******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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 ) ) Implementation of Section 302 of ) the Telecommunications Act of 1996) ) Open Video Systems ) SECOND ORDER ON RECONSIDERATION Adopted: April 10, 1997 Released: April 15, 1997 By the Commission: I. INTRODUCTION 1. On February 8, 1996, the Telecommunications Act of 1996 ("1996 Act") was signed into law. Among other provisions, the 1996 Act repealed the telephone-cable-cross-ownership restriction imposed by the Cable Communications Policy Act of 1984, which generally prohibited common carriers from providing video programming directly to subscribers in their telephone service areas. The 1996 Act also repealed the Commission's "video dialtone" ("VDT") rules and policies, which were established to permit common carriers to participate in the video marketplace in a manner that was consistent with the statutory telephone-cable cross-ownership restriction. 2. Consistent with the above statutory provisions, in the Report and Order and Notice of Proposed Rulemaking in CS Docket No. 96-46, the Commission: (1) eliminated its rules implementing the telephone-cable cross-ownership restriction; (2) eliminated its VDT rules and policies; and (3) terminated the proceeding that established its VDT rules and policies (CC Docket No. 87-266). Additionally, as the law provided, the Commission did not require then approved VDT systems to cease operations. 3. The general regulatory treatment for video programming services provided by common carriers is now set forth in new Sections 651 through 653 of Title VI of the Communications Act of 1934 (the "Communications Act"). The options for common carriers entering the video programming marketplace are found in Section 651, which provides that common carriers may: (1) provide video programming to subscribers through radio communication under Title III of the Communications Act; (2) provide transmission of video programming on a common carrier basis under Title II of the Communications Act; (3) provide video programming as a cable system under Title VI of the Communications Act; or (4) provide video programming by means of an open video system ("OVS") under new Section 653 of the Communications Act. In the First Order on Reconsideration, Implementation of Section 302 of the Telecommunications Act of 1996, CS Docket No. 96-46, FCC 96-312 (released July 23, 1996) ("Transition Order"), though we did not require approved VDT systems to cease operations immediately, we found that the public interest would be served by requiring authorized VDT operators to select and to transition to one of the four video programming delivery options set forth in Section 651 of the Communications Act. 4. The Commission issued the Transition Order in response to April 1 and April 10, 1996 petitions for reconsideration filed by the National Cable Television Association. In the Transition Order, the Commission found that Section 302(b)(3) of the 1996 Act, which repealed the Commission's VDT rules and policies, was not intended to grandfather existing VDT systems indefinitely. Rather, the Commission found that the intent of Section 302(b)(3) was to give the Commission discretion to avoid an immediate disruption of VDT service, and to develop an orderly transition plan for VDT systems. The Commission required each VDT operator to inform the Office of the Secretary in writing, with a copy to the Chief of the Cable Services Bureau, of the option it selected by November 6, 1996, 90 days from the release of the Transition Order. The Commission realized that it may not be possible in all circumstances for a VDT operator to complete the transition within ninety days. The Commission, therefore, provided that it would consider reasonable extensions of time based upon a showing of good cause. II. BACKGROUND 5. The Cable Television Association of Georgia ("CTAG") filed a Petition for Reconsideration and Clarification, asking the Commission to address a number of issues. First, CTAG asked the Commission to clarify that VDT operators must comply with the terms of their VDT authorization orders. CTAG asserts that VDT systems were constructed and operated pursuant to Section 214 authorizations, many of which imposed record-keeping and cost allocation requirements. CTAG contends that the Commission was not clear in the Transition Order what, if anything, was required of common carriers operating VDT systems prior to discontinuing VDT service and transitioning to another technology. Second, CTAG asked the Commission to review the technology elected by the VDT operator to ensure that the interests of customer-programmers are protected. CTAG fears that the investments in the VDT system by customer-programmers will be lost if the system is switched to a cable system because an operator of the cable system will not be required to provide capacity to customer-programmers. Third, CTAG asks the Commission to impose accounting rules regarding the treatment of the costs of VDT systems as they are transitioned to other technologies. The Commission has not concluded its rulemaking to determine the proper allocation of the costs of telco video ventures, CTAG continues, much less set forth how LECs are to account for facilities being switched from one transmission option to another. 6. Using the experiences of Scripps Howard Cable Company, a CTAG member, and BellSouth, a VDT provider, CTAG illustrated five problems that it believes will arise without further clarification of the Transition Order. BellSouth's VDT authorization order required it to comply with certain recordkeeping and reporting requirements. CTAG's assertions primarily points to BellSouth's alleged failure to comply with these reporting requirements. First, CTAG claims that BellSouth has ignored the Commission's order authorizing its VDT trial by ending the trial prior to the 18 months authorized by the Commission. Second, CTAG further asserts that BellSouth failed to comply fully with accounting and reporting requirements of the Commission's authorizing order by: (1) failing to file some reports entirely and (2) filing others late and/or incomplete. Third, CTAG also claims that BellSouth has violated Section 214 of the Communications Act by not obtaining Commission authorization before prematurely discontinuing or reducing service. Fourth, CTAG contends that BellSouth's premature discontinuance of the VDT trial will have a profound effect on programmer-customers, who have made financial and business plans based on an 18 month trial. Fifth, CTAG claims that BellSouth's unauthorized discontinuance of its VDT trial and its switch of the facilities to provide cable service, raise a serious threat of cross-subsidization and cost misallocation, particularly the question of how BellSouth will allocate the costs of constructing the system. 7. BellSouth responds that it did not violate the requirements of its VDT authorization. Moreover, BellSouth continues, the 1996 Act terminated the Commission's VDT rules and eliminated any requirement for Section 214 authorization to establish or to operate a system for the delivery of video programming. BellSouth claims that it has fully complied with its VDT authorization, by filing reports as required until the 1996 Act terminated the Commission's VDT rules. BellSouth responds that CTAG misconstrues the nature of the VDT authorization. That authorization, BellSouth continues, permitted, but did not require, BellSouth to conduct a VDT trail for 18 months. Moreover, BellSouth states, it is patently absurd for CTAG to suggest that BellSouth be required to proceed with a video trial under a regulatory regime that no longer exists. BellSouth also contends that it was not required to obtain a Section 214 certificate for withdrawal of a temporary VDT trial, particularly since BellSouth never commenced service. 8. With regard to CTAG's alleged effect on programmer-customers of BellSouth's discontinuance of its VDT trial, BellSouth states that the only programmer with an interest in the VDT trial is Scripps Howard, which has not itself petitioned for reconsideration of the Transition Order. According to BellSouth, the Commission would only serve the competitive interests of Scripps Howard, which is also the incumbent cable operator in the trial area, by forcing BellSouth and other programmers to spend 18 months on a regulatory model that no longer exists. 9. BellSouth states that it has not shifted VDT or cable service costs to telephone service, as CTAG contends. Furthermore, there is no need for additional accounting requirements to track the costs of VDT systems as they are converted to cable systems, as BellSouth has chosen to do. Indeed, BellSouth states that when it received a cable franchise from the City of Chamblee, BellSouth Telecommunications reclassified all directly assignable investment related to video services in the entire VDT trial area to nonregulated accounts in accordance with its Costs Allocation Manual and Part 64 of the Commission's Rules. In anticipation of receiving cable franchises during 1996, BellSouth also prepared its FCC Report 495A, Forecast of Nonregulated Usage Report, to include the provision of non-common carrier cable services in the trial area. 10. CTAG replies that the most pressing issue arising from the transition of VDT systems to cable or open video systems is the allocation of costs incurred in constructing those systems. CTAG believes that the Commission must undertake an investigation and accounting of all LECs that have constructed video networks under VDT authorizations and claims that BellSouth has attempted to avoid accounting and reporting on its system. CTAG concludes its reply by stating that the 1996 Act explicitly stated that the repeal of the Commission's VDT rules did not constitute repeal of the pre-Act Section 214 authorizations and that BellSouth is therefore not free from the requirements of its 214 authorization. III. DISCUSSION 11. In the Transition Order, we concluded that the public interest would be served by requiring then authorized VDT operators to select one of the four video programming delivery options set forth in Section 651 -- radio-based, common carrier transmission, traditional cable or OVS. VDT operators were given 90 days from August 8, 1996, the date the Transition Order was released, to effect a transition to one of the four options. Contrary to CTAG's assertion, BellSouth was required to switch from a VDT system to one of the four options listed in the Transition Order. Indeed, the 1996 Act repealed the Commission's VDT rules and policies, including the 214 authorizations issued thereunder. BellSouth was not required to provide VDT service after the repeal or to comply with the requirements of its Section 214 authorization for VDT and therefore did not violate any Commission rules by not doing so. Furthermore, given the short period of time in which to transition from VDT to one of the four options, transition rules would serve no useful purpose. Except for extension requests, that process is complete. As we stated in the Transition Order, however, regardless of which option a local exchange carrier elects, it must continue to comply with the Commission's Part 64 cost allocation rules, including any amendments thereto. 12. CTAG's petition also raises cost allocation issues. CTAG urges the Commission to adopt immediately cost allocation rules and apply them to BellSouth. Without allocation rules and reporting safeguards, CTAG contends that there is a substantial risk that BellSouth has or will over- allocate the costs of joint and common facilities used for its Chamblee/DeKalb system to regulated telephone accounts. A rulemaking is pending addressing these concerns and is the appropriate forum to address these issues. We note, however, that BellSouth is currently prohibited by Commission rules from cross-subsidizing its video programming operation. 13. Finally, CTAG is the only party that filed a petition for reconsideration of the Commission's Transition Order. BellSouth is the only party that responded. Though CTAG attempts to characterize its pleading as a general request for further rulemaking, the petition discusses exclusively BellSouth's VDT trial in Georgia. A rulemaking process of general applicability is not the appropriate procedure to adjudicate a specific matter involving a particular party. To the extent that a party believes that BellSouth's conduct merits a complaint, a party may pursue such a complaint with the Commission. VI. ORDERING CLAUSES 14. Accordingly, IT IS ORDERED that CTAG's Petition for Reconsideration and Clarification in CS Docket No. 96-46 IS DENIED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary