June 30, 1998

In the Matter of Entertainment Connections, Inc., Motion for Declaratory Ruling

I dissent. Today's decision is wrong as a matter of law and misguided as a matter of policy. Moreover, by concluding for the first time that a wireline video distribution service with a single editorial voice need not obtain a cable franchise, I fear that the majority has opened a Pandora's box that will prove difficult and time-consuming to close.

Legal Issues

The sole legal issue under review is whether ECI must obtain a Title VI cable franchise. ECI must obtain such a franchise if it is a "cable operator" providing "cable service" over a "cable system."

ECI is providing "cable service"

This is not in dispute. As the majority correctly concludes, ECI is clearly providing one-way transmission of video programming to subscribers.⁽¹⁾

ECI is providing its cable service over a "cable system"

A cable system is:

a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community.⁽²⁾

ECI's video distribution system meets this standard. First, ECI uses a "set" of transmission paths (some owned, some leased) to transmit its video programming to subscribers. Just like any cable operator, these transmission paths do not change and are dedicated to ECI's exclusive use. Second, these transmission paths are "closed" because they transmit via wires rather than radio waves.⁽³⁾ Third, these closed transmission paths have "associated signal generation, reception, and control equipment [i.e., ECI's headend equipment] that is designed to provide cable service." Fourth, ECI's service includes video programming and is provided to multiple subscribers within a community.

The conclusion that ECI is operating a cable system is consistent with the Commission's long-standing definition of "cable system" based on technical integration: all technically integrated facilities that provide cable service from a single headend to multiple subscribers are deemed to be a cable system.⁽⁴⁾ Rather than apply a straightforward technical integration test, however, the majority gets sidetracked by the fact that ECI leases part of its distribution system from Ameritech. Relying primarily on an inapt analogy to video dialtone, the majority argues that the separation of ownership between headend (ECI) and transmission paths (Ameritech) precludes a finding that ECI is operating a cable system.⁽⁵⁾

The majority's mistaken analogy to video dialtone is based on a failure to distinguish between use of a common carrier's facilities and use of a common carrier platform.⁽⁶⁾ The distinction is critical. Use of a common carrier's facilities on a technically integrated basis -- i.e., where a single entity, like ECI, provides programming to subscribers from a single headend over a dedicated set of common carrier wires -- has always been considered a cable system. Indeed, that is "channel service," a common carrier offering that requires the programmer leasing capacity to obtain a Title VI cable franchise.⁽⁷⁾ By contrast, a common carrier video platform like video dialtone refers to a common carrier service on which multiple independent programmers may obtain carriage on a non-discriminatory basis and provide video programming directly to consumers. As the Commission recently stated, our rules required video dialtone service:

to include at a minimum, a basic common carrier platform available to multiple video programmers on a non-discriminatory basis, and a means by which end-user subscribers could access any and all of the video programming offered.⁽⁸⁾

Put differently, if channel service is like cable, a common carrier video platform is more like a video version of a common carrier "900" service through which multiple independent entities can obtain non-discriminatory access to consumers through the common carrier's network.

This distinction is significant and demonstrates why ECI is clearly operating a cable system. First, as a technical matter, ECI's system resembles a cable system and not a common carrier platform. In a key passage regarding video dialtone cited by the majority as supporting its conclusion, the D.C. Circuit stated:

[w]here the "closed transmission paths" and "associated" headend equipment are owned and controlled by different entities (as in video dialtone), and where different configurations of equipment would be used to move video programming from the different providers to the different customers, the concepts of a single, integrated system and unified control are not present.⁽⁹⁾

In other words, in video dialtone there was no "single, integrated system and unified control" not simply because different entities owned the headends and closed transmission paths, but because the presence of multiple headends meant that no technically integrated "system" was used to deliver programming to subscribers (i.e., a different mix of facilities might be used to deliver video programming to each subscriber). This is nothing like ECI's technically integrated system, where there is only one headend "associated" with the closed transmission paths, and the same configuration of equipment is used to deliver video programming to subscribers from a single provider.⁽¹⁰⁾

Nor can ECI's technically integrated system be shoe-horned into the video dialtone model because Ameritech may have additional fibers in the ground that could accommodate other programmers. Unlike video dialtone, Ameritech's service does not provide a common vehicle for multiple programmers to reach subscribers to the platform. Rather, Ameritech provides dedicated transmission paths -- ready-made channel service, if you will -- for single programmers operating from single headends to reach only their own customers. Every ECI customer receives programming only from ECI's headend; every customer of a different service would receive programming from only that service's headend.⁽¹¹⁾ The requirement that multiple programmers be able to reach consumers was a key aspect of video dialtone:

[W]e believe that such a requirement will prevent a telephone company from seeking to present ordinary channel service to a single video programmer and claiming that such a construct is a sufficient video dialtone "platform" to enable it to provide to video programmers unregulated enhanced services related to video programming.⁽¹²⁾

In fact, there is no guarantee that residents in multiple dwelling unit buildings ("MDUs") served by ECI will even have a choice among separate service providers that may use Ameritech's service. At best, Ameritech's service only gets programmers as far as a junction box within an MDU.⁽¹³⁾ An MDU owner that selects ECI or a different provider (possibly for a share of the revenues), could prevent all other programmers using Ameritech's service from reaching MDU residents. Thus, an MDU resident may have no choice at all among service providers -- it could be ECI or nothing.⁽¹⁴⁾

Second, ECI exercises the editorial discretion of a cable operator, not of a programmer on a common carrier platform. A traditional cable system is a "closed" system -- a single cable operator (using channel service or otherwise) generally has broad editorial control over what programming is carried on its system.⁽¹⁵⁾ A common carrier platform, on the other hand, is an "open" system -- no one has control over the system's editorial content because the common carrier must provide access to all programmers on a non-discriminatory basis.⁽¹⁶⁾ ECI's broad editorial discretion to select and package programming, and to exclude others from its dedicated wire, is far more similar to cable service than video dialtone. Indeed, ECI will have even more editorial control than a traditional cable operator since, under the majority's decision, ECI has no leased access, must-carry or public, educational and governmental ("PEG") access obligations.

Third, unlike a common carrier platform, it is feasible as a practical matter to regulate ECI's system as a cable system. As the NCTA court pointed out, it would be non-sensical to apply many of the strictures of Title VI to a common carrier platform like video dialtone.⁽¹⁷⁾ For instance, with multiple programmers providing service from separate headends over a single wire, it is difficult to imagine how the system would comply with the basic service tier, commercial leased access and must-carry requirements. No such practical problems present themselves with ECI. As with channel service, it is not difficult to determine which programmer must comply with the requirements of Title VI because there is only one entity providing programming to ECI's customers: ECI.

Finally, the majority asserts that, even if ECI's system constitutes a "cable system," it qualifies for the private cable exemption reserved for "a facility that serves subscribers without using any public rights of way."⁽¹⁸⁾ The majority argues that it is Ameritech, not ECI, that is using the public rights-of-way. This argument can be dismissed quickly. Under Title VI, the issue is not whether a particular entity uses the public rights of way, but whether the facility uses the public rights of way.⁽¹⁹⁾ Were it otherwise, traditional channel service would not have required a Title VI franchise. As described above, ECI owns part of its video distribution facility and leases part of it, but there can be no question that this unified, end-to-end facility uses the public rights of way. The majority's argument cannot withstand scrutiny under the plain language of the Act.⁽²⁰⁾

ECI is a "cable operator"

Section 602(5) defines a "cable operator" as:

any person or group of persons (A) who provides cable service over a cable system and directly or through one or more affiliates owns a significant interest in such cable system, or (B) who otherwise controls or is responsible for, through any arrangement, the management and operation of such a cable system.

Although the majority does not reach this issue, I believe that ECI likely satisfies both tests by which an entity can be deemed a cable operator. First, ECI may own a "significant interest" in the facilities that constitute its cable system.⁽²¹⁾ Although Ameritech owns the closed transmission paths in the public rights of way, ECI owns all of the signal generation, reception, and control equipment, as well as the portion of the closed transmission paths at each MDU (including all inside wiring, amplifiers, splitters, lockboxes, etc.). At the very least, this raises a substantial question of fact that cannot be resolved on the current record.

Moreover, ECI controls or is responsible for (through its ownership and lease arrangements) the management and operation of the cable system. ECI decides how many channels the cable system will have and what programming services will be carried. ECI selects the MDUs that will be served, sets the price for and markets the service, and bills subscribers for the service. If a subscriber wants to initiate service or has a service outage, he or she would call ECI, not Ameritech. Ameritech essentially serves as a transparent conduit, transporting video signals at ECI's direction from ECI's headend to its customers. As the NCTA court found, where an entity is using the facilities of a common carrier to transmit video programming to subscribers, it is the transmitting entity and not the common carrier that is engaged in activity covered by Title VI.⁽²²⁾

Policy Considerations

Although this case primarily turns on a legal interpretation of the Communications Act, several policy considerations also argue against granting ECI's petition.

First, today's decision upsets the careful regulatory balance struck by Congress in the Communications Act. The Act establishes several distinct methods for entering the video marketplace, each with its own specific benefits and obligations. Even under the "reduced regulatory burdens" of the open video system ("OVS") model,⁽²³⁾ Congress imposed various Title VI obligations including must-carry, PEG and the payment of a gross revenue fee to local authorities. ECI, by contrast, will have virtually all of the benefits of being a cable or OVS operator with none of the Title VI obligations. Regardless of how much we want to promote competition in the multichannel video marketplace, we cannot do so by creating loopholes in the regulatory scheme created by Congress.

Second, today's decision undermines the vital franchising role that Title VI reserves for local governments. Under Title VI, local franchising authorities can ensure that the needs of their particular communities are met, such as requiring that all neighborhoods be served and that capacity for PEG access be provided. We should not lightly deprive local governments of the ability to protect their communities in this regard, and certainly not without a fuller analysis than is presented here.

Third, today's decision poses a substantial risk of unintended consequences. For instance, I see no legal basis for limiting the decision solely to entities that want to serve MDUs. If ECI's system is not a "cable system," it would not be a cable system whether it serves MDUs or single family homes. The next case before us could be an overbuild of an entire cable franchise area that would look exactly like a cable system in every respect -- except that no Title VI obligations would apply.

Moreover, the next case may not involve a small entity like ECI; telephone companies, incumbent cable operators and others have already expressed an interest in obtaining similar

treatment if ECI's petition is granted. We should not underestimate the incentive that today's decision gives companies to artificially restructure their ownership arrangements to evade Title VI regulation. Unfortunately, by failing to articulate a clear legal or factual standard of review for future cases, the majority has done little to discourage such behavior.

1. ¹See Communications Act, Section 602(6).

2. ²Communications Act, Section 602(7).

3. ³See Definition of a Cable System, 5 FCC Rcd 7638, 7642 (1990).

4. ⁴See Definition of a Cable Television System, 63 FCC 2d 956, 974 (1977) ("Under the new definition of system, it should be clear that all trunk and distribution cable operating off one headend is a single cable television system"). Given the similarity between the Commission's definition and the definition codified in the 1984 Cable Act, the Commission recently reaffirmed its technical integration standard. See Roberts v. Houston Division of Time Warner Entertainment Company, L.P., 11 FCC Rcd 5999 at ¶ 15 (1996) (pre-1984 definition based on the "actual technical integration and functional characteristics common to all systems" has not been changed by the 1984 Cable Act, the 1992 Cable Act or the 1996 Telecommunications Act).

5. ⁵Video dialtone, as the majority notes, was a Commission-created framework that permitted telephone companies, consistent with the telco-cable cross-ownership ban, to offer a common carrier platform to multiple independent video programmers on a non-discriminatory basis. (Thus, while the Commission developed video dialtone as a way to permit telephone companies to participate in the video marketplace notwithstanding the statutory ban, today's majority has no such excuse. ECI is under no statutory restrictions preventing it from entering the video programming marketplace.) Consumers who subscribed to the common carrier's video dialtone platform could then access any and all of the programming available from multiple independently-owned headends through the telephone company's switched network.

6. ⁶This is also at the root of the majority's mistaken reliance on an early legislative draft of what evolved into the open video system framework. The cited legislative history discusses only whether a programmer on a common carrier platform should be deemed a cable operator.

7. ⁷See NCTA v. FCC, 33 F.3d 66, 71 (1994); Northwestern Indiana Tel. Co. v. FCC, 872 F.2d 465 (D.C. Cir. 1989).

8. ⁸Metropolitan Fiber Systems/New York, Inc. d/b/a MFS Telecom of New York and Metropolitan Fiber Systems/McCourt, Inc., 12 FCC Rcd 6901 at ¶¶ 23-24 (1997) (emphasis added) (declining to find that MFS's video transport service was a common carrier platform where MFS provided no evidence that multiple programmers could make uninterrupted use of its facilities to provide service to end user subscribers). See also In the Matter of Telephone Company-Cable Television Cross Ownership Rules, Sections 63.54-63.58, Second Report and Order, Recommendation to Congress, and Second Further Notice of Proposed Rulemaking, 7 FCC Rcd 5781 at ¶¶ 29, 89 (1992) ("Second Video Dialtone Report and Order") ("The basic common carrier platform should provide multiple video programmers nondiscriminatory access to a common carrier transmission service that will enable them to deliver, and consumers to receive, video programming and video programming services") (emphasis added).

9. ⁹NCTA, 33 F.3d at 74 (emphasis added).

10. ¹⁰The unified nature of ECI's facility is not altered by the fact that ECI owns part of the facility and leases part of it from Ameritech. As the majority acknowledges, in codifying the definition of "cable system" in 1984, Congress intentionally omitted the Commission's previous requirement that all portions of a cable system be under common ownership or control. This interpretation is consistent with the common carrier exemption from the definition of "cable system," which states that a common carrier facility regulated pursuant to Title II is not a cable system "except that such facility shall be considered a cable system . . . to the extent such facility is used in the transmission of video programming directly to subscribers . . ." Section 602(7)(C).

11. ¹¹The majority's assertion (at para. 58) that the presence of additional strands in Ameritech's fiber bundles means that the facilities used to serve ECI "do not benefit any particular programming provider" is completely baseless. The dedicated capacity that ECI leases benefits only ECI. Further, given the high cost of fiber installation compared to the cost of fiber, companies commonly lay more fiber than present demand requires. If the mere presence of additional fibers meant that none of the dedicated fibers could be attributed to a particular programmer, our rules would be easily evaded.

12. ¹²Second Video Dialtone Report and Order, 7 FCC Rcd 5781 at ¶ 30. See also In the Matter of Telephone Company-Cable Television Cross Ownership Rules, Sections 63.54-63.58, Memorandum Opinion and Order on Reconsideration and Third Notice of Proposed Rulemaking, 11 FCC Rcd 244 at ¶ 33 (1994) (without sufficient capacity to permit multiple video programmers to provide service to consumers, "it is not clear that video dialtone service would differ materially from channel service, which telephone companies were able to provide to cable operators even before we adopted the video dialtone framework").

13. ¹³Thus, the majority's assertion (at para. 55) that "Ameritech also has capacity to serve multiple customers in the same MDUs" is not true. Ameritech's network strands service providers at a junction box within an MDU. Any programmer using Ameritech's service that wishes to obtain access to MDU residents must deal separately with the private property owner. See MFS, 12 FCC Rcd 6901 at ¶ 24 (no common carrier platform was established where system ended at a point of presence within a building).

14. ¹⁴ECI's offer to make its drop wires available to its competitors (i.e., trade the drops back and forth), while commendable, may therefore be irrelevant.

15. ¹⁵See Second Video Dialtone Report and Order, 7 FCC Rcd 5781 at ¶ 15 ("hallmarks of acting as a traditional cable operator" include: (1) selecting and packaging programming for sale to consumers; and (2) exercising editorial control over, or possessing an ownership interest in, video programming provided directly to consumers). See also FCC v. Midwest Video Corp., 440 U.S. 689, 707 (1979) ("cable operators exercise a 'significant amount of editorial discretion regarding what their programming will include'").

16. ¹⁶Under certain specified circumstances, Title VI also denies cable operators the right to exclude others from its system (e.g., commercial leased access, must-carry and PEG access channels).

17. ¹⁷See NCTA, 33 F.3d at 75.

18. ¹⁸See Section 602(7)(B).

19. ¹⁹The majority's reliance on AT&T Communications of the Southwest, Inc. v. City of Austin, Texas, 975 F. Supp. 928 (W.D. Tex. 1997) is therefore misplaced. That case arose under Title II, not Title VI, and dealt with the issue of whether a non-facilities-based reseller of a telephone company's local exchange service uses the public rights-of-way. But under Title VI, the issue is whether a technically-integrated facility uses the public rights-of-way. Moreover, ECI is not merely reselling a service already offered by Ameritech, but is leasing dedicated video transport facilities in order to provide its own programming service to consumers.

20. ²⁰In any event, it is those who select the programming and designate where it should be delivered who are using the public rights-of-way for purposes of Title VI. See NCTA, 33 F.3d at 71-72 (telephone company that merely serves as transparent conduit for the programming of others is not engaged in the "transmission" of video programming under Title VI). Indeed, the majority acknowledges (at para. 53) that it is the programmers using common carrier facilities that "generate and control" the signals from their headend to their subscribers.

21. ²¹Under the Commission's rules, a "significant interest" is a cognizable interest for attributing interests in broadcast, cable and newspaper properties pursuant to Sections 73.3555, 73.3615, and 76.501. See 47 C.F.R. § 76.5(bb).

22. ²²NCTA, 33 F.3d at 71. See also TBA v. Ohio Bell Telephone Company, FCC 97-64 (March 4, 1997) at ¶ 12 (common carrier that simply processes incoming transmissions and passes those signals on to their designated destinations does not control the transmitted signals).

23. ²³See S. Rep. 104-230, 104th Cong. 2d Sess. at 177 (Feb. 1, 1996).