NOTICE ************************************************************************* NOTICE ************************************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file pnmc5021. File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* Before the Federal Communications Commission Washington, D.C. 20554 In re: ) CUID Nos. DE0025, DE0059, ) DE0060, DE0062, DE0070, MARCUS CABLE OF DELAWARE ) DE0088, DE0089, DE0090, AND MARYLAND, L.P. ) DE0091, DE0092 ) ) ) Petition for Revocation of the ) Certification of the ) Delaware Public Service Commission to ) Regulate Basic Cable Service Rates ) ) MEMORANDUM OPINION AND ORDER Adopted: December 2, 1996 Released: December 5, 1996 By the Chief, Cable Services Bureau: INTRODUCTION 1. Marcus Cable of Delaware and Maryland, L.P. ("Marcus") has filed with the Commission a petition for revocation of the certification ("Petition") of Delaware Public Service Commission ("DPSC") to regulate Marcus' basic cable service and associated equipment rates. DPSC filed its opposition ("Opposition") and Marcus replied ("Reply"). BACKGROUND 2. Section 623(a)(4) of the Communications Act of 1934, as amended ("Communications Act"), permits local franchising authorities to become certified to regulate the basic cable service and associated equipment rates of cable operators within their jurisdictions who are not subject to effective competition. For purposes of the initial request for certification, franchising authorities may rely on the presumption that cable operators are not subject to effective competition, unless the franchising authority has actual knowledge to the contrary. Such certification becomes effective 30 days from the date of filing, unless the Commission finds that the franchising authority does not meet the statutory certification requirements. Cable operators may file petitions for reconsideration of the franchising authority's certification within thirty days from the date such certification becomes effective. Rate regulation is automatically stayed pending review of a timely-filed petition for reconsideration alleging effective competition. After the 30-day deadline for filing petitions for reconsideration has elapsed, cable operators may challenge the franchising authority's certification by filing a petition for revocation. However, regardless of its grounds, a petition for revocation does not automatically trigger a stay of the franchising authority's power to regulate basic cable service rates. SUMMARY OF PLEADINGS 3. In its Petition, Marcus states that on May 29, 1996, a petition it filed with the DPSC alleging the presence of effective competition was denied. In that petition, Marcus argued that it was subject to low penetration effective competition because it serves fewer than 30 percent of the occupied housing units ("households") in its franchise area. The DPSC found that Marcus had made an affirmative decision to "redefine" its service area and concluded that, on the basis of its redefined franchise area, Marcus failed to meet the low penetration effective competition test. In this proceeding, Marcus contends that the DPSC's finding that Marcus had "redefined" its franchise area is erroneous. 4. Marcus states that the franchise area in question encompasses the Chesapeake- Delaware Canal, as the northern boundary, southern New Castle County, Kent County and northern Sussex County, Delaware. Marcus further states that the DPSC found that there are 37,405 households in its franchise area and that 10,790 residents of those households subscribe to Marcus' basic cable service. Marcus next states that DPSC calculated Marcus' penetration rate within its franchise area, as defined in the franchise agreement, to be 28.8 percent, a rate which meets the low penetration effective competition test. Marcus argues that the DPSC erroneously found that Marcus' franchise area, as defined in the franchise agreement, does not accurately represent the area in which Marcus provides cable service because Marcus had taken certain actions to self-define its franchise area and that Marcus' "actual" franchise area should be used to determine its true penetration rate. The DPSC, Marcus asserts, relied upon the following two factors to support its conclusion that Marcus had redefined its franchise area: (1) Marcus had not yet extended its plant throughout the entire franchise area; and (2) Marcus limited its cable line extensions to those which met the line extension requirements contained in its franchise agreement. 5. Marcus maintains that it has not taken any action which reasonably could be shown to be a redefinition of its franchise area and that the DPSC has failed to introduce evidence to demonstrate that the cable operator has undertaken such a redefinition. Marcus does not dispute DPSC's statements concerning Marcus' plant and line extension policies. Marcus concedes that it has not extended its cable plant into the New Castle County portion of its franchise area and that it will not extend its line into any portion of the franchise area that does not meet the franchise requirements of 20 homes per mile or the availability of financial assistance to the cable operator from a developer or from prospective residents. Marcus argues, however, that its cable and line extension policies do not constitute sufficient grounds to support DPSC's allegation that the cable operator has redefined its franchise area. With regard to its failure to extend its cable plant into the New Castle County area, Marcus asserts that the Commission has stated that a cable operator's failure to construct plant throughout a franchise area is not considered to be a franchise redefinition. Marcus notes that the Commission has consistently denied claims of franchise redefinition even where cable systems served only a small portion of their franchise area, as defined in the franchise agreement. With regard to its line extension policy, Marcus states that the DPSC misinterpreted Marcus' adherence to the line extension requirements as a legal prohibition on Marcus' authority to expand into areas that do not meet the specified density or construction assistance requirements contained in its franchise agreement. Marcus argues that in contrast to C-TEC Cable Systems of Michigan, Inc.,("C-Tec") the case relied upon by the DPSC to support its position, the instant franchise requirements are not legal impediments to Marcus' authority to build out its entire franchise area. To illustrate that point, Marcus maintains that it could voluntarily extend its cable plant and line into new areas of the franchise without regard to the density or construction assistance requirements of the franchise agreement. 6. Marcus next argues that the DPSC erred when it relied upon Marcus' transfer application and 2 letters from subscribers to show that Marcus had abandoned its right to serve the New Castle County portion of its franchise. In its transfer application, Marcus states that it would serve an area consisting of the "unincorporated areas of northern Sussex County and Kent County" and that the cable system was "already fully constructed." Marcus asserts that it believed, at that time, that the previous owner had already satisfied the minimum build-out requirements and that Marcus did not have immediate plans to expand the system. Marcus also states that the transfer application also indicates that Marcus would initiate construction as required by the relevant density requirements contained in the franchise agreement. Since acquiring the system, Marcus states that it has, in fact, made line extensions in its franchise area in each year that it has held the franchise. Further, Marcus asserts that it made known to the DPSC that it is "ready, willing and interested" in extending its lines into the New Castle County portion of the franchise. Finally, Marcus argues that, with regard to the 2 letters from Marcus subscribers that the DPSC relied upon to indicate Marcus' unwillingness to serve residents of New Castle County, the DPSC erred because those letters were from residents of Kent County. In responding to those letters, Marcus points out that it stated that the area in which the residents lived did not meet the minimum threshold requirements but that Marcus was interested in expanding its service whenever it was economically feasible to do so. 7. In its opposition, DPSC challenges Marcus' assertion that the relevant franchise area is the one granted pursuant to the franchise agreement. The DPSC maintains that Marcus' allegation that it meets the low penetration effective competition test is without merit because Marcus serves more than 30 percent of households within its self-defined franchise area. DPSC maintains that Marcus has taken affirmative actions to limit its franchise area to Kent and northern Sussex Counties and to exclude the unincorporated areas of southern New Castle County. DPSC states that, in Marcus' redefined franchise area, Marcus serves 10,790 subscribers in an area containing 33,177 households which results in a penetration rate of 32.5 percent. The DPSC states that, although the low penetration test compares the number of subscribers to the number of households in a given franchise area, the Commission has recognized that a more restrictive definition of franchise area is warranted in cases where a cable operator chooses to serve only a limited area of the franchise. 8. DPSC questions Marcus' assertion that it stands ready to build-out its entire franchise area because, in the four year history of its franchise, Marcus has not initiated service to any resident of New Castle County. In fact, the DPSC notes, Marcus has expanded its service only 9 aerial miles since it acquired the franchise and, in each extension, followed the line extension minimum threshold policy exclusively. DPSC maintains that Marcus presents its line extension policy to customers as a regulatory ban on extensions beyond those required under such policy. If Marcus' line extension policy acts as a regulatory ban, then the DPSC maintains that this case is no different from C-TEC wherein the Commission found that a legal limitation on the cable operator's ability to expand results in a redefinition of that operator's franchise area. The DPSC notes that the Commission reached the result it did in C-TEC, in circumstances that are similar to the instant case. In C-TEC, the cable operator was authorized to provide service only in those areas in which it was currently providing cable service and was permitted to expand only if it notified the local franchising authority first and then promptly undertook the expansion. DPSC asserts that if the circumstances in the C-TEC cases warranted continued rate regulation because of franchise redefinition, then so do the circumstances underlying this case. Marcus, the DPSC argues, should not be given the opportunity to exercise monopoly power by permitting the cable operator to include in its franchise area households it has chosen never to serve. 9. In its Reply, Marcus asserts that it has demonstrated that it meets the requirements of the low penetration effective competition test. The DPSC has failed, Marcus argues, to show that the cable operator has determined not to serve the New Castle County portion of its franchise area. To the contrary, Marcus asserts that it fully intends to build out its system in New Castle County. Marcus also points out that New Castle County is not the only area within its franchise area which is sparsely populated to the extent that they fail to meet the minimum density thresholds in the franchise agreement. Marcus argues that it has not redefined its franchise area with respect to those areas, just as it has not redefined its franchise area with respect to New Castle County. At the same time, Marcus states that the DPSC has introduced no evidence to show that New Castle County does not meet the minimum population density of 20 homes per mile required in the franchise agreement. 10. Marcus claims that, since acquisition, it has expanded its system by 22.59 miles of new plant and 784 new homes passed, noting that it has added 5.73 miles of new plant since it filed its petition in this case. Moreover, Marcus states that it intends to extend its plant into New Castle County, as well as other unserved areas, in the near future. Marcus reiterates that the C-TEC cases are inapposite here because, unlike in those cases, Marcus's expansion in its franchise area is not limited by the franchise agreement. Finally, Marcus notes that the two letters from Kent County residents, which the DPSC argues demonstrate Marcus' refusal to serve certain areas of its franchise, are irrelevant to this proceeding concerning New Castle County. DISCUSSION A. Franchise Redefinition 11. We are unpersuaded that Marcus' franchise area for purposes of effective competition is less than the entire area represented in its franchise agreement with the DPSC. Generally, a franchise area is defined as the area a system operator is authorized to serve in its franchise. The Commission has stated, however, that a more restricted definition of a franchise area may be appropriate where a cable operator, "through its conduct, self-defined the areas to be served to such an extent that this redefined area accurately portrays the operator's franchise area. " For example, the Commission found that, although the cable operator could expand its area of service by notifying the franchising authority, the operator was subject to a redefined franchise area where the franchise agreement limited the operator's authority to those areas served by the operator as of the date of the franchise agreement. Similarly, the Commission found that an operator had self-defined its franchise area by entering into a loan agreement which restricted the areas in which the cable operator could provide service to those areas of the franchise that had not been over-built. In those cases, the Commission determined that the franchising authority had met its burden of showing that the operator had made an affirmative decision to restrict its service to certain portions of the franchise. In other cases the Commission found that where the only evidence was the fact that the cable operator had not yet filled out its entire franchise area, the franchising authority failed to demonstrate that the operator had affirmatively redefined its franchise area. 12. The facts alleged in the instant case indicate that Marcus has expanded its service since it acquired the cable system in 1992 but that it has not built out its system to include the entire franchise area and, in particular, New Castle County. While the parties dispute the total number of miles that Marcus has expanded its system, both agree that the service area has been expanded. Marcus states that it intends to continue this expansion, evidenced by the additional miles of new plant that it has constructed since the filing of its Petition, and that it will expand its plant into New Castle County in the near future. As the Commission has cautioned, the fact that a cable operator has not yet filled out its entire franchise area, without more, is insufficient to demonstrate that a cable operator has redefined its franchise area. We find that the DPSC's argument rests on the fact that Marcus has not yet filled out its franchise area, a fact that is not fatal to Marcus' argument that its franchise area, for purposes of effective competition, is the area defined in its franchise agreement. Indeed, as noted above, the instant proceeding is not one where the cable operator has engaged in no expansion since acquiring the franchise. Marcus states, and the DPSC does not dispute, that it has engaged in expansion of its plant during each of the four years it has held the franchise. We further find that the DPSC's reliance on the two instances in which Marcus refused to provide cable service is insufficient to demonstrate that Marcus has redefined its franchise area. In both cases, the potential subscribers were residents of Kent County, not the county that the DPSC argues Marcus seeks to exclude from service. In Marcus' reply to those residents, it states that it will continue to monitor changes in population density to determine whether and when it would be economically feasible to extend its line into that portion of the franchise area. Accordingly, we find that the DPSC has failed to show that Marcus has taken affirmative steps to redefine its service area. B. Effective Competition 13. We next turn to the question of whether Marcus is subject to effective competition in the franchise area it is authorized to serve. Cable operators bear the burden of proving the existence of effective competition and such demonstrations must be made using household and subscriber data for the authorized area in the franchise. The DPSC acknowledges that the subscriber and Census data corresponding to Marcus' franchise area, as defined in the franchise agreement, show that Marcus serves 28.8 percent of households in its service area. The record below indicates that Marcus' penetration rate of 28.8 percent was calculated using data Marcus submitted from the 1990 U.S. Census evidencing a total of 38,651 households in the franchise and data from its customer records attesting to a subscriber base of 10,790. Thus we find that Marcus has demonstrated that its cable system meets the requirements of low penetration effective competition under our rules. Accordingly, its Petition is granted. ORDERING CLAUSES 14. Accordingly, IT IS ORDERED that the petition for revocation filed by Marcus Cable of Delaware and Maryland, L.P. challenging the certification of the Delaware Public Service Commission to regulate basic rates and associated equipment IS GRANTED. 15. IT IS FURTHER ORDERED that the certification of the Delaware Public Service Commission to regulate the basic rates and associated equipment of Marcus Cable of Delaware and Maryland, L.P. IS REVOKED. 16. This action is taken pursuant to delegated authority pursuant to Section 0.321, 47 C.F.R.  0.321, of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau