID No. CO 0167 Petition for Determination of ) Effective Competition ) MEMORANDUM OPINION AND ORDER Adopted: August 20, 1997 Released: August 25, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. Tri-Lakes Cable ("Tri-Lakes") has filed a petition pursuant to Section 76.915(f) of the Commission's rules seeking a determination of effective competition for the uncertified franchise area of Monument, Colorado. American Telecasting, Inc. ("ATI"), a competing multichannel video service provider serving Monument, filed an opposition to the petition, and Tri-Lakes filed a reply. ATI subsequently filed a surreply, and Tri-Lakes filed a response to the surreply. In addition, Tri-Lakes filed a response to a staff information request. We note, too, that prior, and subsequent, to Tri-Lakes' filing of its petition, Tri-Lakes and ATI exchanged a number of letters discussing various issues involved in this proceeding. The parties have attached the letters as exhibits to their pleadings. 2. The Communications Act provides that only the rates of cable systems that are not subject to effective competition may be regulated. The Act permits local franchising authorities to become certified to regulate the basic cable service rates of cable operators that do not face effective competition. The Commission's rules presume that effective competition does not exist and place the burden on the cable operator to show that it does face effective competition in a given franchise area. Ordinarily, effective competition demonstrations take the form of a petition for reconsideration or a petition for revocation of a local franchise authority's certification to regulate the rates of the basic service tier. In franchise areas in which the franchising authority does not become certified to regulate basic cable service tier rates, cable operators remain subject to many of the rate requirements of the Communications Act and the Commission's rules, such as the regulation by the Commission of unreasonable cable programming service tier rates and the uniform rate structure requirement. A cable system operating in an uncertified franchise area may seek a determination of effective competition through a petition for change in regulatory status under Section 76.915(f) of the Commission's rules. A successful petition for change in regulatory status exempts a cable operator from rate regulation in the same manner as would a successful petition for reconsideration or revocation of a local franchising authority's certification. 3. Cable operators filing petitions for change in regulatory status must prove that they are subject to effective competition under one of the four tests set forth in Section 76.905(b) of the Commission rules. One basis upon which a cable operator may be deemed subject to effective competition is the competing provider test. Under the competing provider test, a cable system is subject to effective competition if the franchise area is (1) served by at least two unaffiliated multichannel video programming distributors each of which offers comparable programming to at least 50 percent of the households in the franchise area; and 2) the number of households subscribing to multichannel video programming other than the largest multichannel video programming distributor exceeds 15 percent of the households in the franchise area. A finding of effective competition exempts a cable operator from application of the Commission's rate regulations, including the uniform rate structure requirement. 4. Tri-Lakes claims that it faces effective competition in the Town of Monument, Colorado from ATI, a competing multichannel multipoint distribution service. Tri-Lakes bases its effective competition claim on the competing provider test. Tri-Lakes has a franchise to provide cable service to the incorporated area of the Town of Monument. Tri-Lakes indicates that the Town of Monument is not certified to regulate the basic cable service rates of cable operators within its boundaries. Tri-Lakes filed its petition for determination of effective competition pursuant to Section 76.915(f) of the Commission's rules. Tri-Lakes contends that it was prompted to file its petition because ATI had stated its intention to bring a complaint against Tri-Lakes to the Commission alleging that Tri-Lakes had violated the geographic uniform rate structure requirement. Tri-Lakes argues that it is subject to effective competition in Monument and that, therefore, the uniform rate structure requirement does not apply. In correspondence exchanged between Tri-Lakes and ATI prior to the filing of Tri-Lakes' petition, ATI accused Tri-Lakes of violating the uniform rate structure regulation by charging subscribers who switched service from ATI to Tri-Lakes lower rates for installation and basic service than the rates charged to other subscribers in Monument. While Tri-Lakes argues that it is subject to effective competition, Tri-Lakes contends that even if it were found not to face effective competition, its marketing practices comply with the Commission's uniform rate requirement because they involve introductory and promotional discounts offered universally for limited times. In resolving Tri-Lakes' petition, we focus only on the effective competition claim and do not address the merits of ATI's allegations concerning Tri-Lakes' violation of the uniform rate rule. II. POSITIONS OF THE PARTIES 5. In its petition, Tri-Lakes states that it is a small cable system serving approximately 290 subscribers in Monument, Colorado. Tri-Lakes claims that it is subject to effective competition from ATI under the competing provider test. Tri-Lakes contends that at least two unaffiliated multichannel video programming distributors ("MVPDs") offer comparable programming to at least 50 percent of the households (i.e., occupied housing units) in the Monument franchise area. Tri-Lakes asserts that it offers cable service to (i.e., passes with cable) 100 percent of the households in the Monument franchise area. In addition, Tri-Lakes claims that, based on information provided by ATI in a letter, ATI's service is technically available to approximately 92 percent of the households in Monument. Tri-Lakes contends, therefore, that it satisfies the first part of the competing provider test by demonstrating that at least two unaffiliated MVPDs offer comparable programming to more than 50 percent of the residents of the Town of Monument. 6. Tri-Lakes asserts that it satisfies the second part of the competing provider test as well. Tri- Lakes claims that the number of households receiving programming services from MVPDs, other than the largest MVPD, in this case Tri-Lakes, is greater than 15 percent of the total households in the Town of Monument. Tri-Lakes states that, according to the 1990 Census, there are 378 occupied households in the Town of Monument. Tri-Lakes claims that it serves approximately 290 subscribers or 77 percent of the 378 households in Monument (290 ö 378 = 77%), while ATI serves 221 subscribers or 58 percent of the households (221 ö 378 = 58%). Tri-Lakes contends that ATI clearly serves more than 15 percent of the households in Monument and, therefore, satisfies the second part of the competing provider test. While Tri- Lakes asserts that the 1990 Census shows a total of 378 occupied households in Monument, Tri-Lakes also states that it "calculates the current number of households at 576 and believes the difference is due to population growth since 1990." Tri-Lakes contends that even using the 576 household figure in its effective competition analysis, ATI's penetration rate is 38 percent (221 ö 576 = 38%), which is substantially above the 15 percent threshold. 7. In opposition, ATI states that the 221 subscriber figure it supplied to Tri-Lakes was incorrect due to a mistake over the boundaries of Tri-Lakes' franchise covering Monument. ATI explains that the 221 figure included not only ATI subscribers in the incorporated area of the Town of Monument, where Tri- Lakes has its franchise, but also ATI subscribers in some of the unincorporated areas surrounding Monument, which are not covered by Tri-Lakes' Monument franchise. ATI contends, therefore, that the subscriber figure first provided to Tri-Lakes was over-inclusive and that, in fact, ATI served 72 subscribers in the Monument franchise area as of May 6, 1996. ATI further asserts that as of May 20, 1996, the number of subscribers served by ATI in the Monument franchise area had dropped to 68. ATI also notes that its service is technically available to 95 percent of the households in the Monument franchise area. 8. ATI argues that in determining whether its rate of penetration in the Town of Monument has surpassed the 15 percent threshold for effective competition, the Commission should not rely on the 378 figure for occupied households derived from the 1990 Census. ATI maintains that this figure is outdated and that Tri-Lakes expressly acknowledged in its petition that the number of occupied households in Monument has grown significantly since 1990 from 378 to 576. ATI further contends that the Commission does not require that 1990 Census data be used in all determinations of effective competition, particularly where other data exists that more accurately reflects the current number of occupied households. ATI asserts that the Commission has accepted updated census data as well as current statistical reports generated by private entities. ATI insists that it would be nonsensical to rely on 1990 data in this case where there is an acknowledgement that the number of households has grown since that time. ATI argues that the Commission should, instead, rely on Tri-Lakes' calculation of the current number of occupied households in Monument of 576 or ATI's own estimate of the minimum possible number of current occupied households of 490 to determine the existence of effective competition. ATI states that based on Tri-Lakes' current occupied household number of 576 and ATI's revised subscriber penetration figure of 72, ATI serves 12.5% of occupied households in the Monument franchise area (72 ö 576 = 12.5%). ATI contends, therefore, that effective competition is not present in Monument because it does not serve more than 15 percent of the households in the franchise area. ATI further states that it conducted a visual count of occupied households and concluded that there are no less than 490 such households in Monument. ATI argues that using the 490 household figure in its calculations, ATI serves 14.7 percent of households in Monument (72 ö 490 = 14.7%), which is still less than the 15 percent threshold required to satisfy the second part of the effective competition test. ATI additionally contends that based on its May 20, 1996 subscriber total of 68, ATI's penetration rate in Monument is 11.8 percent using Tri-Lakes' occupied household figure of 576 (68 ö 576 = 11.8%) and 13.9 percent using ATI's occupied household figure of 490 (68 ö 490 = 13.8%). 9. ATI asserts that it does not alone, nor in combination with other MVPDs, present Tri-Lakes with effective competition. ATI claims that, to the best of its knowledge, the only MVPD operating in Monument other than Tri-Lakes and ATI is DirecTV. ATI claims that it and DirecTV, together, do not serve the number of subscribers necessary to surpass the 15 percent threshold for effective competition. ATI states that it was unable to obtain penetration data directly from DirecTV. Consequently, ATI explains, in order to obtain a subscriber count for DirecTV, ATI conducted a visual count of the number of households in Monument with a DirecTV satellite dish affixed to the exterior. ATI reports that no such households were identified. ATI argues that because less than 15 percent of households in Monument subscribe to ATI, and none to DirecTV, ATI does not independently or in combination with DirecTV present effective competition to Tri-Lakes. 10. In its reply, Tri-Lakes argues that ATI's modification of its penetration disclosure to 72 subscribers from 221 subscribers is untimely under Section 76.911(b)(2) of the Commission's rules. Tri- Lakes asserts that ATI revised its penetration figure to 72 subscribers three weeks after its initial disclosure and after Tri-Lakes based its petition on the 221 figure. Tri-Lakes maintains that it is not required to independently verify ATI's penetration figures and should be entitled to rely on the original 221 subscriber figure. Tri-Lakes argues that using either of the penetration numbers disclosed by ATI and applying 1990 Census data, Tri-Lakes is subject to effective competition in Monument. Specifically, Tri-Lakes asserts that applying the 72 subscriber figure to the 1990 Census figure of 378 households yields a penetration rate of 19 percent (72 ö 378 = 19%), and using the 221 subscriber figure results in a penetration rate of 58 percent (221 ö 378 = 58%). In either case, Tri-Lakes argues, ATI's penetration rate exceeds the 15 percent threshold. 11. Tri-Lakes contends that 1990 Census data is an appropriate measure of occupied households in effective competition cases. Tri-Lakes asserts that there are no cases in which the Commission has rejected an operator's application of 1990 Census data. Tri-Lakes suggests that while a cable operator may use more recent data, if such data is available, 1990 Census data is still an acceptable measure. Tri-Lakes contends that the use of non-1990 Census data is at the operator's option. Tri-Lakes argues that ATI's visual count of the number of households in Monument is not a viable alternative to decennial census data, which the Commission has consistently relied on to foster certainty and minimize disputes of population measurements. Tri-Lakes acknowledges that the Commission has recognized other measures of occupied households in some cases, such as independent engineering surveys. Tri-Lakes argues, however, that ATI's visual survey does not warrant similar consideration because it permits employees to determine which homes appear unoccupied. In addition, Tri-Lakes cautions that such surveys conducted by the parties to an effective competition proceeding are likely to be self-serving. 12. Tri-Lakes asserts that, contrary to ATI's claims, DirecTV, USSB, and Primestar all serve subscribers in Monument. Tri-Lakes indicates that DirecTV and USSB serve a total of 19 subscribers while Primestar serves 9 subscribers. Tri-Lakes contends that if the numbers of subscribers served by these additional MVPDs are included in the effective competition analysis, Tri-Lakes would remain subject to effective competition even if the number of occupied households were as high as 666. Tri-Lakes concludes, therefore, that if the Commission were to accept either number of occupied households that ATI has suggested (490 or 576) as well as ATI's revised penetration disclosure (72 subscribers), Tri-Lakes would still be subject to effective competition as long as the total number of subscribers served by other competing MVPDs (28 subscribers) is included in calculating the 15 percent threshold requirement. Tri-Lakes explains that adding together ATI's 72 subscribers with the 28 subscribers served by DBS providers yields a total of 100 subscribers, which represents more than 15 percent of households in Monument by either ATI count of households (100 ö 490 = 20.4%; 100 ö 576 = 17.3%). 13. In its Surreply, ATI questions the accuracy of the DBS penetration data provided by Tri- Lakes in its Reply. ATI states that it cannot concede that Tri-Lakes is subject to effective competition without verification that this penetration data includes only subscribers of each MVPD in the incorporated area of Monument and does not include subscribers in outlying unincorporated areas that are not within Tri- Lakes' Monument franchise. ATI explains that while the incorporated area of Monument is within the 80132 zip code, areas that are not within the incorporated area of Monument are also covered by this zip code. ATI contends that DirecTV, USSB and Primestar all maintain subscriber data only by zip code and cannot breakdown this information any further. ATI claims that there is no evidence that the penetration data for DirecTV, USSB, and Primestar are limited to the incorporated area of Monument. ATI argues that Tri-Lakes has failed to meet its burden of rebutting the presumption of the absence of effective competition due to the unreliability of the penetration data it presented for other MVPDs operating in Monument. ATI further claims that Tri-Lakes did not formally request penetration data from the other MVPDs pursuant to Section 76.911(b)(2) of the Commission's rules until June 6, 1996, a week after Tri-Lakes filed its Reply. ATI contends that this sequence of events indicates that the penetration data for DirecTV, USSB, and Primestar presented in Tri-Lakes' Reply was not obtained directly from those entities. ATI argues that Tri-Lakes' failure to explain the methods used in computing these figures and to verify that the figures only include subscribers within the incorporated area raises questions concerning the accuracy of that data. 14. ATI asserts that it conducted a visual home count survey in order to ascertain the "bare minimum of occupied households for purposes of presenting the most conservative effective competition analysis possible" in the absence of any official figure for the current total of occupied households in the franchise area. ATI insists that it does not advocate use of its home count method as a means of determining the number of occupied households in all effective competition proceedings. Rather, ATI contends that its count of 490 households was appropriately presented in this case in light of the significant population increase in Monument since the 1990 Census. ATI also reiterates that Commission precedent does not mandate use of 1990 Census data in effective competition analyses without regard for changes in population. Lastly, ATI notes that the Commission has adopted an interim definition of "comparable programming" requiring delivery of at least 12 channels of programming at least some of which are broadcast signals. ATI asserts that if the Commission rules that superstations are not broadcast channels and excludes broadcast channels received via an over-the-air antenna, ATI would not offer comparable programming under this definition. 15. In response, Tri-Lakes contends that ATI's Surreply is beyond the scope of the pleading cycle established by Section 76.915(a) and (f) of the Commission's rules and may, therefore, be ignored. Tri-Lakes argues that Commission regulations with regard to effective competition proceedings provide only for the submission of a petition, any oppositions, and a reply by the petitioner. Tri-Lakes also claims that the Surreply is superfluous because all of the necessary information and arguments were presented previously in the Petition, Opposition, and Reply. 16. Tri-Lakes responded to a request made by the Cable Services Bureau for additional information with respect to two issues: (1) the number of occupied housing units (i.e., households) in Monument and (2) the number of DBS subscribers in Monument. Regarding the number of occupied housing units, Tri-Lakes offers a measure of households based on local residential utility customers. Tri- Lakes states that there were 464 residential electric meters in the Town of Monument as of September 25, 1996. Tri-Lakes states that it could not confirm if each of these meters serves an occupied household but recognizes that the Bureau may conclude that the number of meters may serve as a proxy for occupied households. In order to determine the number of DBS subscribers in Monument, Tri-Lakes explains that it requested penetration data specific to the Monument franchise area from DBS providers (DirecTV, Primestar, USSB) but received penetration data aggregated by zip code rather than by franchise area. In an effort to be responsive to our inquiry, Tri-Lakes states that it conducted its own visual survey of DBS penetration in Monument. Tri-Lakes explains that its employees identified the addresses of homes where DBS dishes were visible, telephoned these homes and asked what services were provided. Tri-Lakes claims that, based on this survey, there are a total of 32 DBS customers within the Town of Monument. Tri-Lakes further states that the telephone inquiry confirmed the specific DBS provider in all but five homes. Tri- Lakes asserts that adding together the 32 DBS subscribers with the 72 ATI subscribers yields a total of 104 subscribers. Tri-Lakes argues that with competing MVPDs serving 104 subscribers, Tri-Lakes is subject to effective competition (i.e., more than 15 percent of households in the Monument franchise area subscribe to competing MVPDs) as long as the number of occupied households is 693 or less. III. ANALYSIS 17. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition. The cable operator bears the burden of rebutting the presumption that effective competition does not exist with evidence that effective competition, as defined by Section 76.905 of the Commission's rules, is present within its franchise area. Tri-Lakes has met this burden by satisfying the competing provider test for effective competition. 18. The first part of the competing provider test requires that the franchise area be served by at least two unaffiliated MVPDs, each of which offers comparable programming to at least 50 percent of the households in the franchise area. There is no dispute that Tri-Lakes and ATI offer service to the requisite percentage of households. Tri-Lakes asserts that it offers cable service to 100 percent of the households in the Monument franchise area. ATI states that its service is technically available to 95 percent of households in the franchise area. With respect to the issue of programming comparability, we find that the programming of Tri-Lakes and ATI is comparable because they offer at least 12 channels of video programming, including at least one nonbroadcast channel. We conclude, therefore, that Tri-Lakes has satisfied the first part of the competing provider test. 19. The second part of the competing provider test for effective competition requires a demonstration that more than 15 percent of the households in the franchise area subscribe to multichannel video programming services from providers other than the largest MVPD, in this case Tri-Lakes. In order to determine whether the 15 percent threshold is met, we must ascertain the number of occupied households in the Monument franchise area as well as the number of subscribers receiving service from competing providers. Tri-Lakes argues that it is entitled to rely on the 1990 Census figure of 378 as a measure of occupied households. Tri-Lakes concedes, however, that the population in Monument has grown since that time to an estimated 576 households. ATI contends that the Commission ought to use the most current household figure available and urges application of Tri-Lakes estimated 576 household count or ATI's own estimate of current occupied households of 490. In addition, Tri-Lakes offers a household count of 464 based on the number of residential electrical meters in Monument. Also in dispute is the number of subscribers receiving service from providers other than Tri-Lakes. ATI initially indicated that it served 221 subscribers in Monument but later revised this figure to 72, claiming that the larger figure included subscribers outside of the Tri-Lakes franchise area. ATI then stated that its most recent count showed a drop to 68 subscribers. Tri-Lakes contends that based on its own visual survey an additional 32 households receive service from DBS providers. 20. In order to determine whether Tri-Lakes is subject to effective competition in Monument, we will use those household and subscriber figures proffered in the pleadings that are most adverse to a finding of competition. A high household count coupled with a low competing provider subscriber count makes a finding of effective competition least likely. Thus, we will apply a household count of 576, and an ATI subscriber count of 68. Regarding the number of DBS subscribers in Monument, we believe that Tri- Lakes' visual and telephone survey provides an accurate count. Tri-Lakes included the name and address of each DBS subscriber it identified and ATI has not disputed this information. We will include 27 DBS subscribers in our calculations rather than 32 subscribers because Tri-Lakes was unable to identify the particular DBS provider with respect to five of the households. We find, therefore, that the total number of subscribers served by MVPDs other than Tri-Lakes is 95 (68 + 27 = 95). Dividing 95 by 576, we conclude that 16.5 percent of households in Monument are served by competing providers. Thus, even under the most adverse numerical scenario proffered in the pleadings, Tri-Lakes exceeds the 15 percent threshold necessary to satisfy the second part of the competing provider test for effective competition. 21. We conclude that Tri-Lakes' cable system serving the incorporated area of the Town of Monument is subject to effective competition under the competing provider test. Tri-Lakes' petition is hereby granted. IV. ORDERING CLAUSES 22. Accordingly, IT IS ORDERED that the petition for change in regulatory status filed by Tri- Lakes Cable with respect to the franchise area of Monument, Colorado IS GRANTED. 23. This action is taken pursuant to delegated authority pursuant to Section 0.321 of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau