June 30, 1998 DISSENTING STATEMENT OF COMMISSIONER GLORIA TRISTANI 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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." 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. 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. 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. 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. 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, 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.