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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 o f:) ) DANIELS CABLEVISION, INC. d/b/a ) NORTH COUNTY CABLEVISION, L.P. ) ) Petition for Reconsideration of ) an Order of the ) Cable Services Bureau ) ORDER ON RECONSIDERATION Adopted: October 21, 1997 Released: October 23, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. By this Order, we deny the petition for reconsideration of the City of Encinitas, California ("Encinitas" or the "City") seeking reconsideration of an order adopted by the Cable Services Bureau (the "Bureau") granting the petition of Daniels Cablevision, Inc. d/b/a North County Cablevision, L.P. ("Daniels") for revocation of the City's certification to regulate Daniels' basic cable service rates ("Bureau Order"). Daniels filed an opposition to the City's petition for reconsideration, to which the City filed a reply. II. BACKGROUND 2. Section 623(a)(4) of the Communications Act of 1934, as amended ("Communications Act"), allows franchising authorities to become certified to regulate the basic cable service rates of cable operators which are not subject to effective competition. Section 623(l)(1) of the Communications Act provides that competing provider effective competition exists 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% 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% of the households in the franchise area. 3. For purposes of the initial request for certification, a franchising authority may rely on the presumption that cable operators within its jurisdiction are not subject to effective competition, unless the franchising authority has actual knowledge to the contrary. Such certification becomes effective thirty days from the date of filing, unless the Commission finds that the franchising authority does not meet the statutory certification requirements. Cable operators may file petitions for reconsideration of the franchising authority's certification within thirty days from the date such certification becomes effective. Rate regulation is automatically stayed pending review of a timely-filed petition for reconsideration alleging effective competition. After the 30-day deadline for filing petitions for reconsideration has elapsed, cable operators may challenge the franchising authority's certification by filing a petition for revocation. However, regardless of its grounds, a petition for revocation does not automatically trigger a stay of the franchising authority's power to regulate basic rates. III. THE BUREAU ORDER 4. Daniels based its certification challenge on the competing provider test for effective competition. Daniels argued that its system serving the City of Encinitas is subject to effective competition because its franchise area is: (1) served by Cox Communications ("Cox") and several direct broadcast satellite ("DBS") providers each of which offers comparable programming to at least 50% of the households in Encinitas, and (2) the number of households subscribing to Daniels, the smaller multichannel video programming distributor ("MVPD"), exceeds 15% of the households in the franchise area. 5. In its opposition, Encinitas did not contest the fact that both Daniels and Cox have franchises to serve the entire City of Encinitas. However, the City asserted that both Daniels and Cox affirmatively redefined their franchise areas. The City argued that Daniels and Cox have been operating cable systems side-by-side for years and have failed to overbuild each other in a significant portion of the City. 6. The Bureau Order found that Daniels is subject to competing provider effective competition in its Encinitas franchise area. With regard to the City's franchise area redefinition argument, the Bureau Order concluded that the City had failed to offer persuasive evidence that Daniels' franchise area for purposes of effective competition is less than the entire City of Encinitas. The Bureau concluded that the facts alleged by the City are similar to those considered by the Commission in Valley Center Cablesystems, L.P. The Bureau Order, found that the City's argument that Daniels has failed to expand into areas served by other cable operators is immaterial to the issue of whether Daniels has redefined its franchise area. In this regard, the Bureau Order found that: it is uncontested that Daniels has substantially built out its system since receiving its franchise in 1978. In addition, the map submitted by Encinitas demonstrates that Daniels has built its system in several portions of Encinitas unconnected to its primary service area, including several areas overbuilt by Daniels and Cox. The fact that Daniels has not constructed its cable plant in locations deemed most desirable by the City does not obviate the fact that Daniels has significantly expanded its Encinitas cable system since 1978. IV. THE PLEADINGS 7. In its petition, the City does not allege that the Bureau Order incorrectly applied the competing provider test, instead the City propounds three arguments purportedly requiring reconsideration by the Bureau. First, the City asserts that it has not been clearly established that Daniels has the legal right to serve all of Encinitas. The City states that Daniel's franchise agreement provides for service within a "designated service area." The City argues that: It is not at all clear that this area encompasses the entire City, or that the company has authority to build its system beyond this area without obtaining additional authorizations. Daniels does not appear to have substantially expanded its service beyond the designated service area that is now part of Encinitas. 8. Second, the City argues that Daniels' petition for revocation was procedurally defective. The City states that, once a certification has been granted (and the 30-day reconsideration period has passed), the operator must petition the local franchising authority to declare that the cable operator's regulatory status has changed. While the City acknowledges that the Commission has consistently held that operators may file petitions for revocation directly with the Commission without first requesting decertification from the local franchising authority, the City asserts that the legal basis for this decision is not clear. In support of its argument, the City asserts that Section 76.914 provides that "in all cases of revocation" the Commission will assume jurisdiction over basic service rates. The City states that such a requirement would obviously be inappropriate if one assumed that Section 76.914 could be used to eliminate rate regulation. Moreover, the City asserts that "[t]he Commission's rate orders identify Section 76.915 as the section which sets out the procedures the operators may follow if they wish to terminate rate regulation in a particular community." The City asserts that there is good reason to require cable operators to use Section 76.915 in seeking deregulation because that provision of the Commission's rules provides the average citizen with a real opportunity to present facts that may bear upon an effective competition determination. 9. Third, the City continues to argue that Daniels has affirmatively redefined its Encinitas franchise area. According to the City, five facts demonstrate that Daniels has affirmatively redefined its franchise area: (1) There is no evidence that there is any location within the City where subscribers have a choice between the two cable systems, and as far as the City is aware, there is not "head-to-head" competition; (2) [Daniels] does not believe the City can force competition, since Daniels' franchise provides that Daniels has no obligation to serve a site served by another cable operator; (3) Daniels marketing material shows that Daniels is acting affirmatively to limit its service area within the City of Encinitas; (4) Daniels is referring some potential customers in the City to Cox on the ground that the customers are outside of Daniels' service territory. This is a prime example of the sort of affirmative action that demonstrates that [Daniels] has self-limited its franchise area; [and] (5) Moreover, there is no evidence suggesting Daniels expects to extend service to areas that Cox is serving. At the corporate level, the company has made statements that it believes such actions would be futile. Moreover, at the customer level, there is no evidence of significant intrusions by Daniels into Cox's territory or vice versa. The area served by Daniels has not changed significantly from 1978, and certainly has not changed recently. 10. In its opposition, Daniels argues that the Bureau Order was correct in all respects and must be upheld on reconsideration. In responding to the City's argument that the legal scope of Daniels' Encinitas franchise area is something less than all of Encinitas, Daniels states that its initial franchise area included all of the unincorporated portions of San Diego County, with primary responsibility to serve then unincorporated Encinitas. Thereafter, Encinitas incorporated as a separate municipal entity. Daniels maintains that it is uncontested, either in the Bureau Order or in the instant proceeding, that the City has taken no action since incorporation to limit the scope of Daniels' Encinitas franchise area. 11. With regard to the City's procedural argument, Daniels asserts that the Commission's rules clearly provide cable operators with the option to file either a petition pursuant to Section 76.915 for change in regulatory status with the local franchising authority, or to file a petition for revocation pursuant to Section 76.914 directly with the Commission. In this regard, Daniels notes that the Commission has accepted significant numbers of petitions for revocation of certification pursuant to Section 76.914 of the Commission's rules. In addition, Daniels argues that the City's procedural argument is not properly a subject for reconsideration. Daniels cites Section 1.106(c) of the Commission's rules as requiring that petitions for reconsideration which rely on facts not previously presented to the Commission may be granted only in limited circumstances. Daniels asserts that such limited circumstances are not present in the instant proceeding. 12. Finally, Daniels responds to each of the five facts allegedly demonstrating franchise area redefinition presented in the City's petition for reconsideration. First, Daniels asserts that, as correctly found in the Bureau Order, the fact that Daniels has failed to expand into areas served by other cable operators is not material to the issue of whether Daniels has redefined its franchise area. Second, Daniels states that the fact that the City cannot force Daniels to serve a particular portion of Encinitas is also irrelevant to either a determination of effective competition or the issue of franchise area redefinition. Third, Daniels strenuously disagrees with the City's characterization of Daniels' marketing materials. Daniels states that the City attempts to turn the simple factual statement that Daniels serves "portions" of Encinitas, into proof of an affirmative decision to limit its Encinitas franchise area. Fourth, Daniels asserts that the fact the Daniels referred an interested individual to a competing cable operator that currently serves the area in which the individual's residence is located, was a matter of common courtesy, not the relinquishment of the legal right to serve that, or any other, portion of Daniel's Encinitas franchise area. Finally, responding to the City's assertion that there is a lack of evidence that Daniels intends to compete on a head-to-head basis with Cox in Encinitas, Daniels asserts that the burden of proof rests with the City to demonstrate that Daniels has affirmatively redefined its franchise area. Daniels states that the fact that the City finds unsatisfactory the lack of head-to-head competition does not satisfy this burden. Daniels reasserts that it continues to consider opportunities to expand in Encinitas, and the fact that it has added only 243 subscribers in recent years is directly related to the City's planning policies which do not "encourage significant growth." 13. In its reply, the City states that Daniels failed to rebut the City's evidence that Daniels and Cox are dividing the market and not extending service into each other's service areas. The City argues that the absence of head-to-head competition after years of operation is compelling evidence that Daniels has limited its franchise area. The City concludes by arguing that: The crux of the City's argument is that the [Commission] cannot infer that there is competition, or expansion, from the fact that there are areas where Daniels seems to be supplying service near areas served by Cox and vice versa. This is because the truth is that the areas served are distinct subdivisions. Once one operator begins to serve a subdivision, the other does not serve it, and as a result, there is no actual competition between the two cable operators and no expansion into each others service territory. V. DISCUSSION 14. The City advances three arguments that reconsideration of the Bureau Order is required: (1) that Daniels's Encinitas franchise agreement does not clearly establish the right to serve all of the City of Encinitas; (2) that Daniels' petition for revocation was procedurally defective; and (3) that Daniels affirmatively redefined its franchise area. Because we find that these arguments do not require reconsideration, we uphold the Bureau Order. 15. With regard to the City's first argument regarding the legal scope of Daniels' franchise area, we find that the City has improperly raised this issue as part of its petition for reconsideration. Section 1.106(c) of the Commission's rules states that: A petition for reconsideration which relies on facts not previously presented to the Commission or to the designated authority may be granted only under the following circumstances: (1) The facts fall within one or more of the categories set forth in 1.106(b)(2); or (2) The Commission or the designated authority determines that consideration of the facts relied on is required in the public interest. Section 1.106(b)(2) provides that the Commission will entertain a petition for reconsideration which relies upon facts not previously presented: where the facts relate to events which have occurred or circumstances which have changed since the last opportunity to present such matters; or the petition relies on facts unknown to the petitioner until after his last opportunity to present such matters which could not, through the exercise of ordinary diligence, have been learned prior to such opportunity. 16. The City failed to argue, or convey in any cognizable way, in the underlying proceeding, that Daniels' Encinitas franchise area as defined in its franchise agreement was anything less than the entire City of Encinitas. Accordingly, unless this information satisfies one of the categories set forth in Section 1.106(b)(2) of the Commission's rules, or we determine that the consideration of this argument is required by the public interest, we cannot consider this argument. We find that the City's argument does not satisfy any of the categories enumerated in Section 1.106(b)(2). The legal scope of Daniels' franchise area was established by a 1978 franchise amendment which extended primary service responsibility for Encinitas as part of Daniels' county-wide franchise. Indeed, the City attached several franchise documents to its initial opposition in the underlying proceeding. The City had ample opportunity to brief this issue but did not do so. We cannot conclude that such arguments involve recently-occurred facts, or facts that the City could not have discovered through the exercise of ordinary diligence. In its opposition, Daniels argued that the City's petition for reconsideration improperly raised arguments in violation of Section 1.106(c). The City failed to respond to this issue in its reply thereby losing an opportunity to enumerate reasons why the public interest demands consideration of this issue. We note for the record that the City failed to provide any evidence supporting its argument that the legal scope of Daniels' Encinitas franchise area is anything other than the entire City of Encinitas. Accordingly, we conclude that the public interest does not require that we consider this issue. 17. The City also failed to raise its procedural argument in the underlying proceeding. However, because the City's procedural argument can be interpreted as challenging the Commission's jurisdiction over Daniels' petition for revocation, we will consider the City's argument on reconsideration. The City claims that the Commission's rules require that Daniels first seek rate deregulation by filing a petition for change in regulatory status with the City. The City is incorrect. Section 76.915 of the Commission's rules creates an optional deregulation procedure. The fact that Section 76.915 is intended as optional is demonstrated by the language of that provision which provides that "[a] cable operator that becomes subject to effective competition may petition the franchising authority for change in its regulatory status." The language of Section 76.914 makes equally clear that cable operators are permitted to seek deregulation directly from the Commission and provides that: A franchising authority's certification shall be revoked if: * * * (2) After being given an opportunity to cure the defect, a franchising authority fails to fulfill one of the three conditions for certification, set forth in 47 U.S.C. 543(a)(3), or any of the provisions of 76.910(b). Section 76.910(b)(4) of the Commission's rules provides that: [t]o be certified, the franchising authority must file with the Commission a written certification that . . . [t]he cable system in question is not subject to effective competition. Unless a franchising authority has actual knowledge to the contrary, the franchising authority may rely on the presumption in 76.906 that the cable operator is not subject to effective competition. Thus, the Commission's regulations clearly contemplate cable operators bringing petitions for revocation based on the presence of effective competition directly to the Commission. Daniels' petition for revocation of the City's certification was properly brought with the Commission. Accordingly, the City's petition for reconsideration on this issue is denied. 18. In arguing its third issue, the City strenuously maintains that Daniels has affirmatively redefined its franchise area to include only Daniels' current service area. In arguing franchise area redefinition, the City seems to misapprehend the requirements of the competing provider effective competition test. The City apparently believes that actual head-to-head competition between competing MVPDs within a franchise area is necessary to satisfy the competing provider test. The City is incorrect. The competing provider test does not require that the Commission find actual head-to-head competition. Instead, petitioning cable operators must show that the penetration, passage and comparable programming standards enacted by Congress have been satisfied. The Bureau Order determined that Daniels had satisfied these requirements. The City does not refute this determination in its petition for reconsideration. 19. The City's franchise area redefinition arguments rest on two main facts. First, Daniels engages in little, or no, head-to-head competition with its competitor, Cox. Second, Daniels has not expanded to serve its entire franchise area. We do not find persuasive the evidence of franchise area redefinition presented by the City. As discussed above, actual head-to-head competition is not a requirement of the competing provider test, nor, standing alone, indicative of franchise area redefinition. Moreover, the statement contained in Daniels' marketing materials that it serves "portions" of Encinitas is a factual statement and cannot reasonably be construed as affirmatively limiting Daniels' Encinitas franchise area. Finally, the fact that Daniels referred a potential subscriber located in Cox's service area to Cox is a matter of customer service and business courtesy. To read into such referral the affirmative limitation of Daniels' franchise area is unreasonable. 20. The Bureau correctly concluded that the facts present in this proceeding are materially indistinguishable from the facts presented to the Commission in Valley Center. As the Commission stated in Valley Center: The County's argument, without more, is simply an argument that a cable operator has not yet filled out its entire franchise area. This fact, if true, is insufficient to constitute evidence by which we could conclude that a cable operator has redefined its franchise area. Indeed, we note that the instant proceeding is not a case where the cable operator has engaged in no expansion. . . . In light of these facts, we find that [Valley Center Cablesystem's] alleged failure to expand into areas served by other cable operators, by itself, is not grounds upon which to reverse the Bureau's decision. The City has not convinced us that this reasoning is not equally applicable to the instant proceeding. 21. In summary, the City had the burden of demonstrating that Daniels had affirmatively redefined its Encinitas franchise area. The City has raised no arguments, nor has it introduced new evidence which brings into question the reasoning and conclusions of the Bureau Order. In light of the foregoing, we find that the City's petition for reconsideration should be denied. VI. ORDERING CLAUSES 22. Accordingly, IT IS ORDERED, that the petition for reconsideration of the Bureau Order granting the petition for revocation of Daniels Cablevision Inc. d/b/a North County Cablevision, L.P. filed by the City of Encinitas, California IS DENIED. 23. This action is taken pursuant to delegated authority under Section 1.106 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau