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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: ) ) Time Warner Communications ) Franklin Township, OH, et. al. ) Petition for Determination of ) CSR-5378-E Effective Competition ) MEMORANDUM OPINION AND ORDER Adopted: August 19, 1999 Released: August 24, 1999 By the Deputy Chief, Chief, Cable Services Bureau: I. INTRODUCTION 1. Time Warner Entertainment Co., L.P. d/b/a Time Warner Communications ("Time Warner") has filed a Petition for Special Relief/Petition for Revocation asserting that it is subject to effective competition in Franklin Township and 16 other Ohio communities (hereinafter "Affected Communities") because of the presence of Ameritech New Media, a competing cable service provider in those franchise areas. The City of Worthington filed comments in response to Time Warner's Petition. 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. 3. 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 local exchange carrier ("LEC") effective competition under Section 623(1)(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. A finding that a cable system is subject to effective competition precludes regulation of its cable rates by the local franchising authority. Section 623(1)(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 then 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 4. Time Warner asserts that it is subject to LEC effective competition in 17 Ohio franchise areas. With regard to the LEC affiliation requirement, Time Warner asserts that Ameritech New Media is a competing franchised cable operator wholly-owned by Ameritech, which is a holding company with several subsidiaries engaged in the provision of local exchange service. According to Time Warner, Ameritech operates as a local exchange carrier in Ohio and provides local exchange service in the Affected Communities. 5. 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 Ameritech New Media was awarded franchises to provide cable television service in the Affected Communities. Time Warner states that Ameritech New Media's cable service is available to all of the residents in 15 out of the 17 communities. With regard to the two incomplete communities, Grove City and Dublin, Time Warner states that about half of the city's homes are currently wired with construction progressing rapidly. Time Warner asserts that Ameritech New Media serves over 48,000 subscribers in the Affected Communities Thus, Time Warner argues that Ameritech New Media is physically able to, and in fact is, offering service to residents in the Affected Communities. Moreover, Time Warner states that because Ameritech New Media has cable franchises for the Affected Communities, and is serving thousands of residents, there are no regulatory impediments to households taking its cable service. 6. Time Warner asserts that potential subscribers in the franchise area are reasonably aware that they may purchase Ameritech New Media's service. Time Warner submits sample marketing materials (direct mail), promotional materials (press releases and newspaper stories), and advertisements (local newspaper, television, and radio ads) that Ameritech New Media has distributed throughout the Affected Communities for purposes of promoting its services. Time Warner also notes that Ameritech New Media is offering realtors a $30 "finder's fee" for every Ameritech customer the realtor refers. 7. Time Warner states that Ameritech New Media offers comparable programming to subscribers in the Affected Communities. Specifically, Time Warner provides Ameritech New Media's channel line-up which demonstrates that Ameritech New Media offers subscribers more than 80 channels of programming, several of which are local television broadcasting signals. Time Warner also asserts that Ameritech New Media's channel line-up presently replicates a number of programming services Time Warner offers to its subscribers. 8. Time Warner states that it has responded to competition from Ameritech in several different ways. Time Warner asserts that it has: (1) upgraded its cable plant, (2) moved the Disney Channel to its expanded basic package; (3) added new channels; (4) added e-mail customer service; (5) added a customer service website; (6) and shortened its appointment window to two hours. 9. In its Comments, the City of Worthington states that it does not object to a determination that effective competition exists within its city limits. The City agrees with Time Warner that its residents have benefitted from competition, which, it believes, has controlled the rates of the incumbent cable operator. The City also states that competition has resulted in Time Warner speeding the introduction of new services, such as Roadrunner cable modem service, that has proved to be "very popular and beneficial" to city residents. According to the City, it has actively refrained from reviewing Time Warner's rates because of the level of competition that now exists. However, the City states its concern that effective competition may not exist in the future if Southwestern Bell successfully acquires Ameritech, and the new combined entity decides to exit the multichannel video business. The City adds that if competitive video service is no longer offered, it intends to file a petition for recertification. III. ANALYSIS 10. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition as defined in the Communications Act. The cable operator bears the burden of rebutting the presumption that such effective competition does not exist and must provide evidence sufficient to demonstrate that effective competition, as defined by Section 76.905 of the Commission's rules, is present in the franchise area. Time Warner has met this burden. 11. 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 multichannel video programming distributor ("MVPD") using the facilities of such a LEC or its affiliate), we find that Time Warner has provided sufficient evidence demonstrating that Ameritech New Media is an MVPD wholly owned by a LEC. Ameritech is a LEC as defined by the Communications Act, and Ameritech New Media meets the Commission's definition of a MVPD. Therefore, we find that Ameritech New Media meets the affiliation prong of the LEC effective competition test. 12. We also find that Time Warner has submitted sufficient evidence to show that the programming of Ameritech New Media is comparable to Time Warner's programming. The channel information for Ameritech New Media submitted by Time Warner establishes that Ameritech New Media offers more than 80 channels of programming, including several local broadcast channels. 13. Time Warner has submitted sufficient evidence demonstrating that Ameritech New Media is offering service in Time Warner's franchise areas. Time Warner has provided evidence that Ameritech New Media's cable television service is available in the Affected Communities and will be offered throughout the franchise areas pursuant to the franchise agreements that Ameritech New Media has obtained. Time Warner also reports that Ameritech New Media has some 48,000 subscribers in the Affected Communities. Thus, we find that Ameritech New Media is physically able to offer service to virtually all of the residents in each of its franchise areas, and soon will completely wire the City of Dublin and Grove City as required by its franchise agreements with these cities. As for the City of Worthington's comments about Southwestern Bell's possible departure from the video business, we believe this issue is too speculative to address at this time. As the City of Worthington correctly states, it can file a Petition for Recertification at any time it believes that effective competition is no longer present in its franchise area. 14. We note that Ameritech New Media's marketing efforts, including advertisements and distribution of promotional materials, as well as local press coverage of Ameritech New Media's construction and service offerings, ensure that potential subscribers are reasonably aware of the availability of Ameritech New Media's service. In those areas wired and marketed by Ameritech New Media, potential subscribers can contact the company 24 hours a day to activate service. Those subscribers are able to receive Ameritech New Media's cable service for little or no additional investment and without encountering regulatory or technical obstacles. With regard to the competitive responses Time Warner has made, we agree with the City of Worthington that competition from Ameritech New Media has greatly benefitted subscribers. Consistent with Congressional intent in adopting Section 623(1)(1)(D) of the Communications Act, and under the circumstances presented to us in this matter, we find "effective competition" to be present. IV. ORDERING CLAUSES 15. Accordingly, IT IS ORDERED that the Petition for Special Relief/Petition for Revocation seeking a determination of effective competition by Time Warner Communications IS GRANTED. 16. IT IS FURTHER ORDERED that the certifications of the City of Worthington and Norwich Township, to regulate the basic cable rates of Time Warner in their respective Ohio franchise areas ARE REVOKED. 17. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION William H. Johnson Deputy Chief, Cable Services Bureau