FOR IMMEDIATE RELEASE NEWS MEDIA CONTACT MORGAN BROMAN (202) 418-2358 Report No. CS 99-5 CABLE SERVICES ACTION March 29, 1999 COMMISSION IMPLEMENTS CABLE REFORM RULE MODIFICATIONS: PROVIDES INFORMATION ON SUNSET OF CABLE RATE REGULATION (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. -FCC - Cable Services Bureau contact: Peggy Greene at (202) 418-7200 TTY: (202) 418-418-7172 March 26, 1999 SEPARATE STATEMENT OF COMMISSIONER GLORIA TRISTANI In the Matter of Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996 -- CS Docket No. 96-85 I write separately to clarify my views on the technical standards section. First, I believe that the Order fails to adequately acknowledge the ambiguity of the term "transmission technology." As the comments reflect, that term can be interpreted in several different ways, each plausible on its face. Neither the Communications Act, the legislative history, nor Commission precedent (until today) provide any clear guidance for choosing one definition over another. Thus, while I do not disagree with the interpretation of "transmission technology" ultimately adopted in today's Order, it is not the only plausible interpretation of the term. Second, I would have made it clearer that parties should be protected from piecemeal abrogation of existing franchise agreements. As the Order notes, Section 624(e) was signed into law over three years ago. Since that time, the Commission failed to provide any guidance as to the meaning of Section 624(e), thereby forcing parties to enter into agreements based upon their own interpretation of the statute. Given Section 624(e)'s ambiguity, parties may have mistakenly drafted provisions that they believed were permissible regulation of facilities and equipment under Section 624(b), but which under today's Order would constitute an impermissible regulation of transmission technology. These mistakes were mutual: as the item notes, we have not received a single formal complaint from any party claiming that its Section 624(e) rights have been violated. Moreover, these mistakes were avoidable. Had the Commission spoken earlier, parties could have phrased their agreements in a way that would have complied with today's Order. Thus, given the Commission's delay and the parties' mutually mistaken reading of an ambiguous statute, I believe it would be patently unfair for these provisions to simply be struck from existing franchise agreements while the remainder of the agreement is enforced. I express no opinion on whether such agreements should be found enforceable or rescinded in their entirety, or reformed pursuant to renegotiation between the parties. Indeed, I believe that simply striking contractual provisions that may now violate Section 624(e), without the opportunity for renegotiation, would violate the framework that Congress established in Section 624. Congress granted local authorities the right to regulate facilities and equipment in Section 624(b), so long as they did not step over the vague line into "transmission technology." For three years, the Commission provided no guidance regarding where that line was located. Now it appears that some local authorities and cable operators may have made incorrect -- albeit reasonable -- judgments about where Section 624(b) ended and Section 624(e) began. Had they had the benefit of today's Order, these mistakes could have been corrected in the drafting stage. Simply striking specific franchise provisions would deprive local communities of their legitimate rights to regulate facilities and equipment under Section 624(b). It would find that because they inadvertantly stepped over the line that divides Section 624(b) and Section 624(e), that they have lost all of their rights under Section 624(b) for the length of the franchise term. Local communities should not pay such a high price for the Commission's indefensible delay. Finally, I would be opposed to extending the definition of "transmission technology" beyond the specific examples cited in the Order. For instance, I would be opposed to extending the definition to prohibit agreements that provide for a certain MHz level or a certain number of homes per fiber node. I believe we have done our statutory duty to fairly interpret the meaning of "transmission technology." Any expansion of that definition, I believe, would tread on the legitimate rights of local authorities. DISSENTING STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH Re: Implementation of Cable Act Reform Provisions of the Telecommunications Act, CS Docket No. 96-85 In implementing the "effective competition" provision of the 1996 Telecommunications Act, Part II of this Report and Order requires that a local exchange carrier's service area "substantially overlap" that of the incumbent cable operator in a franchise area. Because the plain language of the statute reveals no substantiality test, and because other statutory definitions of effective competition expressly include such tests, I respectfully dissent from Part II. I start with the text of the statute. Section 623(l)(1)(D) states that "effective competition" exists when: a local exchange carrier or its affiliate (or any multichannel video programming distributor ["MVPD"] using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to- home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area. 47 U.S.C. section 543(l)(1)(D)(emphases added). I now turn to the context of the provision. Section 623(l)(1)(D) was not the first time that Congress defined the meaning of "effective competition" for deregulatory purposes. The subsections immediately preceding the LEC effective competition provision, which were enacted in 1992, also define that term. Significantly, each of these definitions includes some kind of a pass or penetration rate that a new entrant must meet before a finding of effective competition is made and deregulation follows. In particular, these definitions provide that effective competition exists when: fewer than 30 percent of the households in the franchise area subscribe to the service of a cable system; the franchise area is served by at least two unaffiliated MVPDs each of which offers comparable video programming to at least 50 percent of the households in the franchise area . . . [and] the number of households subscribing to programming services offered by MVPDs other than the largest MVPD exceeds 15 percent of the households in the franchise area; [or] a MVPD operated by the franchising authority for that franchise area offers video programming to at least 50 percent of the households in that franchise area; Id. sections 623(l)(1)(A)-(C) (emphases added). Two things about the above-quoted statutory language are salient. First, nothing in subsection (D) states that the LEC must provide video programming to substantially the same number of households, or in substantially the same geographic area, as does the incumbent cable operator. There is simply no textual basis for a "substantial overlap" test. In terms of geography, all the statute requires is that the LEC offer service "in the franchise area," not "in a substantial part of the franchise area" or "in most of the franchise area." Notably, the definition is conditional -- for instance, the delivery cannot be via direct satellite, and the services must be comparable -- but a geographic coverage requirement within the franchise area is not one of the conditions set out by the statute. It is an extra condition that is entirely of the Commission's making and wholly extra-statutory. Second, the absence of language in subsection (D) regarding a coverage test is particularly conspicuous when considered in the context of the surrounding provisions. The other subsections defining effective competition include -- often immediately after the word "offer" -- some kind of threshold test for the substantiality of the offering in question. But after the word "offer" in subsection (D), there is no such test. "[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." Russello v. United States, 464 U.S. 16, 23 (1983) (internal quotation marks omitted). Congress clearly knew how to tack a numerical threshold onto the offering requirement, and it did not do so here. We cannot conveniently ignore the fact of this exclusion. The Notice in this matter suggested that LEC competition cannot be "effective" when it is not offered to a significant number of households within the franchise area. Congress has not asked the Commission to define the term "effective competition" based on our understanding of what is and is not effective in terms of a market disciplining presence. Rather, Congress has already defined the term. And, under that definition, if a LEC offers programming comparable to that of the local cable company "directly to subscribers . . . in the franchise area," by any means except direct-to-home satellite, each and every element of the definition is met. Cable rate deregulation then must follow as a matter of law. * * * * * * * DISSENTING STATEMENT OF COMMISSIONER MICHAEL POWELL Re: Implementation of Cable Act Reform Provisions of the Telecommunications Act, CS Docket No. 96-85 During my confirmation, I was asked by a Senator whether I would implement communications law as written by Congress even if I personally disagreed with the outcome. I promised that I would, for that was the duty of a regulator. Consistent with that promise, I respectfully dissent from Part II of this Report and Order which requires that a local exchange carrier's (LEC) service area must "substantially overlap" that of the incumbent cable operator in a franchise area before the LEC can be said to provide effective competition under Section 623(l)(1)(D) of the Communications Act. As Commissioner Furchtgott-Roth persuasively argues in his dissenting statement, this result cannot be squared with the plain language of the statute. Having said this, I will note that I can appreciate the desire of the majority to read this provision more broadly. One can reasonably argue that it is not desirable to deregulate a monopoly cable provider when it faces only minimal competition in its franchise area. I would also concede that if the other three "effective competition" provisions of Section 623(l) did not specifically include pass or penetration tests, the Commission might have the latitude to assume that Congress intended some type of substantial overlap test. Given the context of the section 623(l)(1)(D), however, I see no such latitude. It is clear from the text of section 623(l) that where Congress intended the Commission to apply a pass or penetration test, it included the test in the statute. Congress, apparently, chose not to include a pass or penetration standard in the LEC effective competition test for whatever reason, and it is improper for the Commission to assume that Congress could not have intended what it wrote. Although we might think that some possible ramifications of interpreting the statute as written are extreme, this agency cannot substitute its judgement for that of Congress.