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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) ) CLEAR CABLEVISION, INC. d/b/a ) CUID No. NJ0160 Adelphia Cable Communications ) ) Petition for Special Relief to Revoke) the Certification of the New Jersey ) Board of Public Utilities to ) Regulate Basic Cable Rates in ) Dover Township, New Jersey ) MEMORANDUM OPINION AND ORDER Adopted: October 10, 1996 Released: October 10, 1996 By the Chief, Cable Services Bureau: INTRODUCTION 1. In the captioned proceeding, Clear Cablevision, Inc. d/b/a Adelphia Cable Communications ("Adelphia") has filed a "Petition for Decertification and Finding of Effective Competition" asserting that Adelphia is subject to effective competition in Dover Township, New Jersey ("Dover"). The Commission gave public notice seeking comment on Adelphia's petition and on July 1, 1996, the New Jersey Department of the Treasury, Division of the Ratepayer Advocate ("Ratepayer Advocate") filed comments on Adelphia's petition. On July 11, 1996, the New Jersey Board of Public Utilities' Office of Cable Television (the "Public Utilities Board") filed comments. Thereafter, on July 22, 1996, Adelphia filed consolidated reply comments. 2. Section 623 of the Communications Act of 1934, as amended ("Communications Act") provides that subscriber rates of cable television systems are subject to either local or federal regulation only where "effective competition" is absent. Section 623(l)(1)(D) of the Communications Act, added as part of the Telecommunications Act of 1996, provides that a cable operator is subject to effective competition where: a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area. Section 623(a)(4) of the Communications Act, allows franchising authorities to become certified to regulate basic cable service rates of cable operators which are not subject to effective competition. For purposes of the initial request for certification, local franchising authorities may rely on a presumption that cable operators within their jurisdiction are not subject to effective competition unless they have actual knowledge to the contrary. Certification becomes effective 30 days from the date of filing unless the Commission finds that the authority does not meet the statutory certification requirements. In Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996, the Commission instructed cable operators believing themselves subject to local exchange carrier ("LEC") effective competition under Section 623(l)(1)(D) of the Communications Act to file a petition for determination of effective competition pursuant to Section 76.7 of the Commission's rules. THE PLEADINGS 3. Adelphia asserts that it is subject to LEC effective competition in its Dover Township franchise area. With regard to the LEC affiliation requirement, Adelphia asserts that FutureVision, a multichannel video programming distributor ("MVPD") using the facilities of a LEC, makes available over 60 channels of video programming using the facilities of Bell Atlantic, a LEC. 4. With regard to the requirement that the LEC competitor offer video programming service in the unaffiliated cable operator's franchise area, Adelphia asserts that FutureVision's "initial service area consists of approximately 38,000 homes (or substantially all of Dover Township)." According to Adelphia, weekly visual inspections by Adelphia field representatives indicate that, in 1995, Bell Atlantic completed construction of its main distribution plant consisting of fiber optic lines to the curb and an optical network unit ("ONU") attached to a pole or encased in a pedestal. Adelphia asserts that Bell Atlantic's facilities are physically able to serve subscribers when Bell Atlantic installs a dual coax/twisted pair drop from the ONU to the home, where the drop wire is connected to a residential service unit ("RSU") attached to the home. When a customer requests service from FutureVision, it contacts Bell Atlantic to activate service to the RSU and FutureVision connects the RSU to the subscriber's television. Adelphia cites a newspaper article which reports that, as of August 27, 1995, Bell Atlantic had video distribution plant passing 15,000 homes in Dover Township. Adelphia also asserts that it is unaffiliated with either Bell Atlantic or FutureVision. 5. Adelphia asserts that FutureVision is aggressively marketing its service to potential subscribers in its Dover service area, primarily through direct mail and door-to-door solicitation. In addition, Adelphia asserts that the extensive press coverage of FutureVision's operations in two local newspapers "would make it difficult for a resident of Dover not to be aware of the availability of FutureVision's services." Adelphia acknowledges that FutureVision is currently available only in the eastern portion of Dover. However, Adelphia relies upon newspaper statements attributed to FutureVision, as well as FutureVision's marketing brochure, as evidence that FutureVision intends to add approximately 1,000 to 1,500 homes per month to its service area until all of Dover has access to FutureVision's service. Adelphia provides a newspaper article in which FutureVision asserts that, as of May 20, 1996, it had approximately 2,600 subscribers. Adelphia therefore asserts that FutureVision's service is offered in Dover because service is physically available to subscribers with the addition of no or only minimal additional investment, and no regulatory, technical or other impediments exist which would prevent subscribers from receiving service in Dover. 6. Adelphia asserts that FutureVision offers comparable programming to Dover subscribers. Specifically, Adelphia provides FutureVision's channel line-up which demonstrates that FutureVision offers 60 channels, 15 of which are television broadcasting signals. 7. The Ratepayer Advocate opposes Adelphia's petition, arguing that Adelphia's petition should not be considered by the Commission until: (1) the Commission issues final rules applicable to LEC effective competition, or (2) Adelphia supplements its petition with further evidence of competition. The Ratepayer Advocate asserts that in adopting final rules pertaining to LEC effective competition, the Commission should either: (1) develop a penetration test similar to the low penetration and competing provider effective competition tests, or (2) limit deregulation under the LEC effective competition test to those portions of the franchise area in which the cable operator and the LEC competitor actually compete. The Ratepayer Advocate argues that limiting deregulation to those portions of the franchise area in which the cable operator and the LEC competitor actually compete would avoid selective discounting problems associated with the 1996 Act's revision of the uniform pricing provision. 8. The Ratepayer Advocate also argues that Adelphia has the means under New Jersey law to implement swift rate reductions in order to respond to competition from FutureVision. Finally, the Ratepayer Advocate asserts that potential changes in the video marketplace, such as the National Cable Television Association's ("NCTA") petition to require currently approved video dialtone ("VDT") systems to choose to become an open video system or cable franchisee, further counsel against deregulation of Adelphia's system. 9. The Public Utilities Board filed comments provisionally supporting Adelphia's petition. The Public Utilities Board concedes that FutureVision is using the facilities of a LEC, and that it offers comparable programming. With regard to whether FutureVision offers its service in Dover, the Public Utilities Board states that FutureVision informally stated in response to a Public Utilities Board inquiry that almost 7,000 of the 38,000 Dover households are currently wired and available to FutureVision for marketing purposes, and that an additional 6,000 households will soon be released to FutureVision for marketing. Finally, the Public Utilities Board concludes that: there is every reason to believe that Adelphia will not risk alienating subscribers by charging higher rates if there is any future possibility that subscribers will soon have the option of switching to an alternative video provider through Bell [Atlantic's] network. Moreover, given FutureVision's aggressive solicitation in the area, the [Public Utilities Board] is concerned that Adelphia, due to the unique facts and circumstances in this case, may lose a substantial number of customers before it is able to react to the competitive forces it faces. For this reason, the [Public Utilities Board] does not oppose the immediate deregulation of Adelphia's basic and cable programming service rates on an interim basis, so long as the Commission conducts a further analysis of Bell's construction program to determine whether over the long-term deregulation of Adelphia's rates will be necessary on a permanent basis. 10. Adelphia filed a consolidated reply to the comments of the Public Utilities Board and the Ratepayer Advocate. With regard to the Public Utilities Board's comments, Adelphia supports the Public Utilities Board's comments with the exception that Adelphia believes that it is unnecessary for the Commission to continue to monitor the expansion of Bell Atlantic's video system in Dover. With regard to the Ratepayer Advocate's comments, Adelphia states that a postponement of a decision on Adelphia's petition until the Commission adopts final rules applicable to LEC effective competition is directly contrary to the Commission's Cable Act Reform Order, which encourages the filing of such petitions and states that the Commission will act on such petitions. Adelphia states that the Ratepayer Advocate's suggestion that the Commission adopt a homes passed or penetration test applicable to the LEC effective competition test is impermissible because it contradicts Congress' express decision not to adopt such a test. Adelphia states that "[t]he question posed by the [Cable Act] Reform Order, and cited by the Ratepayer Advocate, of whether LEC-affiliated competition is sufficient to have a restraining effect on cable rates has already been addressed by Congress: it does." Adelphia then asserts that competition from FutureVision in Dover has prevented Adelphia from increasing its rates despite the fact that it has recently added programming to its system. Adelphia also argues that the Ratepayer Advocate's suggestion that a cable operator be deregulated only in the portions of its franchise area in which it actually faces head-to-head competition is also impermissible. According to Adelphia, the Communications Act expressly requires deregulation on a franchise area basis. Adelphia argues that the ability to somewhat expeditiously reduce rates is only one aspect of competitive flexibility. Finally, Adelphia argues that the Ratepayer Advocate's speculation about potential changes in the video marketplace does not justify the Commission's delaying its decision on Adelphia's petition. ANALYSIS 11. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition as defined in the Communications Act. The cable operator bears the burden of rebutting the presumption that such effective competition does not exist and so must provide evidence sufficient to demonstrate that effective competition, as defined by Section 76.905 of the Commission's rules, is present in the franchise area. Adelphia has met this burden. 12. We note at the outset that this is not the first instance in which the Commission has investigated the state of competition in Dover Township. Prior to inclusion of the LEC effective competition provision in the Communications Act, the Commission had tentatively concluded that the video programming provided on Bell Atlantic's video system, along with certain other conditions, would ensure that the rates for cable programming services will not be unreasonable and sought comment on whether a waiver of the rules might therefore be justified. 13. With regard to the LEC ownership or affiliation aspect of the effective competition test, which requires that the alleged competitive service be provided by a LEC or its affiliate (or any MVPD using the facilities of such LEC or its affiliate), we find that FutureVision is an MVPD using the facilities of a LEC. Bell Atlantic is a local exchange carrier as defined by the Communications Act, and FutureVision meets the Commission's definition of the term MVPD. Based on the affidavit attached to Adelphia's petition, we also conclude that Adelphia is unaffiliated with both Bell Atlantic and FutureVision. 14. With regard to the comparable programming aspect of the LEC effective competition test, Adelphia has submitted evidence sufficient to demonstrate that the programming of FutureVision is comparable. FutureVision offers over 60 channels, including 15 broadcast channels (at least 9 of which are local broadcasting channels) which satisfies the Commission's programming comparability criteria. 15. The LEC effective competition test also requires that competitive service be offered directly to subscribers in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area. In enacting the LEC effective competition test, Congress indicated that the Commission should apply its preexisting definition of the term "offer" to the LEC effective competition test. This definition provides that service is offered: (1) When the multichannel video programming distributor is physically able to deliver service to potential subscribers, with the addition of no or only minimal additional investment by the distributor, in order for an individual subscriber to receive service; and (2) When no regulatory, technical or other impediments to households taking service exist, and potential subscribers in the franchise area are reasonably aware that they may purchase the services of the multichannel video programming distributor. 16. FutureVision's initial service area, as has been noted, consists of approximately 38,000 homes (or substantially all of Dover Township). Adelphia provides evidence demonstrating that as of May 5, 1996, FutureVision had approximately 2,600 subscribers in Dover. According to Adelphia's filing, facilities construction is complete in the eastern portion (approximately half) of Dover Township and that main distribution plant, consisting of fiber optic wire to the curb and an ONU attached to a pole or encased in a pedestal, is complete throughout all of Dover Township. According to Adelphia (and supported by the Public Utilities Board's comments), in those areas wired by Bell Atlantic and released to FutureVision for marketing, FutureVision need only contact Bell Atlantic to activate service and connect the RSU to the subscriber's television. In addition, the Public Utilities Board informs the Commission that FutureVision currently has almost 7,000 households available for marketing purposes and that number will soon nearly double to 13,000 households. Moreover, according to its own statements, Bell Atlantic intends to wire approximately 1,500 households per month, thereafter releasing them for marketing by FutureVision. In addition, as of August 1995, Bell Atlantic reported that actual capital expenditures associated with broadband network construction, including the Dover Township video project, amounted to $50,807,690 of a projected construction cost of $68,402,434. Bell Atlantic has already expended the majority of its financial outlay associated with the Dover video system. The existence of these sunk costs is clear evidence that Bell Atlantic is committed to competition in this market and to completing its system build-out and making service available to the remaining areas of Dover. 17. As noted by Adelphia, recent press coverage regarding the ongoing competitive situation in Dover Township confirms not only that potential subscribers are likely to be aware of their competitive options but that the expected beneficial effects of competition are taking place. For example, FutureVision's entry as a video programming provider in Dover Township has had a marked impact upon the cable rates and services of Adelphia. After FutureVision began offering service for a monthly fee of $19.95, Adelphia lowered its monthly basic service rate from $25.28 to $18.95. FutureVision then lowered its monthly fee to $14.95. Thereafter, on May 14, 1995, Adelphia announced that it would offer: free high speed access to the Internet for three local schools; high speed Internet access for cable subscribers at $30-35 per month in late summer 1996; local telephony service (no timeframe announced); interactive features in the near future with a new analog set-top box; and future capability to offer up to 200 digital TV channels. 18. FutureVision's more than 2,600 subscribers, Bell Atlantic's ongoing installation activities in Dover, FutureVision's aggressive marketing efforts, and the extensive press coverage of Bell Atlantic and FutureVision's activities in the local media, ensure that potential subscribers are reasonably aware of the availability of competitive video distribution service. Although FutureVision's ability to offer service to households in some part of the franchise area remains somewhat restricted, in light of all the circumstances herein, we conclude that competitive service is being offered in a manner sufficient to comply with the applicable standard, and that the service offered by FutureVision is effective in restraining Adelphia's cable rates. 19. With regard to the Ratepayer's Advocate's proposal that we defer Adelphia's petition until release of final rules applicable to LEC effective competition, or alternatively require Adelphia to supplement its petition with further evidence of competition, we disagree with such proposals. The Commission stated in the Cable Act Reform Order, that the LEC effective competition test was effective upon enactment and the Commission would act on petitions filed pursuant thereto. Accordingly, we decline to defer action on Adelphia's petition until the Commission issues final rules applicable to the LEC effective competition test. In addition, there is no need for Adelphia to supplement the record in this proceeding with further evidence of competition. We also note that the Ratepayer Advocate's concerns regarding future changes to the video marketplace do not affect our finding that LEC effective competition exists in Dover Township. 20. With regard to the Public Utilities Board's comments, because we conclude that Adelphia is subject to effective competition, we have no basis under the rules for imposing a further monitoring requirement on Bell Atlantic's construction program to determine whether it proceeds as scheduled. Adelphia has satisfied its burden of demonstrating that it faces LEC effective competition in its Dover franchise area. However, if the Public Utilities Board subsequently believes that circumstances in Dover warrant its recertification, the Public Utilities Board may file a petition for recertification pursuant to Section 76.916 of the Commission's rules. 21. As Adelphia has submitted sufficient evidence demonstrating that its cable system serving Dover Township, New Jersey is subject to LEC effective competition from FutureVision, its petition is granted. ORDERING CLAUSES 22. Accordingly, IT IS ORDERED that the Petition for Decertification and Finding of Effective Competition filed by Clear Cablevision, Inc. d/b/a Adelphia Cable Communications IS GRANTED. 23. IT IS FURTHER ORDERED that the certification of the New Jersey Board of Public Utilities applicable to Clear Cablevision, Inc. d/b/a Adelphia Cable Communications' basic cable rates in Dover Township, New Jersey IS REVOKED. 24. This action is taken pursuant to the interim rules adopted in Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996, and is without prejudice to any further action taken by the Commission in adopting final rules pursuant to the Notice of Proposed Rulemaking contained therein. 25. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau