******************************************************** 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: ) CSR 5152-E ) Cablevision Systems of Connecticut. L.P. ) Greenwich, CT ) Stamford, CT ) New Canaan, CT ) Darien, CT ) Norwalk, CT ) Westport, CT Petition for Determination of ) Weston, CT Effective Competition ) Wilton, CT ) Easton, CT ) Redding, CT MEMORANDUM OPINION AND ORDER Adopted: September 7, 1999 Released: September 9, 1999 By the Deputy Chief, Cable Services Bureau: I. INTRODUCTION 1. Cablevision Systems of Connecticut, L.P. ("Cablevision") has filed a petition for special relief seeking a determination of effective competition. Cablevision asserts that it is subject to local exchange carrier ("LEC") effective competition in its franchise area consisting of the Connecticut towns of Greenwich, Stamford, New Canaan, Darien, Norwalk, Westport, Weston, Wilton, Easton, and Redding, Connecticut because of the cable operations of SNET Personal Vision, Inc. ("SNET"). SNET and the Connecticut Department of Public Utility Control ("DPUC") each filed an opposition to Cablevision's petition. Cablevision filed a joint reply to the two oppositions and later filed two supplemental pleadings to update the record. For the reasons discussed below, Cablevision's petition is granted. 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 local exchange carrier ("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. Cablevision asserts that on September 25, 1996, the Connecticut DPUC granted to SNET a single franchise to provide cable television service throughout the entire state of Connecticut. Cablevision states that pursuant to state law, the DPUC is the cable television franchising authority for all of Connecticut. While SNET is Connecticut's sole statewide cable franchisee, Cablevision states that every other cable operator in Connecticut provides cable service pursuant to town-based franchise area boundaries established by the DPUC. Under this framework, Connecticut's 169 towns are divided into 24 franchise areas with Cablevision holding a single franchise to provide cable service to the ten town area known as Area 9. According to Cablevision, SNET's cable service is offered in Area 9 and is deliverable by means of SNET's hybrid fiber coaxial network. 4. Cablevision asserts that it is subject to LEC effective competition in its Area 9 franchise. With regard to the LEC affiliation requirement, Cablevision asserts that SNET is a competing, franchised cable operator wholly-owned by the Southern New England Telephone Company, which is the incumbent local exchange carrier serving the State of Connecticut. 5. With regard to the requirement that the LEC competitor offer video programming service in the unaffiliated cable operator's franchise area, Cablevision asserts that SNET is now providing service to subscribers in Area 9. To substantiate its claim, Cablevision states that on August 12, 1997, SNET began to offer 80 channels of cable television service to 8,200 households in Norwalk, CT, one of the towns located in Area 9; service was also initiated in the town of Westport. Cablevision states that SNET is contractually obligated to provide cable service to all, or portions of, Norwalk, Stamford, Darien, Westport, and Weston by the end of 1998 and has represented that it will also provide service to portions of Greenwich. Cablevision cites press reports stating that SNET will also provide service to Wilton and New Canaan by the end of 1998. As for Easton and Redding, the remaining two towns in Area 9, Cablevision states that SNET has not made known when they will receive service but believes it will be earlier than 2007, the date SNET is obligated to wire all of the communities in the State. Cablevision states that SNET has marketed the availability of its cable service in the local media, and through telemarketing and direct mail campaigns. Cablevision asserts there are no regulatory, technical, or other impediments to households taking service from SNET in those portions of the franchise area already wired by SNET. 6. Cablevision also asserts that SNET offers comparable programming to Area 9 subscribers. Specifically, Cablevision provides SNET's channel line-up which demonstrates that SNET offers 80 channels, 22 of which are local television broadcasting signals. Cablevision offers 110 channels of programming, 22 of which are local broadcast signals. 7. Cablevision states that it has enhanced its service offerings in response to increased competition from SNET. Cablevision notes that it recently: (1) completed a system upgrade; (2) increased channel capacity from 57 to 110 channels and (3) moved premium services, such as Disney, to the cable programming service tier. 8. Cablevision argues that it is immaterial that SNET currently serves only a portion of Area 9 as the statutory language set forth in the amendment to Section 623(l) is clear on its face: cable rate deregulation is triggered if comparable multichannel video programming service is offered by a LEC affiliate in the "franchise area of an unaffiliated cable operator." Cablevision asserts that to rule otherwise would aggravate competitive advantages already enjoyed by SNET due to its status as a statewide franchisee, since Cablevision's ability to freely respond to ongoing competition would be completely dependent upon SNET's service deployment schedule. Cablevision adds that SNET could "cherry-pick" the most desirable parts of the state's town-based franchise areas during its initial rollout, while postponing service to less attractive portions of those franchise areas and thereby delay the onset of deregulation in the town-based franchise areas where it is competing. 9. In opposition, SNET argues that the circumstances of this case indicate that Cablevision is not subject to effective competition throughout its entire franchise area. SNET contends that because it offers service in only two of the ten towns encompassing Cablevision's franchise area, a finding of effective competition in those areas "would surely be a perversion of the intent of the effective competition rule." SNET argues that because consumers do not enjoy the benefits of competition in those areas it does not serve, Cablevision should not enjoy the benefit of deregulation throughout its franchise area. 10. SNET further contends that the cable service it is providing does not meet the test for offering services for purposes of effective competition. SNET states that it is not physically able to offer service, with no or only minimal investment, to potential subscribers in any part of the franchise area other than the towns of Norwalk and Westport. SNET argues that because it has not constructed its cable plant outside of these two towns, insurmountable technical impediments prevent households in the unwired area from receiving service. SNET adds that while the Cable Services Bureau has deregulated cable operators who did not yet face effective competition throughout their entire franchise areas, it was careful to note in such cases that the applicable franchises provided for completion of construction within three years by the LEC-affiliated competitor throughout the franchise area at issue; here, residents of five of the ten towns within Cablevision's franchise area may not benefit from competition for up to ten years. Further, SNET contends that residents in the unserved towns are not reasonably aware that they may purchase SNET's services because they in fact cannot purchase such services. Finally, SNET asserts that since the residents in the other eight towns within Cablevision's franchise area do not yet enjoy the same benefits of competition as do residents in Norwalk and Westport, Cablevision must continue to be subject to the uniform rate requirement throughout its entire franchise area. DPUC filed an opposition in which it did not raise any additional arguments or facts. Instead, DPUC's opposition expresses support for the position and legal arguments presented by SNET. 11. In its reply, Cablevision disagrees with SNET's contention that effective competition is not achieved until each separate community in a franchise area is served by the LEC affiliated cable operator. Cablevision believes that SNET's position amounts to an entirely new effective competition standard which has no statutory or regulatory foundation. Cablevision contends that the plain language and legislative history of the 1996 Telecommunications Act dictates that effective competition occurs whenever a LEC affiliate offers comparable multichannel video programming service "in" the incumbent's franchise area. Cablevision asserts that, in effect, SNET is asking the Commission to read a "homes-passed" criterion into Section 623(l)(1)(D). Cablevision notes that Congress wrote a penetration requirement into the law defining other means of achieving effective competition, but declined to adopt one for the LEC effective competition test. 12. Cablevision asserts that nowhere in SNET's opposition is it disputed that, by the end of 1998, SNET's cable service will be available in Stamford, Darien, Weston, Wilton, and New Canaan. According to Cablevision, even if Easton and Redding are excluded, SNET's competing cable service will still be available in towns representing 95% of the homes in Area 9 by the end of 1998. Cablevision argues that under these circumstances, any effort to charge unreasonable rates in the as-yet unserved portions of the franchise area would only enhance SNET's competitive prospects in areas where entry is imminent. 13. Cablevision contends that SNET's opposition concedes all of the relevant factors necessary to establish effective competition under Section 623(l)(1)(D). Cablevision also cites a filing SNET made with DPUC in connection with SNET's application for a statewide cable franchise, in which SNET argued that approval of the application would introduce effective competition within the meaning of Section 623(l)(1)(D). Finally, Cablevision argues that SNET's contention regarding the applicability of the uniform rate rules are without merit as there is no evidence that the rules are currently being violated. 14. In the first supplemental pleading filed by Cablevision on September 15, 1998, updating the information contained in its petition, the operator demonstrates that SNET's cable service is now available to more than 41,000 residences in the towns of Norwalk, Greenwich, Westport, and Darien. Specifically, 4,638 homes are passed in Darien, 21,628 homes are passed in Norwalk, 5,023 homes are passed in Greenwich, and 9,922 homes are passed in Westport. Cablevision asserts that actual subscriber counts have been withheld by SNET because the information is considered proprietary. 15. In the second supplemental pleading filed by Cablevision on December 16, 1998, the operator explains that the DPUC and the Federal Communications Commission granted Applications for Transfer of Control of Licenses and Authorizations from SNET to SBC Communications, Inc. ("SBC"). Cablevision explains that, as a result of the transfer, SNET Personal Vision has become an indirect wholly-owned subsidiary of SBC. Cablevision states that, as an express condition of the DPUC Order, the Connecticut DPUC required "SBC to commit to maintaining the SNET/SBC current level of capital investment, staffing, marketing, research, and facility deployment proposed and accepted by the [DPUC] in [SNET's original] franchise agreement. . . for not less than 24 months following the Merger." Based on this conclusion, Cablevision asserts that SBC must continue to expand its system and offer cable service to thousands of homes in Cablevision's franchise area for at least the next two years. III. ANALYSIS 16. 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. Cablevision has met this burden. 17. 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 ("MVPD") using the facilities of such LEC or its affiliate), we find that SNET is an MVPD wholly- owned by a LEC. Southern New England Telephone Company, as an independent entity was a LEC, and the newly merged SNET-SBC is a LEC, as defined by the Communications Act. SNET, in both its former and current status, meets the Commission's definition of MVPD. Therefore, we find that Cablevision has demonstrated that SNET satisfies the affiliation prong of the LEC effective competition test. We further find that Cablevision is not affiliated with either SNET, Southern New England Telephone Company, or SBC. 18. We also find that Cablevision has submitted sufficient evidence to show that the programming of SNET is comparable to the programming which it provides. The channel information for SNET submitted by Cablevision establishes that SNET offers more than 80 channels of programming, including 22 local broadcast stations. This offering satisfies the programming comparability criterion. 19. We find that, based on the information before us, SNET is offering service in Cablevision's franchise area sufficient to demonstrate the presence of effective competition. SNET does not dispute that its cable service is available to more than 41,000 homes in Area 9, with more expected by the end of this year. We note that SNET had filed an application with the DPUC to modify its franchise agreement to reflect the towns it proposes to serve in the next year. SNET's application with regard to its buildout schedule was granted by the DPUC on August 26, 1999. Under the new schedule, as it relates to Cablevision's Petition, SNET will continue to serve the towns of Greenwich, Darien, Norwalk, Westport, Weston and Easton, and will serve Stamford by April 1, 2000. Thus, all of the towns in Area 9 with significant population centers are being, or will soon be, served. 20. We also recognize that the DPUC has conditioned the SNET-SBC merger on the new entity's commitment to continue its provision of service through the Fall of 2000. While there is no indication, as of yet, that SNET-SBC will continue the cable overbuild project beyond the year 2000, we cannot deny Cablevision's petition based on future circumstances. In any event, the DPUC may, if SNET-SBC discontinues its cable overbuild project, file a recertification petition with the Commission to re-establish rate regulation authority over the franchise area at issue here. Nonetheless, as it currently stands, we find that SNET's presence, ongoing buildout, and its active recruitment of subscribers in the franchise area are indicia that SNET is physically able to offer service in Cablevision's franchise area. 21. We disagree with SNET's assertion that a determination of effective competition must be made for each town in the franchise area instead of a demonstration that effective competition exists on a franchise wide basis. In enacting the 1996 Act, Congress specified that the "franchise area" is the geographic unit to which the Commission must apply LEC effective competition criteria. As we have stated previously with regard to the other effective competition tests "we are not in a position to alter the plain language of the statute through our regulations." In addition, the fact that Connecticut awards franchises covering several municipalities instead of awarding a franchise covering each locality, by itself, does not warrant a change in the "franchise area" definition. The application of the effective competition criteria to the accepted franchise area definition was taken into account by Connecticut as part of its statewide cable regulation program. During deliberations whether to award SNET a statewide franchise, the Connecticut DPUC recognized that Commission determinations of LEC effective competition are based on the LEC or its affiliate offering video services in the franchise area of an incumbent. DPUC evaluated whether to approve a limited franchise area to avoid deregulation of cable rates in portions of the state in which SNET was not offering service. DPUC determined that an award of a statewide cable franchise would not lead to premature deregulation of cable rates based on its understanding that, under Commission rules, effective competition would not exist in any incumbent operator's franchise area until such time as SNET made its services available in an incumbent operator's franchise area. Thus, use of the franchise area criterion was not a circumstance unforeseen by Connecticut and does not act to block the grant of Cablevision's petition. 22. SNET's marketing efforts and the wide press coverage of SNET's construction and cable service offerings in the local media ensure that potential subscribers are reasonably aware of the availability of SNET's service. According to documents submitted by Cablevision, in those areas wired and marketed by SNET, potential subscribers need only contact SNET to activate service. Those subscribers are able to receive SNET's cable service for little or no additional investment and without encountering regulatory or technical obstacles. Consistent with the Congressional intent in adopting Section 623(l)(1)(D) of the Communications Act, under the circumstances presented herein, we find that effective competition is present. IV. ORDERING CLAUSES 23. Accordingly, IT IS ORDERED that the Petition for Special Relief seeking a determination of effective competition filed by Cablevision Systems of Connecticut, L.P. IS GRANTED. 24. IT IS FURTHER ORDERED that the certification of the Connecticut Department of Public Utility Control to regulate the basic cable rates of Cablevision Systems of Connecticut, L.P. in Franchise Area 9, comprising the towns of Greenwich, Stamford, New Canaan, Darien, Norwalk, Westport, Weston, Wilton, Easton, and Redding, Connecticut, IS REVOKED. 25. 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