NEWSReport No. DC-2669 ACTION IN DOCKET CASE October 20, 1994 COMMISSION AFFIRMS AND MODIFIES VIDEO DIALTONE RULES; ASKS FOR COMMENT ON CERTAIN ISSUES (CC DOCKET 87-266) Today the Commission took an important step in affirming its commitment to competition in the video programming market, completing a re-examination of its rules for video dialtone services. The Commission's video dialtone rules will ensure fair competition among video providers and protect telephone consumers from increases in basic telephone rates as a result of telephone companies providing video dialtone. The Commission generally affirmed its rules for video dialtone, while making some clarifications and modifications. The Commission expects video dialtone to increase competition in the video marketplace, which will foster lower prices, improve service quality, stimulate innovation, increase consumer choice among diverse programming sources, and provide another opportunity for programmers to reach the market. In the Memorandum Opinion and Order on Reconsideration adopted today, the Commission addressed petitions for reconsideration of the 1992 Second Report and Order, which adopted the rules and regulatory framework governing telephone company provision of video dialtone services. The Commission also addressed a joint petition for rulemaking filed by the Consumer Federation of America (CFA) and the National Cable Television Association (NCTA), seeking video dialtone-specific safeguards against anticompetitive behavior. The Commission affirmed the basic video dialtone regulatory framework, subject to certain modifications, and substantially denied the joint petition. The Commission also issued a Third Further Notice of Proposed Rulemaking soliciting additional information and comment on a number of issues. Chairman Reed Hundt stated that "the Commission's action is an important step toward promoting competition in all telecommunications markets and especially in the video marketplace, while protecting ratepayers. Notably, the significance of video dialtone, and the issues it raises, has been a major focus of the Congress. The leadership of Chairman Markey and Congressman Fields has delineated the critical public interests at stake." (over) - 2 - In its decision, the Commission concluded that video dialtone, as modified, will eliminate unnecessary regulatory barriers to competition and disincentives for investment by telephone companies in the video marketplace. Eliminating these barriers and disincentives will help achieve the three goals the Commission has sought to promote throughout this proceeding: encouraging competition in the provision of video programming services; promoting investment in the national telecommunications infrastructure; and increasing the diversity of video services available to the American public. The Commission noted that changes in the industry and the regulatory environment in the two years since it adopted the Second Report and Order have not diminished the importance of these goals. * * * In the 1991 First Report and Order and 1992 Second Report and Order, the Commission established the regulatory framework to permit local exchange carriers (LECs) to participate in the video marketplace consistent with the 1984 Cable Act. Under this framework, called "video dialtone," telephone companies may deliver to consumers video programming on a common carrier, nondiscriminatory basis, as well as provide various additional services related to the provision of video programming, subject to certain safeguards. In the Second Report and Order, the Commission required that LECs offering video dialtone service provide a common carrier video dialtone platform that can accommodate multiple video programmers on a nondiscriminatory basis. In authorizing LEC provision of video dialtone, the Commission held that LECs that provide the basic video dialtone platform may also provide enhanced and non-regulated services related to the provision of video programming, as well as enter into other non-ownership affiliations with video programmers that are customers of, interconnect with, or share the construction and/or operation of the basic platform, so long as such LECs do not provide video programming directly to subscribers within their telephone service areas. In the Second Report and Order, the Commission also increased from 1% to 5% the limit on permissible non-cognizable ownership interests by LECs in video programmers. In addition, the Commission also prohibited LECs from acquiring existing cable facilities within their telephone service areas to provide video dialtone service. - 3 - The Commission further concluded in the Second Report and Order that LECs that wish to provide a video dialtone platform first must obtain a Section 214 authorization from the Commission. It was also stated that the basic video dialtone platform is presumptively an interstate service over which the FCC has exclusive jurisdiction. In addition, the Commission determined that its current safeguards that protect against anticompetitive behavior by telephone companies, including unlawful discrimination and improper cross- subsidization, apply fully to the provision of video dialtone services. The Commission stated that it would also determine in the Section 214 process whether additional safeguards were needed in the context of specific video dialtone proposals. The Commission declined to mandate preferential access, such as discounted rates, for particular classes of programmers. It also declined to adopt special incentives for LECs to provide video dialtone. Finally, the Commission recommended that Congress repeal the provision of the 1984 Cable Act barring telephone companies from providing video programming directly to subscribers in their service areas, subject to appropriate safeguards. * * * By today's action, the Commission reaffirmed its