CC Docket No. 87-266
Adopted: January 12, 1995 Released: January 20, 1995
Comment Date: March 6, 1995
Reply Comment Date: March 27, 1995
By the Commission: Commissioners Barrett, Ness, and Chong issuing separate statements.
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 III. Fourth Further Notice of Proposed Rulemaking . . . . . . . . . . . . . . 9 A.Governing Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . 9 1.Application of Title II to LEC Video Programming Offerings . . . . . . . . . . . . . . . . . . . . . . 10 2.Application of Title VI to LEC Provision of Video Programming . . . . . . . . . . . . . . . . . . . . . . 14 B.Regulatory Safeguards Governing a Local Exchange Carrier's Provision of Video Programming on its Video Dialtone Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.Introduction and Scope . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.Ownership Affiliation Standards . . . . . . . . . . . . . . . . . . . . . 19 3.Safeguards Against Anticompetitive Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 a.Sufficient Capacity to Serve Multiple Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 b.Non-Ownership Relationships and Activities Between Telephone Companies and Video Programmers . . . . . . . . . . . . . . . . . . . . . . 24 c.Acquisition of Cable Facilities . . . . . . . . . . . . . . . . . . . . . 27 d.Joint Marketing and Customer Proprietary Network Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4.Safeguards Against Cross- Subsidization of Video Programming Activities . . . . . . . . . . . . . . . . . . . . . . . 34 5.Structural Separation . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.Pole Attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.Legal and Constitutional Issues . . . . . . . . . . . . . . . . . . . . . 42 a.Waiver of the Cross-Ownership Ban . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 b.Constitutionality of Proposed Safeguards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 IV. Ex Parte Presentations . . . . . . . . . . . . . . . . . . . . . . . . 49 V. Initial Regulatory Flexibility Analysis . . . . . . . . . . . . . . . . 50 VI. Comment Filing Dates . . . . . . . . . . . . . . . . . . . . . . . . . 59 VII. Ordering Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
2. The United States Courts of Appeals for the Fourth
and Ninth Circuits recently ruled that the 1984 Cable Act's
cross-ownership restriction violates the First Amendment
rights of telephone companies.(n3) United States District
Courts in three other circuits have also reached the same
conclusion.(n4) We issuethis Fourth Further Notice of Proposed
Rulemaking to consider changes in our video dialtone rules
and policies in light of these decisions, and to consider
the extent to which Title II and Title VI of the Communications
Act apply to telephone companies providing video programming
directly to subscribers in their telephone service areas
over video dialtone facilities. We intend through this
notice to consider rules and policies to govern the provision
of video programming over video dialtone facilities by
telephone companies not subject to the 1984 Cable Act cross-ownership
restriction. To the extent a telephone company remains
subject to the ban, our existing video dialtone framework
will continue to apply. We also seek comment on certain
4. In 1991, the Commission proposed to amend its telco-cable cross-ownership rules to permit local exchange carriers (LECs) to play a broader role in the video marketplace, consistent with the 1984 Cable Act.(n8) Specifically, the Commission proposed to permit LECs to provide video dialtone service, which it described as "an enriched version of video common carriage under which LECs will offer various non-programming services in addition to the underlying videotransport."(n9) The Commission concluded that LECs offering video dialtone service would not need a cable franchise under Section 621(b) of the 1984 Cable Act because (1) video dialtone service is not "cable service" as defined in the 1984 Cable Act and (2) LECs are not "cable operators" as defined in that Act.(n10) In addition, the Commission determined that an independent customer-programmer of a LEC's video dialtone platform is not a "cable operator" and consequently, is not subject to the franchise requirement of the 1984 Cable Act.(n11) The Commission's video dialtone-franchise decisions have been upheld by the U.S. Court of Appeals for the District of Columbia Circuit in NCTA v. FCC (1994).(n12)
5. In 1992, the Commission adopted the video dialtone proposal outlined in its 1991 Notice.(n13) Under video dialtone, LECs may offer, on a nondiscriminatory basis, a basic common carrier video delivery platform capable of accommodating multiple video programmers.(n14) This "first level platform" is subject to regulation under Title II of the Communications Act. LECs may also offer enhanced and other non-regulated services provided they comply with existing regulatory safeguards.(n15) LECs proposing to construct video dialtone facilities must first obtain approvalunder Section 214 of the Communications Act of 1934, as amended (the Act).(n16)
6. Consistent with the 1984 Cable Act's cross-ownership restriction, the Commission prohibited LECs offering video dialtone service from providing video programming directly to subscribers in their telephone service areas, either through the telephone operating company or through an affiliate.(n17) A LEC would be deemed to "provide" video programming if it determined how video programming is presented for sale to subscribers, including making decisions concerning the bundling, or "tiering" of the programming or the price, terms, or conditions on which the programming is offered to subscribers.(n18) In addition, LECs were precluded from holding an ownership interest of 5 percent or more in a video programmer that offers service in a LEC's telephone service area.(n19) At the same time, however, we recommended that Congress amend the 1984 Cable Act to permit LECs, subject to appropriate safeguards, to provide video programming directly to subscribers in their telephone service areas.(n20) We stated that if Congress repealed the ban, we would consider imposing certain safeguards on LECs providing video programming directly to subscribers. These safeguards included: a structural separation requirement; a requirement that the LEC's video programming services be provided through the video dialtone platform that provides service to multiple video programmers; anda limit on the percentage of overall platform capacity a LEC could use to transmit its own programming.(n21)
7. In October 1994, we affirmed the basic video dialtone
framework, while modifying our specific video dialtone
rules and policies in various respects.(n22) We also affirmed
and reiterated our recommendation that Congress repeal
the 1984 Cable Act cross-ownership ban. We stated that
"[g]iven the enormous growth of the cable industry during
the past decade, the risk of telephone companies preemptively
eliminating competition in the video marketplace has lessened
significantly."(n23) We noted that while there remains some
risk of anticompetitive behavior by LECs, this risk can
and should be addressed through our video dialtone framework
and other appropriate regulatory safeguards.(n24) We did not
comment on the need for any particular safeguards, indicating
instead that we would address these issues in a subsequent
8. Congress has not repealed the telco-cable cross-ownership restriction. Several federal courts have, however, declared the ban unconstitutional as a violation of the First Amendment.(n25) The Fourth Circuit, for example, determined that the cross-ownership ban violates the free speech clause because it is not "narrowly tailored to serve a significant government interest" and does not make ample alternative methods of communication available that are "sufficiently similar to the method foreclosed by the regulation."(n26)
9. LEC provision of video programming raises questions about whether Title II, Title VI, or both, would govern particular LEC video offerings, and how these provisions might apply to a LEC's provision of video programming directly to subscribers within its telephone service area and over facilities used to provide both voice and video services. We now seek comment on these issues and on the analysis we offer below.(n27)
1.Application of Title II to LEC Video Programming Offerings
11. A second Title II issue is whether we can, and should,
require telephone companies to provide video programming
only over video dialtone platforms. Even before the recent
court decisions invalidating the telco-cable cross-ownership
ban, there were three circumstances in which LECs could
provide video programming directly to subscribers. Within
their telephone service areas, LECs have been permitted
to provide video programming in areas covered by the rural
exemption to the telco-cable cross-ownership ban, or if
they received a waiver of Sections 613(b)(1) or (b)(2).(n30)
In both these situations, we have required LECs to obtain
authorization under Section 214 of theCommunications Act
before constructing facilities.(n31) In addition, outside their
telephone service area, LECs have been able to purchase
an existing cable system or apply for a franchise to construct
a new cable system.(n32) A LEC is not required to apply for
Section 214 authorization if it is constructing facilities
for the provision of cable service outside of its telephone
service area.(n33) In all these instances, there was a video
programming offering that was treated as a traditional
cable offering requiring a franchise under Title VI.
12. In these circumstances, however, LECs have not been authorized to use their local exchange facilities to provide cable service, but, rather, to construct or purchase interests in separate cable facilities. Indeed, as noted by the court in NCTA v. FCC (1994), it was not until after the 1984 Cable Act that technological advances have made it practical to deliver video signals over the same common carrier networks that are used to provide telephone service.(n34) Previously, as the court noted, "[a] telephone company that wanted to provide cable service would have had to construct a coaxial cable distribution system parallel to its telephone system."(n35)
13. We seek comment on whether we have authority under Section 214 to require LECs that seek to provide video programming directly to subscribers in their telephone service areas to do so on a video dialtone common carrier platform and not on a non-common carrier cable television facility. We seek comment on what circumstance would warrant such a requirement, and specifically on whether we should require use of a video dialtone platform whenever a LEC provides video services overfacilities that are also used in the provision of telephone services. We seek comment on our authority generally to require LECs seeking Section 214 authority to acquire or construct video facilities to comply with our video dialtone framework.(n36)
2.Application of Title VI to LEC Provision of Video Programming
15. We now seek comment on whether, if a LEC, or its
affiliate, does provide video programming over its video
dialtone system and actively engages in the selection and
distribution of such programming, that LEC, or its affiliate,
is subject to Title VI. We seek comment on the Commission's
legal authority to determine whether some, but not all,
provisions of Title VI relating to cable operators would
apply to a LEC that provides video programming over its
video dialtone platform. We also seek comment on whether
the application of some or all provisions of Title VI would
result in a regulatory framework that is duplicative of,
or inconsistent with, federal or state regulation of communications
common carriage. For example, the goals of the leased
access provision of Title VI could be met through obligations
Title II imposes on a LEC as the provider of the video
dialtone platform whether or not the LEC as a video service
provider provides its own leased access channels.(n40) We seek
comment on the potential impact of our determinations in
this proceeding on existing grants by state and local authorities
of public rights-of-way. We also invite parties to discuss
both the legal and practical implications of requiring,
or not requiring,telephone companies providing video programming
over their own video dialtone systems to comply with each
of the various provisions of Title VI. In the event that
Title VI cable rate regulation rules apply, we seek comment
on how such rules would apply to a LEC providing video
programming directly to subscribers over its own video
16. In addition, we seek comment on whether, if Title VI does not apply to telephone companies' provision of video programming on video dialtone facilities, the Commission should adopt, under Title II, provisions that are analogous to certain aspects of Title VI. For example, we seek comment on whether we should adopt rules governing program access by competing distributors, carriage agreements between video service providers and unaffiliated programmers, and vertical ownership restrictions.(n41)
17. Finally, we note that the court's opinion in NCTA
v. FCC (1994) is consistent with the Commission's reasoning
in the First Report and Order that a LEC providing video
dialtone service does not require a local franchise because
the LEC does not provide the video programming. We seek
comment on whether this view would require a LEC offering
video dialtone service to secure a local franchise if that
LEC also engages in the provision of video programming
carried on its platform.
B.Regulatory Safeguards Governing a Local Exchange Carrier's
Provision of Video Programming on its Video Dialtone Platform
1.Introduction and Scope
2.Ownership Affiliation Standards
3.Safeguards Against Anticompetitive Conduct
21. We seek comment, for instance, on whether we should limit the percentage of its own video dialtone platform capacity that a LEC, or its affiliate, may use. Such a limit could help ensure other programmers access, but may create a risk that some capacity might go unused. We seek comment on what an appropriate limit would be; whether any percentage limit should vary with the platform's capacity; and whether different rules should apply to analog and digital channels.(n45) Video dialtone capacity constraints appear likely to be most severe in the short-term, with respect to analog channels, and may be of less concern on future all-digital systems. Commenters should address whether LEC use of video dialtone capacity raises short-term or long-term concerns, and how the probable duration of the problem should affect our regulatory approach. Alternatively, we seek comment on whether LECs that deny capacity to independent programmers should be subject to procedural requirements more detailed than those imposed in the Video Dialtone Reconsideration Order.(n46)
22. In the Third Further Notice of Proposed Rulemaking
(Third Further Notice), the Commission sought comment and
information regarding channel sharing mechanisms that LECs
have proposed as means of making analog capacity available
to more customer-programmers than might otherwise be accommodated.(n47)
Parties addressing limits on LEC use of the video dialtone
platforms should comment in this proceeding on the relationship
between such channel sharing mechanisms and any proposal
to limit LEC use of analog channels. The Third Further
Notice also sought comment on two other signal carriage
issues: (1) whether theCommission should mandate preferential
video dialtone access or rates for commercial broadcasters,
public, educational and governmental ("PEG") channels,
or other not-for-profit programmers; and (2) whether the
Commission should permit LECs to offer preferential treatment
to certain programmers on a voluntary ("will carry") basis.(n48)
Parties should comment in this proceeding on the relationships
among mandatory preferential treatment, "will carry," and
any proposed limits on a LEC's use of its video dialtone
capacity to provide programming directly to subscribers.
23. Another example of potentially anticompetitive conduct
that has been cited in the context of cable television
service under Title VI involves channel positioning.(n49) Programmers
assert that cable operators can and do deliberately assign
unaffiliated program services to undesirable channel locations.(n50)
Under Title II, such discriminatory conduct is prohibited.
We seek comment on whether LECs that are also video program
providers have an increased incentive to use their control
over the video dialtone platform to engage in such activities
and what, if any, specific safeguards we should implement
to prevent such conduct. In particular, we seek comment
on whether the channel positioning rules that apply to
cable operators in the context of the "must-carry" requirement
of Title VI(n51) should also apply to video dialtone platform
operators providing programming directly to subscribers
in their local exchange service areas.
b.Non-Ownership Relationships and Activities Between Telephone
Companies and Video Programmers
25. At the same time, however, the Commission did not
permit LECs to exceed the carrier-user relationship with
cable operators, except to provide enhanced or other nonregulated
services related to the provision of video programming
in an area substantially served by a video dialtone platform,
or to lease cable drop wires.(n55) In addition, the Commission
generally prohibited affiliations between LECs and any
video programmer for the purpose of operating a basic video
26. After C&P Tel. Co. v. U.S. and U S West v. U.S., we
propose, at a minimum, to retain these restrictions as
safeguards against LEC anticompetitive conduct and to promote
further LEC deployment of broadband services. We believe
that the restrictions on non-ownership affiliations between
LECs and cable operators are important to the Commission's
goal of promoting competition in the video services marketplace,
and are not overbroad infringements on LEC First Amendment
rights. Parties should comment on the proposal to retain
these safeguards and should describe any specific additional
measures they believe necessary to safeguard against anticompetitive
conduct by LECs that offer programming on their own video
c.Acquisition of Cable Facilities
28. In the Third Further Notice, the Commission recognized
that some markets may be incapable of supporting two video
delivery systems. The Commission was concerned that, in
such markets, the prohibition could preclude establishment
of video dialtone service, thereby denying consumers the
benefits of competition and diversity of programming sources
that our video dialtone regulatory framework is designed
to promote. As a result, the Commission requested parties
to suggest criteria that would permit us to identify those
markets in which two wire-based multi-channel video delivery
systems would not be viable.(n59) We seek comment on how, if
at all, the decisions in C&P Tel. Co. v. U.S. and U S West
v. U.S. should affect our consideration of criteria for
allowing exceptions to our two-wire policy. We also seek
comment on whether we should ban telephone company acquisition
of cable facilities, with or without exceptions, if (a)
Title VI applies to telephone companies providing programming
on their own video dialtone platforms; or (b) telephone
companies are permitted to become traditional cable operators
in their own service areas instead of constructing video
d.Joint Marketing and Customer Proprietary Network Information
30. In the Bell Atlantic Market Trial Order the Commission
authorized Bell Atlantic to conduct a six-month video dialtone
market trial that will include provision of video programming
directly to subscribers by a Bell Atlantic affiliate as
well as by independent video programmers.(n63) Pending resolution
of the instant rulemaking proceeding, we conditioned Bell
Atlantic's authorization on its compliance with existing
safeguards for the provision of nonregulated services,
including enhanced services, and with several additional,
interim safeguards against discrimination.(n64) We seek comment
on whether any or all of these interim safeguards should
be adopted as permanent requirements for LECs that provide
video programming over their own video dialtone platforms.
31. Included among the Commission's existing nonstructural
safeguards are customer proprietary network information
(CPNI) requirements. Under these requirements, the Commission
limits the BOCs' and GTE's use of CPNI; requires them to
make CPNI available to competitive enhanced service providers
(ESPs) designated by a customer; and requires that they
make available to ESPs non-proprietary aggregated CPNI
on the same terms and conditions on which they make such
(CPNI) available to their own enhanced service personnel.(n65)
In the Video Dialtone Reconsideration Order, the Commission
affirmed its decision toapply existing enhanced services
CPNI rules to video dialtone.(n66) We determined that there
was insufficient evidence to conclude that our existing
CPNI rules do not properly balance our CPNI goals relating
to privacy, efficiency, and competitive equity in the context
of video dialtone.(n67) The Commission also required the BOCs
and GTE to provide additional information regarding the
kinds of CPNI to which they will have access as a result
of providing video dialtone service and indicated its intent
to seek further comment on such information.(n68) We now seek
additional comment and information on whether LEC provision
of video programming impacts the balancing of our goals
32. In addition to concerns over possible anticompetitive
use of CPNI, parties should discuss whether LEC provision
of video programming raises new concerns regarding consumer
privacy. Parties that perceive a greater threat to consumer
privacy should describe with specificity their concerns,
and suggest specific safeguards for protecting consumer
privacy, and explain how these suggestions benefit the
33. We also seek comment on safeguards to ensure nondiscriminatory
access to network technical information. In the Bell Atlantic
Market Trial Order, the Commission required Bell Atlantic
to provide all video programmers with nondiscriminatory
access to technical information concerning the basic video
dialtone platform and related equipment.(n69) The Commission
also noted that, in the circumstances of the market trial,
Bell Atlantic would also be subject to the more specific
Computer III network disclosure rules.(n70) We seek comment
onwhether the Bell Atlantic condition should be adopted
as a permanent safeguard. We also ask parties to address
whether the Computer III network disclosure rules should
be modified in any way for application in the video dialtone
4.Safeguards Against Cross-Subsidization of Video Programming
35. Assuming we do not require structural separation,
LECs will have the flexibility to conduct video programming
activities both within the telephone operating company
and through affiliates. For those video programming activities
conducted in the operating company, the LEC will be required
to record costs and revenues in accordance with Part 32
of the Commission's Rules, the Uniform System of Accounts
(USOA), and to separate the costs of video programming
activity from the costs of regulated telephone service
in accordance with the Part 64 joint cost rules.(n73) We tentatively
conclude that these rules are adequate to prevent cross-subsidization
of video programming activities. We also tentatively conclude
that we will apply to video programming activities the
rule adopted in the Video Dialtone Reconsideration Order
requiring LECs to amend their cost allocation manuals to
reflect video dialtone-related nonregulated activities
within 30 days of receiving video dialtone facilities authorization.
We seek comment on these tentative conclusions.
36. If a LEC chooses for business reasons to provide video programming through an affiliate, the accounting treatment of operating company transactions with that affiliate will be governed by the affiliate transactions rules.(n74) We seek comment on whether amendments to those rules are needed to safeguard against abuses in transactions between LECs and affiliated video program providers. Specifically, we seek comment on whether we should amend Section 32.27 to clarify that any video program provider that is considered, because of a LEC's five percent ownership interest, to be a LEC affiliate for purposes of applying video dialtone safeguards will also be considered an "affiliate" for purposes of the affiliate transactions rule.(n75)
38. In the Computer III proceeding, the Commission replaced its requirement that BOCs offer enhanced services through separate subsidiaries with a set of nonstructural safeguards. Those nonstructural safeguards were intended to protect against discrimination and cross-subsidization while avoiding the inefficiencies associated with structural separation.(n80) Using a cost/benefit analysis, the Commission concluded that, when compared with nonstructural safeguards, the costs of structuralseparation outweighed the benefits.(n81) These costs included decreased efficiency, innovation, and service availability. The Commission determined that the provision of enhanced services on an integrated basis would allow BOCs to capture certain efficiencies, and capitalize on economies of scope and cost savings created by removing the need for duplicative personnel for sales, marketing, repair and installation, and research and development. In addition, the Commission believed that structural separation was an unnecessary government intrusion into business judgments regarding corporate organization.(n82)
39. We seek comment on whether our approach to these
questions should differ when BOCs provide video programming.
Specifically, we seek comment as to whether there are
aspects of the video programming business that warrant
our treating BOC provision of video programming differently
from the way we treat BOC provision of CPE and enhanced
services generally. We also seek comment on whether any
structural separation requirement should apply to LECs
other than the BOCs. Commenting parties should specifically
identify what aspects warrant different treatment, and
what form of separation would be appropriate. Parties
should also offer information concerning the relative costs
and benefits of structural separation.
41. In the Third Further Notice, the Commission sought
comment on whether a similar rule should apply to LECs
providing video dialtone service. We now seek additional
comment on that proposal in light of C&P Tel. Co. v. U.S
and U S West v. U.S. Parties should address whether incentives
to abuse control over pole and conduit space are increased
if a LEC decides to offer video programming within its
telephone service area. In addition, as requested in the
Third Further Notice, advocates of such a rule should propose
specific language, and should explain how the rule would
prevent anticompetitive conduct.
7.Legal and Constitutional Issues
43. In GTE California v. FCC, the Ninth Circuit raises the question whether the Commission may establish conditions underwhich it will waive the telco-cable cross-ownership ban in order to obviate potential constitutional difficulties. For example, the Commission may decide to authorize any telephone company to provide video programming, whether or not it has obtained an injunction, if it complies with the safeguards we will establish in this proceeding. Our tentative conclusion is that such a reading of Section 533(b)(4) is consistent with the terms of the statute. "Good cause" is commonly interpreted to include changed circumstances, and the circumstances that led us to institute the cross-ownership rule in 1970 have changed dramatically. The cable industry is no longer a fledgling industry. Instead, as the Supreme Court recently recognized, "Congress found that over 60 percent of the households with television sets subscribe to cable . . . and for those households cable has replaced over-the-air broadcast television as the primary provider of video programming."(n89)
44. We also tentatively conclude that the safeguards
we will establish will constitute "particular circumstances
. . ., taking into account the policy" of Section 533(b),
under which waivers are warranted. We do not intend to
waive the telco-cable cross-ownership rule altogether,
so that telephone companies may purchase cable companies
that do not face competition and offer their own programming
via a monopoly cable system. Rather, and in fulfillment
of the policy underlying Section 533(b), we intend to promote
competition in the multi-channel video programming market
by establishing particular conditions under which telephone
companies may establish video dialtone systems that will
compete with existing cable operators, thus providing consumers
with a choice of multi-channel video systems.
45. The United States Court of Appeals for the District
of Columbia Circuit recognized, in NCTA v. FCC (1990),
that "the policy of this subsection is to promote competition."(n90)
However, in that decision the D.C. Circuit also appeared
to give a narrow reading to the scope of the waiver provision.
Specifically, the court of appeals remanded a decision
in which the Commission had granted a waiver because the
court concluded that the Commission had not shown that
the participation of an affiliate of a telephone company
in constructing transmission facilities was "essential
to the success" of an experimental video programming project.(n91)
But at that time no court had declared Section 533(b)
unconstitutional, and the D.C. Circuit did not consider
whether abroader reading of Section 533(b)(4) was appropriate
to render the provision constitutional. The Supreme Court
has recently reiterated that "a statute is to be construed
where fairly possible so as to avoid substantial constitutional
questions."(n92) A reading of the waiver provision that authorizes
telephone companies that comply with the safeguards we
will establish to provide video programming should render
Section 533(b) constitutional, because in those circumstances
any burden on speech by telephone companies will be minimal.
Hence, under U.S. v. X-Citement Video, a broad interpretation
of Section 533(b)(4) seems warranted. We seek comment
on these tentative conclusions.
b.Constitutionality of Proposed Safeguards
47. In U S West v. U.S., the Court of Appeals for the Ninth Circuit agreed with the Fourth Circuit that (assuming it served a significant government interest) the ban was not sufficiently narrowly tailored. The court found that the evidence submitted by U S West demonstrated that the procompetitive goals of the ban can be "achieved through a variety of less speech-restrictive means."(n97) Unlike the Fourth Circuit, however, the Ninth Circuit, determining that it was unnecessary to do so, did not reach the issue of the availability of "ample alternative channels of communication."(n98)
48. With respect to all proposals set forth above for
safeguards on LEC provision of video programming, we seek
comment on whether such safeguards, whether individually,
or in any combination, would be consistent with the First
Amendment, the Fourth Circuit's decision in C&P Tel. Co.
v. U.S., and the Ninth Circuit's decision in U S West v.
51. Reason for Action: The Commission is issuing this
Fourth Further Notice of Proposed Rulemaking to consider
additional or modified safeguards and rule changes may be necessary or appropriate in the context of the video dialtone regulatory framework, when a telephone company provides video programming directly to subscribers in its telephone service area.
52. Objectives: The objective of the Fourth Further
Notice of Proposed Rulemaking is to provide an opportunity
for public comment and to provide a record for a Commission
decision on the issues stated above.
53. Legal Basis: The Fourth Further Notice of Proposed
Rulemaking is adopted pursuant to Sections 1, 2, 4, 201-205,
215, 218, 220, and 303(r) of the Communications Act of
1934, as amended, 47 U.S.C. §§ 151, 152, 154, 201-205,
215, 218, 220, and 303(r).
54. Description, potential impact, and number of small
entities affected: Any rule changes that might occur as
a result of this proceeding could impact entities which
are small business entities, as defined in Section 601(3)
of the Regulatory Flexibility Act. After evaluating the
comments in this proceeding, the Commission will further
examine the impact of any rule changes on small entities
and set forth our findings in the Final Regulatory Flexibility
Analysis. The Secretary shall send a copy of this Fourth
Further Notice of Proposed Rulemaking to the Chief Counsel
for Advocacy of the Small Business Administration in accordance
with Section 603(a) of the Regulatory Flexibility Act,
Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. § 601, et seq.
56. Federal rules which overlap, duplicate or conflict
with the Commission's proposal: None.
57. Any significant alternatives minimizing impact on
small entities and consistent with state objectives: The
Fourth Further Notice of Proposed Rulemaking seeks comment
on a variety of alternatives.
58. Comments are solicited: Written comments are requested
on this Initial Regulatory Flexibility Analysis. These
comments must be filed in accordance with the same filing
deadlines set for comments on the other issues in this
Fourth Further Notice of Proposed Rulemaking, but they
must have a separate and distinct heading designating them
as responses to the Regulatory Flexibility Analysis. The
Secretary shall send a copy of the Notice to the Chief
Counsel for Advocacy of the Small Business Administration
in accordance with Section 603(a) of the Regulatory Flexibility
Act, 5 U.S.C. § 601, et seq.
FEDERAL COMMUNICATIONS COMMISSION
William F. Caton
I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 III. FOURTH FURTHER NOTICE OF PROPOSED RULEMAKING A. Governing Statutory Provisions. . . . . . . . . . . . . . . . . . . . . 9 1.Application of Title II to LEC Video Programming Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.Application of Title VI to LEC Provision of Video Programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 B.Regulatory Safeguards Governing a Local Exchange Carrier's Provision of Video Programming on its Video Dialtone Platform 1.Introduction and Scope. . . . . . . . . . . . . . . . . . . . . . . 18 2.Ownership Affiliation Standards . . . . . . . . . . . . . . . . . . 19 3.Safeguards Against Anticompetitive Conduct a.Sufficient Capacity to Serve Multiple Service Providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 b.Non-Ownership Relationships and Activities Between Telephone Companies and Video Programmers. . . . . . . . . . . . 24 c.Acquisition of Cable Facilities. . . . . . . . . . . . . . . . . 27 d.Joint Marketing and Customer Proprietary Network Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4.Safeguards Against Cross-Subsidization of Video Programming Activities. . . . . . . . . . . . . . . . . . . . . . . 34 5.Structural Separation . . . . . . . . . . . . . . . . . . . . . . . 37 6.Pole Attachments. . . . . . . . . . . . . . . . . . . . . . . . . . 40 7.Legal and Constitutional Issues a.Waiver of the Cross-Ownership Ban. . . . . . . . . . . . . . . . 42 b.Constitutionality of Proposed Safeguards . . . . . . . . . . . . 46 IV. EX PARTE PRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 49 V. INITIAL REGULATORY FLEXIBILITY ANALYSIS . . . . . . . . . . . . . . . . 50 VI. COMMENT FILING DATES . . . . . . . . . . . . . . . . . . . . . . . . . 59 VII. ORDERING CLAUSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Footnote 1 Telephone Company-Cable Television Cross-Ownership Rules, Sections 63.54-63.58, Further Notice of Proposed Rulemaking, First Report and Order, and Second Further Notice of Inquiry, 7 FCC Rcd 300 (1991) (First Report and Order), aff'd, Memorandum Opinion and Order on Reconsideration, 7 FCC Rcd 5069 (1992) (Memorandum Opinion and Order on Reconsideration), aff'd, National Cable Television Ass'n v. FCC, 33 F.3d 66 (D.C. Cir. 1994) (NCTA v. FCC (1994)); Telephone Company-Cable Television Cross-Ownership Rules, Sections 63.54-63.58, Second Report and Order, Recommendation to Congress, and Second Further Notice of Proposed Rulemaking, 7 FCC Rcd 5781 (1992)(Second Report and Order), aff'd, Memorandum Opinion and Order on Reconsideration and Third Further Notice of Proposed Rulemaking, FCC 94-269 (released Nov. 7, 1994)(Video Dialtone Reconsideration Order), appeal pending sub nom. Mankato Citizens Tel. Co. v. FCC, No. 92-1404 (D.C. Cir. filed Sept. 9, 1992).
Footnote 2 Cable Communications Policy Act of 1984, Pub. L. No. 98-549, § 613(b), 98 Stat. 2779 (codified at 47 U.S.C. § 533(b)) ("telco-cable cross-ownership ban or restriction").
Footnote 3 Chesapeake & Potomac Tel. Co. of Virginia v. United States, No. 93-2340 (4th Cir. Nov. 21, 1994) (C&P Tel. Co. v. U.S.); U S West, Inc. v. United States, No. 94-35775, D.C. No. CV-93-01523-BJR (9th Cir. December 30, 1994) (U S West v. U.S.).
Footnote 4 BellSouth Corp. v. United States, No. CV 93-B-2661-S (N.D. Ala. Sept. 23, 1994) (BellSouth v. U.S.); Ameritech Corp. v. United States, 867 F.Supp. 721 (N.D. Ill. 1994); (Ameritechv. U.S.) NYNEX Corp. v. United States, Civil No. 93-323-P-C (D. Me. Dec. 8, 1994) (NYNEX v. U.S.).
Footnote 5 See 47 U.S.C. § 533(b)(1).
Footnote 6 47 U.S.C. § 522(19).
Footnote 7 Id. § 533(b)(3), (b)(4).
Footnote 8 See First Report and Order, 7 FCC Rcd 300.
Footnote 9 Id. at 306, para. 10.
Footnote 10 Section 621(b)(1) provides that "a cable operator may not provide cable service without a franchise." 47 U.S.C. § 541(b)(1).
Footnote 11 First Report and Order, 7 FCC Rcd at 327-28, para. 52.
Footnote 12 NCTA v. FCC (1994), 33 F.3d 66.
Footnote 13 See generally, Second Report and Order, 7 FCC Rcd 5781.
Footnote 14 Second Report and Order, 7 FCC Rcd at 5797, para. 29.
Footnote 15 Id. at 5811, para. 58, 5828, para. 92. These safeguards include accounting and cost allocation rules to separate the costs of providing enhanced and other non-regulated services from the costs of providing regulated services, as well as network disclosure rules to ensure that telephone equipment manufacturers and vendors have adequate notice of changes that could affect the compatibility of their equipment with the network. In addition, we held that the Bell Operating Companies (BOCs) and GTE Services Corporation (GTE) must adhere to Open Network Architecture (ONA) requirements and other safeguards adopted in the BOC Safeguards Order, including rules governing the use of customer proprietary network information. See infra note 70.
Footnote 16 Second Report and Order at 5820, para. 72; see 47 U.S.C. § 214(a).
Footnote 17 The Commission adopted detailed ownership and non-ownership affiliation rules to implement this requirement. These rules are set forth at 47 C.F.R. § 63.54. The Commission is currently considering changes to its ownership attribution rules in various other contexts. See Review of the Commission's Regulations Governing Attribution of Broadcast Interests, Review of the Commission's Regulations and Policies Affecting Investment in the Broadcast Industry, Reexamination of the Commission's Cross-Interest Policy, Notice of Proposed Rulemaking, MM Docket Nos. 94-150, 92-51, and 87-154, FCC No. 94-324 (released January 12, 1995). We ask for comment on what impact, if any, any such changes in other contexts might have here.
Footnote 18 Second Report and Order at 5817, para. 69; Video Dialtone Reconsideration Order at para. 64.
Footnote 19 Second Report and Order at 5801, 5819, paras. 36, 71; see Video Dialtone Reconsideration Order at paras. 64-70.
Footnote 20 Second Report and Order, 7 FCC Rcd at 5847, para. 135.
Footnote 21 Id. at 5847-48, para. 135.
Footnote 22 See Video Dialtone Reconsideration Order, supra note 1.
Footnote 23 Video Dialtone Reconsideration Order at para. 265.
Footnote 25 SeeC&P Tel. Co. v. U.S., U S West v. U.S., BellSouth v. U.S., Ameritech v. U.S., and NYNEX v. U.S., supra notes 3 and 4.
Footnote 26 C&P Tel. Co. v. U.S., No. 93-2340, slip op. at 31, 40 (citations omitted). The Ninth Circuit also found the provision was not "narrowly tailored," but declined to reach the issue of the availability of "ample alternative channels of communications." U S West v. U.S. slip op. at 15913.
We recognize the existence and importance of a number of
other policy and legal issues beyond those raised in this
Notice. In general, we note that the entry of telephone
companies into the provision of video programming also
raises questions regarding the impact of our regulation
on the ability of cable operators to respond to the deployment
of video dialtone, as well as broader issues regarding
potential regulatory disparities among video dialtone providers,
cable operators, and other multichannel video programmers.
Our decision to issue this Notice to address the specific
questions arising directly from the recent court decisions
is not intended to foreclose future consideration elsewhere
of these broader issues.
Footnote 28 Video Dialtone Reconsideration Order at para. 3.
Footnote 29 See generally, C&P Tel. Co. v. U.S. and U S West v. U.S. supra note 3.
Footnote 30 See 47 U.S.C. §§ 533(b)(3), (b)(4); 47 C.F.R. §§ 63.56, 63.58. Section 613(b)(4) authorizes the Commission to waive the cross-ownership prohibition under either of two independent criteria. First, the Commission may waive the restriction when it determines that "the provision of video programming directly to subscribers through a cable system demonstrably could not exist [within the LEC's telephone service area] except through a cable system owned by, operated by, controlled by, or affiliated with the common carrier involved." 47 U.S.C. § 533(b)(4). Alternatively, the Commission may grant a waiver upon other showing of good cause. Id. The Commission has exercised its authority to grant waivers of the cross-ownership ban in certain circumstances. See Time Warner Entertainment Co., L.P. and U S WEST Communications, Inc., 8 FCC Rcd 7106 (1993) (granting temporary waiver of prohibition upon demonstration of good cause to permit divestiture of cable systems after a merger); General Tel. Co. of California, 4 FCC Rcd 5693 (1989)(good cause waiver to permit telephone company involvement in cable television experiment), remanded, NCTA v. FCC, 914 F.2d 285, 287 (1990) (NCTA v. FCC (1990)), waiver rescinded on remand, 8 FCC Rcd 8178 (1993), aff'd sub nom. GTE California, Inc. v. FCC, 39 F.3d 940 (9th Cir. 1994) (GTE California v. FCC), petition for rehearing pending; Shenandoah Tel. Co., 84 FCC 2d 371 (1981) (granting waiver for good cause based on small size and rural nature of areas in question).
Footnote 31 47 U.S.C. § 214(a).
Footnote 32 For example, SBC Communications, Inc., a holding company that owns a Bell Operating Company providing local exchange and exchange access telephone services in the southwestern United States, purchased two cable systems in the metropolitan Washington, D.C. area from Hauser Communications, Inc. in early 1994. U S WEST, Inc. also recently completed its acquisition of cable systems in the Atlanta, Georgia area, which is outside of its LEC's telephone service area. In both these examples, the LEC holds a cable franchise pursuant to Section 621 from the local franchising authority.
Footnote 33 47 C.F.R. § 63.08(a).
Footnote 34 NCTA v. FCC (1994), 33 F.3d at 69.
Footnote 36 See47 U.S.C. § 214(c).
Footnote 37 First Report and Order, 7 FCC Rcd at 324, para. 50, aff'd, Memorandum Opinion and Order on Reconsideration, 7 FCC Rcd at 5070, para. 11.
First Report and Order, 7 FCC Rcd at 326-27, para. 51,
aff'd, Memorandum Opinion and Order on Reconsideration,
7 FCC Rcd at 5071-73, paras. 13-25. The Commission also
determined that an independent customer-programmer of a
LEC's video dialtone platform is not a "cable operator"
and consequently, is not subject to the franchise requirement
of the 1984 Cable Act. See supra para. 4.
The 1984 Cable Act defines a "cable operator" as
any person or group of persons (A) who provides cable service
over a cable system and directly or through one or more
affiliates owns a significant interest in such cable system,
or (B) who otherwise controls or is responsible for, through
any arrangement, the management and operation of such a
47 U.S.C. § 522(5). A "cable system" is defined as
a facility, consisting of a set of closed transmission
paths and associated signal generation, reception, and
control equipmentthat is designed to provide cable service
which includes video programming and which is provided
to multiple subscribers within a community, but such term
does not include
. . .
(C) a facility of a common carrier which is subject, in
whole or in part, to the provisions of title II of this
Act, except that such facility shall be considered a cable
system . . . to the extent such facility is used in the
transmission of video programming directly to subscribers
. . . .
47 U.S.C. § 522(7).
Footnote 39 See Memorandum Opinion and Order on Reconsideration, 7 FCC Rcd at 5071, 5072-73, paras. 16, 24.
Footnote 40 See 47 U.S.C. § 532.
Footnote 41 See infra para. 23.
Footnote 42 In amendments to its Section 214 applications to provide video dialtone service, Bell Atlantic requested permission from the Commission to provide video programming over its own video dialtone systems. See Bell Atlantic Telephone Company (Bell Atlantic), File No. W-P-C 6912 (application filed December 16, 1993, amendment filed June 16, 1994), Bell Atlantic, File No. W-P-C 6966 (application filed June 16, 1994). The Commission granted Bell Atlantic's amended application to provide video programming over its video dialtone system in a market trial in Northern Virginia,subject to certain conditions. Bell Atlantic, File No. W-P-C-6834 (released January 20, 1995) (Bell Atlantic Market Trial Order).
Footnote 43 In the Video Dialtone Reconsideration Order, the Commission affirmed, with some modifications and clarifications, its ownership affiliation rules. The Commission upheld its earlier determination that, consistent with the cross-ownership ban, it was impermissible for a LEC to own five percent or more of a video programmer. For purposes of the video dialtone rules, a video programmer was defined as any person who provides video programming directly, or indirectly through an affiliate, to subscribers. See Video Dialtone Reconsideration Order at paras. 64-74. See also supra para. 6.
Footnote 44 Video Dialtone Reconsideration Order at para. 35.
Footnote 45 We have previously suggested that a 25% capacity limit "strikes a reasonable balance among competing risks and benefits involved." Second Report and Order, 7 FCC Rcd at 5850-1 n.360.
Footnote 46 Id. at para. 38.
Footnote 47 Id. at paras. 268-275.
Footnote 48 Id. at paras. 280-284.
Footnote 49 See Implementation of Sections 11 and 13 of the Cable Television Consumer Protection and Competition Act of 1992, Horizontal and Vertical Ownership Limits, Second Report and Order, 8 FCC Rcd 8565, 8583-84, paras. 41-43 (1993).
Footnote 50 See Competition, Rate Deregulation and the Commission's Policies Relating to the Provision of Cable Television Service, Report, 5 FCC Rcd 4962, 5040, para. 151 (1990).
Footnote 51 47 U.S.C. § 534(b)(6). In general, 47 U.S.C. § 534 requires cable operators to carry local television station signals and qualified low power television station signals.
Footnote 52 Video Dialtone Reconsideration Order at paras. 87-102.
Footnote 53 Id. at para. 87.
Footnote 54 Id. at para. 88.
Footnote 55 The Commission permits LECs to lease cable drop wires from cable operators, subject to certain conditions. See Video Dialtone Reconsideration Order at paras. 54-55.
Footnote 56 See, First Report and Order, 7 FCC Rcd at 309-310, para. 17. See also, Second Report and Order, at 5837-38, paras. 109-111.
Footnote 57 Video Dialtone Reconsideration Order at para. 48.
Footnote 58 Id. at para. 48.
Footnote 59 Id. at paras. 276-79.
Footnote 60 Id. at para. 240.
Footnote 61 Id. at paras. 234-242.
Footnote 62 Id. at paras. 239-242.
Footnote 63 See Bell Atlantic Market Trial Order, supra note 42.
Footnote 64 Id. at para 22.
Footnote 65 Id. at para. 235.
Footnote 66 Id. at para. 239.
Footnote 67 Id. at para. 243 & n.456.
Footnote 68 Id. at para. 244.
Footnote 69 See Bell Atlantic Market Trial Order at para. 36.
Footnote 70 See Computer III Remand Proceedings: Bell Operating Company Safeguards and Tier 1 Local Exchange Company Safeguards, 6 FCC Rcd 7571, 7603-04, para. 70 (1991) (BOC Safeguards Order), vacated in part and remanded, California v. FCC. See also Bell Operating Companies' Joint Petition for Waiver of Computer II Rules, DA 95-36 (released January 11, 1995), para. 23 (BOCs must continue to comply with Computer III safeguards against discrimination pending Commission action in response to the remand of the BOC Safeguards Order in California v. FCC, see infra note 71. As noted below, see infra note 71, the Ninth Circuit set aside, in part, our BOC Safeguards Order on review, finding that we had failed toexplain adequately our decision to lift structural separation requirements generally, based on the level of network unbundling reflected in the approved BOC ONA plans. California v. FCC, 39 F.3d at 929, 930. In any event, we propose here to consider whether structural separation is necessary or appropriate in the context of video programming services. See infra at para. 39.
Footnote 71 Video Dialtone Reconsideration Order at paras. 179-182. The U.S. Court of Appeals for the Ninth Circuit recently vacated in part and remanded the BOC Safeguards Order, on the ground that the Commission had not adequately explored how, without full unbundling of BOC networks from ONA, discrimination could be prevented. The Ninth Circuit also held that the Commission did show that its regime of nonstructural safeguards adequately prevented improper cross-subsidization of enhanced services by BOCs. California v. FCC, 39 F.3d 919 (9th Cir. 1994) (California v. FCC). See BOC Safeguards Order, supra note 70.
Footnote 72 The Commission's accounting safeguards for nonregulated activities apply to most activities that are not classified as common carrier communications services for Title II purposes. Separation of Costs of Regulated Telephone Service From Costs of Nonregulated Activities. Amendment of Part 31, the Uniform System of Accounts for Class A and Class B Telephone Companies to Provide for Nonregulated Activities and to Provide for Transactions Between Telephone Companies and their Affiliates, 2 FCC Rcd 1298, 1307-08, paras. 69-78 (1987) (Joint Cost Order). Thus, those safeguards would apply to LEC video programming activities even if LEC provision of video programming were found to beregulated under Title VI.
Footnote 73 47 C.F.R. §§ 64.901-905.
Footnote 74 47 C.F.R. § 32.27.
Footnote 75 The telephone affiliate transaction rules apply to transactions with a company that directly or indirectly controls, is controlled by, or is under common control with the operating company. See 47 C.F.R. § 32.9000. A company in which a LEC held a 5 percent ownership interest would not ordinarily fall within this definition. By contrast, the cable rate regulation rules use the five percent benchmark to define an affiliated programmer for the purposes of applying affiliate transaction rules. Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, and Adoption of aUniform Accounting System for Provision of Regulated Cable Service, Report and Order and Further Notice of Proposed Rulemaking, 9 FCC Rcd 4527, 4667-68, paras. 269-70 (1994).
Footnote 76 Policy and Rules Concerning the Furnishing of Customer Premises Equipment, Enhanced Services and Cellular Communications Equipment by the Bell Operating Companies, CC Docket No. 83-115, Report and Order, 95 FCC 2d 1117 (1984) (BOC Separation Order), aff'd sub nom. Illinois Bell Tel. Co. v. FCC, 740 F.2d 465 (7th Cir. 1984), aff'd on recon., FCC 84-252, 49 Fed. Reg. 26056 (1984), aff'd sub nom. North American Telecommunications Ass'n. v. FCC, 772 F.2d 1282 (7th Cir. 1985).
Footnote 77 Furnishing of Customer Premises Equipment by the Bell Operating Companies and the Independent Telephone Companies, Report and Order, 2 FCC Rcd 143 (1987) (BOC Structural Relief Order).
Footnote 78 Id. at 147, paras. 25-26, 28.
Footnote 79 Id. at 147-48, paras. 29-33.
Footnote 80 Computer III Remand Proceedings: Bell Operating Company Safeguards; and Tier 1 Local Exchange Company Safeguards, 6 FCC Rcd 174, at para. 1 (1990).
Footnote 81 BOC Safeguards Order at 7614, para. & n.169.
Footnote 82 BOC Safeguards Order at 7624, para. 108.
Footnote 83 See 47 C.F.R. § 63.57. See also Video Dialtone Reconsideration Order at para. 285. We are aware of the pendency of several complaints alleging that LECs proposing to construct video dialtone systems are charging cable operators unreasonable rates. See, e.g., Chronicle Publishing Company v. GTE Hawaiian Telephone Company (GTE Hawaii), Complaint and Request for Declaratory Ruling, P.A. No. 95-001 (filed October 7, 1994) and Jones Spacelink of Hawaii, Inc. v. GTE Hawaii, Complaint and Request for Declaratory Ruling, P.A. No. 95-002 (filed October 24,1994).
Footnote 84 Video Dialtone Reconsideration Order at para. 285.
Footnote 85 47 U.S.C. § 533(b)(4).
Footnote 87 SeeGTE California v. FCC, 39 F.3d at 942.
Footnote 88 Id. at 946.
Footnote 89 Turner Broadcasting System, Inc. v. FCC, 114 S. Ct. 2445, 2454 (1994).
Footnote 90 NCTA v. FCC (1990), 914 F.2d at 287.
Footnote 91 Id. at 289.
Footnote 92 United States v. X-Citement Video, Inc., 115 S. Ct. 464, 467 (1994) (U.S. v. X-Citement Video).
Footnote 93 C&P Tel. Co. v. U.S. slip op. at 31 (citing Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989) (quoting Clark v. Community for Creative Non-Violence, 468 U.S. 288, 293 (1984))).
Footnote 94 C&P Tel. Co. v. U.S. slip op. at 38.
Footnote 95 Id. at 38-39 & n.34 (citing Video Dialtone Reconsideration Order). While the court discussed the availability of options less burdensome than the cross-ownership ban, it did not address the constitutionality of any such alternative. The court cited the alternative "not to imply its constitutionality, but only to show [the ban] itself is unconstitutional." Id. at 39 n.34.
Footnote 96 Id. at 40.
Footnote 97 U S West v. U.S. slip op. at 15910.
Footnote 98 Id. at 15913.