******************************************************** 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: ) ) Falcon Community Ventures I, L.P.) Roseburg, OR OR0124 d/b/a Falcon Cable TV ) ) Petition for Revocation of the Certification) of the City of Roseburg, Oregon to) Regulate Basic Cable Rates ) ) MEMORANDUM OPINION AND ORDER Adopted: October 23, 1998 Released: October 26, 1998 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. Falcon Community Ventures I, L.P. d/b/a/ Falcon Cable TV ("Falcon"), pursuant to Section 76.914 of the Commission's rules, has filed a petition with the Commission seeking a revocation of the certification of the City of Roseburg, Oregon (the "City" or "Roseburg") to regulate basic cable rates based upon the presence of effective competition. Specifically, Falcon argues that it is subject to competing provider effective competition due to the competing programming services of various direct-to-home service ("DBS") providers. The City submitted an opposition to which Falcon replied. For the reasons discussed below, the petition is denied. 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 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. While the petition for revocation is pending, the franchising authority may continue to regulate the basic cable rates of its franchisees. 3. Under Section 76.914 of the Commission's rules, pursuant to which Falcon filed this petition, a franchising authority's certification shall be revoked if one of the conditions for certification is not fulfilled. Section 76.910 required that for a franchising authority to be certified to regulate the basic service tier of a cable system within its jurisdiction, the cable system must not be subject to effective competition. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition. A finding of effective competition will exempt a cable operator from rate regulation under the Commission's rules. 4. One basis upon which a cable operator may be deemed subject to effective competition is the competing provider test. Under the test, contained in Section 623(l)(1)(B) of the Communications Act, a cable system 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. Falcon alleges that its cable system serving the City of Roseburg is subject to effective competition and, therefore, is exempt from rate regulation. Falcon bases its contention on the availability of various DBS video programming services in the City. Falcon claims that both prongs of the competing provider effective competition test in Section 623(1)(1)(B) of the Communications Act are satisfied because the various DBS providers each offer comparable programming to at least 50 percent of the households in the Communities and the number of actual subscribers to DBS, in the aggregate, exceeds 15 percent of the households in the City. 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 franchise area. Falcon maintains that several DBS providers offer comparable programming to at least 50 percent of the households in the City. Falcon states that the Commission has recognized that DBS is available nationwide and has presumed that DBS providers satisfy the 50 percent threshold. Thus, Falcon maintains that it satisfies the 50 percent availability requirement of the first prong of the competing provider test. 7. The first prong of the competing provider test also requires that at least two competing providers offer comparable programming. Falcon states that DBS providers such as the DISH network and Primestar have already been found to offer comparable programming in accordance with Commission rules. Falcon provides programming lineups indicating the DISH network offers over 50 video channels, and Primestar offers over 150 channels. 8. The second prong of the competing provider test requires that at least 15 percent of the households in the City be subscribers to an MVPD other than the largest MVPD. Falcon asserts that it is the largest MVPD serving the City and subscribers to DBS in the aggregate satisfy the 15 percent penetration requirement. 9. In its petition, Falcon relied upon 1990 Census data for the zip code 97470 as the starting point of its analysis and developed a growth factor to update that data and arrive at an estimate of the approximate total number of current households in the City. The City of Roseburg is located entirely within the zip code of 97470. Falcon used data from the 1990 census because no other source of household data for the franchise area is available. Falcon calculated the growth factor by comparing the 1990 Census data in the zip code 97470 to the current household information for the zip code provided by SkyTRENDS. The result of this comparison produces a household growth rate of approximately 21%. Falcon assumed that the household growth rate was the same for the City as the entire zip code, and multiplied the 21 percent household growth rate multiple to the 1990 Census data for the City to determine the approximate current number of households in the City totals 8,179. 10. Falcon asserts that because the City contained 42% of the households in the zip code in 1990, it must also presently contain 42% of the DBS subscribers in the zip code. Using SkyTRENDS' estimate of 4,143 DBS subscribers in the entire zip code, Falcon calculates that there are 1,740 DBS subscribers in the City. Based on its assumptions regarding the number of households and DBS subscribers in the City, Falcon maintains that the DBS providers have collectively achieved a 21% penetration among households in the City. 11. In opposition, the City argues that Falcon's petition is procedurally defective. The City maintains that a cable operator that believes it has become subject to effective competition must follow the procedures of Section 76.915 of the Commission's rules rather than Section 76.914, pursuant to which Falcon filed. In this regard, the City argues that a cable operator may only file a petition for revocation with the Commission after it petitions a local franchise authority for a change in regulatory status. Additionally, the City asserts that Falcon's calculations are based on unsupportable factual assumptions, and therefore has not met its burden of demonstrating the presence of effective competition. The City does not dispute that the 50% prong of the competing provider test is met. The City argues that Falcon's assumptions regarding the distribution of household growth between the city and non-city areas in the zip code are not supported by the record. The City maintains that the percentage of DBS subscribers is higher outside the City because that area contains homes not passed by a cable operator, and it has been recognized that DBS penetration is higher in areas unserved by cable. Based on assumptions it argues are more plausible, the City calculates that there are 1,173 DBS subscribers in the franchise area. Under the City's calculation, 14.3% of the households in the City subscribe to DBS. 12. In reply, Falcon argues its petition was correctly brought before the Commission. Falcon argues that Section 76.915 is phased in permissive terms, and does not require the cable operator to first petition the franchising authority for change in regulatory status. Regarding its assertion that DBS subscribers exceed 15% of the households in the franchise area, Falcon argues that its calculations are based on the most recent data, and assumptions most adverse to a finding of effective competition. Falcon acknowledges that it was required to extrapolate some information in making its calculations, but argues that its assumptions are reasonable. Falcon maintains that if additional proof is required, DBS providers should provide subscriber information on a franchise-specific basis. IV. DISCUSSION 13. As a threshold matter, we find that Falcon's petition for revocation of the City's certification was properly brought with the Commission. The City incorrectly interprets Section 76.915 as requiring Falcon to first file a petition for change in regulatory status with the City. The Commission has consistently accepted petitions for revocation without the cable operator first presenting its case to the local franchising authority. As we have stated previously, Section 76.915 creates an optional deregulation procedure. The language of Section 76.914 permits cable operators to seek deregulation directly from the Commission. 14. With respect to determining whether Falcon is subject to effective competition under the competing provider test, we find that Falcon has not meet its burden. Under the first prong of the test, the City does not dispute, and we find that at least 50 percent of the households in the franchise area are served by at least two unaffiliated MVPDs each offering comparable video programming. Regarding the 15 percent penetration requirement, both Falcon and the City have submitted data purporting to update the 1990 Census data to show the number of households receiving video services other than from the largest MVPD. 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 the cable operator's burden to demonstrate that its more current household numbers are more accurate and reliable than the household numbers submitted by the franchising authority." Falcon has not met this burden. 15. Falcon's showing fails to demonstrate that its assumptions regarding growth for the zip code can be used as a statistically accurate basis to calculate current household and DBS subscriber numbers in the franchise area. Falcon assumes that from 1990 to 1997, the growth in households was at an equal rate in both the City and the zip code, although population growth was much greater in the City of Roseburg than in surrounding areas during that time period. Falcon argues that population growth has no correlation to household growth, but offers no explanation as to why its extrapolation of growth in the zip code is an accurate means to determine the current number of households in the franchise area. Similarly, without a clear explanation, Falcon assumes that DBS penetration is equal throughout the zip code, although it recognizes some parts of the zip code are not served by cable and presumably would have higher DBS penetration. Falcon has failed to demonstrate that the assumptions supporting its household and DBS penetration calculations are reliable. Accordingly, Falcon has failed to meet its burden of proving that its cable system serving the City of Roseburg is subject to competing provider effective competition. 16. Falcon suggests that DBS operators should be required to track and provide subscriber numbers on a franchise-specific basis instead of providing information based on zip code in instances such as this when zip code data is not dispositive. We note that the mechanisms for identifying the physical locations of DBS subscribers from their street addresses have been improving and that the so-called "geocoding" process that is available from several commercial entities provides a potential means of more closely associating DBS subscribers with specific franchise areas. However, the information on which to conclude that effective competition exists in Roseburg is not now before us so that this petition must be denied. This denial is without prejudice to Falcon refiling a petition with more reliable information obtained from the relevant cable competitor pursuant to Section 76.911(a)(2) of the Commission's rules. V. ORDERING CLAUSES 17. Accordingly, IT IS ORDERED that the petition for revocation of the certification of the City of Roseburg, Oregon to regulate basic cable rates filed by Falcon Community Ventures I, L.P. d/b/a Falcon Cable TV IS DENIED. 18. 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 Deborah A. Lathen Chief, Cable Services Bureau