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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 In the Matter of: ) CSR 5166-E ) Time Warner Entertainment- ) Advance/Newhouse Partnership ) d/b/a Time Warner Cable ) Somerville, MA ) CUID No. MA0057 Petition for Determination of ) Effective Competition ) MEMORANDUM OPINION AND ORDER Adopted: February 3, 1999 Released: February 5, 1999 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. Time Warner Cable ("Time Warner") filed a petition asserting that it is subject to effective competition in the City of Somerville, Massachusetts ("Somerville" or the "City") from RCN-BecoCom, L.L.C. ("RCN"), an affiliate of a local exchange carrier ("LEC") that is offering cable service in Somerville. In addition, Time Warner filed two supplements to its petition. No oppositions to Time Warner's submissions were filed. 2. Section 623(a)(4) of the Communications Act of 1934, as amended ("Communications Act") allows franchising authorities to become certified to regulate basic cable service rates of cable operators which are not subject to effective competition. For purposes of the initial request for certification, local franchising authorities may rely on a presumption that cable operators within their jurisdiction are not subject to effective competition unless they have actual knowledge to the contrary. Certification becomes effective 30 days from the date of filing unless the Commission finds that the authority does not meet the statutory certification requirements. In Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996 ("Cable Act Reform Order"), the Commission instructed cable operators believing themselves subject to LEC effective competition under Section 623(l)(1)(D) of the Communications Act to file a petition for determination of effective competition pursuant to Section 76.7 of the Commission's rules. Section 623(l)(1)(D) of the Communications Act provides that a cable operator is subject to effective competition where: a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area. II. THE PLEADINGS 3. Time Warner argues that it faces LEC effective competition in its Somerville, Massachusetts franchise area from RCN, a LEC-affiliated franchised cable operator. Time Warner explains that in the time between the filing of its petition and its supplement, RCN's status changed from open video system ("OVS") operator to cable operator. With regard to the LEC affiliation requirement, Time Warner contends that RCN currently markets both telephone and cable television service to Somerville residents. Time Warner explains that RCN is a joint venture between RCN Telecom Services, Inc. ("RCNTS") and Boston Edison Company. Time Warner states that RCNTS is a wholly-owned subsidiary of C-TEC, a local exchange carrier, and that RCNTS, itself, is engaged in the provision of local exchange service. Time Warner additionally asserts that RCN is affiliated with MFS Communications Company, Inc. ("MFS"), another local exchange carrier. Time Warner explains that MFS, RCN, and C-TEC were, at one time, all owned by Peter Kiewit Sons, Inc., but that MFS was spun-off from Kiewit in September, 1995 and merged with WorldCom in 1996. Time Warner, states, however, that RCN is still affiliated with MFS, through Kiewit, for purposes of the LEC affiliation requirement. In sum, Time Warner argues that RCN's own LEC operations, as well as its affiliations with C-TEC, MFS and WorldCom, clearly render RCN a LEC affiliate. 4. With regard to the requirement that the LEC competitor offer video programming service in the unaffiliated cable operator's franchise area, Time Warner asserts that RCN is physically able to deliver service to potential subscribers in Somerville. Time Warner contends that RCN has already constructed its video programming distribution facility throughout most of the City and that construction to serve all parts of the City is proceeding rapidly. Time Warner states that there are at least 1,200 RCN subscribers in Somerville and references an article from the Boston Globe confirming that RCN began serving subscribers in the City in October of 1997. According to Time Warner, Somerville residents need only contact RCN to activate service. Moreover, Time Warner points to the fact that RCN has a franchise with the City of Somerville to provide cable television service as evidence that there are no regulatory, technical or other impediments to households taking service from RCN. Time Warner also asserts that the Commission's grant of RCN's OVS application, covering 48 service areas in and around Boston, Massachusetts, including Somerville, and RCN's Interim OVS Agreement with the City of Somerville, permitting RCN to provide OVS service to the City, further demonstrate that there are no regulatory impediments to receipt of RCN's service by Somerville residents. Finally, Time Warner contends that RCN's intense advertising and marketing efforts as well as local newspaper reports ensure that Somerville residents are reasonably aware that they may purchase RCN's service. Time Warner states that RCN has aggressively marketed the availability of its cable service to Somerville residents through local media, door-to-door canvassing, direct mail, and telemarketing. 5. Time Warner also asserts that RCN offers programming comparable to that offered by Time Warner in Somerville. Time Warner provides RCN's channel line-up which demonstrates that RCN offers 95 channels of video programming, 12 of which are local television broadcast signals. Time Warner also includes its own channel line-up which indicates that it offers 80 channels of video programming in Somerville. III. ANALYSIS 6. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition. The cable operator bears the burden of rebutting the presumption that effective competition does not exist with evidence that effective competition, as defined by Section 76.905 of the Commission's rules, is present within the franchise area. Time Warner has met this burden. 7. With regard to the first part of the LEC effective competition test, which requires that the alleged competitive service be provided by a LEC or its affiliate (or any multi-channel video programming distributor using the facilities of such LEC or its affiliate), we find that Time Warner has provided sufficient evidence, through SEC documents and other material, demonstrating that RCN is LEC-affiliated under the Commission's interim rules. Therefore, we find that Time Warner satisfies the affiliation prong of the LEC effective competition test. In addition, we note that Time Warner is unaffiliated with RCN or any of RCN's partners. 8. We also find that Time Warner has submitted sufficient evidence showing that RCN's program service offering is comparable to Time Warner's channel line-up in Somerville. The channel information for RCN submitted by Time Warner establishes that RCN offers more than 95 channels of programming, including 12 local broadcast channels, in satisfaction of the programming comparability criterion. 9. In addition, we conclude that, based on the information before us, RCN is offering service in Time Warner's franchise area sufficient to demonstrate the presence of effective competition. RCN has already constructed its video distribution facility throughout most of Somerville and is actively signing up customers. Maps submitted by Time Warner show the substantial extent of RCN's construction and Time Warner reports that there are at least 1,200 RCN subscribers in Somerville. We further believe that RCN's Cable Television Provisional License, received from the City on December 16, 1997, demonstrates RCN's commitment to provide video programming service to Somerville residents now and in the future. As noted by Time Warner in one of its supplements, the license requires RCN to complete construction of its cable system and make its cable service available to all residents of the City within 8 months of the Execution Date of the Final License. Under the Provisional License, RCN is required to maintain a performance bond running to the City in the sum of $300,000 and a letter of credit for $60,000 to ensure that RCN performs its obligations under the Final License. Finally, the Provisional License contains a liquidated damages section providing for the assessment of financial penalties against RCN should it default in the performance of obligations imposed by the Final License. We find that the City's grant to RCN of a Provisional License to provide cable service and the requirements and obligations contained therein are clear evidence of RCN's commitment to providing such service to Somerville residents. 10. We note that RCN's extensive marketing efforts and the wide press coverage of RCN's construction activity in the local media ensure that potential subscribers are reasonably aware of the availability of RCN's service. Generally, subscribers in wired areas are able to receive RCN's cable service for only a minimal additional investment and without encountering regulatory or technical obstacles. 11. We find that Time Warner has submitted sufficient evidence demonstrating that its cable system serving Somerville, Massachusetts is subject to LEC effective competition from RCN. Time Warner's petition is hereby granted and the certification of the City of Somerville is revoked. IV. ORDERING CLAUSES 12. Accordingly, IT IS ORDERED that the Petition for Determination of Effective Competition filed by Time Warner Cable challenging the certification of the City of Somerville, Massachusetts IS GRANTED. 13. IT IS FURTHER ORDERED that the certification of the City of Somerville, Massachusetts to regulate the basic cable rates of Time Warner Cable in Somerville, Massachusetts IS REVOKED. 14. This action is taken pursuant to the interim rules adopted in Implementation of Cable Reform Provisions of the Telecommunications Act of 1996, 11 FCC Rcd 5937 (1996), and is without prejudice to any further action taken by the Commission in adopting final rules pursuant to the Notice of Proposed Rulemaking contained therein. 15. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION Deborah A. Lathen Chief, Cable Services Bureau