******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) CSR 5125-E ) Comcast Cablevision of Seal Beach, Inc.) City of Seal Beach, CA (CUID CA0499) ) Orange County, CA (CUID CA1147) ) Comcast Cablevision of Santa Ana, Inc.) City of Santa Ana, CA (CUID CA0957) ) Comcast Cablevision of Newport Beach, Inc. ) City of Newport Beach, CA (CUID CA0458) ) Orange County, CA (CUID CA1140) ) Comcast Cablevision of North Orange, Inc. ) City of Buena Park, CA (CUID CA0895) ) City of Fullerton, CA (CUID CA0818) Petition for Determination of ) City of Placentia, CA (CUID CA1179) Effective Competition ) Orange County, CA (CUID CA1148) MEMORANDUM OPINION AND ORDER Adopted: May 1, 1998 Released: May 5, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. Comcast Cablevision of Seal Beach, Inc., Comcast Cablevision of Santa Ana, Inc., Comcast Cablevision of Newport Beach, Inc., and Comcast Cablevision of North Orange, Inc. (collectively, "Comcast") filed a petition asserting that it is subject to local exchange carrier ("LEC") effective competition in the above-captioned communities (the "Communities") from Pacific Bell Video Services ("PBVS"), d/b/a Pacific Bell Digital TV, a digital wireless cable operator serving Los Angeles and Orange counties, California. 2. Section 623(a)(4) of the Communications Act of 1934, as amended ("Communications Act") allows franchising authorities to become certified to regulate basic cable service rates of cable operators which are not subject to effective competition. For purposes of the initial request for certification, local franchising authorities may rely on a presumption that cable operators within their jurisdiction are not subject to effective competition unless they have actual knowledge to the contrary. Certification becomes effective 30 days from the date of filing unless the Commission finds that the authority does not meet the statutory certification requirements. In Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996 ("Cable Act Reform Order"), the Commission instructed cable operators believing themselves subject to local exchange carrier ("LEC") effective competition under Section 623(l)(1)(D) of the Communications Act to file a petition for determination of effective competition pursuant to Section 76.7 of the Commission's rules. Section 623(l)(1)(D) of the Communications Act provides that a cable operator is subject to effective competition where: a local exchange carrier or its affiliate (or any multichannel video programming distributor 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. II. THE PLEADINGS 3. Comcast argues that it is subject to LEC effective competition in the Communities from PBVS, a digital wireless cable operator serving Los Angeles and Orange counties. With regard to the LEC affiliation requirement, Comcast contends that PBVS is a wholly-owned subsidiary of Pacific Telesis Group ("PTG"), which is a LEC. 4. With regard to the requirement that the LEC competitor offer video programming service in the unaffiliated cable operator's franchise area, Comcast asserts that PBVS is physically able to deliver service to potential subscribers in the Communities. Comcast explains that PBVS provides digital wireless cable service through the use of two MMDS transmitters, which are located at Mt. Wilson in Los Angeles County and Modjeska Peak in Orange County. Comcast provides a map indicating that the Communities are located within the 35-mile protected zone of PBVS's Modjeska Peak transmitter. Comcast asserts that the transmitters are fully operational and subscribers need only purchase and install a low cost antenna to receive service from PBVS. Comcast contends that no regulatory, technical, or other impediments to households taking service from PBVS exist. Comcast states that through the affiliation with Pacific Telesis, PBVS has authority to use MMDS facilities in the Orange County area that are licensed to Cross Country Wireless, Inc., another Pacific Telesis subsidiary. Comcast asserts that PBVS is currently providing service within Comcast's franchise areas. Comcast provides a PBVS installation invoice and a subscriber bill, both addressed to Santa Ana residents, to support this contention. Comcast contends that the existence of actual PBVS subscribers in the Communities demonstrates that PBVS's signal strength is sufficient to provide service to subscribers in Comcast's franchise areas. Comcast further asserts that some Comcast subscribers in the Communities have switched to PBVS. Comcast also contends that potential subscribers are reasonably aware of their ability to purchase PBVS's service. Comcast states that Pacific Telesis and PBVS have generated extensive awareness of their video services through "news releases, newspaper articles, and other marketing materials." Finally, Comcast states that it is not affiliated with Pacific Telesis or PBVS. 5. Comcast asserts that PBVS offers comparable programming in Comcast's franchise areas. Comcast provides PBVS's channel line-up which demonstrates that PBVS's most basic service consists of 49 channels of video programming, a number of which are local television broadcast signals. Comcast states that subscribers need not install an A/B switch to receive these channels. III. ANALYSIS 6. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition. The cable operator bears the burden of rebutting the presumption that effective competition does not exist with evidence that effective competition, as defined by Section 76.905 of the Commission's rules, is present within the franchise area. Comcast has failed to meet this burden. While Comcast partially satisfies the LEC test for effective competition by demonstrating that PBVS is a LEC affiliate that provides comparable programming, Comcast fails to establish that PBVS "offers" service as contemplated by the statute and our rules. 7. With regard to the first part of the LEC test, which requires that the alleged competitive service be provided by a LEC or its affiliate (or any multi-channel video programming distributor using the facilities of such LEC or its affiliate), Comcast has provided sufficient evidence demonstrating that PBVS is LEC-affiliated under the Commission's interim rules. The corporate relationship that exists between PBVS and PTG establishes PBVS's LEC affiliation. We note that PTG merged with SBC Communications Inc. in April of 1997 and that Comcast is unaffiliated with PBVS, PTG or SBC Communications Inc. 8. Comcast has submitted sufficient evidence demonstrating that PBVS provides programming comparable to Comcast's channel line-up in the Communities. PBVS's most basic service consists of 49 channels of video programming, including numerous local television broadcast channels, which satisfies the programming comparability criteria. 9. As to the requirement that the LEC competitor "offer" service, Comcast has not met its burden. Comcast has failed to establish that PBVS "offers" service because Comcast has not presented sufficient evidence that subscribers in the Communities are reasonably aware that they may take service from PBVS. Cable operators seeking to prove that they are subject to effective competition from a LEC or its affiliate must not only show that the competitor is physically able to deliver service free of any regulatory, technical or other impediments but that subscribers are "reasonably aware" that they may purchase the competitor's service. Consumer awareness of a competing service is an essential element of the offer requirement of the LEC effective competition test. 10. We have stated that potential subscribers may be made reasonably aware of the availability of a competing service through, for example, advertising in the media or direct mail. We have also stated that cable operators seeking to prove that they face effective competition may rely on marketing information to demonstrate consumer awareness of the competing service. In this instance, Comcast submits examples of PBVS's direct mail marketing materials, an online news release, and two articles on the launch of PBVS. Comcast does not present evidence that PBVS has engaged in any type of mass media marketing. 11. The direct mail materials submitted by Comcast are not sufficient to demonstrate that potential subscribers in all of the Communities are aware of PBVS's service. There is no evidence in the record defining the scope of the direct mail campaign. Specifically, there is no proof that the mailings were made to subscribers in all of the Communities and there is no information concerning how many subscribers in the Communities were actually sent mailings. Comcast simply attached the direct mail flyers as an exhibit to its petition without any explanation as to who received them. The PBVS online news release submitted by Comcast also does not persuade us that subscribers in the Communities are reasonably aware of PBVS's service. It appears that this news release was acquired through the internet at Pacific Telesis' world wide web home page (www.pactel.com). To obtain this release potential subscribers would have been required to access Pacific Telesis' web site. Many potential subscribers may not have access to, or a working familiarity with, the internet or may not be aware of this particular site. 12. Comcast points to two articles on the launch of PBVS as evidence that subscribers in the Communities are reasonably aware of PBVS's service. Other articles, for the most part, describe the launch of PBVS's video service as a "gradual roll-out" and as "low key." It appears that some subscribers were targeted for the mailings while many other potential subscribers were not solicited. Former PBVS Vice President and General Manager Jeff Carlson has said that the company is purposely controlling the number of subscribers to "contain demand." According to Carlson, the company will add new customers gradually to ensure high-quality service. Carlson has also stated that "[a]s for the advertising, we are doing a very controlled rollout; it is conservative by design. We have limited our marketing to very specific demographics." 13. Comcast's submission of a single PBVS installation invoice and subscriber bill, both of which are addressed to Santa Ana residents, do not demonstrate reasonable awareness in all of the Communities. That certain specific subscribers are aware of PBVS because they are employees of the company or were specifically targeted does not mean that subscribers in the Communities generally are informed that there is an alternative video service provider to the cable operator. The cable operator must submit evidence demonstrating that potential subscribers in the Communities, not only segments of the population that may have been specifically targeted or handpicked for solicitation, are reasonably aware that they may purchase services from a video provider other than the cable operator. Because evidence of a broad awareness of the existence and availability of PBVS's service is lacking, we find that Comcast has failed to prove that PBVS "offers" service in the Communities. 14. As a general matter, we note that evidence presented by cable operators regarding the number and location of subscribers to the competing service shows that the competitor is physically able to deliver service. Such evidence, in most cases, can also reflect the degree subscribers are reasonably aware of the competing service since they are, in fact, receiving it. In this instance, Comcast asserts that "some Comcast subscribers have switched to PBVS." Comcast does not provide any further information concerning the number or location of subscribers who have allegedly switched to PBVS nor does Comcast provide any evidence to support its assertion. Given the lack of information concerning the scope of PBVS's direct mail campaign, the lack of evidence regarding the number and location of PBVS subscribers in the Communities, as well as what appears to be PBVS's incremental marketing strategy, that PBVS has some subscribers in the Communities does not demonstrate that subscribers throughout the Communities are reasonably aware of the availability of PBVS's service. 15. We find that Comcast has failed to submit sufficient evidence demonstrating that its cable system serving the above-captioned communities is subject to LEC effective competition from PBVS. Comcast's petition is denied. Our determination is consistent with our recent decision in Charter Communications Entertainment II, L.P. in which we denied that cable operator's claim that it faced effective competition from PBVS in numerous communities in Los Angeles County, California. IV. ORDERING CLAUSES 16. Accordingly, IT IS ORDERED that the Petition for Determination of Effective Competition filed by Comcast Cablevision of Seal Beach, Inc., Comcast Cablevision of Santa Ana, Inc., Comcast Cablevision of Newport Beach, Inc., and Comcast Cablevision of North Orange, Inc., challenging the certification of local franchising authorities in the above-captioned communities IS DENIED. 17. This action is taken pursuant to the interim rules adopted in Implementation of Cable Reform Provisions of the Telecommunications Act of 1996, 11 FCC Rcd 5937 (1996), and is without prejudice to any further action taken by the Commission in adopting final rules pursuant to the Notice of Proposed Rulemaking contained therein. 18. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau