NEWS
	Federal Communications Commission 445 12th Street, S.W. Washington, D.C. 20554	News media information 202 / 418-0500 Fax-On-Demand 202 / 418-2830 Internet: http://www.fcc.gov TTY: 202/418-2555
	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).
	FOR IMMEDIATE RELEASE October 8, 1999 NEWS MEDIA CONTACT: Michelle Russo (202) 418-2358
	FCC REVISES CABLE HORIZONTAL OWNERSHIP AND ATTRIBUTION RULES New Guidelines Reflect Converging Marketplace and Increasing Competition in Video Programming
	Washington, D.C. In two separate Report and Orders, the Federal Communications Commission (FCC) today revised its rules on the number of cable subscribers an entity may reach and on the method for identifying attributable cable ownership interests. The new cable horizontal ownership rule maintains a 30 percent limit, but calculates total horizontal ownership by counting nationwide subscribers of cable, direct broadcast satellite (DBS) and other multi-channel video programming distributors (MVPDs), not just cable homes passed. The FCC's revised cable attribution rules track most of the revisions made to the broadcast attribution rules, define the term "affiliate" and eliminate the single majority shareholder exemption. The FCC also modified language related to the definition of an insulated limited partner and changed the waiver standard for directors and officers as they apply to ownership attribution under the cable horizontal ownership limit and channel occupancy rules. The revised rules will best serve consumers because they reflect changes in the converging marketplace while promoting competition in all markets: local telephone, cable and high-speed Internet. The FCC said two significant changes have occurred since the horizontal ownership rules were originally adopted in 1992: DBS has emerged as a significant competitor to cable, and cable companies have begun providing telephony and high-speed Internet service. The new rules reflect the Commission's desire to permit large cable companies to realize the efficiencies of common ownership where consistent with the FCC's ongoing concern for diversity and competition in video programming. The Commission said the changes adopted today meet the challenge of limiting large cable companies' control over the video market, while giving these companies the flexibility to expand into new markets like local telephone and broadband services. Today's actions are taken pursuant to the Commission's statutory obligation to "prescribe rules and regulations establishing reasonable limits on the number of cable subscribers a person is authorized to reach through cable systems owned by such a person, or in which such a person has an attributable interest" as set forth by Section 613 of the Communications Act. Under this Third Report and Order adopting new horizontal ownership rules, cable operators will be permitted to have a 30 percent share of nationwide cable, DBS and other MVPD subscribers. This ownership limit is effectively equal to 36.7 percent of current cable subscribers. The FCC said it was more relevant to include the competitors to cable that have emerged as a result of deregulation and market-based solutions in the industry. Other than increased competition, which the MVPD change takes into account, the Commission found no changes in the marketplace that merited amending the 30 percent limit and also found that MSOs (multiple system operators) continue to have significant market power. The FCC said the attribution rules seek to identify those corporate, financial, partnership, ownership and other business relationships that confer on their holders a degree of ownership or other economic interest, or influence or control over an entity engaged in the provision of communications services such that the holders should be subject to the Commission's regulation. The Report and Order adopted today for the cable attribution rules: closely tracks the changes in the broadcast attribution rules that the Commission adopted during the Broadcast Attribution Proceeding in August 1999, with some exceptions; defines the term "affiliate" as applied to the effective competition test and the cable-telco buyout prohibition; and eliminates the single majority shareholder exemption. For the purpose of the horizontal and channel occupancy limits rules adopted under Section 613 and directed at protecting diversity of programming, the Report and Order also: modifies the provision that defined a "limited partnership" as attributable if the partner is involved in "media activities" and now requires attribution only if the "limited partner" is involved specifically in "video programming" activities; modifies the directors and officers attribution rule to allow a waiver if they are not involved in the video programming activities of either company involved. The equity/debt rule will operate as an exception to the nonvoting stock and insulated limited partner exemptions. This new rule will capture interests that confer on their holder a significant amount of influence over an entity that heretofore was not captured. The FCC said that in order to meet its obligation to ensure diversity in video programming, changes were necessary in the definition of the "insulated limited partner exemption." The more precise definition will assist companies in complying with the rules and limits while permitting activities that do not harm programming diversity. The FCC said it would continue its voluntary stay on the horizontal ownership rules pending the judicial resolution from the District of Columbia Circuit Court (Daniels v. U.S., Time Warner v. FCC), which is scheduled to hear oral arguments in December 1999 on the constitutionality of the statute and rules. The Commission stated that all parties must comply with the rules within 180 days if the District of Columbia Circuit Court issues a mandate upholding Section 613(f)(1)(A) and the rules. Actions by the Commission October 8, 1999, by Report and Order (FCC 99-288) and by Third Report and Order (FCC 99-289). Chairman Kennard, Commissioners Ness and Powell, with Commissioner Furchtgott-Roth concurring in part, dissenting in part and issuing a statement and Commissioner Tristani approving in part, dissenting in part and issuing statements. Report No. CS 99-13 MM Docket No. 92-264 (Cable Horizontal Ownership Rule) CS Docket No. 98-82 (Cable Attribution Rules) -FCC- Cable Services Bureau Contacts: William Johnson, To-Quyen Truong at (202) 418-7200

CABLE HORIZONTAL OWNERSHIP RULES SUMMARY:

Cable operators will be permitted to have a 30 percent share of cable, DBS and other multi- channel video programming distributors (MVPDs) subscribers, which is effectively equal to 36.7 percent of current cable subscribers.

Total Horizontal Ownership =

Company's MVPD subscribers (cable, DBS, etc.) Nationwide MVPD subscribers (cable, DBS, etc.)

• Calculation of the horizontal limits will be based on actual nationwide subscribers of cable, direct broadcast satellite (DBS) and other MVPDs, not cable homes passed.

• Calculation of subscribers served will include all cable, DBS and other MVPD subscribers, not just cable subscribers.

• The 30 percent horizontal ownership cap will remain the same.

• Removes the minority-controlled allowance, given that the allowance has never been utilized and no party filed comments on this issue to argue that the allowance is effective, should be retained or might be beneficial.

• Although it denied a petition to lift the stay, the Commission said that all parties must comply with the rules within 180 days if the District of Columbia Circuit Court issues a mandate upholding Section 613(f)(1)(A) and the rules.

Section 613 and the FCC's Cable Television and Horizontal Rules

1. 1992 Cable Act required the FCC to set a horizontal ownership limit for cable.
2. Daniels Cablevision challenged the constitutionality of the statute in District Court.
3. District Court agreed that the statute was unconstitutional.
4. FCC appealed to the District of Columbia Circuit Court.
5. FCC adopted 30% as the ownership limit, but stayed enforcement of the rule because of the District Court's ruling.
6. Time Warner challenged the 30% rule as unconstitutional in the D.C. Circuit Court.
7. D.C. Circuit Court consolidated the challenge to the statute (Daniels) and the challenge to the rules (Time Warner).
8. The D.C. Circuit Court is scheduled to hear oral arguments in December 1999. Briefs have been filed on both sides.
9. Time Warner has moved to delay the Court hearing arguments until the FCC issues its new rules.

CABLE ATTRIBUTION RULES SUMMARY:
Note: There are two sets of rules for attribution standards: "general" cable attribution rules (based on the broadcast attribution standard) and those relating to "program access."

Revisions tracked from the Broadcast Attribution Proceeding (August 1999):

• Retains the 5% or more active voting stock benchmark.
• Raises the passive (institutional) investor voting stock benchmark from 10% or more to 20% or more.
• Permits interest holders in limited liability companies to insulate their interests from attribution by using the insulated limited partner criteria.

• The Report & Order adopts a new "equity/debt" rule that will function in addition to the current attribution rules.
• Where an investor holds over 33% of the total assets (debt plus equity, voting or nonvoting) of an entity, that investor will be deemed to have an attributable interest.
• The equity/debt rules will operate as an exception to the nonvoting stock and insulated limited partner exemptions.

• Definitions in this Order are applicable for the effective competition test and the cable-telco buyout prohibition.
• For the purposes of the effective competition test, an entity is a "LEC affiliate" (LEC = local exchange carrier) where a LEC holds 10% or more of the voting equity of the MVPD.
• For the purposes of the cable-telco buyout prohibition rule, an entity is an "affiliate" if it has a 5% voting interest
• The LEC test is not designed to identify potential for influence (like other rules), but it is designed to determine whether there is significant LEC involvement in an affiliate such that the affiliate benefits from the LEC's financial and technical resources.
• The cable-telco buyout prohibition is designed to promote competition and diversity, similar to cable/broadcast cross-ownership rule.
• Based on different purposes of the LEC test and the cable-telco buyout prohibition, a higher threshold was found to be warranted for the LEC test.

• This exemption applies only to the horizontal ownership and channel occupancy rules.
• A limited partner is "insulated" if the partnership certifies that the partner is "not materially involved, directly or indirectly, in the management or operation of the 'video-programming activities' [amends 'media activities'] of the partnership."

• The "insulation criteria" include the following:
  1. The limited partner cannot act as an employee of the partnership if his or her functions, directly or indirectly, relate to the video-programming enterprises of the company.
  2. The limited partner may not serve, in any material capacity, as an independent contractor or agent with respect to the partnership's video-programming enterprises.
  3. The limited partner may not communicate with the licensee or general partners on matters pertaining to the day-to-day operations of its video-programming business.
  4. The rights of the limited partner to vote on the admission of additional general partners must be subject to the power of the general partner to veto any such admissions.
  5. The limited partner may not vote to remove a general partner except where the general partner is subject to bankruptcy proceedings, is adjudicated incompetent by a court of competent jurisdiction, or is removed for cause as determined by a neutral arbiter.
  6. The limited partner may not perform any services for the partnership materially relating to its video-programming activities, except that a limited partner may make loans to or act as a surety for the business.
  7. The limited partner may not become actively involved in the management or operation of the video-programming businesses of the partnership.

• For the purposes of the horizontal and channel occupancy limits rules, directors and officers shall be attributable, subject to a waiver if they are not involved in the video activities of either the appointing entity or the cable systems at issue.

	Old "general" cable rules	New "general" cable rules1	Old "program access" type rules	New "program access" type rules2
Voting Equity	5% or more is attributable	5% or more is attributable	5% or more is attributable	5% or more is attributable
Non-voting Equity	Not attributable, regardless of amount	Not attributable, regardless of amount	5% or more is attributable	5% or more is attributable
Equity (nonvoting and voting) plus debt ("ED")	Rule did not exist	Attributable if own over 33% of total assets of a company	Rule did not exist	Attributable if own over 33% of total assets of a company
Single Majority Shareholder Exception	This exception is allowed where qualified	This exception is eliminated	This exception does NOT apply	This exception is eliminated
Passive (Institutional) Investor	10% or more voting equity is attributable	20% or more voting equity is attributable	10% or more voting equity is attributable	20% or more voting equity is attributable
Officers and Directors	Attributable	Attributable (see amendment)	Attributable	Attributable (see amendment)
Trustees	Attributable	Attributable	Attributable	Attributable
De Facto Control	Attributable	Attributable	Attributable	Attributable
Limited Partner Insulation Exemption	This exception is allowed where qualified	This exception is allowed where qualified (see amendments), unless ED	This exception does NOT apply	This exception does NOT apply