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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 ) ) Implementation of Section 11(c) ) of the Cable Television Consumer Protection ) and Competition Act of 1992 ) MM Docket No. 92-264 ) ) Horizontal Ownership Limits ) THIRD REPORT AND ORDER Adopted: October 8, 1999 Released: October 20, 1999 By the Commission: Commissioner Furchtgott-Roth concurring in part, dissenting in part and issuing a statement; Commissioner Tristani approving in part, dissenting in part and issuing a statement. Table of Contents Paragraph I. Introduction 1 II. Background 7 III. Basis for the Rules 12 IV. Using Actual Subscriber Numbers to Calculate the Horizontal Limit 20 V. Using Total MVPD Subscribership to Calculate the Horizontal Limit 26 VI. The Level of the Horizontal Ownership Limit 36 VII. The Minority Control Allowance 66 VIII. Motion to Lift Stay of Enforcement of Horizontal Ownership Rules 71 IX. Final Regulatory Flexibility Analysis 74 X. Paper Work Reduction Act 87 XI. Ordering Clauses 89 Appendix A: List of Commenters Appendix B: Rule Amendments I. INTRODUCTION 1. This Third Report and Order resolves the issues regarding Section 76.503 of our rules (the "horizontal ownership rules") on which the Commission sought further comment in its Second Memorandum Opinion and Order on Reconsideration and Further Notice of Proposed Rulemaking ("Second Order on Reconsideration" and "Further Notice") issued in this proceeding. In the Second Order on Reconsideration, the Commission denied petitions to reconsider the horizontal ownership rules, which were adopted pursuant to Section 613 of the Communications Act in the Second Report and Order issued in this proceeding. Section 613 of the Communications Act required the Commission 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." In the Second Report and Order, the Commission promulgated horizontal ownership rules which provide that "no person or entity shall be permitted to reach more than 30% of all homes passed nationwide through cable systems owned by such person or entity or in which such person or entity holds an attributable interest." In addition, the Commission decided to permit cable systems to reach up to 35% of all homes passed nationwide "provided [that] the additional cable systems, beyond 30% of homes passed nationwide, are minority-controlled" (the "minority-control allowance"). 2. In the Second Order on Reconsideration, the Commission also continued its stay of the effective date of the horizontal ownership rules pending a decision by the United States Court of Appeals for the District of Columbia Circuit on challenges to the horizontal ownership rules and Section 613. The Commission decided that any parties over the horizontal limit must come into compliance with the rules within 60 days of a judicial decision upholding the statute and the rules. However, in order to facilitate monitoring of a cable multiple system operator's ("MSO") ownership interests, the Commission lifted the stay insofar as it applied to the information submission provisions of 47 C.F.R.  76.503(c). 3. The rules and the statute were challenged in two different forums. In Daniels Cablevision, Inc. v. United States, the United States District Court for the District of Columbia held that Section 613(f)(1)(a) violates the First Amendment. The Daniels court also decided that, because "there is substantial ground for difference of opinion" as to the constitutionality of the underlying statute, it would stay its proceedings and the issuance of any relief to the plaintiffs pending appeal. Time Warner then challenged the horizontal ownership rules in the District of Columbia Circuit in Time Warner Entertainment Co., L. P. v. FCC. In August 1996, the District of Columbia Circuit consolidated the appeal of Daniels with Time Warner. The District of Columbia Circuit held the consolidated appeals in abeyance pending the Commission's decision on the petitions for reconsideration. Once the Commission issued the Second Order on Reconsideration, the District of Columbia Circuit lifted its stay on its consideration of the consolidated Daniels and Time Warner proceedings. The appeal is currently pending. 4. In the Further Notice, we requested comment on whether 30% remains the appropriate horizontal limit in light of any changes in market conditions since 1993, when the Second Report and Order was issued. We sought comment on three specific issues. First, the current horizontal rules are based on the number of homes that a cable system passes (i.e., homes that could possibly subscribe to the cable system) rather than the cable system's actual number of subscribers. We asked whether we should amend the rules to base calculations on actual subscribers. Second, the horizontal ownership limits currently are calculated based on an MSO's share of cable subscribers. Given the growth of non-cable multiple video programming distributors ("MVPDs"), we asked for comment on whether the calculations should take into account the presence of all MVPD subscribers rather than cable subscribers alone. Third, we sought comment on the constitutionality of the minority-control allowance under Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995) and whether there were alternative minority policies that might satisfy Adarand's standards. 5. After analyzing the statute and the comments filed in response to the Further Notice, we conclude that the following changes should be made in the rules: § The calculation of the horizontal limit should be based on cable subscribers served rather than on cable homes passed; § The limit should include consideration of all MVPD subscribers rather than just cable subscribers; § The number of subscribers a single entity is permitted to reach through cable systems it owns or in which it has an attributable interest should be limited to 30 percent of MVPD subscribers in the United States. § An operator's horizontal share should not include cable subscribers that it serves through means other than through "incumbent cable franchises" so that a system operator may grow over the limit by overbuilding other incumbent cable operators; and § The "minority-control" allowance in the existing rules should be eliminated. 6. These changes will make the rules easier to understand and implement, recognize the dynamic factors relating to the growth of the MVPD market, and allow cable ownership interests to increase as competition in the market increases. The new 30% rule, because it is now a share of MVPD subscribers rather than on cable subscribers alone, is effectively the same as a 36.7% cable subscribers limit using the measurement system in the previous rules. The minority-control allowance is being deleted in light of the fact that no party filed comments on this issue to argue that the allowance is effective, should be retained or might be beneficial, and in light of the possible constitutional issues that the allowance raised. Finally, we deny the request of one of the petitioners that we permit any transaction under contract prior to the release of the Further Notice to be continued regardless of the new rules. We deny requests to lift the stay of our horizontal ownership rules, and reiterate that all parties must comply with the rules within sixty days after the court issues its mandate upholding Section 613 and the rules. VII. Background 8. Section 613(f) of the Communications Act requires the Commission 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 person, or in which such person has an attributable interest. 9. Congress did not direct the Commission to use a mathematical formula in determining the horizontal limits. Rather, Congress directed in Section 613(f)(2) that, the Commission must consider and balance, among other public interest objectives, seven specific public interest guidelines in determining the appropriate horizontal limits. These public interest guidelines are: (A) ensure that no cable operator or group of cable operators can unfairly impede, either because of the size of any individual operator or because of joint actions by a group of operators of sufficient size, the flow of video programming from the programmer to the consumer; (B) ensure that cable operators affiliated with video programmers do not favor such programmers in determining carriage on their cable systems or do not unreasonably restrict the flow of video programming of affiliated video programmers to other video distributors; (C) take particular account of the market structure, ownership patterns, and other relationships of the cable industry, including the nature and market power of the local franchise, the joint ownership of cable systems and video programmers, and the various types of non-equity controlling interests; (D) account for any efficiencies and other benefits that might be gained through increased ownership or control; (E) make such rules and regulations reflect the dynamic nature of the communications marketplace; (F) not impose limitations which would bar cable operators from serving previously unserved rural areas; and (G) not impose limitations which would impair the development of diverse and high quality programming. 10. The 1992 Cable Act and its legislative history indicate heightened Congressional concern over horizontal concentration among cable operators. Witnesses at the congressional hearings, including representatives of the MSOs themselves, testified to the need for cable horizontal ownership limits to preserve competition and protect the public interest. Congress was concerned that the concentration of cable systems in the hands of a few "media gatekeepers" could potentially bar entry to new programmers and reduce the number of media voices available to consumers. 11. However, Congress also recognized that multiple system ownership could provide benefits to consumers. The House Report stated that cable industry consolidation had benefited consumers by allowing efficiencies in the administration, distribution and procurement of programming, and also noted that concentration of cable operators could promote the introduction of new programming services by providing capital and a ready subscriber base for new services. The House Report also observed that large cable MSOs can take competitive and programming risks that smaller operators cannot. Similarly, the Senate Report acknowledged that horizontal concentration could create efficiencies from lower transaction costs in carriage negotiations between programmers and cable operators. 12. In the Second Report and Order, the Commission adopted a horizontal ownership limit prohibiting any person from having an attributable interest in cable systems that in the aggregate reach more than 30% of cable homes passed nationwide. We found that this 30% ownership limit struck the proper balance between: (1) ensuring that the structure of the cable industry nationwide limited the possibility that large cable MSOs might exercise excessive market power in the purchase of video programming; and (2) ensuring that the majority of MSOs could continue to expand and benefit from the economies of scale necessary to encourage investment in new video programming services, diverse program offerings, and the deployment of advanced cable technologies. In order to promote diversity of ownership, we also adopted the minority-control allowance, which allows an MSO to reach an additional 5% of homes passed by cable nationwide if these homes are reached by cable systems that are more than 50% owned by one or more members of a minority group. XIII. Basis for the Rules 14. Congress directed the Commission to establish horizontal rules; yet in response to the Notice in this proceeding and in the course of the judicial proceedings relating to Section 613, a number of commenters make arguments that, while sometimes couched as pleas for a higher limit, appear to challenge the legitimacy and rational basis of any regulations of the type Section 613(f) requires the Commission to adopt. They argue: · that increases in channel capacity, through system upgrades and the introduction of digital channels, reduce the practical need as well as the ability of operators to select among alternative content sources; · that other rules, including mandatory broadcast signal carriage, channel occupancy, leased access, and public access rules, eliminate the need for ownership limits that are also designed to promote programming competition and content diversity; · that cable system operators as purchasers of programming content for their subscribers are bound by marketplace forces so that they acquire only that product which their subscribers demand and there is no evidence that cable operators have ever used their editorial discretion to deny an outlet for unorthodox or unpopular speech; · that, if any problems exist in this area, they can be addressed through ordinary antitrust enforcement processes. We are not persuaded that these arguments are responsive to Congress' concerns in adopting Section 613(f). 5. With respect to the channel capacity argument, system operators are implicitly suggesting that increased capacity translates into an increased demand for programming. This change in the supply and demand relationship between purchasers and sellers of programming would, it appears they are arguing, tend to mitigate concerns that are based on the buying (monopsony) power of system operators. 6. In most markets, a single incumbent cable operator is likely to have more than 80% of the multichannel video distribution market. Although calculations of market power are almost always complex, a frequently cited compendium of monopoly cases concludes that "market share in excess of 70% is almost always deemed sufficient to support an inference of monopoly power, although that inference may be overcome by other evidence." The cable television industry has become, in the words of the 1992 Cable Television Consumer Protection and Competition Act "A dominant nationwide video medium." On the other hand, the programming supply market is extremely competitive with increases in cable channel capacity, with the growth rate of new programmers rapidly outpacing the growth of new channels. The Commission's 1998 Competition Report found that there were 245 national cable networks and that 65 new cable networks were planned to launch in the near future. The decreasing marginal value of additional channels, the more limited exposure these channels receive by virtue of their placement on digital or other tiers to which subscribership is restricted and the associated difficulties of attracting an audience base to support advertising sales all tend to suggest that capacity increases have not had the consequence suggested and that channel expansion has not negated the Congressional concerns. Cable operators still have the power to decide which cable networks will "make it" even as channel capacity grows. 7. The suggestion that other statutory provisions and Commission rules effectively address the same concerns we find equally unpersuasive. We believe Congress passed Section 613 to address specific concerns regarding the development of the video-programming market. Since Congress was aware of the interplay between the horizontal rule and the other rules addressing programming, it is clear that Congress intended for all the rules to work together in a complementary fashion. In any event, we do not believe that the goals of Section 613 are addressed by other statutory provisions. The channel occupancy rules adopted pursuant to Section 613 of the Communications Act are intended to address only that programming that is controlled through direct ownership rather than through purchase and apply only to channel capacity up to 75 channels. The leased access rules, while intended to address some of the same kinds of concerns, require the programmer to pay for carriage, a model which thus far has not resulted in any significant amount of nationally distributed programming content being made available to the public. The must-carry requirement applies only to broadcasters, not to other unaffiliated programmers. Moreover the content of the broadcast stations that are carried, even when carried pursuant to mandatory obligations, is not totally divorced in terms of ownership and editorial voice from the cable systems involved. There are significant common ownership ties between a number of the broadcast networks involved and cable television system operators, including for example, significant AT&T (Liberty) ownership interests in News Corp. (the Fox networks), Time Warner and MediaOne ownership in The WB network, AT&T (Liberty) ownership in Telemundo, and Comcast and AT&T interests in QVC and HSN. These statutory based requirements thus share common objectives with the horizontal rules and function in a mutually supportive fashion with them but the contention that they are less restrictive methods of accomplishing the same substantive result is not correct. None of these rules fully address the core concern of national programming content diversity to which the horizontal limits are directed. 8. The Commission specifically considered how the behavioral rules interact with the horizontal ownership rules when it adopted the rules in this proceeding. The limit is a structural complement to the other access provisions. Thus, for example, it was explained that the horizontal ownership rules limit the potential for anticompetitive abuses of purchasing power in areas outside of the core areas covered by the program access rules, such as programming contracts between cable operators and non-vertically integrated programmers or contracts involving programming that is not delivered to cable operators via satellite. In addition, structural regulations generally are more easily enforced and their violation more easily detected than conduct regulations. We recognize that a large market share does not in and of itself indicate that a firm or a collection of firms has the ability to exercise market power or engage in anticompetitive behavior. The cable operators have presented no new arguments in response to the Further Notice that would alter these findings. 9. The suggestion that cable system operators are somehow involved in content decisions only as somewhat mechanical purchasing agents for their subscribers, without independent discretion over the nature of that product, is equally unavailing as a response to the concerns reflected in Section 613. Because there are more programming services available for distribution than there are cable channels to be used for distribution, systems operator inevitably must make judgments as to which services will be carried. Marketing and other economic considerations that involve both the desire to satisfy consumer demands and independent profit calculations certainly play a major role in programming distribution decisions. But there would also seem to be little doubt, especially when the value of programming content may be difficult to determine in advance of its distribution, that issues of judgment, showmanship, social conscience, and personal taste are also involved. The cable television industry has programming expenditures of almost eight billion dollars annually. If these expenditures were allocated evenly across the industry, a firm with 30% of the market would pay $2.5 billion annually for programming, making it one of the largest purchasers of entertainment programming in the world. 10. With respect to the argument that ordinary antitrust policies and enforcement are sufficient to address any legitimate issues raised, we fail to understand why the statutory provisions and policies incorporated into antitrust law should be favored over the more targeted legislative mandate incorporated in Section 613. We agree with Ameritech that, if Congress had intended for us to rely on an antitrust analysis by itself, it would have directed us to do so or would not have adopted Section 613. Instead, Congress directed that the Commission, in setting the horizontal limit, consider "among other public interest objectives" seven specific factors, none of which involves an antitrust analysis. Indeed, in enacting Section 613, Congress was aware that the cable industry at that time was far from being concentrated under a traditional antitrust analysis assuming a national market for cable competition, but nevertheless empowered the Commission to enact horizontal limits using a public interest analysis. The House Report stated that a traditional antitrust analysis should not be the "sole measure of concentration in media industries:" Both Congress and the Commission have historically recognized that diversity of information sources can only be assured by imposing limits on the ownership of media outlets that are substantially below those that a traditional antitrust analysis would allow . . . . The Committee believes that concentration of media presents unique problems that must be considered by the Commission. 11. In sum, we do not find persuasive arguments that the concerns leading to the adoption of Section 613 are adequately addressed by market forces or technical changes, are not significant enough to warrant remedial action, or are properly addressed through other regulatory mechanisms. IV. Using Homes Passed or Actual Subscriber Numbers to Calculate the Horizontal Limit A. Background 12. The rules adopted in the Second Report and Order were based on a formula that related homes passed by an individual cable operator to the total homes passed by all cable operators nationwide. We stated that a homes-passed standard would calculate a more stable number than a subscribers-based system because subscriber numbers fluctuate more often than homes passed. In addition, we noted the arguments by some commenters that a subscriber-based standard might deter a cable operator from adding additional subscribers within its current systems as the operator approached the limit. In the Further Notice, we again asked whether the horizontal limits should be based on the number of actual subscribers or the number of homes passed. We noted that a subscriber- based standard might present a more reliable number and could be more accurately calculated. In addition, we stated that if we amended the rules to include all MVPDs in the calculation, a homes-passed standard would be difficult to implement because several MVPDs might pass the same homes and Direct Broadcast Satellite ("DBS") programming providers pass every home in the country. In addition to requesting comment on the benefits of a subscriber-based system, we sought comment on whether an operator approaching the limit might stop taking new subscribers or whether it would be able to anticipate the need to sell one of its systems in order to stay within the limit. We also asked whether we should devise special rules to address situations where subscriber growth within an operator's current systems might push the operator over the 30% limit. B. Discussion 13. We will amend our rules to base them on how many subscribers an operator serves. Although homes passed might be a more stable number in that it does not fluctuate as often as numbers of subscribers, it is not as reliable as the number for subscribers because homes passed calculations are based on estimates whereas subscriber numbers are based on billing records. 14. More importantly, the horizontal ownership rules are designed to gauge the market power that an operator could potentially assert in the national programming marketplace. In situations where there is only a single multichannel video provider, whether subscribership or homes passed data is used is largely a mechanical issue in terms of the market power issue. The return received by the content provider could equally be based on a share of revenues received, subscribers served, or size of the community involved depending on the contractual and economic (risk sharing) relationships involved. As the market develops in terms of competition we believe, in contrast to the argument made by RCN and in agreement with the cable operators, that an operator`s actual number of subscribers more uniformly and accurately reflects power in the programming marketplace than does the number of homes passed. While an operator may pass a large number of homes in its franchise area, the operator could have a low penetration rate in that area due to competition from other MVPDs or other factors, thereby rendering the number of homes passed an inaccurate indicator of the operator's market power. Moreover, an operator does not purchase programming for the number of homes that it passes, but rather for its actual number of subscribers; thus, an operator's share of subscribers more accurately reflects its market power. 15. In addition, our decision below to include non-cable MVPDs in the horizontal limits calculation further supports our decision to rely on subscriber numbers. More than one MVPD may pass the same homes, making it difficult to determine an MVPD's share of the MVPD market on a homes passed basis. Moreover, although DBS providers pass every home in the country, homes passed does not accurately reflect their market power because DBS providers only serve approximately 10% of MVPD subscribers. 16. Any theoretical deterrence that a subscribers-based limit might pose to keep an operator from adding new subscribers when the operator reaches the limit does not outweigh the benefits of a subscribers-based system and does not merit an exception to the limit. Based on this record, we find it more reasonable that an operator will be aware of its potential growth areas when making acquisitions such that it will not cease accepting new subscribers in existing systems for fear of passing the limit. In their comments, the operators set forth in great detail their plans for consolidating or clustering their systems in order to enjoy the economies of scale that a large subscriber base will give them. The operators argue that a larger subscriber base in a clustered system will enable them to lower costs, improve current services, offer telephony and internet, and develop regional programming networks, as well as provide other benefits. Given their long-term business planning and stated interest in clustering, operators will know in advance which systems they intend to grow for a larger subscriber base and which systems they intend to sell. Accordingly, an operator with an interest in the economic efficiency of its clusters would likely plan in advance to divest itself of a system rather than forego adding subscribers to systems or clusters within the operator's growth plan. 17. Thus, we disagree with MediaOne and Time Warner that an exception is needed based on the need to reflect in the rules "the dynamic nature of the communications marketplace." Once the rules are in effect, nothing in the record suggests that, under the dynamics of the marketplace, an operator might find itself suddenly surprised that it cannot take any more subscribers without violating the horizontal ownership rules. We also disagree with MediaOne that an exception is necessary to ensure that cable operators are not prevented from servicing previously unserved rural areas. MediaOne has not shown how a subscribers-based method impacts a rural area any differently than it impacts an urban area. MediaOne argues that, without an exception, the horizontal limit might prevent cable systems from expanding to certain rural areas in violation of some franchise agreements. First, cable already passes nearly 97% of homes nationwide. Second, an operator is on notice with regard to the horizontal ownership rules and its franchise obligations, and the horizontal rules will not prevent a cable system from fulfilling its franchise obligations. If a franchise agreement requires an operator to expand its subscribership such that the operator will violate the horizontal limits, then the operator must divest a system elsewhere in order to stay within the limits and to meet its franchise obligations. V. Using Total MVPD Subscribership to Calculate the Horizontal Limit A. Background 6. In the Further Notice, we proposed that the horizontal ownership rules reflect the presence of all MVPDs rather than cable MVPDs alone in order to reflect changes in the MVPD market and their impact on programming power. We noted that the emergence of non-cable MVPDs diminishes an operator's market power over programming while conversely an operator's interest in non-cable MVPDs increases its market power. We requested comment on whether such a revision would be consistent with the Commission's statutory authority under Section 613. In calculating a cable operator's market share, we proposed that the numerator would contain the operator's cable subscribers plus that operator's non-cable MVPD subscribers, and the denominator would contain the total number of cable subscribers plus non-cable MVPD subscribers nationwide. B. Discussion 7. We conclude that it is appropriate under Section 613 to include all MVPD subscribers in the horizontal limits calculation in order to reflect changes in the marketplace since 1993. In order to encourage competition through overbuilding, however, we will not include cable subscribers that an MSO serves through non- incumbent cable systems, as that phrase is defined below. In the Commission's determination of the appropriate measurements under the horizontal ownership rules, Section 613(f)(2)(A) requires the Commission to ensure that a cable operator cannot, by virtue of its size or by acting in concert with other cable operators, unfairly impede the distribution of video programming. Moreover, Section 613(f)(2)(E) requires the Commission to consider "the dynamic nature of the communications marketplace." 8. The MVPD marketplace has changed since 1993. In our Competition Reports, we have stated that the effect of horizontal concentration on programming should take into account the presence of all MVPDs: in assessing the impact that national concentration may have in the MVPD programming market, we believe that it is appropriate to consider the presence of all MVPDs and MVPD subscribers in national concentration figures, and not just cable MSOs and cable subscribers. As non-cable MVPD subscribership increases, the significance of DBS, MMDS and SMATV operators in the MVPD program purchasing market also increases. 9. Although cable continues to be the primary source of multichannel programming, its share of the MVPD market fell to approximately 81.77% in June 1998 and to 85.34% in June 1998 from 93.37% in December 1994. Currently, DBS has a 12.47% market share, home satellite delivery ("HDS") has a 2.21% market share, MMDS has a 1.73% market share, SMATV has a 1.73% market share, and OVS has a 0.09% market share. Between June 1997 and June 1998, DBS grew from approximately 5 million subscribers to 7.2 million subscribers, an increase of almost 43%. By June 1999, DBS had grown to 10.078 million subscribers. 10. Given the past and expected future growth of non-cable MVPDs, we believe that it is consistent with Section 613's mandate to include all MVPD subscribers in both the denominator and the numerator when calculating an MSO's market share under the cable horizontal limits. We reject the argument that non-cable MVPDs should not be placed in the denominator because cable has certain types of competitive advantages over non-cable MVPDs. Although we agree that cable is still dominant in the MVPD marketplace, non-cable MVPDs have a growing impact on that marketplace. Inclusion of both cable and non-cable MVPD subscribers in the denominator will reflect the dynamic nature of the marketplace and the diminishing market power of cable operators as non-cable MVPDs increase their subscribership. 11. Likewise, when calculating an MSO's horizontal ownership, inclusion of both its cable and non- cable MVPDs subscribers in the numerator will reflect the market power held by that MSO through its total number of MVPD subscribers, whether reached through cable or other MVPD systems. This rule recognizes the increased market power gained by an MSO through its non-cable MVPD subscribers. This rule thus serves the objectives of Section 613 by reflecting both the dynamic nature of the marketplace and the ability of an MSO to impede the flow of programming by virtue of its total number of subscribers. 12. This rule is also consistent with Section 613's directive that the Commission establish limits on the number of cable subscribers a person may serve. The rule will not limit the number of subscribers a cable operator may reach through alternative MVPD systems. It also will not apply to persons who have no attributable ownership interests in cable systems. This rule will create a sliding or adjustable cable horizontal ownership limit, under which the number of subscribers a cable operator is authorized to reach through cable systems would decrease in proportion with any increase in the number of subscribers that that entity reaches through other MVPD systems. Conversely, the cable horizontal ownership limit would be higher for a cable operator that reaches fewer subscribers through other MVPD systems. This sliding scale calculation will more accurately reflect a cable operator's potential monopsony power and the extent of its control in the MVPD marketplace as a whole. 13. In order to promote competition in the marketplace, we find it appropriate at this time to include in an MSO's horizontal limit only those cable subscribers that it serves through incumbent cable franchises. For purposes of the horizontal ownership rule, "incumbent cable franchise" shall mean all cable franchises in existence on the date this order is released, October 20, 1999, and all successors in interest to those franchises. An MSO's cable subscribers shall include all subscribers served by those incumbent cable franchises, regardless of when the subscribers were added to the incumbent cable franchise system. 14. This rule will continue to limit an MSO's growth through acquiring incumbent cable franchises where cable-programming power is dominant. On the other hand, the rule sets no limits on an MSO overbuilding "incumbent cable franchises," thereby encouraging competition, more outlets for programming networks and more choices for consumers. Thus, we find that the benefits of not counting customers served via overbuilding outweigh any potential anticompetitive impact on the programming marketplace. 15. For purposes of reviewing compliance with the horizontal ownership limit, parties may use any generally accepted industry data as to the total MVPD subscriber count. We recognize that not all of the data used by the industry is identical and that some degree of estimation and double counting may be involved. We see no need, however, for parties subject to the limit, or for our own enforcement purposes, to spend unnecessary time refining the data given that the rule itself is based on estimates. Accordingly, in reviewing compliance with the rule, we will accept any published, current and widely cited industry estimate of MVPD subscribership. We would expect any party nearing the limit to bring to the Commission's attention any acquisition that would place them in conflict with the rules in accordance with the reporting requirement of Section 76.503(g). XVI. The Level of the Horizontal Ownership Limit A. Background 2. In the Second Report and Order and the Second Order on Reconsideration, we found that a limit of 30 percent of households passed by all cable operators represented a careful balance between: (1) limiting the possible exertion by a cable operator of excessive market power in the purchase of video programming; and (2) ensuring that cable operators are able to expand and benefit from the economies of size necessary to encourage investment in new video programming technology and the deployment of other advanced technologies. In the Further Notice, we requested comment on whether 30% remains the appropriate horizontal limit in light of any changes in market conditions since 1993, when the initial rules in this proceeding were issued. 3. Because we agree with the cable operators that emerging non-cable MVPDs have an impact on the programming marketplace, we will, as discussed above, amend the horizontal limits rule to include all cable and non-cable MVPD subscribers in the calculation of the appropriate horizontal market. In addition, as discussed below, to the extent that cable operators have concerns regarding efficiencies of scale and competition with incumbent telephone service providers, we will permit cable operators to grow in size through overbuilding without counting subscribers reached in that manner towards an operator's horizontal limit. With these exceptions, which we will take into account in the calculation of the horizontal limit, the commenters have not presented any new or credible facts that would alter our conclusion regarding the need for and the considerations applicable to the adoption of an appropriate horizontal limit. Although the theoretical underpinnings for the rule remain unchanged and we continue to believe a 30% rule is appropriate, the effect of changing to a calculation based on the total size of the MVPD market results in a significant relaxation of the rule. The rule we adopt, a cable subscriber limit of no more than 30% of MVPD subscribers, is equivalent to a 36.7% limit based on cable subscribership alone. We find this change justified by the record and a consideration of the criteria specified in Section 613. Otherwise, however, we find nothing in the record that would justify upsetting the balance established in the initial rules. We discuss below the commenters' arguments regarding the cable operator's role as a media gatekeeper, competition, and the efficiencies of consolidation. 4. Guidelines A, B, C and G of Section 613(f) require the Commission to ensure that cable operators, unilaterally or in coordination, do not unreasonably restrict the flow of video programming to consumers and do not hinder the development of new programming from diverse voices. When Congress enacted Section 613(f)(1)(A), it concluded that cable industry concentration may enable MSOs to exercise excessive market power, or monopsony power, to bar the entry of new programmers and to reduce the number of media voices available to consumers: The cable industry has become highly concentrated. The potential effects of such concentration are barriers to entry for new programmers and a reduction in the number of media voices available to consumers. In particular, Congress was concerned with the possibility that "media gatekeepers will (1) slant information according to their own biases, or (2) provide no outlet for unorthodox or unpopular speech because it does not sell well, or both." At the time of the 1992 Cable Act, cable served over 56 million households representing over 60% of all television households. As of June 1999 cable served more than 66 million homes, representing approximately 82% of all MVPD households. Thus, cable television remains the primary source of information and programming for many households in the United States. The horizontal rule limits the extent to which one or a few operators could reduce the number of diverse programming voices in the United States. 5. In the search for appropriate decisional criteria on which to base the Congressionally mandated ownership limit, one important element of the equation is the issue of what limit will sufficiently assure that no single cable operator "or group of cable operators" can "unfairly impede the flow of video programming from the programmer to the consumer." If the rule can help to assure that no single operator or group of operators can unilaterally determine the success or failure of a new programming service, then the rule can achieve one important congressional purpose. 6. In our 1996 Competition Report, based on information supplied by program providers in proceedings before the Commission, we suggested that, to have a long term prospect for success, the initial subscriber requirement for a new channel would be at least 10 to 20 million households. In our 1998 Competition Report, we noted the conventional understanding that in the typical mass market, an advertiser supported programming network needs between 15 and 20 million subscribers in order to ensure its long-term viability. Some have argued that a cable network needs as many as 30 to 40 million subscribers in order to attract advertising dollars to ensure long-term viability. In the context of other Commission proceedings, parties within the industry have urged that it is generally not possible for a new, niche cable network to break even until its distribution reaches 20 million subscribers. 7. Staff analysis further supports 15 million as a minimum subscriber number for viability. In analyzing data consisting of 1988-98 subscription figures for 68 cable networks along with the launch date for each, staff found that networks that survive for a long period of time almost always obtain more than 15 million subscribers. Of the 39 networks started in or before 1988, 38 had more than 15 million subscribers in 1998. Thus, we find no basic disagreement as to the general requirement for a cable programmer to succeed and have a reasonable prospect for survival. 8. Although we believe the 15-20 million subscriber estimates are now generally accepted in the cable industry as evidenced by the cable industry's reliance on this target in their comments in this proceeding, we acknowledge that they may not cover every type of programmer. Some programmers may need far more subscribers to be successful, while others may need far fewer, depending on the particular programmer's programming costs, target audience, and financial strength. Nevertheless, in balancing the Section 613(f)(2) factors, we must adopt a standard of general applicability in determining the horizontal limit. To that end, for purposes of this analysis, we will assume that a new programmer needs 15 million subscribers in order to have a reasonable chance to achieve economic viability. We use the lower number 15 over 20 million as a baseline in order to counterbalance the competing objectives of Section 613 to recognize the dynamics of the marketplace and the efficiencies of size. Fifteen million subscribers are not an absolute minimum for viability. It is instead a number of subscribers that provides a reasonable probability of long-term success for a cable network. Fifteen million subscribers represent approximately 18.56% of the MVPD market. 9. Using the 15 million-subscriber number, a programmer could still theoretically obtain the minimum necessary circulation even if one system operator held 35, 40, or even 80% of the market. We do not agree, however, with the position of the cable operators that this is the end of the analysis. We disagree with the cable operators' assumption that the horizontal limit should be designed with only a single large operator in mind. Congress was concerned not only by the behavior of a single operator, but also with the possibility that a group of operators might decline to carry the programmer. Section 613(f)(2)(A) specifically directs the Commission to ensure that no cable operator or group of cable operators can unfairly impede, either because of the size of any individual operator or because of joint actions by a group of operators of sufficient size, the flow of video programming from the video programmer to the consumer . . . . Thus, the horizontal limit must account for the possibility that a group of operators will collectively deny carriage to a new programmer, either by unilateral, independent decisions or by tacit collusion. The limit should be set at a level such that, if each member of the group reaches the horizontal limit, the operators' "collective market share" will still leave enough of the market available to the programmer so that the programmer has a reasonable chance of obtaining the subscribers it needs in order to become financially viable. The legislative assumption is not unreasonable given an environment in which all the larger operators in the industry are vertically integrated so that all are both buyers and sellers of programming and have mutual incentives to reach carriage decisions beneficial to each other. Operators have incentives to agree to buy their programming from one another. Moreover, they have incentives to encourage one another to carry the same non-vertically integrated programming in order to share the costs of such programming. 10. The limit should also take into account that both cable operators and cable networks benefit from having a certain number of large MSOs. The MSOs benefit from the efficiencies of economies of scale. The cable networks benefit in that, if a new cable network obtains carriage on one large MSO, it will incur significantly lower transaction costs. 11. Examining the horizontal limit from the cable network's perspective, given that 20% of the market is the share that a cable network must reach to ensure viability, and assuming that there is a public value in minimizing transaction costs, one could argue that 20% is a lower bound on the appropriate MSO limit. A 20% limit would preserve the possibility that a cable network could acquire its minimum subscriber level in a single negotiation. In addition, if 5 MSOs were to divide the market, the cable network would have five chances of obtaining carriage. This would also serve the public interest by maximizing the potential that there would be at least 5 voices. 12. However, it is unlikely that a network could, in fact, achieve 20% penetration via a single MSO that reaches 20% of total subscribers. First, some of the MSO's cable systems may lack channel capacity and will be unable to carry the cable network at all. Second, those systems of the MSO that have channel capacity may place the cable network on an upper or digital tier or on a premium channel that not all subscribers receive. A 20% limit might therefore be unreasonably small in terms of efficiency from the cable network's point of view. 13. In addition, we find no reason to believe that the remaining four MSOs, comprising 80% of the market, would collectively decline to carry the new cable network, thereby leaving the programmer with only one MSO. Balancing the efficiencies of size against the possibility of group action, we believe that assuming coordinated action by two operators rather than by three or more operators is appropriate at this time. Under this scenario, if two MSOs, comprising 40% of the market, declined to carry a new cable network, this would leave 60% of the market available to the network. However, giving the cable operators the benefit of the doubt, we do not believe that a cable network requires an open field of 60% of the market in order to secure the 15 million subscribers the new cable network needs on average to succeed. 14. In this regard, we will examine and weigh various market factors to approximate a typical cable network's probable rate of success of reaching subscribers through cable operators that do not flatly deny the cable network carriage. We reviewed cable industry literature to examine the subscriber numbers of cable networks and to determine whether there was any evidence of the market factors underlying such a rate. In analyzing Kagan's June 30, 1999 census of cable network subscribers, we found that the 72 networks contained in the census had an average carriage rate of 53% (with a range from 95% to 5%) of 80.8 million subscribers. We also reviewed another census of cable networks published by Cablevision magazine. For the 105 surveyed networks for which subscriber numbers were available, the average carriage rate was 36% of the total of 80.8 million MVPD subscribers. Thus, the appropriate success rate would appear to be between 36% and 53%. However, the Cablevision and Kagan censuses do not reveal how many subscribers a cable network actively attempted but failed -- to reach. In addition, the censuses do not explain what market factors worked for or against a cable programmer's carriage rate. 15. Nevertheless, our review of the market factors affecting a new programmer's entrance demonstrated support for an average rate of success between these percentages. A programming network's ability to obtain carriage on cable systems may be limited by market conditions such as the lack of channel capacity on certain cable systems, the high cost of competitive entry, the competitive advantages of networks carried by the largest MSOs, the demographics of audiences in certain viewing areas, and other non-quantifiable factors, such as the programming tastes of particular cable operators. In addition, given the process of selling cable service by tiers, even where a programming network is added to a particular system it is unlikely that all subscribers to the system will purchase the network. Comments in this proceeding demonstrate that even vertically integrated programming networks generally do not reach 100% of an affiliated operator's subscribers and that carried networks in general may reach as few as 10% or as many as 95% of an operator's subscribers. Given these inherent roadblocks to carriage, we find that it is reasonable to assume that a programming network will have at the most a 50% success rate of overcoming these roadblocks with respect to each subscriber available to it. 16. Like the 15 million-subscriber figure, the 50% success rate figure is a rough attempt to quantify a multitude of business conditions that may vary widely from programmer to programmer. Some new cable networks may have a higher success rate if they are affiliated with existing networks or cable operators, while other new cable networks produced by parties new to the cable market may have a lower success rate. We believe that the 50% figure takes into account the varying factors for market entrance. Because we believe that a cable network has a 50% chance of successfully obtaining carriage, only 40% of the market need be available to a new cable network for it to reach the 15 million subscribers (or 20% of the market) it needs. Accordingly, it is not necessary to maximize the number of MSOs controlling 20% of the market or to protect 60% of the market for a new cable network. Moreover, given the limited benefit to the cable networks, a 20% cable horizontal ownership limit threatens to limit unduly an MSO's ability to achieve economies of scale. 17. Examining the limit from the cable operator's side, one could posit an 80% limit, which would leave 20% of the market available to an MSO that might carry the new network. This scenario has several problems. Cable networks selling programming to two such unequally sized MSOs may charge excessively low rates to the large MSO and compensate by charging excessively high rates to the small MSO, or enter other contractual arrangements that harm the customers to the small MSO and pose significant monopsony concerns. Although, a 50% limit could lead to a more even duopoly, the weaknesses of such competition are well established. The probability of tacit collusion is higher with 2 competitors than 3 competitors. Moreover, Congress was concerned with a "reduction in the number of media voices available to consumers," and devising a rule that would allow only two MSO gatekeepers to select those voices does not meet the congressional mandate. Finally, Congress was concerned with the possibility that a group of MSOs might together harm a programmer, and a 50% limit permitting two MSOs to unilaterally or collectively harm a programmer would not address this concern. 18. A 40% limit would pose similar problems. Although a cable network would have a reasonable chance of success if it gained access to an MSO at the 40% limit, two MSOs at the 40% limit, representing a total of 80% of the market, might decline to carry the new network. Even assuming that the remaining 20% of the market was in the hands of one MSO and that MSO agreed to carry the programmer, it is highly unlikely that the programmer would reach 100% of that MSO's subscribers for the reasons stated above. In addition, if the remaining 20% of the market is fragmented among several cable operators, the cable network again would be highly unlikely to succeed given a 50% success rate at carriage. 19. Approaching a horizontal limit from these two ends, a 20% limit favoring cable networks and a 40% limit favoring cable operators, we select a 30% limit as a reasonable balance between the interests of the cable networks and the cable operators. We believe that adopting a limit between 20% and 40% is reasonable given that the tradeoffs for the cable networks and the operators are roughly even. Based on this analysis, a new programmer would have a reasonable chance of success if 40% of the 80,000,000 subscriber MVPD market is available to it after two operators have denied it access to the other 60% of the market. In other words, a 30% limit on a single operator's size will thereby prevent two large operators from obtaining control over 60% of the market. Thus, even if two operators, covering 60% of the market, individually or collusively deny carriage to a programming network, the network will still have access to 40% of the market, thereby giving it a reasonable chance of financial viability. This leaves open the possibility that two MSOs at the 20% limit might exist that could carry the cable network. In addition, assuming that the remaining 40% of the market is fragmented, leaving 40% of the market available to the cable network will give it a reasonable chance of success, given that we conclude that a cable network has a 50% chance of obtaining subscribers that are not actively denied to it. 20. While permitting cable operators to obtain economies of scale, the 30% limit serves the salutary purpose of ensuring that there will be at least 4 MSOs in the marketplace. The rule thus maximizes the potential number of MSOs that will purchase programming. With more MSOs making purchasing decisions, this increases the likelihood that the MSOs will make different programming choices and a greater variety of media voices will therefore be available to the public. 21. We conclude that a 30% limit would fulfill Section 613(f)(2)'s mandate to strike a proper balance between the dangers to new programmers and the benefits to cable operators of economies of scale. Under current market conditions, we find that a 30% horizontal limit provides a new programmer with a reasonable chance of success, even if the largest operators decline to carry it. We acknowledge that the new cable programmer who is denied carriage by the largest operators may be at a severe competitive and financial disadvantage in the marketplace given the declining marginal cost basis of the programming distribution business. 22. The market power of large cable operators has the potential to prevent nascent cable networks from even launching and to cause current networks to fail. While the exercise of market power could result in lower negotiated programming costs for cable operators in the short run, it could also adversely affect the development of diverse and innovative programming in the long run. Studies have shown that increased horizontal concentration has both efficiency and negative market consequences. New networks might not be able to operate successfully subject to the lower prices that large operators are able to demand by virtue of their size. Launch costs for a new cable network are estimated to be between $100 to $125 million. New networks often must initially pay for carriage. In addition, although advertising revenue is critical for a cable network's long-term success, some industry analysts believe that new networks cannot attract significant advertising until they surpass at least 30 million subscribers. In particular, niche networks targeting small audiences with specific interests have difficulty attracting advertising. Given the significant amount of debt a new network must therefore carry before it begins earning affiliation and advertising revenues, nascent networks may not launch and new networks may fail because of an inability to carry this debt. The 30% limit recognizes this dynamic of the communications marketplace and the dynamic's ability to foreclose new programming. TCI's argument that consumers benefit from lower rates (as a result of lower programming costs enjoyed by large MSOs due to their bargaining power) takes into account only the efficiency effect of horizontal concentration. 23. As discussed above, the most significant change in the MVPD market has been the increased market share of non-cable MVPDs. We agree with the cable operators that the horizontal limits should take into account the non-cable MVPDs' impact on the programming marketplace. We take this into account by adopting our proposal that the calculation of the horizontal market include the presence of all MVPD subscribers. Using the presence of all MVPD subscribers in calculating the horizontal limit results in a self-adjusting horizontal limit whereby an operator's market share decreases when the total number of MVPD subscribers increases. Because the calculation of the horizontal limit will now automatically self-adjust based on the market share of noncable MVPDs, we need not alter the 30% limit to take into account their market share. 24. Cable operators argue that the emergence of new cable networks in the face of the continued growth of TCI, which purportedly passed 41% of homes passed by cable nationwide as of September 1998, demonstrates that cable operators have not used and will not use their monopsony power to adversely affect the programming marketplace. TCI also argues that, compared to cable systems that do not have affiliated networks, TCI favors carriage of unaffiliated networks. That argument is likewise not convincing. TCI's data appears to demonstrate the opposite. TCI's economic data appears to show that, as of 1995, TCI had favored carriage of 68% (13 of 19) of its affiliated networks versus 54% (25 of 46) of unaffiliated networks. We also note that TCI's economists concede that their analysis does not take into account differences other than vertical integration among the systems in their study. In addition, contrary to the findings of TCI's economists, several economic studies have shown that vertically integrated operators show preferences for their affiliated networks and exclude competing networks owned by independent programmers. 25. TCI's argument regarding its 41% homes passed market share lacks credibility in light of its arguments that actual numbers of total MVPD subscribers should be used to calculate the horizontal limit rather than homes passed. As noted above, we now recognize that the effective cable subscriber limit will be approximately 36.7% in light of today's market structure. Using these new methods of calculating the limit, TCI's market share would more likely approximate this limit. Moreover, TCI's argument does not take into account Section 613's mandate that we consider the possibility that two MSO's might foreclose a new programmer. In addition, WCA and Ameritech proffer credible evidence that indicates that MSOs have used their market power to cause unaffiliated programmers to refuse to sell their programming to other MVPDs. This evidence demonstrates another way in which MSOs can use their size and market power to impede the flow of programming to consumers in contravention of Section 613(f)(2)(A). It is reasonable to assume that an unaffiliated programmer carried on a large MSO, with all the advantages that such carriage confers, would be disinclined to alienate the MSO by seeking carriage on a competitor. 26. While we agree with CU that a lower horizontal limit could promote competition through overbuilding, we believe that 30% remains the appropriate limit to achieve these goals in light of the economies of scale it permits. Competition will provide more avenues for programmers to reach subscribers. The 30% limit may serve to facilitate the development of competition in those markets where cable operator market power already exists. By limiting the ability of large cable MSOs to merge or acquire incumbent cable systems, resulting in one or two MSOs controlling local cable markets nationwide, the horizontal limit encourages cable operators to overbuild one another. Limiting this merger and acquisition potential may preserve opportunities for entry by overbuilders or other MVPD providers and reduce the likelihood that large MSOs can coordinate their behavior by mutually forbearing from overbuilding each other's service territories. Coordinated activity between cable operators, whether tacit or overt, is more likely with few firms than many (due to greater ease in reaching a consensus, monitoring compliance, and punishing cheaters), and such behavior will have a greater impact the larger combined share of the market these firms control. Operators may use their market power to cause unaffiliated programmers to refuse to sell their programming to other MVPDs, thereby impeding the flow of programming to the consumer in contravention of Section 613(f)(2)(A). The 30% limit also reduces the likelihood of coordinated activity between large cable MSOs in areas such as program purchasing, Internet services, and equipment purchasing (e.g., set top boxes and converters). 27. If the sole guideline in adopting rules were to encourage the largest number of sources of editorial control possible, the horizontal limit would be quite low. Guidelines E and F of Section 613(f)(2), however, require the Commission to include in the rulemaking balance the efficiencies and benefits of consolidation and the dynamic nature of the communications marketplace. In the Second Report and Order and in the Second Order on Reconsideration, we recognized and weighed the benefits of clustering and economies of scale and determined that 30% was the appropriate number to encourage growth without unduly raising competitive concerns. We find no basis in this record to alter this balance. Cable operators argue that the limit should be raised so that they may compete with common carriers for the provision of Internet and telephony services. However, under the current rules, a cable operator may obtain as much as 30% of the cable nationwide market. A 30% limit allows a cable operator to gain access to a substantial portion of the market to provide Internet access and telephony. The cable operators have presented no credible evidence that a larger size is necessary for the deployment of advanced technologies or telephony. Moreover, we note the possibility of cooperative arrangements among operators to offer coordinated telephony services through their cable systems, so that a cable operator does not necessarily need to grow in absolute size beyond the limit in order to participate in the offering of a national telephony service. 28. In addition, we disagree with the cable operators' arguments that the horizontal ownership rules prevent an MSO from clustering its systems in order to enjoy an economy of scale and to compete with the ILEC. As we stated earlier in this proceeding, "[t]he 30% limit permits cable MSOs to cluster systems in order to gain efficiencies related to economies of scale and scope in administration, deployment of new technologies and services, extension into previously unserved territories, etc. Accordingly, the 30% limit simultaneously guards against the potential anticompetitive effects of horizontal concentration and allows cable MSOs to realize the benefits of clustering." The horizontal limit permits an MSO to consolidate its systems in one area in order to compete with an ILEC, if it wishes to do so. If an MSO must divest a system in order to comply with the horizontal ownership rules, the MSO has the discretion to decide what cluster of systems to retain in order to serve its business plans and customers. 29. Ameritech and CU raise the negative aspects of clustering, observing that clustering may enable cable operators to deny their competitors access to affiliated video programming and may deter overbuilders. RCN requests that we limit the size of cable clusters in order to promote competition. In the Second Report and Order, we considered whether to adopt regional subscriber limits, but declined to do so. We stated that other provisions of the Cable Television Consumer Protection and Competition Act of 1992 that were specifically designed to introduce local competition would better address issues regarding regional concentration. In addition, there was no evidence in the record that indicated that any anticompetitive effects outweighed the potential benefits of cable clustering, such as regional programming, upgraded cable infrastructure and improved customer services. Likewise, the record in this proceeding shows that the benefits of clustering including market efficiencies and the deployment of telephony and Internet access services outweigh any alleged anti-competitive effects on local programming. 30. An additional cable operator argument in favor of a revised limit is that we that we should raise the cable horizontal limits to 35% because Congress raised the television broadcast station horizontal limits to 35%. As indicated above, the practical consequence of including all MVPD subscribers in the base from which the limit is calculated is roughly equivalent to changing the rules to a 36.7% cable subscribers limit. We do not believe, however, that the commenters have shown how the broadcast station limits have any relevance to the cable horizontal limits. In contrast to the cable rules, the broadcast rules apply to single channel facilities where there are generally numerous directly competitive broadcast outlets in the market. Because a broadcast station competes with other broadcast stations in a local market and viewers therefore have several options for television viewing, a broadcast station owner does not actually have 100% of the local market's viewers all of the time. Thus, a broadcast station owner at the 35% national ownership limit cannot be deemed to have 35% of the nation's broadcast television viewers all of the time. A cable system has a set number of viewers making it possible to calculate more specifically than broadcast the number of viewers a cable system owner serves at the national level. In Section 613, Congress set forth seven specific criteria for the establishment of cable horizontal limits, which the Commission has followed. In addition, we fail to see the relevance to this proceeding of the Commission rule allocating half of a television market to a UHF station. That rule recognizes that a UHF station transmits a weaker signal than a VHF signal and likely is unable to reach an entire television market. 31. Finally, we reject Adelphia et al.'s request that we not apply the rules to any transactions under contract prior to the release of the Further Notice, and that existing joint ventures not subject to TCI's managerial control be permitted to grow through limited acquisitions to gain efficiencies of clustering. Parties have been on notice since the Second Report and Order was released in 1993 of the horizontal limit. We reaffirm our decision in the Second Order on Reconsideration that parties must come into compliance with the horizontal rules within 60 days after the District of Columbia Circuit upholds the rules and Section 613(f)(1)(A). VII. The Minority-Control Allowance A. Background 32. In the Second Report and Order, we adopted a minority-control allowance which permits a cable system to reach 35% of all homes nationwide "provided [that] the additional cable systems, beyond 30% of homes passed nationwide, are minority-controlled.") A cable system is minority-controlled if it is more than 50% owned by one or more members of a minority group. For purposes of the horizontal ownership rules, a minority means Black, Hispanic, American Indian, Alaska Native, Asian and Pacific Islander. 33. We adopted the minority-allowance in order to foster the participation of minorities in the cable industry. In the Second Report and Order, we stated that promoting minority ownership was a significant means of promoting the inclusion of diverse views in cable programming. We stated that "the minority ownership incentive [would] be an important means of furthering this goal by encouraging MSO investment in minority- controlled systems." In conclusion, we stated that we believed that the benefits of increased diversity would outweigh any impact the increased limits would have on competition. 34. We observed in the Further Notice, however, that the minority-control allowance had never been used by and asked for comment on the effectiveness of the rule and whether alternative rules could serve the same purpose. We also asked for comment on the constitutionality of the allowance under Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995) and whether we could devise rules that would be consistent with Adarand. No comments were filed discussing any aspect of the minority-control allowance. B. Discussion 35. Events since 1993 have not borne out our predictions that MSOs would take advantage of the allowance. Not a single party filed comments stating that it had invested in minority-controlled systems or that it intended to take advantage of the allowance. No minority party filed comments stating that it had benefited from the allowance or potentially might benefit from the allowance in the future. Thus, the rule has not achieved its intended purpose of fostering minority participation in cable by way of MSO investment in minority-controlled systems. 36. Based on this record and our own analysis of the potential functioning of this provision, we believe that it is no longer appropriate to retain a minority-control allowance. No party filed comments proffering alternative rules that might achieve the same goal that the allowance was designed to achieve. Under this provision the entity that would be exceeding the limit must be minority controlled. Because of the functioning of the attribution rules such an entity would generally not be attributed to the larger entity that the rules were attempting to assist in financing the minority controlled firm. Without attribution, the exemption incentive is absent and the rule creates little practical advantage for either party. Moreover, no party filed comments on policies the Commission might adapt in light of Adarand. Given our decision to no longer retain the allowance in light of the cable industry's apparent disinterest in the allowance and its potential use to increase consolidation beyond acceptable levels, we need not reach the constitutional issues raised by Adarand. VIII. Motion to Lift Stay of Enforcement of Horizontal Ownership Rules 37. On August 17, 1999, CU filed a motion for expedited relief requesting that the Commission lift its voluntary stay of the enforcement of its horizontal ownership rules. The motion essentially argues that the conditions that led the Commission to impose its stay have changed. CU cites, for example, the pending applications of AT&T to acquire the licenses of cable operator MediaOne Group, Inc. as a reason to enforce the stayed horizontal ownership rules. Lifting the stay, according to CU, is necessary to prevent AT&T from acquiring almost 50 percent of the cable TV market. 38. Last year, the Commission denied a similar request by CU to lift the stay. We see no reason to lift our voluntary stay at this point. It would make little sense to enforce the new rules before giving the D.C. Circuit Court of Appeals an opportunity to review the constitutionality of the underlying statute. We also note that the close of the pleading cycle in the AT&T/Media One merger proceeding, CS Docket No. 99-251, does not provide a persuasive justification for lifting the stay. We reaffirm our decision in the Second Order on Reconsideration that parties must come into compliance with the horizontal rules. 39. We reconsider, however, on our own motion the requirement that interested parties come into compliance with the horizontal ownership rules within 60 days of a judicial decision upholding Section 613(f)(1)(a) and the rules. We now require that interested parties must come into compliance with these rules within 180 days of a judicial decision upholding Section 613(f)(1)(a) and the rules. We find that 60 days is an unduly burdensome time frame for interested parties to dispose of property necessary to come into compliance with the rules. We find that 180 days is a more reasonable timeframe for the disposition of such property. IX. Final Regulatory Flexibility Analysis 40. As required by the Regulatory Flexibility Act ("FRA"), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Further Notice of Proposed Rulemaking in MM Docket No. 92-264, FCC 98-138. The Commission sought written public comment on the proposals in the Further Notice, including comment on the IRFA. This Final Regulatory Flexibility Analysis ("FRFA") conforms to the RFA. A. Need for, and Objectives of, this Third Report and Order 41. Section 11(c) of the 1992 Cable Act, directed the Commission to set limits on the number of subscribers a cable operator is authorized to reach through cable systems. Congress directed the Commission to evaluate and balance seven statutory guidelines when establishing subscriber limits. This Third Report and Order revises Section 76.503 of our rules to make them more effective in serving these statutory guidelines. B. Summary of Significant Issues Raised by Public Comments in Response to the IRFA 42. None of the parties in this proceeding filed comments on how issues raised in the Further Notice would impact small entities. Nevertheless, we discuss below how we considered the impact of the amendment of Section 76.503 on small entities. C. Description and Estimate of the Number of Small Entities to Which the Rule Will Apply 43. The RFA generally defines "small entity" as having the same meaning as the terms "small business," "small organization," and "small governmental jurisdiction" and "the same meaning as the term 'small business concern' under the Small Business Act unless the Commission has developed one or more definitions that are appropriate for its activities. A small business concern is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration ("SBA"). Pursuant to 5 U.S.C.  601(3), the statutory definition of a small business applies "unless an agency after consultation with the Office of Advocacy of the SBA and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal Register." 44. The SBA has developed a definition of small entities for cable and other pay television services under Standard Industrial Classification 4841 (SIC 4841), which covers subscription television services, which includes all such companies with annual gross revenues of $11 million or less. This definition includes cable systems operators, closed circuit television services, direct broadcast satellite services, multipoint distribution systems, satellite master antenna systems and subscription television services. According to the Census Bureau, there were 1,323 such cable and other pay television services generating less than $11 million in revenue that were in operation for at least one year at the end of 1992. 45. The Commission has developed its own definition of a "small cable company" and "small system" for the purposes of rate regulation. Under the Commission's rules, a "small cable company," is one serving fewer than 400,000 subscribers nationwide. Based on our most recent information, we estimate that there were 1,439 cable companies that qualified as small cable companies at the end of 1995. Since then, some of those companies may have grown to serve over 400,000 subscribers, and others may have been involved in transactions that caused them to be combined with other cable companies. Consequently, we estimate that there are fewer than 1,439 small entity cable companies that may be affected by the proposal adopted in this Notice. The Commission's rules also define a "small system," for the purposes of cable rate regulation, as a cable system with 15,000 or fewer subscribers. We do not request nor do we collect information concerning cable systems serving 15,000 or fewer subscribers and thus are unable to estimate at this time the number of small cable systems nationwide. 46. The Communications Act also contains a definition of a "small cable operator," which is "a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1 percent 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 has determined that there are 61,700,000 subscribers in the United States. Therefore, we found that an operator serving fewer than 617,000 subscribers is deemed a small operator, if its annual revenues, when combined with the total annual revenues of all of its affiliates, do not exceed $250 million in the aggregate. Based on available data, we find that the number of cable operators serving 617,000 subscribers or less totals 1,450. Although it seems certain that some of these cable system operators are affiliated with entities whose gross annual revenues exceed $250,000,000, we are unable at this time to estimate with greater precision the number of cable system operators that would qualify as small cable operators under the definition in the Communications Act. D. Description of Projected Reporting, Recordkeeping, and Other Compliance Requirements 47. The new rule sets limits on the number of cable subscribers that one person may serve and alters the method for calculating the horizontal limit. The new rule changes the standard from cable homes passed to actual subscribers. This will impose a smaller burden on businesses because it is easier to calculate how many subscribers that a cable operator serves. The rule also grants further latitude to businesses by permitting one person or entity to serve up to 30% of MVPD subscribers nationwide. E. Steps Taken to Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered 48. We find that there are no significant alternatives to the rules and policies set forth in this Third Report and Order, and we note that no commenter proffered alternatives to these rules and policies. 49. First, we maintain the 30% horizontal ownership limit. This rule limits the large size of large MSOs and does not prevent small cable operators from growing larger. To the extent that small cable operators argue that the 30% rule limits the ability of large MSOs to invest in small cable operators, we find that there is no significant alternative way to address this concern while enforcing Section 613(f)(1)(A). Moreover, given the current consolidation in the cable industry, we are not convinced that small cable operators will have difficulty in finding willing investors in their operations. In any event, the manner in which we have altered the calculation of the horizontal limit will permit MSOs to grow larger than the current rule permits. 50. Second, we amended the rule to base the limit on actual subscribers rather than homes passed. No one argued and we do not find that this amendment poses concerns for small cable operators. 51. Third, we amended the manner in which the horizontal limit is calculated to include all MVPD subscribers in the calculation. No one argued and we do not find that this amendment poses concerns for small cable operators. 52. Fourth, we amended the rule to remove the minority control allowance. No one argued and we do not find that this amendment poses concerns for small cable operators. 53. Fifth, we denied a motion to lift the stay on the enforcement of the horizontal ownership rules and decided that the rules will go into effect 180 after the United States Court of Appeals for the District of Columbia Circuit issues a decision upholding Section 613(f)(1)(A) and the rules. No one argued and we do not find that decision poses concerns for small cable operators. Report to Congress: The Commission will send a copy of this Third Report and Order, including this FRFA, in a report to Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C.  801(a)(1)(A). A copy of this Order on Reconsideration and FRFA (or summary thereof) will also be published in the Federal Register, pursuant to 5 U.S.C.A.  604(b), and will be sent to the Chief Counsel for Advocacy of the Small Business Administration. X. Paper Work Reduction Act 54. The requirements adopted in this Third Report and Order have been analyzed with respect to the Paperwork Reduction Act of 1995 (the "1995 Act") and found to impose new or modified information collection requirements on the public. Implementation of any new or modified information collection requirements will be subject to approval by the Office of Management and Budget ("OMB"). The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public to take this opportunity to comment on the information collection requirements contained in this Third Report and Order, as required by the 1995 Act. Comments should address: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. 55. Written comments by the public on the information collection requirements are due 60 days from date of publication of this Third Report and Order in the Federal Register. Comments should be submitted to Judy Boley, Federal Communications Commission, Room 1-C804, 445 12th Street, S.W., Washington, DC 20554, or via the Internet to jboley@fcc.gov. For additional information on the information collection requirements, contact Judy Boley at (202) 418-0214 or via the Internet at the above address. XI. Ordering Clauses 56. Accordingly, IT IS ORDERED, pursuant to Sections 4(i), 303 and 613 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 303 and 533, that the amendments to 47 C.F.R.  76.503 discussed in this Third Report and Order and set forth in Attachment B ARE ADOPTED. These amendments shall become effective 70 days after publication in the Federal Register, following OMB approval, unless a notice is published in the Federal Register stating otherwise. 57. IT IS FURTHER ORDERED that the August 17, 1999 Consumers Union, Consumer Federation of America, and Media Access Project's Motion to Vacate Stay of Enforcement of Horizontal Ownership Limits and other requested relief IS DENIED in its entirety. 58. IT IS FURTHER ORDERED that 47 C.F.R.  503(a)-(g) as set forth in Attachment B is STAYED until one hundred and eighty (180) days after the United States Court of Appeals for the District of Columbia Circuit issues a decision upholding Section 613(f)(1)(A) of the Communications Act, as amended, 47 U.S.C.  533(f)(1)(A), and 47 C.F.R.  76.503. 59. IT IS FURTHER ORDERED that parties shall continue to comply with the reporting requirements of Section 503 of our rules, as modified by 47 C.F.R.  76.503(h) set forth in attachment B and as discussed in note 10 of this Third Report and Order. 60. IT IS FURTHER ORDERED that the Commission's Office of Public Affairs, Reference Operations Division, SHALL SEND a copy of this Third Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with paragraph 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C.A.  601 et. seq. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary Appendix A Comments Filed in this Proceeding Comments Adelphia Communications Corp. ("Adelphia"), Falcon Holding Group LP ("Falcon"), Insight Communications Co., LP ("Insight") and Lenfest Communications, Inc. ("Lenfest") (collectively "Adelphia et al.") Ameritech New Media, Inc. ("Ameritech") AT&T Corp. ("AT&T") Bresnan Communications Co., LP ("Bresnan") and TCA Cable TV, Inc. ("TCA") Cablevision Systems Corp. ("Cablevision") Consumers Union, Consumer Federation of America, the Center for Media Education, the Office of Communication, Inc. of the United Church of Christ, and the Association of Independent Video and Filmmakers ("CU") MediaOne Group, Inc. ("MediaOne") National Cable Television Association ("NCTA") RCN Telecom Services, Inc. ("RCN") Tele-Communications, Inc. ("TCI") Time Warner, Inc. ("Time Warner") Reply Comments Adelphia Communications Corp. ("Adelphia"), Falcon Holding Group LP ("Falcon"), Insight Communications Co., LP ("Insight") and Lenfest Communications, Inc. ("Lenfest") (collectively "Adelphia et al.") Cablevision Systems Corp. ("Cablevision") MediaOne Group, Inc. ("MediaOne") National Cable Television Association ("NCTA") RCN Telecom Services, Inc. ("RCN") Tele-Communications, Inc. ("TCI") Time Warner, Inc. ("Time Warner") Wireless Communications Association International, Inc. ("WCA") Appendix B Rule Changes Part 76 of Title 47 of the Code of Federal Regulations is amended to read as follows: PART 76 -- MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE 1. The authority citation for Part 76 continues to read as follows: AUTHORITY: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 307, 308, 309, 312, 315, 317, 325, 503, 521, 522, 531, 532, 533, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 549, 552, 554, 556, 558, 560, 561, 571, 572, 573. Section 76.503 National Subscriber Limits 1. Section 76.503 is amended by deleting paragraphs (a) through (f) and adding paragraphs (a) through (g) as follows: (a) Subject to paragraph (b) of this section, no cable operator shall serve more than 30% of all multichannel-video programming subscribers nationwide through multichannel video programming distributors owned by such operator or in which such cable operator holds an attributable interest. (b) Cable subscribers that a cable operator does not serve through incumbent cable franchises shall be excluded from the cable operator's limit. (c) For purposes of this section, "incumbent cable franchise" means a cable franchise in existence as of October 20, 1999 and all successors in interest to these franchises. (d) Subscribers that a cable operator serves through incumbent cable franchises shall include all subscribers served by those incumbent cable franchises, regardless of when the subscribers were added to the incumbent cable franchise system. (e) "Multichannel video-programming subscribers" means subscribers who receive multichannel video- programming from cable systems, direct broadcast satellite services, direct-to-home satellite services, multichannel multipoint distribution services, local multipoint distribution services, satellite master antenna television services (as defined in  76.5(a)(2)), and open video systems. (f) "Cable operator" means any person or entity that owns or has an attributable interest in an incumbent cable franchise. (g) Prior to acquiring additional multichannel video-programming providers, any cable operator that serves 20% or more of multichannel video-programming subscribers nationwide shall certify to the Commission, concurrent with its applications to the Commission for transfer of licenses at issue in the acquisition, that no violation of the national subscriber limits prescribed in this section will occur as a result of such acquisition. Note 1: Certifications made under this section shall be sent to the attention of the Cable Services Bureau, Federal Communications Commission, 445 Twelfth Street, S.W., Washington, D.C. 20554. Statement of Commissioner Harold W. Furchtgott-Roth, Concurring in Part and Dissenting in Part In the Matter of Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992, Horizontal Ownership Limits, MM No. 92-264. There is much to commend in this Order. I join in the decisions to change the basis of the limit from homes passed to actual subscribers; to include non-cable MVPDs in the limit calculation; to repeal the minority-control allowance; and to retain the stay of these rules pending resolution of related litigation. See Parts IV-V, VII-VIII. I must dissent, however, the Commission's refusal to raise the limit itself from the current rate of 30%. See Part VI. The Level of The Horizontal Ownership Limit I would have raised significantly the relevant rate for cable ownership past the 30% that the Commission today maintains. This rate has been in effect since 1993 and, as the Commission itself has documented in any number of proceedings, the increase in competition in the multichannel video programming market -- assuming that is even the right market, as opposed to all video programmers, the actual terminology of the statute -- has been at least substantial, if not explosive. The statute directs us to take account of these changes. See 613(f)(2)(E) (Commission should "reflect the dynamic nature of the communications marketplace"). This Order even acknowledges these intervening competitive developments in the context of the decisions to change the limit calculation. See supra at paras. 28-30. I do not think we can take notice of increased competition for purposes of those ancillary decisions but close our eyes to that same fact in the context of the limit itself. Increased competition either exists or it does not, and the fact of that competition is logically relevant to the calculation of the limit and the limit itself. Even if one were not willing to admit increased competition since 1993, changes within the cable industry itself -- most significantly, the expansion of channels due to upgrades -- mitigate a cable operator's potential for market power. Furthermore, the Commission just a few months ago concluded that growth in the communications industry warranted loosening of the broadcast ownership rules. See generally Review of the Commission's Regulations Governing Television Broadcasting, Television Satellite Stations Review of Policy and Rules, MM Docket Nos. 91-221, 87-8 (rel. Aug. 6, 1999). I would think that some deregulation -- in particular, revising upward the section 11(c) cap -- would have been equally appropriate for the cable industry. In the attribution Report and Order adopted today, the Commission concludes that "the cable industry's ownership and management structures do not in any relevant way differ from those of the broadcast industry." Review of the Commission's Cable Attribution Rules, CS Docket No. 98-82, at para. 11 (adopted Oct. 8, 1999). While I disagree with that statement (the many differences between these particular industries, and thus their ownership and management, are patent, at least to me), I note it in order to highlight the incongruity of the Commission's reasoning in these related decisions. Apparently, the industries are similar enough that we should use the same attribution rules, but when it comes to deregulation, they should not be treated equally. This makes little sense to me. Part of what contributes to the Commission's view that the limit cannot go any higher than 30% is a fundamental misunderstanding of the premise of section 613(f). The Commission approaches the statute as if it were the "Reasonable Guarantee of Success for Cable Networks Act." Hence, its analysis of the appropriate percentage limit starts with the number of subscribers it takes to launch a new network. But the Act is not meant affirmatively to ensure that new cable networks have some minimum chance of success in the marketplace. Rather, its plain language reflects an intent to prevent cable operators from "unfair[ly] imped[ing] . . . the flow of video programming from the programmer to the consumer." 47 U.S.C. section 613(f)(2)(A). A cable network can fail to get off the ground for infinite reasons other than the exercise of monopsony power by cable operators. The statute is not meant to create a minimum chance of success for one group, but to prevent specific anticompetitive behavior by a different group. We thus should be focusing on what it means for a cable operator or operators to "unfairly impede" the flow of programming, but this Order never does that. Moreover, the "flow" with which the statute concerns itself is of "video programming," not just cable network or even MVPD programming. "Video programming" is a statutorily defined term, see id. section 611(20) ("'video programming' means programming provided by, or generally considered comparable to programming provided by, a television broadcast station"), which includes vastly more than just cable network programming. When many paths exist for distributing video programming to consumers -- which there are -- cable operators' ability to impede anything is drastically undermined. Finally, the constitutional concerns raised by the statute -- grave enough that a federal judge has deemed it violative of the First Amendment, see Daniels Cablevision v. United States, 835 F. Supp. 1 (D.D.C. 1993) -- also mitigate in favor of a more generous approach to the limit in order to mitigate the direct burdens on speech imposed by these regulations. A higher subscriber rate, while it might not solve the First Amendment problem, would at least alleviate some of the burden created by the limit. But these rules impose as heavy a burden on speech as the previous ones. The Calculation Of The Horizontal Ownership Limit The foregoing said, I do concur in the separate decisions to base the limit on actual subscribers rather than homes passed, see supra Part IV, and to include non-cable MVPDs in the calculus, see id. Part V. Those decisions make common sense, in that they acknowledge the expanded range and intensity of competition to cable. They also provide some effective relief to cable operators and allow them some room to grow as the MVPD market further develops. Ultimately, however, the cleaner and more straightforward approach would have been to simply raise the limit itself. Moreover, I would have increased the limit to a greater extent than do these changes to the formula. I support them, however, to the extent they provide some benefit to regulated entities. The Minority Control Allowance I also concur in the decision to repeal the minority control allowance. See id. Part VII. As I noted in the Notice of Proposed Rulemaking, this facially race-based provision is presumptively violative of the Equal Protection Clause. See Separate Statement of Commissioner Harold W. Furchtgott-Roth, Second Memorandum Opinion and Order on Reconsideration and Further Notice of Proposed Rulemaking, In re Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992: Horizontal Limits (rel. June 26, 1998) (discussing application of strict scrutiny to the allowance). Although the Commission chooses to repeal these regulations for reasons of practicality, it makes no attempt to defend the constitutionality of this rigid numerical preference and its supposed connection to programming content in light of either the record in this proceeding or relevant judicial precedent. That is probably wise, because the task is near impossible, legally speaking. Administrative Stay Of The Rules Finally, I concur in the decision to continue the stay of these rules pending resolution of the related litigation in the Court of Appeals for the D.C. Circuit. See supra Part VIII. STATEMENT OF COMMISSIONER GLORIA TRISTANI, DISSENTING IN PART In the Matter of Implementation of Section 11(c) Of the Cable Television Consumer Protection and Competition Act of 1992 Horizontal Ownership Limits MM Docket No. 92-264 I would have lifted the Commission's voluntary stay of its horizontal ownership rules. While the stay may have done little harm in 1993, when it was imposed, it now constitutes a serious threat to the orderly enforcement of our rules and an abdication of our responsibility to implement Congress' express statutory directives. In the 1992 Cable Act, Congress provided that the Commission "shall . . . conduct a proceeding" to establish horizontal ownership limits. In 1993, shortly before the Commission issued its rules, the district court found the horizontal ownership provision of Section 613 unconstitutional on its face. Importantly, the district court judge stayed the effect of his ruling, thereby permitting the Commission to adopt and enforce horizontal ownership rules. Nevertheless, when the Commission adopted its rules shortly thereafter, it voluntarily suspended enforcement pending outcome of the Daniels appeal. The Commission has not always been so quick to abandon Congress' mandates. For instance, although a district court judge found Sections 271-275 of the Communications Act to be an unconstitutional bill of attainder, the Commission continued to enforce those provisions under circumstances similar to those here, until the appellate court eventually reversed the lower court decision. It has now been seven years since Congress expressly directed the Commission to establish horizontal ownership rules, and six years since the Commission opted to ignore that directive on its own motion. In 1993, the Commission's decision made little practical difference: no cable operator was close to the 30% limit and appellate review of the Daniels decision could be expected well before the limit was breached. Times have changed. Now we are faced with the real possibility -- indeed, the virtual certainty, if all pending transactions are approved -- that a single cable operator, AT&T, will be significantly over the 30% cap, even under the liberalized rules being adopted today. Moreover, concentration issues will be squarely before us when we consider AT&T's proposed acquisition of MediaOne -- a decision that will likely come before the D.C. Circuit rules on the Daniels appeal. Without enforceable rules, the Commission will not be able to address the Section 613 ownership issue at the time of the merger review, but, assuming the merger is approved, will have to wait until the D.C. Circuit acts. Not to worry, the majority says: if the D.C. Circuit upholds the horizontal ownership limits, AT&T and others will be required to come into compliance within 180 days of the decision. The majority's assurances give me little comfort because I do not believe its admonition about divestitures will ever be enforced. This is not a criticism of the Commission, but a recognition of administrative reality. It is much easier to enforce rules on a going-forward basis than to reverse established "facts on the ground." Ultimately, to the extent that the Commission is forced to grant waivers or grandfather ownership interests that violate our rules, Congress' purposes in enacting Section 613 will be eviscerated. It might be different if the Commission believed there were a substantial likelihood that it would lose on appeal, or if there were some reason to believe that the 30% cap had grown stale. But on August 13, 1999, the Commission filed a brief in the D.C. Circuit describing at length how, under the applicable standard established in the Supreme Court's Turner decisions (which the Daniels court did not have the benefit of), the horizontal ownership provisions and the Commission's implementing rules are clearly constitutional. Nor is the 30% cap out- of-date: today's Order reaffirms the 30% cap based on a fresh record. In the end, the issue of lifting the stay boils down to whether the Commission is serious about implementing Congress' express directive to establish reasonable horizontal ownership limits. Today's decision indicates that it is not.