******************************************************** 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: ) ) AguadaPR0028 Cable TV Del Noroeste ) Aguadilla PR0029 ) Isabela PR0030 For Reconsideration of the Certification) Moca PR0031 of the Puerto Rico Telecommunications) QuebradillasPR0032 Regulatory Board To Regulate ) Basic Cable Rates ) MEMORANDUM OPINION AND ORDER Adopted: June 26, 1998 Released: June 30, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. Cable TV Del Noroeste ("Cable TV"), pursuant to Section 76.911 of the Commission's rules, has filed this petition with the Commission for reconsideration of the certification of the Puerto Rico Telecommunications Regulatory Board (the "Board") to regulate basic cable rates. Specifically, Cable TV argues that in the communities of Aguada, Aguadilla, Isabela, Moca, and Quebradillas (collectively, the "Communities") it is subject to low penetration effective competition because fewer than 30 percent of the households in the franchise area in which the Communities are located subscribe to cable service. The Board filed an opposition to which Cable TV replied. 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. Cable operators may challenge the certification of a local franchising authority by filing a petition for reconsideration. Rate regulation is automatically stayed pending review of a petition for reconsideration alleging effective competition. Section 623(l)(1)(A) of the Communications Act provides that a cable operator is subject to effective competition if fewer than 30 percent of the households in the franchise area subscribe to the cable service of a cable system. III. SUMMARY OF PLEADINGS 3. Cable TV 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. Pursuant to Section 76.910(e) of the Commission's rules, certification became effective on July 12, 1997. Cable TV further states that it has a single franchise to serve all of the cable communities at issue. Cable TV 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. 4. In its petition, Cable TV states that in order to establish an effective competition claim cable operators may rely on 1990 Census data or, if 1990 data is inaccurate or outdated, cable operators may introduce more current household data, if available. Cable TV maintains that 1990 Census data should not be relied upon for two reasons. First, Cable TV argues that the 1990 Census provides a household count that is considerably lower than the actual number of households in the franchise area. Second, Cable TV argues that there has been significant population growth in the franchise area since 1990. 5. Cable TV states that it completed an audit of the number of households in the franchise area by consulting original and updated street maps of each cable community and by conducting a house- by-house count of each residence. Cable TV maintains that the audit, which was conducted during the period October, 1992 through November, 1993, indicates that the number of homes are 16,440 in Aguada, 22,595 homes in Aguadilla, 15,420 homes in Isabela, 18,365 in Moca, and 10,470 in Quebradillas for a total of 83,290 households in the franchise area. Cable TV states that it currently serves 21,750 or 26.1 percent of the households in the franchise area. Cable TV thus argues that it is subject to low penetration effective competition and that the Board's certification to regulate rates should be revoked. 6. In opposition, the Board asserts that Cable TV has not adequately demonstrated that it meets the requirements of the low penetration test. The Board argues that Cable TV does not want to rely on 1990 Census data because that data would show that Cable TV's penetration rate is well over 30 percent of the households in the franchise area. The Board further argues that, other than its house-by- house survey, Cable TV fails to explain its methodology to determine current households including the calculation of occupancy rates, changes in population, zoning changes and other variables that must be considered in preparing household estimates. The Board further argues that Cable TV fails to provide a full explanation of how the audit was conducted. 7. The Board argues that reliable data, i.e., 1990 Census data, show that the franchise area had 63,670 households in 1990 which, when compared to Cable TV's current subscribership (21,750), makes Cable TV's penetration rate 34.16 percent. The Board further argues that Cable TV's penetration rate doesn't satisfy the low penetration test using reliable updated household data. The Board estimates that there are 69,825 current households in the franchise area. The Board arrived at this figure using 1996 Census population estimates for each of the cable communities in the franchise area which it divided by the average number of persons per household in each of the Communities. The Board's estimate of current households (69,825) compared with Cable TV's current subscribership (21,750) makes Cable TV's penetration rate 31.15 percent. The Board thus maintains that Cable TV is not subject to low penetration effective competition in the franchise area. 8. Cable TV replies that the evidence submitted in its petition demonstrates the presence of low penetration effective competition. Cable TV nonetheless provides additional information regarding its audit in order to further demonstrate that the Board's exclusive reliance on Census data is unjustified in this case. Cable TV states that, between 1989 and 1992, it completed several expansions of its cable system and that it retained detailed engineering maps from the original construction project and subsequent expansions. Cable TV further states that Cable TV developed a single, comprehensive street map detailing all existing cable plant and homes passed in the franchise area. Cable TV then states that it dispatched three-member crews to conduct a house-by-house count of every home in the franchise area. Cable TV asserts that the crews inspected all utility poles, taps and drops and was able to determine the number of: (1) homes currently receiving cable service; (2) homes that had received service at a prior time; (3) homes that were never wired for cable; (4) vacant homes; and (5) homes under construction. Cable TV states that the results of the audit indicated that the franchise area contained 38,161 wired homes, 34,325 never wired homes, 1,067 vacant homes, and 3,070 homes under construction. Cable TV explains that it also counted 3,898 businesses which it considers to be occupied homes because most of the businesses are operated from the ground level of a two-level family dwelling. Cable TV further explains that most of the homes it observed to be under construction at the time of its audit are now completed and occupied. Cable TV combined the number of homes recorded in its audit figures with the 289 new homes which the cable system now passes to arrive at a total of 83,291 homes in the franchise area. The total number of homes (83,291) compared with Cable TV's current subscribership results in a penetration rate of 26.1 percent. 9. Cable TV maintains that if the number of businesses, vacant homes, and homes under construction are factored out, the total number of homes in the franchise would be 75,356. Using this reduced figure, Cable TV calculates its penetration rate to be 28.9 percent and still below the 30 percent household ceiling established by the low penetration test. Cable TV maintains that it has provided alternative data which provide a better indication of the number of current households in the franchise area than the outdated Census data upon which the Board relies. IV. DISCUSSION 10. We grant Cable TV's petition to reconsider the certification of the Board to regulate basic cable service rates in the franchise area. Cable TV and the Board have each submitted data more current than the 1990 Census data in an attempt to show the total number of current households in the franchise area. The Board also calculated the number of households in the franchise area using 1990 Census data. We have stated that "where both the cable operator and the franchising authority submit household numbers more current than the most recent available Census data, it is incumbent upon the cable operator to demonstrate that its more current household numbers are more accurate and reliable than the household numbers submitted by the franchising authority." 11. We find that Cable TV's determination of current subscribers based upon its audit of households in the franchise area is an acceptable and reliable method of determining a cable operator's penetration rate. Updated data can more closely determine actual penetration rates. Cable TV updated household data by conducting a house-by-house audit which it undertook during the period October, 1992 through November, 1993. Initially, Cable TV included in its household count 38,161 wired homes, 34,325 never wired homes, 1,067 vacant homes, 3,070 homes under construction, 289 new homes, and 3,898 businesses which Cable TV considered to be homes to arrive at a total number of current households. In its reply, Cable TV stated that even if the number of businesses, vacant homes, and homes under construction are factored out, the total number of homes in the franchise would be 75,356 for a penetration rate of 28.9 percent. Thus we are persuaded that the current household data submitted by Cable TV are more accurate and reliable than the alternative data submitted by the Board. 12. The Board updated household data by using 1996 Census population estimates which it then divided by the average number of persons per household in each cable community to arrive at an estimate of the number of current households in the franchise area. After calculating the resulting 1996 household estimate, the Board calculated Cable TV's penetration rate to be 31.15 percent. Thus under the Board's calculation Cable TV's penetration rate exceeds the 30 percent ceiling established by the low penetration effective competition test. We find however that an actual count is a more accurate and reliable method than the Board's reliance on Census estimates. Accordingly, we conclude that Cable TV is subject to low penetration effective competition in the franchise area at issue. V. ORDERING CLAUSES 13. Accordingly, IT IS ORDERED that the petition filed by Cable TV Del Noroeste for reconsideration of the certification of the Puerto Rico Telecommunications Regulatory Board to regulate basic cable rates with regard to the communities of Aguada, Aguadilla, Isabela, Moca, and Quebradillas IS GRANTED. 14. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, 47 C.F.R. 0.321. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau