******************************************************** 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 re: ) ) KDTV License Partnership, G.P.) CSR-5196-M against TCI Cablevision of California, Inc. ) ) Petition for Special Relief ) MEMORANDUM OPINION AND ORDER Adopted: May 21, 1998 Released: May 22, 1998 By the Chief, Consumer Protection and Competition Division, Cable Services Bureau: INTRODUCTION 1. KDTV License Partnership, G.P., licensee of television broadcast station KDTV(TV), San Francisco, California ("KDTV" or the "Station"), has filed a Petition for Special Relief seeking to compel carriage of its signal on channel 14 of Telecommunications, Inc.'s ("TCI") cable systems serving the San Francisco area of dominant influence ("ADI"). TCI filed an opposition to the Petition, and KDTV filed a reply. BACK GROUND 2. Pursuant to Section 614 of the Communications Act and implementing rules adopted by the Commission in its Report and Order in MM Docket 92-259, commercial television broadcast stations are entitled to assert mandatory carriage rights on cable systems located within the station's market. A station's market for this purpose is its "area of dominant influence," or ADI, as defined by the Arbitron audience research organization. An ADI is a geographic market designation that defines each television market exclusive of others, based on measured viewing. 3. With respect to the channel number on which stations asserting must-carry rights are to be carried, Section 614(b)(6) of the Communications Act and Section 76.57 of the Commission's rules provide stations with three possible options. The station may elect to be carried on: (1) the channel number on which the station is broadcast over the air; (2) the channel number on which the station was carried on July 19, 1985; or (3) the channel number on which the station was carried on January 1, 1992. The Act and our rules also provide that a broadcast station may be carried on any other channel number mutually agreed upon by the station and the cable operator. ARGUMENTS OF THE PARTIES 4. KDTV asserts that it elected mandatory carriage of its signal on its over-the-air channel, channel 14, with respect to TCI's cable systems serving the San Francisco ADI. KDTV contends that while TCI carries its signal, TCI has failed to carry KDTV on its requested channel position throughout TCI's systems serving the San Francisco ADI. KDTV claims that TCI currently carries the Station on channel 14 on only 17 of TCI's 37 systems serving the San Francisco market and on no fewer than 6 different channels market-wide. KDTV states that in those markets where it is not carried on channel 14, TCI, instead, carries expanded, premium, or pay cable services which require traps. KDTV states that it seeks to compel carriage of its signal on its over-the-air channel because cable carriage on channel 14 would permit KDTV, a Spanish-language programming station, to better market itself and inform Hispanic viewers in San Francisco where they can locate the Station. 5. KDTV contends that it first raised the issue of achieving a uniform channel position throughout the San Francisco ADI in June of 1993 in must-carry election letters to TCI and other cable operators in which it specifically requested carriage on channel 14. KDTV states that it was not carried on channel 14 by a majority of the systems serving the San Francisco market at any time during the 1994- 1996 election period. KDTV asserts that it reiterated its election for carriage on channel 14 in September of 1996 in a second set of must-carry/retransmission election letters. KDTV explains that following this notification, it entered into negotiations with TCI which ultimately proved fruitless. KDTV asserts that in the course of negotiations with TCI it was told that consolidating carriage of KDTV on channel 14 with respect to all of TCI's San Francisco systems would be cost prohibitive because TCI would have to remove traps currently in place in connection with the expanded, premium, and pay cable services carried on channel 14. 6. KDTV argues that, pursuant to Section 614(b)(6) of the Communications Act, it has the right to be carried on its over-the-air channel. KDTV asserts that the Commission has repeatedly stated that cable operators are responsible for accommodating UHF stations making on-channel carriage demands, including bearing the costs associated with the replacement of traps necessary to permit viewing of the station, on-channel, by all subscribers of the system. KDTV further argues that there has been no allegation that its signal quality is inadequate at system headends, nor that the satellite programming services currently carried on channel 14 have a legal right to that channel. KDTV contends that although TCI has known since June of 1993 of its need to accommodate KDTV on channel 14, TCI has shown total disregard for the Station's channel positioning rights. KDTV claims that it expends considerable sums of money to market itself throughout its ADI as channel 14 both over-the-air and on cable. The Station argues that TCI's actions have frustrated KDTV's efforts and caused it to incur substantial additional costs to promote its existence to its viewership due to its varying channel position. 7. In opposition, TCI argues that it should not be required to implement KDTV's repositioning request because uniform carriage of the Station on channel 14 would impose tremendous costs on TCI and its customers, contrary to the public interest. TCI requests, instead, that the Commission officially recognize cable channel 14 as "unavailable" on TCI's San Francisco systems for must-carry purposes. TCI states that it is carrying KDTV on all of the cable systems at issue and that 18 of its Bay Area cable systems, representing 673,953 customers, carry KDTV on channel 14. TCI contends that KDTV's request imposes a unique burden on TCI. TCI argues that, based on its calculations, accommodating KDTV's demand of universal carriage on channel 14 would cost TCI more than 4 million dollars. TCI asserts that the high costs are attributable to the fact that many of its Bay Area cable systems place traps on channel 14, so that the channel is not available as part of the basic service tier ("BST"). TCI states that whether the programming service offered on channel 14 is a premium service or a cable programming service tier ("CPST") service, implementing KDTV's request would require the removal of existing traps from channel 14 and the installation of new traps to prevent unauthorized viewing of the relocated programming service. Specifically, TCI claims that the repositioning would require the removal of existing negative and positive traps and the retrapping of more than 120,000 cable customers. TCI estimates that the cost of this undertaking would be 4.3 million dollars or approximately $35.00 per subscriber. TCI calculates the cost of relocating KDTV by multiplying the total number of customers served by the systems at issue by the cost of the traps used and then adding that resulting figure to the contractor's cost to replace traps. TCI claims that in addition to the engineering cost of 4.3 million, TCI would have to spend more than one-half million dollars on customer notifications. 8. TCI argues that the costs associated with KDTV's request justify a denial of the Station's petition. TCI contends that the Commission specifically recognized in Greater Dayton Public Television that the high costs associated with implementing a particular channel positioning request can justify its denial. TCI asserts that although in Greater Dayton the Bureau found that the cable operator failed to make the necessary showing, the facts of the instant case are more compelling. TCI contends that the repositioning involved in Greater Dayton was projected to cost over $300,000, whereas the repositioning costs here exceed 4 million dollars. TCI argues that the magnitude of the costs in this case are "prima facie evidence" that the cable systems and their customers will be substantially impacted by implementing KDTV's request. TCI states that the pass-through of the costs at issue will have a significant adverse effect on local customer bills. 9. TCI contends that the equities involved in this case compel a denial of KDTV's channel location request. TCI argues that KDTV is now in a relatively favorable channel position on each of the cable systems at issue. TCI further asserts that KDTV fails to explain in detail why carriage on channel 14 is so important as to justify the expenditure of more than 4 million dollars on TCI's part. TCI argues that it is unlikely that an audience interested in Spanish-language programming will be deterred from watching KDTV-- one of a limited number of Spanish-language offerings in the market-- because of its channel position. TCI states that, in any event, it is prepared to assist KDTV in its marketing efforts. TCI analogizes the instant situation to cases where a cable system is not configured to operate on a certain channel. TCI points out, for example, that a cable system that offers 35 channels is not required to accommodate a broadcaster's request for carriage on channel 40. TCI argues that given the tremendous costs involved in this case the Commission should find that the requested channel is "unavailable" just as if the systems did not have the capacity to operate on channel 14. Finally, TCI asks that in the event that the Commission grants KDTV's request, TCI be given 6 months from the date of the decision to come into regulatory compliance. TCI states that such temporary relief is necessary to afford TCI the time to purchase and install new traps. 10. In reply, KDTV argues that it is statutorily entitled to carriage on its over-the-air channel and is not obligated to accept TCI's arbitrary channel assignments. KDTV states that it is unaware of any cases in which the Commission has granted a cable system's request for relief on the basis of the cost involved to replace traps. KDTV argues that based on TCI's own data, the cable operator has overstated the cost of compliance with KDTV's channel location request. First, KDTV contends that the costs incurred by TCI as a result of missed opportunities to comply with the Station's request should be deducted from TCI's cost calculations. Second, KDTV argues that TCI has not demonstrated that the replacement of existing traps is the most cost-effective means of fulfilling TCI's channel positioning obligations. KDTV states that on systems where TCI has established a digital tier, TCI could simply move the program currently located on channel 14 to the digital tier which would not require the purchase or installation of new traps. Third, KDTV asserts that TCI does not provide any information as to how it determined the contractor's cost to replace traps, such as whether TCI received bids from vendors supplying the traps. Fourth, KDTV contends that in calculating the contractor's cost to replace traps, TCI multiplied the number of subscribers actually trapped out on channel 14 by a certain figure depending on the type of trap used. KDTV states that in determining the cost of the traps themselves, however, TCI multiplied the cost of the trap involved by the total number of subscribers on each system, rather than by the number of subscribers trapped out on channel 14 of each system. KDTV asserts that TCI does not explain why it would have to buy new traps for all of its subscribers when only some of its subscribers are presently trapped or why it would purchase new traps for all of its subscribers but only arrange for the installation of new traps for those subscribers who are currently trapped. 11. KDTV provides a spreadsheet showing the cost of purchasing and installing new traps in only those homes that are currently trapped. KDTV states that according to its calculations TCI's total cost of compliance is 1.5 million. KDTV further asserts that the cost per trapped subscriber is $12.23 (compared to $35.00) and the cost per system subscriber is $2.38 (compared to $6.84). KDTV contends that TCI's cost of compliance is less than half that at issue in Greater Dayton in which the Commission required TCI to spend $4.52 per subscriber to accommodate a station's channel positioning request. KDTV argues that the cost of implementing its channel location request is insignificant in light of the revenues the 1,306,979 subscribers in the San Francisco market represent to TCI. 12. KDTV asserts that TCI has failed to show that the cost of carrying the Station on channel 14 throughout the San Francisco ADI represents an undue financial burden on the relevant cable systems. KDTV contends that such a showing is required to justify a waiver of channel positioning obligations according to the Greater Dayton case. KDTV notes that TCI has not provided any information as to the total value of the systems or the revenues generated by each system. 13. KDTV contends that market-wide carriage on a uniform channel is extremely important to the Station. KDTV explains that having a single channel position throughout a market maximizes the cost-efficiency of station promotion and builds a "brand-consciousness" among the station's viewers. KDTV argues that advertisers, too, must have "brand awareness" of the station for it to survive. KDTV states that it has experienced difficulties in its sales efforts because advertisers unable to locate the Station on various cable systems do not believe that their messages are reaching the cable audience. 14. KDTV argues that TCI should not be given 6 months to fulfill its channel position obligations. KDTV claims that a 6-month delay will prevent KDTV from being carried on-channel during its World Cup Soccer Championship coverage which is expected to attract huge audiences and generate significant revenues. KDTV contends that the main reason TCI seeks delay is to allow for the installation of new traps which is necessary in order to relocate the programming services currently on channel 14. KDTV asserts, however, that to address the Station's concern TCI need only make channel 14 available for viewing of KDTV. KDTV argues that it should not be penalized for TCI's failure to comply with its obligations to date. Finally, KDTV argues that the Commission should investigate TCI's actions in this matter and exercise its authority to impose a forfeiture on TCI. KDTV asserts that TCI has knowingly remained out of compliance with the Communications Act and the Commission's rules, and by failing to seek relief earlier, has perpetuated its violation, increased its costs of compliance and harmed KDTV. DISCUSSION 15. We conclude that TCI is required to carry KDTV on channel 14 throughout the San Francisco ADI. Section 614(b)(6) of the Communications Act permits KDTV to elect its over-the-air channel number as its channel position on a cable system. KDTV has made a valid must-carry election and has properly chosen its over-the-air channel. There is no requirement in the Act or our rules that a broadcaster explain why the cable operator's on-channel preference is less suitable than the broadcaster's statutorily-based channel election. Once a station asserting its mandatory carriage rights has elected a channel position, the burden is on the cable operator to either carry the station on the designated channel number or to demonstrate why it is unable to fulfill its channel positioning obligations. 16. The Commission has stated that cable operators must comply with channel positioning requirements absent a compelling technical reason. The Commission specifically held that the need to employ additional traps, reconfigure the basic tier, or make technical changes are generally not sufficient grounds for denying the channel positioning request of a must-carry station. The Commission, however, has also recognized that there might well be certain circumstances where the compliance costs incurred by a cable operator would be so compelling as to warrant a waiver of the on-channel carriage requirement. In Greater Dayton Public Television, the Commission articulated a standard that cable operators must meet in order to obtain a waiver of their channel positioning obligations: To obtain such a waiver, a petitioner must first submit detailed evidence demonstrating the compliance costs. The petitioner must then demonstrate how such costs would substantially impact the cable system. For the reasons discussed below, we believe that TCI has failed to meet its burden of proof for a waiver of the channel positioning requirements. 17. We agree with KDTV that TCI has overestimated its costs of complying with the Station's request. TCI asserts that its compliance costs would be 4.3 million dollars and includes a chart showing TCI's supporting calculations. TCI claims that the high costs associated with implementing KDTV's channel location request justify a waiver of the channel positioning obligations. We believe that TCI erred in calculating the cost of the traps. TCI contends that in order to carry KDTV on channel 14, TCI would have to relocate the expanded or premium programming service currently carried on channel 14 to another channel number. TCI explains that this process requires the removal of existing traps from channel 14 and the placement of new traps on the new channel to which the programming service is relocated. Thus, it appears that the same number of traps that are currently required on channel 14 would be required on the new channel. In calculating the trap cost, however, TCI multiplied the cost of the trap involved by the total number of subscribers on each of the relevant systems rather than by only the number of subscribers currently trapped out on channel 14. The total number of subscribers served by each of the relevant systems is significantly higher than the number of subscribers on each system who are trapped on channel 14. Consequently, TCI's cost estimates are overstated. In the text of its pleading, TCI states that it would have to retrap 120,000 cable customers. In the attached chart showing its calculations, TCI confirms that there are precisely 123,024 customers currently trapped out on channel 14. Nevertheless, in determining the cost of the new traps, TCI does not multiply the cost of each trap by 123,024, the number of customers currently trapped, but inexplicably uses the total number of subscribers served by each system in its calculations. TCI's calculations of the cost of the traps do not only produce an exaggerated result but also contradict TCI's own analysis of the contractor's cost to replace the trap. TCI correctly calculates the contractor's cost based on the number of subscribers currently trapped out on channel 14 on each system and not on the number of subscribers served by each system. 18. Regardless of what the actual costs of compliance with KDTV's request would be, TCI has failed to demonstrate how such costs would "substantially impact" the cable system as required by Greater Dayton. Even if TCI's asserted costs were accurate, TCI has not presented any financial information, such as revenues generated by each system, to demonstrate that the claimed costs would have a substantial adverse impact on the relevant systems. TCI's assertion that the estimated costs involved here are "prima facie evidence" that cable systems and customers will be substantially impacted by implementing KDTV's request is merely a generalization and is not at all persuasive. 19. Finally, due to the extensive nature of the changes to the systems that must be made to comply with our Order, we will grant TCI's request for a sixth month time period within which to implement KDTV's channel location request. ORDERING CLAUSES 20. Accordingly, IT IS ORDERED, pursuant to Section 614 of the Communications Act of 1934, as amended (47 U.S.C.  534), that the petition filed by KDTV License Partnership, G.P., licensee of television broadcast station KDTV(TV), San Francisco, California ("KDTV") IS GRANTED. Telecommunications, Inc.'s ("TCI") IS ORDERED to commence carriage of television station KDTV(TV) on channel 14 of its cable systems serving the Communities six (6) months from the release date of this Order. 21. This action is taken pursuant to authority delegated under 0.321 of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Gary M. Laden, Chief Consumer Protection and Competition Division Cable Services Bureau