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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: ) ) Mayaguez PR0027 Pegasus Cable Television ) San German PR0041 ) Guanica PR0043 ) Cabo Rojo PR0044 For Reconsideration of the Certification) Hormigueros PR0045 of the Puerto Rico Telecommunications ) Sabana Grande PR0047 Regulatory Board To Regulate ) Lajas PR0046 Basic Cable Rates ) Maricao PR0048) ) Rincon PR0068 Las Marias PR0069 ) ) A¤asco PR0070 MEMORANDUM OPINION AND ORDER Adopted: December 23, 1997 Released: December 29, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. Pegasus Cable Television ("Pegasus"), pursuant to Section 76.911(a)(1) of the Commission's rules, has filed a petition with the Commission seeking reconsideration of the certification of the Puerto Rico Telecommunications Regulatory Board (the "Board") to regulate basic cable rates based upon the presence of effective competition. Specifically, Pegasus argues that the communities of A¤asco, Cabo Rojo, Guanica, Hormigueros, Lajas, Las Marias, Maricao, Mayaguez, Rincon, Sabana Grande, and San German, Puerto Rico (collectively, the "Communities") are subject to low penetration effective competition. The Board did not file an opposition. II. BACKGROUND 2. Section 623(a)(4) of the Communications Act permits local franchising authorities to become certified to regulate the basic cable service and associated equipment rates of cable operators within their jurisdictions who are not subject to effective competition. For purposes of the initial request for certification, franchising authorities may rely on the presumption that cable operators are not subject to effective competition, unless the franchising authority has actual knowledge to the contrary. Certification becomes effective 30 days from the date of filing, unless the Commission finds that the franchising authority does not meet the statutory certification requirements. A cable operator may file a petition for reconsideration of the franchising authority's certification within 30 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. 3. Section 623(l)(1) of the Communications Act provides that a cable operator is subject to effective competition if any one of the following tests is met: (A) fewer than 30 percent of the households in the franchise area subscribe to the cable service of a cable system; (B) the franchise area is- (i) served by at least two unaffiliated multichannel video programming distributors each of which offers comparable video programming to at least 50 percent of the households in the franchise area; and (ii) the number of households subscribing to programming services offered by multichannel video programming distributors other than the largest multichannel video programming distributor exceeds 15 percent of the households in the franchise area; or (C) a multichannel video programming distributor operated by the franchising authority for that franchise area offers video programming to at least 50 percent of the households in that franchise area; or (D) a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area. III. SUMMARY OF PLEADINGS 4. Pegasus states that on June 12, 1997, the Board filed with the Commission its "Certification of Franchising Authority to Regulate Basic Cable Service Rates and Initial Finding of Effective Competition" on FCC Form 328 to become certified to regulate the cable rates in the Communities which are located in the same franchise area. Pursuant to Section 76.910(e) of the Commission's rules, certification became effective on July 12, 1997. Pegasus filed its petition on August 11, 1997, thus pursuant to Section 76.911(a)(1) of the Commission's rules, the petition was timely filed. Pegasus maintains that it meets the requirements of the low penetration effective competition test because fewer than 30 percent of the households in the franchise area subscribe to its cable system. 5. In its petition, Pegasus relied upon Census data to show that in 1990 there were a total of 96,478 households in the Communities. Pegasus, in order to arrive at an estimate of the total number of current households in the cable communities at issue, calculated household growth using Census data from the period 1980 to 1990 and Census estimates for 1996. Pegasus compared the Communities' population growth from 1980 to 1990 (6.99 percent) to household growth during the same period (13.57 percent). Pegasus divided the household growth rate (13.57 percent) by the population growth rate (6.99 percent) to conclude that the household-to-population growth ratio for the period 1980 to 1990 in the Communities was 1.94. Pegasus then used 1996 Census population estimates to determine the growth in the number of households in the Communities between 1990 and 1996 (6.90 percent). Pegasus multiplied the 1980-1990 household-to-population growth ratio (1.94) by the 1996 population growth estimate (6.90 percent) to arrive at a household growth rate for the period 1990 to 1996 of 13.39 percent. Pegasus then multiplied the 1996 household growth rate (13.39 percent) by the number of 1990 households (96,478) and added that sum to the number of 1990 households for an estimated current household total of 109,396. 6. Pegasus states that it currently provides service to 26,256 subscribers in the cable communities at issue which results in a penetration rate of 24 percent of the estimated 109,396 households. Pegasus thus maintains that it meets the low penetration test because its penetration rate is less than 30 percent in the cable communities served by its cable system. IV. DISCUSSION 7. We grant Pegasus's petition. Cable operators bear the burden of proving the existence of effective competition and such demonstrations must be made using household and subscriber data for the authorized area in the franchise. Pegasus submitted evidence regarding current household and subscriber data that show that it serves 24 percent of households in the cable communities at issue. While we have said that calculation of a cable operator's penetration rate using 1990 Census data is an acceptable method of determining its current penetration rate, updated household data can more closely determine actual penetration rates. In this case, Pegasus provided updated household data based on 1990 Census data from each community in the franchise area which it then used to calculate a household growth ratio. Pegasus arrived at an estimate of current households by applying the household growth ratio to Census estimates for the period 1990 to 1996. We find that the methodology employed by Pegasus to update the Communities' household data is reasonable in determining current household data. Thus we conclude that Pegasus has demonstrated that its cable system meets the requirements of low penetration effective competition under our rules and we grant its petition. V. ORDERING CLAUSES 8. Accordingly, IT IS ORDERED that the petition for reconsideration filed by Pegasus Cable Television challenging the certification of the Puerto Rico Telecommunications Board to regulate basic cable rates IS GRANTED with respect to Pegasus's cable system serving the communities of A¤asco, Cabo Rojo, Guanica, Hormigueros, Lajas, Las Marias, Maricao, Mayaguez, Rincon, Sabana Grande, and San German, Puerto Rico. 9. IT IS FURTHER ORDERED that the certification granted to the Puerto Rico Telecommunications Regulatory Board to regulate Pegasus's basic cable rates in the franchise area of the above-named communities IS REVOKED. 10. This action is taken pursuant to delegated authority under Section 0.321, 47 C.F.R. 0.321, of the Commission's rules as amended. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau