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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 Time Warner Entertainment- ) Advance/Newhouse Partnership ) ) City of Cape Canaveral FL0163 d/b/a Time Warner Communications ) Town of Indiatlantic FL0010 ) Town of Malabar FL0547 ) City of Melbourne FL0013 For Change in Regulatory Status ) City of Palm Bay FL0017 ) Town of Palm Shores FL0245 ) City of Satellite Beach FL0020 MEMORANDUM OPINION AND ORDER Adopted: June 26, 1998 Released: July 1, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. Time Warner Entertainment-Advance/Newhouse d/b/a/ Time Warner Communications ("Time Warner"), pursuant to Section 76.915(f) of the Commission's rules, has filed a petition with the Commission seeking a change in its regulatory status based upon the presence of effective competition in the Cities of Cape Canaveral, Melbourne, and Satellite Beach and the Towns of Indiatlantic, Malabar, and Palm Shores, Florida (collectively, the "Communities") and waiver of certain provisions of the Social Contract for Time Warner ("Social Contract"). Specifically, Time Warner argues that it is subject to competing provider effective competition due to the competing service offered by Wireless Broadcasting Systems of Melbourne ("WBS"), an unaffiliated multichannel multipoint distribution service ("MMDS") provider. Neither WBS nor any of the Communities filed an opposition to the petition. II. BACKGROUND 2. Section 76.915(f) of the Commission's rules, pursuant to which Time Warner filed this petition, provides that "where a local franchising authority has not been certified to regulate rates, a cable operator may petition the Commission for a change in its regulatory status." A successful petition for change in regulatory status will exempt a cable operator from rate regulation under the Commission's rules. Our records indicate that two of the communities at issue, the City of Cape Canaveral and the Town of Palm Shores, are not certified to regulate basic cable rates. The remaining communities have filed with the Commission to become certified. For those communities which are certified to regulate rates, we will resolve Time Warner's petition pursuant to Section 76.914 of the Commission's rules which permits a cable operator to petition the Commission to revoke the certification of a local franchising authority. 3. 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 file petitions 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. Under Section 76.914 of the Commission's rules, 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. 4. Section 623(l)(1)(B) of the Communications Act provides that a cable operator is subject to effective competition if 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. III. SUMMARY OF PLEADINGS 5. Time Warner alleges that its cable systems serving the Communities are subject to effective competition and, therefore, are exempt from rate regulation pursuant to the Commission's rules. Time Warner bases its allegation that it is subject to effective competition on the availability of WBS's wireless cable service in the Communities. Time Warner claims that both prongs of the competing provider effective competition test in Section 623(1)(1)(B) of the Communications Act are satisfied because WBS and direct broadcast satellite ("DBS") providers each offer comparable programming to 50 percent of the households in the Communities and the number of subscribers to WBS, which is the smallest of the systems, exceeds 15 percent of the households in the Communities. 6. The first prong of the competing provider test requires that at least two unaffiliated multichannel video programming distributors ("MVPDs") each offer comparable programming to at least 50 percent of the households in the communities at issue. Time Warner argues that it and WBS each offers comparable programming to at least 50 percent of the households in the Communities. Time Warner argues that the Commission has determined that wireless cable is deemed to be offered anywhere within a 35-mile interference free contour zone. With regard to WBS, Time Warner provides the geographic coordinates of WBS' transmitter and states that the transmitter is in place and operational. Time Warner states that the Communities are all located within 35 miles of WBS' transmitter site and line-of-sight area. Time Warner further states that there are no regulatory impediments to receipt of WBS' service in the franchise area and that WBS currently has over 10,000 subscribers in the Communities. Time Warner further states that subscribers are reasonably aware of WBS' services because of the presence of WBS subscribers and WBS marketing materials which appear in Florida Today, a local newspaper, and are distributed throughout the franchise area. As a result, Time Warner argues that WBS clearly offers service to more than 50 percent of the households in the Communities. 7. Time Warner maintains that DBS providers also offer comparable programming to at least 50 percent of the households in the Communities. Time Warner states that the Commission has recognized that DBS is available nationwide and has presumed that DBS providers satisfy the 50 percent threshold. Thus Time Warner maintains that it satisfies the requirements of this part of the first prong of the competing provider test. 8. The first prong of the competing provider test also requires that at least two competing providers offer comparable programming. Time Warner states that WBS' programming is comparable to its own because WBS currently offers 34 channels of programming, including numerous non-broadcast programming services and numerous local television broadcast stations. Time Warner further states that DBS offers comparable programming in accordance with Commission rules. Time Warner maintains that, because of the similar channel line-ups offered by itself and WBS, the communities are being served by at least two unaffiliated MVPDs each of which offers comparable programming. 9. The second prong of the competing provider test requires that at least 15 percent of the households in the Communities be subscribers to the smaller of the MVPDs. Time Warner maintains that WBS, the smallest of the MVPDs, meets that requirement. Time Warner submitted data comparing its current subscribers with 1990 Census data to show that the following percentages of households subscribe to WBS: 17 percent in Cape Canaveral; 26 percent in Indiatlantic; 21.4 percent in Malabar; 18.3 percent in Melbourne; 17.3 percent in Palm Bay; 373.0 percent in Palm Shores; 19 percent in Satellite Beach. Time Warner argues that, because it has shown that the requirements of the competing provider effective competition test have been satisfied, its request for deregulation of cable rates should be granted. 10. Time Warner further argues that the Commission should modify application of certain provisions of the Social Contract to its cable service in the Communities. The effect of Time Warner's request would be that Time Warner cable service in the Communities would: (1) no longer be subject to a price cap on either its basic service tier ("BST") or its cable programming service tier ("CPST"); (2) be permitted to add additional channels to its BST at any time; (3) be permitted to establish its equipment rates without regard to regional equipment costs or blended rates; (4) no longer be subject to price caps or a limit on the number of channels migrated to its Migrated Product Tiers ("MPT"); and, (5) not be subject to any regulations established by the Commission governing annual adjustments to BST or CPST rates; Time Warner states that, regardless of its request for modification, it will remain bound by all other applicable provisions of the Social Contract, including the infrastructure upgrade requirement. IV. DISCUSSION A. Effective Competition 11. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition, as that term is defined by Section 76.905 of the Commission's rules. The cable operator bears the burden of rebutting the presumption that effective competition does not exist with evidence that effective competition is present within the relevant franchise area. In the instant case, Time Warner seeks to demonstrate that it is subject to competing provider effective competition as a result of the competing services provided by WBS' wireless cable service and the service offered by DBS providers in the cable communities at issue. We find that Time Warner has provided sufficient proof to demonstrate that WBS is a competing provider offering comparable programming by showing that it satisfies both prongs of the competing provider test. We conclude that Time Warner is subject to effective competition in the Communities and therefore is exempt from the Commission's rules governing rate regulation of cable systems. With regard to the Social Contract, we find that Time Warner is exempt from those provisions which impose rate regulation on its cable systems serving the Communities but, in all other respects, remains bound to the terms and conditions of the Social Contract. 12. With regard to the first prong of the competing provider test, Time Warner introduced evidence from the 1990 Census to show that WBS as well as DBS providers offer service to at least 50 percent of the households in the Communities. We find that Time Warner has demonstrated that an alternative MVPD offers service to at least 50 percent of the households in the franchise area. Time Warner relied on the Commission's presumption that the nationwide availability of DBS satisfies the 50 percent threshold. The Commission has stated that, in the absence of evidence to the contrary, DBS service providers are presumed to satisfy the requirement of offering service to 50 percent of households in the franchise area. 13. With regard to service offered by WBS, the Commission has stated that an MMDS licensee is protected from electrical interference within a 35-mile interference free contour zone. The Commission has further stated that the cable operator, in addition to information regarding the location of its transmitter site and the 35-mile protected zone, should provide "any other reasonably available technical and geographic information, as well as information about the geographic scope of the competitor's marketing efforts, to help establish that service is being offered to subscribers in the franchise area." While the information Time Warner has provided regarding the offering of WBS' service is limited, we nevertheless conclude that this element of the test has been satisfied. Accordingly, whether by virtue of the service WBS provides or because of the DBS service presumed to be available nationwide, we conclude that Time Warner has satisfied the requirements of the first prong of the competing provider test. 14. We find that Time Warner, WBS, and DBS service providers each meets the Commission's definition of "comparable programming" contained in Section 76.905(g) because each offers "at least twelve channels of programming, including at least one channel of non-broadcast programming." Time Warner's and WBS' channel line-ups indicate that each is offering more than the minimum number of channels of both broadcast and non-broadcast channels in the Communities. We conclude therefore that at least two MVPDs in the franchise area are offering comparable programming and that the first prong of the competing provider test is satisfied. 15. The second prong of the competing provider test requires that the number of households subscribing to WBS, an MVPD other than the largest MVPD, exceeds 15 percent of the households in each of the Communities. Time Warner submitted a table which shows the percentage of households which subscribe to WBS' service in the cable communities. We find that Time Warner has demonstrated that WBS' penetration rate in the Communities satisfies the requirement of the second prong of the competing provider test. We conclude that Time Warner has established that both prongs of the competing provider effective competition test have been met and, accordingly, we grant Time Warner's petition for a change in its regulatory status and revoke the certifications of the Cities of Melbourne, Palm Bay, and Satellite Beach and the Towns of Indiatlantic and Malabar. B. Social Contract 16. The Commission and Time Warner negotiated the Social Contract in order "to provide upgrade incentives for Time Warner and to provide rate stability and increased quality of service for its consumers." The Social Contract provides that Time Warner may, in the event of any relevant change in applicable laws, regulations or circumstances, petition the Commission to modify or terminate the Social Contract." Time Warner is required to serve any such petition to modify or terminate the Social Contract on the local franchising authorities for the affected systems. 17. Time Warner's petition for a change in regulatory status is based upon a change in circumstance, i.e., the presence of effective competition in the Communities. We have found that Time Warner has demonstrated that its cable systems serving the Communities face effective competition from WBS, a competing provider of wireless cable service and the service offered by DBS providers. Under the Commission's rules governing rate regulation, the rates of cable systems that are found to be subject to effective competition are not regulated. Time Warner has requested that the Commission waive certain rate provisions of the Social Contract, namely, Sections III.A.2 (price cap on the BST); III.A.3 (additions to the BST); III.B (equipment rates); III.D (price caps on the MPT); III.F.4 (price cap on the CPST); and III.G (annual rate adjustments to the BST and CPST). Each of those provisions of the Social Contract pertain to regulation of service and equipment rates on a regulated tier of cable service. We find that Time Warner's systems serving the Communities have experienced a change in circumstance, i.e., the presence of effective competition, which has relieved Time Warner of its duty to comply with the rate regulation provisions of the Social Contract in the Communities. We further find that Time Warner has met the notice requirement contained in the Social Contract by serving its petition on each local franchise authority affected by its actions. In light of the foregoing, we grant Time Warner's request to be relieved of Sections III.A.2, III.A.3, III.B, III.D, III.F.4, and III.G of the Social Contract with regard to the Communities. All other provisions of the Social Contract remain valid and enforceable and the Commission retains oversight authority with regard to those non-rate provisions. V. ORDERING CLAUSES 18. Accordingly, IT IS ORDERED that the Petition for Change in Regulatory Status filed by Time Warner Entertainment-Advance/Newhouse Partnership d/b/a Time Warner Communications, pursuant to Section 76.905(b)(2) of the Commission's rules, 47 C.F.R.  76.905(b)(2), IS GRANTED. 19. IT IS FURTHER ORDERED that, for purposes of the Social Contract for Time Warner, Time Warner's request to be relieved of compliance with certain provisions therein, namely, Sections III.A.2, III.A.3, III.B, III.D, III.F.4, AND III.G governing cable rates offered in the Cities of Cape Canaveral, Melbourne, Palm Bay, and Satellite Beach and the Towns of Indiatlantic, Malabar, and Palm Shores IS GRANTED. 20. IT IS FURTHER ORDERED that the certifications of the Cities of Melbourne, Palm Bay, and Satellite Beach and the Towns of Indiatlantic and Malabar to regulate cable rates ARE REVOKED. 21. This action is taken pursuant to delegated authority under Section 0.321, 47 C.F.R.  0.321, of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau