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Federal Communications Commission
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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

MORGAN BROMAN (202) 418-2358
Report No. CS 99-5 CABLE SERVICES ACTION March 29, 1999

(CS DOCKET NO. 96-85)

The Commission has adopted an order implementing provisions of the Telecommunications Act of 1996 ("1996 Act") that reform several parts of the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"). These are generally known as the "Cable Reform" provisions. The order also includes information about the sunset of the Commission's role in regulating rates on the cable service programming tier ("CPST"). The Cable Reform provisions include sections on effective competition to a cable system, small cable operator rules, uniform rate requirements, technical standards and subscriber notice.

Key elements of this order include:

CPST rate regulation sunset

Pursuant to Section 623 of the 1996 Act, rates for CPST services provided after March 31, 1999 will not be subject to Commission review and regulation. The Commission will continue to process complaints regarding rates for services provided prior to March 31, 1999.
Effective Competition
The statute provides that a cable operator's rates are not regulated if the cable system is subject to effective competition. The 1996 Act added a new effective competition test addressing competition from local exchange carriers ("LECs"), LEC affiliates, or multichannel video programming distributors using LEC facilities. The Commission determined that effective competition will be found if a LEC's service offering substantially overlaps the incumbent cable operator's service in the same franchise area. Potential as well as actual LEC service can be considered. The 1996 Act also requires that the LEC's programming service be comparable to the incumbent cable operator's service. The Commission adopted the definition used for the competing provider testfor effective competition, which specifies that comparable service must include at least 12 channels of video programming, including at least one channel of nonbroadcast service.

The order provides that all effective competition cases, other than petitions for reconsideration of LFA certifications to regulate rates, will be resolved as petitions for determinations of effective competition under the Commission's special relief procedures. This will ensure uniform procedures, including use of the public notice provisions. The Commission retained its rule for handling petitions for reconsideration of LFA certifications, which includes an automatic stay provision so that erroneous certifications can be addressed before the LFA starts regulating rates.

Small Cable Operators
Under the statute, small cable operators meeting certain criteria are exempted from some rate regulation. In addition to cable programming services, the exemption applies to a basic service tier ("BST") that was the only service tier subject to regulation as of December 31, 1994 in any franchise area in which that operator services 50,000 or fewer subscribers. A small cable operator is "a cable operator that, directly or through an affiliate, serves in the aggregate fewer than one percent (1%) of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000." The Commission decided that the BST exemption is not lost if the operator created additional tiers of service after December 31, 1994. An affiliation exists when an entity owns an active or passive equity interest of 20% or more in the cable operator or holds de facto control over the operator. Purely passive investment, however, will not be treated as an affiliation. Implementing the Cable Reform provisions does not affect the Commission's small system cost of service rules.

The order concludes that the Commission lacks the discretion to maintain an operator's small operator status once it no longer meets the eligibility requirements in the statute. The order allows operators losing their eligibility to maintain the rates prevailing prior to the loss of eligibility and to implement rate increases pursuant to the generally applicable rate regulations. To prevent cable operators from imposing large rate increases in anticipation of a change in status, the order requires cable operators to demonstrate that their rates were in effect for three months prior to the loss of small cable status.

Uniform Rate Requirement
Under the statute, unless a cable operator is subject to effective competition, its rates must be uniform throughout the franchise area. The statute provides a limited exception for bulk discounts to multiple dwelling units ("MDUs") so that cable operators can respond to competition in individual MDUs by offering lower prices. The order concludes that a bulk discount is a volume discount available to all residents of the MDU. The operator can offer the discount directly to residents; negotiation about the rate with the MDU owner or manager is not required.
Technical Standards
The 1996 Act retains the requirement that the Commission establish minimum technical standards for cable systems' technical operation and signal quality and adds that no state or franchising authority may prohibit, condition, or restrict a cable system's use of any type of subscriber equipment or any transmission technology. The order concludes that LFA oversight and enforcement of the Commission's technical standards is permitted but that LFAs cannot impose technical standards different from the Commission's technical standards. The order also finds that transmission technology includes, for example, an operator's use of digital or analog transmissions and its use of coaxial cable, fiber optic cable, or microwave facilities. The order also acknowledges the LFA's important role in determining local needs and access channel requirements, requiring institutional networks, reviewing an operator's qualifications, and managing public rights of way.
Subscriber Notice
The 1996 Act provides that a cable operator may provide notice of service and rate changes using any reasonable written means at its sole discretion. The item concludes that Congress intended to limit the Commission's discretion in this area but did not completely eliminate the role of regulatory authorities. LFAs and the Commission retain the authority to determine that a particular mechanism is not reasonable.
Action by the Commission March 26, 1999, by Report and Order (FCC 99-57). Chairman Kennard, Commissioners Ness and Tristani, with Commissioner Tristani issuing a separate statement, Commissioners Furchtgott-Roth and Powell approving in part, dissenting in part and issuing separate statements.

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Cable Services Bureau contact: Peggy Greene at (202) 418-7200
TTY: (202) 418-418-7172