commitment to the basic video dialtone framework adopted in the Second Report and Order. Specifically, the Commission reaffirmed that LECs offering video dialtone must: -- make available a basic common carrier platform with sufficient capacity to serve multiple video programmers, and may not provide all or substantially all of the video dialtone platform capacity to any one programmer; -- obtain Section 214 authorization from the FCC prior to deploying video dialtone facilities; -- not acquire the facilities of cable operators within the LEC's service area for purposes of providing video dialtone (subject to modifications proposed in the Third Further Notice of Proposed Rulemaking adopted today); -- not have an ownership interest of 5% or greater in any video programmer in the LEC's service area; and -- comply with existing safeguards applicable to LEC provision of enhanced services. ******* (over) - 4 - In order to protect against anticompetitive cross-subsidization and increases in basic telephone rates as a result of LEC provision of video dialtone, the Commission also took the following steps: -- The Commission required video dialtone carriers to establish subsidiary accounting records to identify video dialtone investments, revenues, and expenses, and to file summaries of those records on a quarterly basis. -- The Commission required LECs receiving authorization to provide video dialtone to file amendments to their Part 64 cost allocation manuals within thirty days after the authorization becomes effective, and 60 days before providing nonregulated services related to video dialtone. -- The Commission directed the Common Carrier Bureau to develop a data collection and monitoring program to track the impact of video dialtone on the jurisdictional separation of costs and on local telephone rates. -- In addition, the Commission gave the following specific guidance concerning the identification of the costs of video dialtone services in the Commission's tariffing process: o The direct costs to be recovered from video dialtone services must include the incremental costs of plant dedicated to video dialtone; the incremental costs of shared plant resulting from the offering of video dialtone service; and a reasonable allocation of other costs associated with shared plant used by both video dialtone and other services. Extremely low allocations of shared plant costs to video dialtone will require strong justification. The Commission said it does not anticipate accepting a 0% allocation. o Direct costs of video dialtone must also include other reasonably identifiable incremental costs in categories such as land, buildings, network administration, testing, engineering, plant operations, administration, product management, sales, advertising, and legal. o Extremely low allocations of overhead costs will require strong justification, and the Commission does not anticipate accepting 0% overhead loadings. o The Commission will require telephone companies to enumerate video dialtone costs and how they will be allocated in a manner that is subject to verification. -- The Commission also stated it would seek comment on establishing a separate a price cap basket for video dialtone service. ***** (over) - 5 - Today's action also clarified or modified the Second Report and Order in several respects: -- The Commission elaborated on the requirement that LECs expand the capacity of the video dialtone platform as demand increases. The Commission stated that LECs must expand the capacity of the video dialtone platform only to the extent technically feasible and economically reasonable. The Commission also required that, in order to ensure LECs expand capacity in accordance with this standard, it will require LECs operating video dialtone systems to provide the FCC with notice of anticipated or actual capacity shortfalls and of plans for addressing them. -- The Commission generally retained its ban on LEC acquisition of existing cable facilities within the LEC's service area for purposes of providing video dialtone services, but clarified that a LEC may lease the "drop wires" (lines connecting subscribers' homes to the network) from cable operators within its service area for use in a video dialtone system, so long as the lease is limited in scope and duration, and does not permit the LEC to impede the access of any other video programmer to the leased cable drops. -- The Commission modified its non-ownership affiliation rules by (1) eliminating the requirement that video programmers have a nexus to the video dialtone platform before LECs can provide enhanced and nonregulated services related to video programming, so long as the video programmer's service area is substantially served by video dialtone; (2) restricting other non-ownership relationships with franchised cable operators within the LEC service area except for the provision of enhanced and nonregulated services and the lease of cable drops; (3) authorizing LECs to enter into certain non-ownership relationships, other than with franchised cable operators within the LECs service area, without regard to the existence of a video dialtone platform; and (4) generally prohibiting any video programmer from participating in the operation of a basic video dialtone platform. -- The Commission modified its determination that it has exclusive jurisdiction over all video dialtone services. It held instead that it has jurisdiction only over LEC transmission of video communications that are broadcast over radio waves or that are transmitted across state boundaries. -- The Commission announced that it will begin a Notice of Inquiry focusing on the implications for the jurisdictional separations process of the introduction of new technologies, including broadband capabilities, into the local telephone networks. -- The Commission directed the largest telephone companies to identify the types of Customer Proprietary Network Information (CPNI) to which they might have access as providers of video dialtone in order to assess the adequacy of its existing CPNI rules in protecting consumer privacy. (over) - 6 - -- In light of the detailed examination it is giving in this Order to its video dialtone rules and policies, the proposals adopted today in the Third Further Notice of Proposed Rulemaking and the CPNI data request, the Commission cancelled its planned reexamination of video dialtone rules and policies next year. ***** In the Third Further Notice of Proposed Rulemaking the Commission asked for information and comment in three areas: -- Mechanisms to address the technical and economic constraints on the provision and expansion of analog channel capacity, particularly a proposal to make extensive use of digital capacity, and a proposal to utilize "channel sharing" mechanisms, through which video programmers would be able to share analog channels, thereby permitting the more efficient use of analog channel capacity; -- Criteria for identifying areas in which the Commission's ban on LEC acquisition of cable facilities within the LEC's service area for purposes of providing video dialtone service should not apply; and -- Whether the Commission should require LECs to provide preferential treatment for certain classes of commercial and noncommercial video programmers, and whether preferential treatment voluntarily provided by LECs to certain types of video programmers would be lawful. ****** The Commission also declined to: change the definition of video programming, which includes video-on-demand; alter the two-level video dialtone framework by which LECs provide video dialtone service; and change its decision not to provide special incentives for video dialtone deployment. The Commission also declined to change its recommendation that Congress lift the 1984 Cable Act provision barring LECs from providing video programming directly to subscribers in their service areas. Action by the Commission October 20, 1994, by Memorandum Opinion and Order on Reconsideration and Third Further Notice of Proposed Rulemaking (FCC 94-269). Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong, with Commissioners Quello, Barrett, Ness and Chong issuing separate statements. - FCC - News Media contact: Susan Lewis Sallet at (202) 418-0500. Common Carrier Bureau contact: Donna N. Lampert (202) 418-1580; James D. Schlichting at (202) 418-1580. October 20, 1994 SEPARATE STATEMENT OF COMMISSIONER ANDREW C. BARRETT RE: Telephone Company-Cable Television Cross-Ownership Rules, Sections 63.54-63.58 (CC Docket No. 87-266), and Amendments of Parts 32, 36, 61, 64, and 69 of the Commission's Rules to Establish and Implement Regulatory Procedures for Video Dialtone Service (RM-8221); Memorandum Opinion and Order on Reconsideration and Third Further Notice of Proposed Rulemaking In this Order, the Commission considers petitions for reconsideration of the 1992 Second Report and Order, as well as a joint petition for rulemaking filed by the Consumer Federation of America and National Cable Television Association seeking cross-subsidy rules specific to video dialtone service. In completing the re-examination of the rules for video dialtone services, the Commission affirms the basic regulatory framework for video dialtone subject to certain modifications, and substantially denies the joint petition. The Commission also dismisses the use of an "anchor programmer" structure and issues a Third Further Notice of Proposed Rulemaking seeking additional information and comment on various issues, including various capacity issues, the treatment of must carry provisions, and a "will carry" preferential access proposal. When the Commission adopted rules governing the implementation of video dialtone service in June 1992, I supported the action as a major step in the regulation of converging technologies. At that time, the Commission was careful to balance the interest of allowing telephone companies to provide additional video services over their networks with the interests of those parties who were seeking to prevent the telephone companies from participating in any aspect of the video services market. My decision then was based on several principles for analyzing the issues raised by our review of the rules, including (1) establishing a regulatory framework that could provide incentives for additional facilities based competition for video programming services; (2) providing regulatory incentives for telephone company investment in network modernization; and (3) establishing a formal review framework for monitoring the various issues that will be addressed by Section 214 review of video dialtone proposals, such as cost allocation matters and potential discrimination issues. While supporting the Order and Authorization granting the New Jersey Bell Telephone Company's Section 214 authority to construct, operate, own, and maintain facilities and equipment to provide video dialtone service in Dover Township, New Jersey -- the first such application to be granted -- I emphasized the importance of moving forward in authorizing video dialtone service in order to promote the significant public interest benefits that may be attainable through this new broadband service. My support for granting the authorization was premised on the understanding that we would need to continue to address the remaining fundamental concerns regarding the process of authorizing video dialtone services. In particular, I was concerned that we needed to address the allocation of the costs among video services and other regulated voice services in greater detail at the tariff stage, and in the context of reconsideration. I believe that the Commission's decision appropriately addresses the fundamental issues raised on reconsideration, especially with respect to the cost allocation concerns, by providing specific guidance regarding the identification of "direct costs" in the "new services test" for video dialtone tariffs. In viewing this decision on reconsideration, it is necessary to observe that the nature of competition in the multichannel video marketplace has fundamentally changed since the Commission issued its Second Report and Order on video dialtone in June of 1992, as the cable industry has become subject to pervasive regulation in significant aspects of its business, until incumbent cable operators become subject to "effective competition". As a result of this shift in the competitive and regulatory environment, the Commission's decision to continue along the path of authorizing video dialtone service is a fundamental step toward replacing the function of cable rate regulation with competitive constraints in the multichannel video marketplace. Despite the changes in the regulatory environment, I believe that the Commission's original goals for video dialtone service continue to guide us to move forward in authorizing the service in order to: (1) promote the development of an improved nationwide infrastructure, with broadband facilities extending to homes and businesses; (2) foster competition in the delivery of video and communications services; and (3) promote a diversity of information services. The changing regulatory environment, however, does focus attention on certain policy considerations regarding video dialtone, especially as we seek to provide regulatory parity for competing services. With respect to the cost allocation issue, it is important to view the development of video dialtone service as a new broadband service, and not simply as a "new" service, because competing video services do exist. I also believe our regulatory approach must reflect the extent to which video dialtone service will constitute a truly incremental service, and identify where the components of the broadband network are common facilities for both voice and video service. Accordingly, the Commission's decision appropriately determines that existing rules, in conjunction with the tariff process, may provide a sufficient basis for identifying the direct costs of video dialtone service, while also providing a flexible mechanism for allocating the common costs to video and voice service that may be applied to individual video dialtone services. Furthermore, I am concerned that an attempt to establish "new" cost allocation rules to accommodate this broadband service would further complicate the regulatory treatment of video dialtone service, without regard to the diverse networks that are developing to provide the service. As a policy matter, I believe the existing rules and new services test in the tariff process, along with the guidance provided in this decision, will provide a reasonable base to determine a price floor for video dialtone service, while providing the opportunity to gather and assess the information necessary to determine whether the results of this approach ultimately are producing a fair allocation. I have been concerned, however, that the Commission's treatment of the cost allocation issues must address the policy concerns resulting from the competitive role of video dialtone relative to other multichannel distributors. This concern is heightened by the incentives and opportunities for LECs to establish a price for video service at a level that could cause an anticompetitive result due to cross-subsidies associated with voice services. To the extent that the process for identifying direct costs under the new services test in the tariff process will provide a measure of flexibility to telephone companies in reporting incremental costs and allocating the common costs of video and voice service, the policy concerns resulting from the development of video dialtone service might be exacerbated. I support this decision, however, because of the specific guidance developed to identify the elements of direct costs, including the incremental costs associated with plant dedicated to video dialtone service. In addition, it is important to emphasize that we have provided further guidance in defining the price floor for video dialtone service as we will expect LECs to include a reasonable allocation of other costs associated with shared plant used to provide video dialtone and other services in their estimation of direct costs, where such common costs exist. The use of the new services test also will maintain a measure of flexibility for LECs in allocating common costs provided that they follow a consistent and clearly delineated allocation process for other services. Therefore, this approach for cost allocation will avoid the inefficiencies of other possible allocators, such as cost- or revenue-based proportions, or a fixed allocation factor. In my estimation, none of these alternatives would realistically reflect a given LEC's practices or unique architecture for their broadband network for video dialtone service, and, thus, would mandate an artificial allocation scheme. In balancing the interests of continued steps toward authorizing video dialtone services with the need to establish a basis for determining an efficient and reasonable allocation of costs for that service, I emphasize that the determination of the cost allocation process and the pricing for video dialtone necessarily will be resolved during the 214 application and tariff process. These processes are intended to elicit and analyze much of the information required to establish an accurate cost and rate structure for any LEC service, including video dialtone. Yet, I have been convinced for some time that the complexity of our costing and other procedures would not be able to cope with the far reaching changes in technology and market structures. Indeed, I have stated that once the local exchange carriers are transporting broadband and video along with existing voice services, and wireless services are used extensively for local access, the allocation of costs will have little meaning. The Commission's decision will create a new price cap basket for video dialtone service, and the combination of voice and video services will raise new policy concerns for the current price cap structure that maintains vestiges of rate-of-return regulation by requiring the allocation of costs among the LECs' respective services. I am concerned, therefore, that we will have to be consider the significant implications of this decision for the Commission's use and review of the LEC price cap mechanism, and I will be interested in how the Commission will address these questions related to the authorization of video dialtone service in the context of the LEC price cap review. This decision also opens an inquiry proceeding focusing on a concern of both federal and state regulators in terms of the implications for the jurisdictional separations process resulting from the introduction of new technologies, including broadband technology, into local exchange carrier networks. I support the effort to establish a dialogue between state and federal regulators on the fundamental questions related to cost treatment and the evolving nature of LEC networks. Given the complexity of these issues and the cost allocation results for video dialtone services in the tariff process, it will be important for both federal and state regulators to monitor the results of implementing regulatory procedures for video dialtone and work toward refining the jurisdictional separations process. I also support the conclusion in this decision to dismiss proposals for "anchor programmer" structures by requiring LECs offering video dialtone to make available a basic common carrier platform with sufficient capacity to serve multiple video programmers, and may not provide all or substantially all of the video dialtone platform capacity to any one programmer. I am concerned that allowing video programmers such wide latitude to participate in the operation of the basic video dialtone platform would raise great risk of discrimination. To the extent that economic or marketing considerations would create incentives to rely primarily on a single programmer, I also am concerned that this result would be more consistent with "cable" service rather than the common carrier obligations under Title II of the Communications Act. I do believe, however, that channel sharing mechanisms, depending upon their structure, may offer significant benefits to customers, such that it will be useful to seek further comment to establish specific rules to govern channel sharing arrangements. Finally, to the extent that this decision embodies a measure of flexibility for LECs, I will be interested in the Commission's actions to provide substantial flexibility to cable operators to augment the cable rate regulations through "going forward" provisions with clear incentives to add channels and to provide "a la carte" offerings. In addition, as the Commission develops final cost-of-service rules for cable systems to justify rates above the benchmark, it will be important for those standards to be compatible with the identification of direct costs and standards for allocating common costs in the video dialtone context. To that end, we must establish standards for allocating common costs for cable operators as they upgrade their distribution networks to provide voice services. October 20, 1994 SEPARATE STATEMENT OF COMMISSIONER RACHELLE B. CHONG Re: Video Dialtone Reconsideration (CC Docket No. 87-266) By this action, the Commission takes a significant step to promote competition in the delivery of video services to consumers. Our video dialtone rules, as modified on reconsideration, provide a regulatory framework that permits telephone companies to compete as common carriers in the market for multichannel video services. Up to now, in the vast majority of localities in the country, that market has consisted of a single multichannel video programming service provider. As telephone companies implement video dialtone systems, however, consumers will be able to choose among competing multichannel video programming service providers. Because video dialtone comports with my fundamental belief that competitive markets -- rather than heavily regulated, monopolistic ones -- best serve the public interest, I am pleased to support the Commission's decision on reconsideration. The Continued Need for Video Dialtone In recent years, regulators and legislators have grappled with issues related to the lack of competition in the video market. One of the overarching goals of the Commission's August 1992 video dialtone decision was to "increas[e] competition in the video marketplace" consistent with existing law. Shortly thereafter, Congress enacted legislation to address this problem as well. Like the Commission's video dialtone policy, the Cable Act of 1992 rests on a determination that cable television operators often face no local competition from alternative multichannel video programming distributors. Congress explicitly found that the dearth of competing multichannel video providers resulted in "undue market power for the cable operator as compared to that of consumers and video programmers." Just last month, the Commission issued its first report to Congress on video competition as mandated by the Cable Act of 1992. We stated that "[t]he market for the distribution of multichannel video programming remains heavily concentrated at the local level, and for most households, cable television is the only provider of multichannel video programming." We concluded that "[c]able systems continue to have substantial market power at the local distribution level." Moreover, in 1994, Congress considered, but did not enact, sweeping telecommunications legislation that would have facilitated telephone company participation in video programming services. These legislative and regulatory responses reveal both Congress' and the Commission's serious concern about the level of competition in the video services market. Presently, due to the lack of competition in the multichannel video services market, rates for cable services are regulated in most areas of the country. The rate regulation provisions of the Cable Act of 1992 seek to ensure that consumer interests are protected "where cable systems are not subject to effective competition." When a cable system does face "effective competition," as defined by the statute, its rates are exempt from regulation. Because rate regulation under the Cable Act of 1992 depends on whether "effective competitive" exists in a particular locality, an opportunity exists to facilitate competition and thus obviate the need for cable rate regulation. Regulation of cable television rates, in my estimation, is a complex, burdensome and resource-intensive proposition for cable operators, local franchising authorities and the Commission. I can think of few more important public interest objectives than to pursue regulatory policies, such as video dialtone, that introduce effective competition in the multichannel video services market. By expeditiously promoting such competition, we may diminish and eventually eliminate the need for cable rate regulation. Against this backdrop, we reconsider the video dialtone rules the Commission promulgated in 1992. As this discussion makes clear, however, video dialtone remains just as relevant in today's world as it did two years ago. Video Dialtone -- The Big Picture Video dialtone heralds the convergence of video and telephony. In approaching this important decision, I have tried to place video dialtone within the broader context of our regulation of telecommunications generally. We are experiencing rapid change in technology, competition, markets and industries. We must therefore constantly reassess existing regulations to ensure that they make sense in today's world. In this regard, video dialtone presents important implications for how we regulate multiple markets and converging industries. I believe it is in the public interest to view our regulation of the cable industry through the prism of the state of competition in the multichannel video services market. As competition increases in that market -- as a result of video dialtone or otherwise -- I believe it may be appropriate to afford cable operators more flexibility to respond positively to that increased competition. Cable operators, like telephone companies, should play an important role in building advanced telecommunications facilities and bringing innovative services to consumers. Our existing regulations should be reassessed and any new rules designed to encourage this participation by the cable industry. Likewise, the advent of video dialtone and other broadband services presents implications for our existing telephone industry regulation. We currently are reviewing the performance of our price cap rules for local exchange carriers. As part of that review, we are reexamining the validity of the current productivity offset factor and the earnings sharing mechanism embodied in the Part 61 rules. The emergence of telephone company participation in the video services market may be relevant to our review of these and other aspects of the price cap regime. Further, I believe we should critically assess our existing jurisdictional separations rules as we move toward broadband, integrated facilities capable of transmitting voice, video and data. We need to ensure that our separations rules adequately address the evolving nature of common carrier networks. In this regard, I am pleased that we are announcing our intention to initiate a broad inquiry to examine separations issues. We will need to draw on the ideas and experience of state regulators in this inquiry. This dialogue may lead to concrete proposals to amend our Part 36 rules to reflect current and future conditions. Finally, the telephone industry has for some time advocated a comprehensive review of our access charge rules. As video dialtone and other broadband services emerge, we will need to reexamine our Part 69 rules to see what changes may be appropriate in a rapidly changing environment. Guiding Principles I would like briefly to touch on several other principles that guided my decision in this proceeding. First, I believe that construction of broadband, integrated telecommunications facilities will bring significant benefits not only to consumers of video services, but also to consumers of voice and data services. Video dialtone is one piece of the regulatory puzzle that will facilitate the development of an advanced national information infrastructure. Such a sophisticated network of information and communications networks will bind us together as a people and enrich our everyday lives. Futurists are just beginning to realize the potential of the NII to improve education, health care, government services and economic development for all areas of our country. The Information Age is about to deliver some dazzling new services and products to us all. This view ultimately led me to conclude that regulating video dialtone pursuant to our existing accounting, cost allocation, jurisdictional separations, access charge and price cap rules is a reasonable approach. To the extent that experience with video dialtone implementation or other broadband services reveals systemic problems or unanticipated results, we can and should revisit our rules and make needed changes. Second, I believe we can implement video dialtone and encourage infrastructure development without asking telephone ratepayers to shoulder an unacceptable burden. There is a concern expressed by some parties that telephone companies will price video dialtone service as low as possible in order to maximize market share in video services, while at the same time assigning significant costs of network upgrades to telephony services. As to telephone companies pricing video dialtone services to capture market share, there is nothing inherently nefarious in such a strategy. In America's free market economy, businesses daily make market entry pricing decisions like this as a matter of normal business strategy. Nevertheless, legitimate concerns exist regarding the potential anticompetitive results of such pricing and fairness issues related to infrastructure costs. It is incumbent upon the Commission to guard against anticompetitive pricing and to ensure an equitable allocation of costs among rates charged for various services offered over integrated facilities. I am mindful of these concerns. Ultimately, I was persuaded that it was not possible to promulgate rules dictating precise allocations of common costs and overheads associated with network upgrades to video dialtone services. As the pending Section 214 applications of the telephone companies amply demonstrate, telephone companies have proposed markedly different architectures for video dialtone systems that present unique cost allocation issues. Indeed, as it should, the Commission has encouraged innovation and diversity in video dialtone systems. A one-size-fits-all approach to cost allocation would not adequately address these varying situations, and would result in unnecessary delay in introducing competition to the video services market. Instead, I believe that the Section 214 process and the tariff review process provide a flexible framework to accommodate the important and varying issues presented by diverse video dialtone proposals. With respect to the tariff review process, we are clarifying the application of the price caps "new services" test in the context of video dialtone. This is designed to address the concern that rates for video dialtone may be unreasonably low. We are providing some advance guidance in this decision as to what we will consider a reasonable allocation of common costs and overheads to video dialtone rates. The Commission will examine with care tariff filings by telephone companies proposing to offer video dialtone, and I will not hesitate to join my colleagues in exercising the Commission's powers under Title II to address unreasonably low rates. Careful scrutiny of video dialtone tariff filings, coupled with our existing price cap rules, should provide an equitable framework for video dialtone. Moreover, we direct the Common Carrier Bureau to collect data regarding the implementation of video dialtone and the results obtained under our existing rules. This monitoring program should help us detect any problems or unanticipated results and respond accordingly. Finally, I am firmly committed to the common carrier model for telephone company provision of video dialtone service. I look forward to a day when any entity can enter any sector of the communications market and compete according to the same ground rules. At the present time, however, we have different statutory schemes for telephone companies and cable operators. So long as a telephone company offering video dialtone service does not provide video programming directly to subscribers in its telephone service area, it is not subject to Title VI requirements governing cable communications. Under our rules and consistent with traditional Title II requirements governing common carriage, video dialtone providers must provide sufficient capacity on the basic platform to serve multiple video programmers on a nondiscriminatory basis. Moreover, they must expand capacity, when technically feasible and economically reasonable, to meet increases in demand. These bedrock common carrier principles are at the heart of video dialtone and distinguish video dialtone from traditional cable television service. As one court recently noted, common carriage is what makes video dialtone and cable "very different creatures." Telephone companies have urged us to approve various proposals designed to address a perceived shortage of analog channel capacity, at least during the initial stages of video dialtone. In this decision, we reject a proposal to permit one video service provider to use a large majority of available analog channels on the video dialtone platform. I support this portion of the decision because I believe that the so-called "anchor tenant" proposal is inconsistent with the notion of common carriage. Other so-called "channel sharing" proposals have been advanced by telephone companies to address the issue of limited analog channel capacity. I support the decision to seek further comment on these proposals, many of which were brought to the attention of the Commission through recent Section 214 applications and ex parte filings in this docket. I am hopeful that these further comments will augment the record and allow us to examine more fully the extent of the problem and consider creative solutions. While I remain open to these various proposals, I will examine the record to determine whether they can be implemented consistent with common carrier principles and other applicable law. Conclusion Video dialtone will promote needed competition in the multichannel video services market, facilitate development of an advanced, national information infrastructure, and offer consumers more choices. While we seek to further telephone company participation in the video services market, we have taken care to craft a regulatory structure designed to protect consumers and competition alike. I will watch with anticipation and a careful eye as video dialtone develops, and will stand ready to make any necessary modifications to our rules.