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File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** Before the Federal Communications Commission FCC 96-249 Washington, D.C. 20554 In the Matter of ) ) Implementation of Section 302 of ) CS Docket No. 96-46 the Telecommunications Act of 1996 ) ) Open Video Systems ) SECOND REPORT AND ORDER Adopted: May 31, 1996 Released: June 3, 1996 By the Commission: Chairman Hundt, Commissioners Quello, Ness, and Chong issuing separate statements. Table of Contents Paragraph I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 II. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 III. Open Video Systems . . . . . . . . . . . . . . . . . . . . . . . . 11 A. Qualifications to be an Open Video System Operator . . . . . . . . 11 1. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2. Discussion . . . . . . . . . . . . . . . . . . . . . . . . . 12 a. Statutory Construction . . . . . . . . . . . . . . . . . . . 13 b. Public Interest Conditions on Non-LEC and Out-of-Region LEC Entry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 B. Certification Process. . . . . . . . . . . . . . . . . . . . . . . 27 C. Carriage of Video Programming Providers. . . . . . . . . . . . . . 37 1. Allocation of Open Video System Channel Capacity . . . . . . 37 a. Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 37 b. Open Video System Operator Participation in the Allocation Process. . . . . . . . . . . . . . . . . . . . . . . . 40 c. Notification and Enrollment of Video Programming Providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 d. Open Video System Operator Discretion Regarding Video Programming Providers. . . . . . . . . . . . . . . . . . . . 50 e. Measurement of Capacity. . . . . . . . . . . . . . . . . . . 57 (1) Analog, Digital and Switched Digital Video . . . . . . . . . 57 (2) Counting the System Operator's One-Third Limit . . . . . . . 63 f. Allocation of Capacity Among Video Programming Providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 (1) General Framework. . . . . . . . . . . . . . . . . . . . . . 69 (2) Allocation Methodology . . . . . . . . . . . . . . . . . . . 71 (3) Type of Capacity -- Analog/Digital . . . . . . . . . . . . . 76 (4) Amounts of Capacity. . . . . . . . . . . . . . . . . . . . . 82 (5) Subsequent Changes in Capacity or Carriage Demand . . . . . . . . . . . . . . . . . . . . . . . . . 91 (6) Channel Positioning. . . . . . . . . . . . . . . . . . . . . 98 g. Channel Sharing. . . . . . . . . . . . . . . . . . . . . . .100 h. Technical Issues . . . . . . . . . . . . . . . . . . . . . .105 2. Open Video System Operator Co-Packaging of Video Programming Selected by Unaffiliated Video Programming Providers . . . .107 D. Rates, Terms and Conditions of Carriage. . . . . . . . . . . . . .112 1. Just and Reasonable Carriage Rates . . . . . . . . . . . . .112 2. Open Video System Carriage Rates Must Not Be Unjustly or Unreasonably Discriminatory. . . . . . . . . . . . . . . . . . . .129 3. Disclosure of Programming Contracts. . . . . . . . . . . . .131 E. Applicability of Title VI Provisions . . . . . . . . . . . . . . .133 1. Public, Educational and Governmental Access Channels . . . .133 a. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . .133 b. Discussion . . . . . . . . . . . . . . . . . . . . . . . . .137 (1) Establishing Open Video System PEG Obligations through Negotiation. . . . . . . . . . . . . . . . . . . . . . . .137 (2) Open Video System Operator PEG Obligations Satisfied through Connection and Cost Sharing. . . . . . . . . . .141 (3) Establishing Open video System PEG Obligations Where No Local Cable Operator Exists . . . . . . . . . . . . . . .151 (4) Provision of PEG Access Channels to All Subscribers. . . . . . . . . . . . . . . . . . . . . . . . . . . .153 (5) Open Video System PEG Obligations Where System Overlaps with More than One Franchise Area . . . . . . . . . . . .154 (6) Technical Issues . . . . . . . . . . . . . . . . . . . . . .156 2. Must-Carry and Retransmission Consent. . . . . . . . . . . .157 3. Program Access . . . . . . . . . . . . . . . . . . . . . . .171 a. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . .171 b. Discussion . . . . . . . . . . . . . . . . . . . . . . . . .174 (1) Applicability of Program Access Rules to Open Video System Operators and Their Affiliates. . . . . . . . . . . .175 (2) Program Access Restrictions on Open Video System Programming Providers . . . . . . . . . . . . . . . .181 (3) Benefits of Program Access Rules for Open Video System Programming Providers. . . . . . . . . . . . . .195 (4) Expansion of the Program Access Rules. . . . . . . . . . . .197 4. Sports Exclusivity, Network Non-Duplication and Syndicated Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . .199 5. Other Title VI Provisions. . . . . . . . . . . . . . . . . .205 6. Preemption of Local Franchising Requirements . . . . . . . .207 F. Information Provided to Subscribers. . . . . . . . . . . . . . . .223 G. Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . .235 H. Joint Marketing, Bundling and Structural Separation . . . . . . .243 I. Advanced Telecommunications Incentives . . . . . . . . . . . . . .250 IV. Final Regulatory Flexibility Act Analysis. . . . . . . . . . . . .253 V. Paperwork Reduction Act of 1995 Analysis . . . . . . . . . . . . .257 VI. Ordering Clauses . . . . . . . . . . . . . . . . . . . . . . . . .259 Appendix A: Parties Filing Comments and Reply Comments Appendix B: Rule Changes Appendix C: FCC Form 1275 - Open Video System Certification of Compliance I. INTRODUCTION 1. The Telecommunications Act of 1996 (the "1996 Act") added Section 653 to the Communications Act. Section 653 of the Communications Act establishes a new framework for entry into the video programming delivery marketplace -- the "open video system." As designed by Congress, the open video framework provides an option, particularly to a local exchange carrier, for the distribution of video programming other than as a "cable system" governed by all of the provisions of Title VI. If a telephone company agrees to permit carriage of unaffiliated video programming providers on just, reasonable and non-discriminatory rates and terms, it can be certified as an operator of an "open video system" and subjected to streamlined regulation under Title VI. 2. In establishing this structure, we believe that Congress intended to advance competition in two areas of the video market. First, Congress sought to encourage telephone companies to enter the video programming distribution market and to deploy open video systems in order to "introduce vigorous competition in entertainment and information markets" by providing a competitive alternative to the incumbent cable operator. Congress' incentive for such entry was not only exemption from particular requirements of Title VI, but that streamlined Title VI obligations apply in lieu of, and not in addition to, any requirements under Title II. Second, by requiring open video system operators to provide carriage opportunities for video programming providers on terms that are just and reasonable, and not unjustly or unreasonably discriminatory, Congress sought to foster competition by encouraging multiple programming sources on open video systems. 3. The open video system model can provide the competitive benefits that Congress sought to achieve: market entry by new service providers, enhanced competition, streamlined regulation, investment in infrastructure and technology, diversity of programming choices and increased consumer choice. We believe that the best way to achieve Congress' goals is to give open video system operators the flexibility to enter and compete based on the demands of the marketplace. Our approach reflects the reduced regulatory burdens envisioned by Congress for open video systems. Specifically, the open video system operator, by not being subject to traditional Title II regulation, as well as particular provisions of Title VI, is afforded substantial discretion in administering the open video system, subject to particular parameters of the law. A general level of guidance, however, is required to ensure compliance with Congress' particular directives under Section 653 and to give certainty to the participants. As described below, we have implemented Section 653 with the clear recognition that the open video system operator is a new entrant in the video marketplace with particular statutory obligations that can be implemented through streamlined regulation. II. BACKGROUND 4. On February 8, 1996, the 1996 Act was signed into law. Among other things, the 1996 Act repeals the telephone-cable cross-ownership restriction imposed by the Cable Communications Policy Act of 1984 (the "1984 Cable Act"), which prohibited telephone companies from providing video programming directly to subscribers in their telephone service areas. In addition, the 1996 Act repealed the Commission's "video dialtone" rules and policies, which were established to permit telephone companies to participate in the video marketplace in a manner consistent with the statutory telephone-cable cross-ownership ban. Under the video dialtone rules and policies, telephone companies could provide a common carrier video transmission service for programming provided by others, but, consistent with the statutory ban, were generally prohibited from providing any programming themselves in their telephone service areas. The United States Courts of Appeal for the Fourth and Ninth Circuits, however, found the cross-ownership ban violated the First Amendment and the Commission was enjoined from enforcing it against virtually all local exchange carriers. 5. Contrary to the limited options available to local exchange carriers ("LECs") under the previous law for providing video programming, the 1996 Act offers telephone companies several options for entering and competing in the video marketplace. This is in keeping with the 1996 Act's general goal of "accelerat[ing] rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition." As the Conference Report for the 1996 Act (the "Conference Report") states: Recognizing that there can be different strategies, services and technologies for entering video markets, the conferees agree to multiple entry options to promote competition, to encourage investment in new technologies and to maximize consumer choice of services that best meet their information and entertainment needs. Later, the Conference Report reiterates "the conferees recognize that telephone companies need to be able to choose from among multiple video entry options to encourage entry," and systems should be "allowed to tailor services to meet the unique competitive and consumer needs of individual markets." In giving telephone companies broad flexibility to enter the video marketplace, the 1996 Act encourages competition and new investment. 6. The alternatives for the delivery of video programming services by telephone companies are set forth in Section 302 of the 1996 Act, which establishes a new Part V (Sections 651 through 653) of Title VI of the Communications Act. The specific entry options for telephone companies entering the video programming marketplace are set forth in Section 651, which provides that common carriers may: (1) provide video programming to subscribers through radio communication under Title III of the Communications Act; (2) provide transmission of video programming on a common carrier basis under Title II of the Communications Act; (3) provide video programming as a cable system under Title VI of the Communications Act; or (4) provide video programming by means of an "open video system" under new Section 653 of the Communications Act. The 1996 Act also provides that, to the extent permitted by Commission regulation, "an operator of a cable system or any other person may provide video programming through an open video system." 7. Generally, Section 653 provides that if an entity certifies that it complies with certain non-discrimination and other requirements established by the Commission, its open video system will not be subject to regulation under Title II and will be entitled to reduced regulation under Title VI. The Commission must approve or disapprove any open video system certification request within ten days of receipt. An open video system operator's certification request must certify that it complies with the Commission's regulations implementing the requirements in Section 653(b), which: (1) prohibit the operator from discriminating among video programmers regarding carriage on its system; (2) require the operator to establish rates, terms and conditions of carriage that are just, reasonable and not unjustly or unreasonably discriminatory; (3) prohibit the operator or its affiliate, if carriage demand exceeds capacity, from selecting the video programming on more than one-third of its activated channels; (4) permit the operator to use channel sharing arrangements that provide subscribers with ready and immediate access to programming; (5) extend the Commission's sports exclusivity, network non-duplication and syndicated exclusivity regulations to open video systems; and (6) prohibit the operator from unreasonably discriminating in favor of its affiliates with regard to information provided to subscribers for the purpose of selecting programming. The legislative history indicates that the Commission is not to impose "Title II-like regulation" under the authority of Section 653. Section 653(b)(1) directs the Commission to take all actions necessary (including any reconsideration) to prescribe regulations implementing these requirements within six months of the 1996 Act's enactment. Similarly, subsection 653(c)(2)(A) directs the Commission to take all actions necessary (including any reconsideration) to prescribe regulations applying, to the extent possible, Title VI "must-carry" and public, educational and governmental ("PEG") access obligations, and Title III retransmission consent obligations, to open video systems operators. 8. If the Commission approves an open video system operator's certification, the operator will qualify for the streamlined regulation of Section 653(c). Title VI provisions that do not apply to open video systems under Section 653(c) include: (1) Section 612 -- "leased access" obligations; (2) Sections 621 and 622 -- franchise requirements and fees (although an open video system operator will be subject to a gross revenue fee at a rate not to exceed the franchise fee paid by the local cable operator); (3) Section 623 -- rate regulation; and (4) Section 632 -- consumer protection and customer service. In providing for such streamlined regulation, Congress again stressed its goals of flexible market entry, encouraging competition and investment, and reliance on market forces: There are several reasons for streamlining the regulatory obligations of such systems. First, the conferees hope that this approach will encourage common carriers to deploy open video systems and introduce vigorous competition in entertainment and information markets. Second, the conferees recognize that common carriers that deploy open systems will be 'new' entrants in established video programming markets and deserve lighter regulatory burdens to level the playing field. Third, the development of competition and the operation of market forces mean that government oversight and regulation can and should be reduced. 9. Section 653 establishes a process for the resolution of any disputes that may arise. Generally, Section 653 provides that the Commission has the authority to resolve disputes regarding open video systems, and that it must do so within 180 days of submission. Where the Commission's rules have been violated, the Commission may require carriage, award damages to a person improperly denied carriage, or both. Aggrieved parties may also seek any other remedy available under the Communications Act. 10. On March 11, 1996, the Commission released a Report and Order and Notice of Proposed Rulemaking (the "Notice"), seeking comment on how to implement the above requirements. We received 61 comments and 79 replies in response to the Notice. After consideration of the comments and reply comments, we hereby adopt the Second Report and Order herein. III. OPEN VIDEO SYSTEMS A. Qualifications to be an Open Video System Operator 1. Notice 11. New Section 653(a)(1) of the Communications Act provides: A local exchange carrier may provide cable service to its cable service subscribers in its telephone service area through an open video system that complies with this section. To the extent permitted by such regulations as the Commission may prescribe consistent with the public interest, convenience, and necessity, an operator of a cable system or any other person may provide video programming through an open video system that complies with this section. Pursuant to this section, a LEC, as defined in Section 3(26), is qualified to be an open video system operator in its telephone service area. The Notice asked whether the second sentence of Section 653(a)(1) permits the Commission to allow cable operators and others, including LECs outside their telephone service areas, to become open video system operators, or whether it merely authorizes the Commission to allow them to provide video programming on the open video system operated by a LEC. Specifically, given that the first sentence of Section 653(a)(1) allows LECs to provide "cable service," we sought comment on whether use of the term "video programming" in the second sentence was intended to restrict cable operators and others to the role of programming providers on an open video system and thus precludes them from also becoming open video system operators. We also requested comment on what factors should govern the Commission's public interest determination under this section. 2. Discussion 12. We conclude that the second sentence of Section 653(a)(1) authorizes the Commission to allow non-LECs to operate open video systems and to allow LECs to operate open video systems outside of their telephone service areas when the public interest, convenience, and necessity are served. We find that it would serve the public interest, convenience and necessity to permit other entities, besides LECs, to become open video system operators. With respect to cable operators within their cable franchise areas, we conclude that it would serve the public interest, convenience, and necessity to allow a cable operator to operate an open video system in its cable franchise area if it is subject to "effective competition" under Section 623(l)(1) in its cable franchise area. This condition shall apply even if a cable operator also provides local exchange services within its cable franchise area. Our decision to allow cable operators to become open video system operators under these circumstances shall not be construed to affect the terms of any existing franchising agreements or other contractual agreements. a. Statutory Construction 13. The starting point for our analysis is the statute. Where Congress "has directly spoken to the precise question at issue . . . that is the end of the matter," and the Commission must give effect to Congress' expressed intent. If, however, the statute is silent or ambiguous with respect to a specific issue, the Commission's interpretation will be upheld so long as it is a "permissible" construction of the statute. 14. We do not believe that Congress has addressed the issue of whether non-LECs may operate open video systems in a clear and unambiguous manner. In light of various factors discussed below, we interpret the statute as allowing non-LECs to operate open video systems to the extent permitted by Commission regulations. As a preliminary matter, we note that neither the statute nor the legislative history states that non-LECs are prohibited from operating open video systems. Second, we agree with several commenters that Congress has used the phrases "provide cable service" and "provide video programming" to refer to the same activity. For instance, Section 651(a)(3) states that to the extent a common carrier is "providing video programming" to its subscribers in any manner other than a wireless operator or common carrier, it will be subject to the full requirements of Title VI unless "such programming is provided by means of an open video system" for which the Commission has approved a certification under Section 653. Furthermore, as TCI argued: in the now-repealed cable-telephone company cross-ownership provision, former Section 613(b)(1), 47 U.S.C.  533(b)(1), repealed by the 1996 Act,  302(b), Congress made it unlawful for any local exchange carrier to "provide video programming" directly to subscribers. Interpreting the term "provide video programming," the Fourth Circuit determined that Section 613(b)(1) "essentially prohibits local telephone companies from offering, with editorial control, cable television services to their common carrier subscribers." Similarly, the Commission found that Section 613(b)(1) was intended to ensure that common carriers did not provide video programming to subscribers "in the same manner as traditional cable operators;" thus, the Commission found that an entity has to obtain a cable franchise (and thus is providing "cable service") only when the entity "selects or provides the video programming to be offered." This interpretation was upheld by the United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit"). We can assume that Congress meant to adopt our interpretation, as affirmed by the courts, when it passed the 1996 Act because Congress is presumed to intend the meaning of terms and phrases as they have been interpreted by agencies or courts. 15. We disagree with the argument posed by the National League of Cities, et al. that it would not have been necessary for Congress to construct two separate sentences in Section 653(a)(1) if it had intended "cable service" and "video programming" to have the same meaning. This argument does not take into account that Congress permitted non-LECs to operate open video systems subject to the Commission's findings regarding the public interest, convenience, and necessity. We believe the two sentences were used not to distinguish which entities may operate open video systems, but to distinguish the conditions under which entities may operate such systems. We do agree with the National League of Cities, et al. that Congress did not intend the terms to be precise synonyms. Rather, "providing video programming" may or may not be synonymous with "providing cable service," depending upon who owns the transmission facilities and the manner in which video programming is provided. With respect to cable systems, the cable operator is entitled both to own the facilities and to select programming for channels other than those being used for PEG access, must-carry broadcast stations, and leased access. We believe that Congress used the term "video programming" to ensure Commission oversight over whether persons that operate cable systems may also participate in open video systems, both by providing video programming over their own open video systems and by providing video programming over another entity's system. 16. We also disagree with the argument by the National League of Cities, et al. and Alliance for Community Media, et al. that the second sentence of Section 653(a)(1) is nothing more than a clarification that cable operators may provide video programming on a LEC's open video system that Congress inserted in response to the debate over whether a cable operator could be a programmer on a video dialtone system under the Commission's former rules. There is no evidence to support this assertion on the face of the statute or its legislative history. Moreover, if Congress added the second sentence merely to resolve the dispute over cable operators' carriage rights on a video dialtone system, the more likely place would have been in Section 653(b), which describes video programming providers' carriage rights, not Section 653(a), which addresses the certification process for open video system operators. Indeed, we believe the statute's delineation of "an operator of a cable system or any other person" in Section 653(a)(1), the certification provision, supports our view that Congress intended that these entities, like LECs in their service areas, could obtain certification to operate open video systems. 17. We also disagree with commenters that find it significant that only common carriers or telephone companies are referred to in new Section 651(a)(4) and in the titles to new Part V of Title VI of the Communications Act and Section 302 of the 1996 Act. Similarly, we disagree with commenters that claim that references to common carriers or telephone companies in the legislative history indicate that Congress did not intend to allow non-LECs to become open video system operators. Part V was created against the backdrop of the statutory repeal of the telephone-cable cross-ownership restriction, which prohibited telephone companies from providing video programming to subscribers in their telephone service areas. In this context, it is logical that the legislative history would have focused on the telephone companies' new options for entering the video marketplace. But, given the 1996 Act's overall intent to open all telecommunications markets to competition, we do not read the legislative history's focus on telephone companies to mean that Congress intended to deny all others the opportunity to use this new model for delivering video programming. Indeed, we believe that with the express reference to cable operators and others in the second sentence of Section 653(a)(1), Congress intended to provide just such an opportunity. 18. We conclude, therefore, that Section 653(a)(1) does not preclude entities other than LECs in their service areas from becoming open video system operators. We believe that permitting non-LECs and LECs outside their service areas to become open video system operators is not only a "permissible" reading of the statute, but a reading that adheres most closely to Congressional intent to "accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition," and that is consistent with the public interest, convenience and necessity. We agree with UTC that Congress did not intend the 1996 Act, which is designed to eliminate outdated regulatory distinctions, to be used as the basis for creating new ones. Similarly, we agree with CATA's general argument that all entities should "have the option to make the same choices, unconstrained by artificial regulations based on their historic regulatory classification." As Comcast argues, any benefits gained through open video systems would also generally result from open video systems owned by non-LECs. By making the open video system option available to utility companies and others, this interpretation will foster facilities-based competition and maximize consumer choice by providing a wider range of outlets for unaffiliated video programming providers. 19. We disagree with those commenters that argue that Congress intended to offer a less regulatory option solely to LECs in their service areas, as the new entrants in the video marketplace, in order to enable them to compete with cable systems. In these commenters' views, there is no need to offer cable operators similar regulatory incentives because they are already entrenched in the video marketplace. Several commenters assert that if cable operators could become open video system operators, it would only increase their competitive advantage, thus defeating Congress' attempt to level the playing field. Since one of the purposes of the 1996 Act is to open all telecommunications markets to competition, we do not believe that Congress intended to create a competitive video marketplace by giving one competitor a regulatory option that would be unavailable to all others. The argument that only LECs should be permitted to operate open video systems because they are new entrants in the video marketplace is contrary to the competitor-neutral thrust of the 1996 Act. Indeed, it is because of the 1996 Act's expressed goal of promoting competition in all telecommunications markets, including the video market, that we believe Congress intended qualifying LECs and others to have the ability to offer open video services. Moreover, if one of the objectives of the open video option is to encourage new entrants, it should be available to all new entrants -- including utility companies, out-of-region cable operators, out-of-region LECs and others -- and not restricted solely to LECs seeking to provide video programming in-region. 20. In any event, the Commission also could exercise its authority under Section 4(i) of the Communications Act to permit non-LECs to become open video system operators even assuming arguendo that it was clear and unambiguous that the second sentence of Section 653(a)(1) addressed only the issue of whether cable operators and others could provide programming on a LEC's open video system and did not address the issue of whether non-LECs could also become open video system operators. Section 4(i) permits the Commission to "perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this Act, as may be necessary in the execution of its functions." The Commission may properly take action under Section 4(i) even if such action is not expressly authorized by the Communications Act, as long as the action is not expressly prohibited by the Act and is necessary to the effective performance of the Commission's functions. We invoke Section 4(i) here because the statute does not expressly prohibit non-LECs and out-of-region LECs from becoming open video system operators and because affording the widest range of entities the open video alternative is necessary to effectuate the competitive purposes of the 1996 Act. 21. Section 4(i) has been held to justify various Commission regulations that were not within explicit grants of authority. In these cases, the courts found that the Commission's regulations were not inconsistent with the Act because they did not contravene an express prohibition or requirement of the Act, and were reasonably "necessary and proper" for the execution of the agency's enumerated powers. Most recently, in Mobile Communications Corp. of America v. FCC, the D.C. Circuit acknowledged the Commission's authority under Section 4(i) to regulate even where the Communications Act does not explicitly authorize such action. In that case, the D.C. Circuit held that the Commission had authority under 4(i) to require Mtel, which held a pioneer's preference, to pay for a narrowband personal communications service ("PCS") license, despite the fact that the Act did not specifically authorize the Commission to charge a price for a license granted to a pioneer's preference holder. The court denied Mtel's argument that the Commission's action was inconsistent with the Communications Act and therefore not within the Commission's Section 4(i) power. The court found Mtel's reliance on the expressio unius maxim -- that the expression of one is the exclusion of other -- misplaced. According to the court, "[t]he maxim `has little force in the administrative setting,' where we defer to an agency's interpretation of a statute unless Congress has "'directly spoken to the precise question at issue.'" The court also denied Mtel's argument that in the absence of an affirmative statutory mandate to support the payment requirement, the Commission's action was not "necessary in the execution of [the Commission's] functions," as required by Section 4(i). 22. Applying these principles here, the Commission is authorized under Section 4(i) to allow non-LECs and out-of-region LECs to become open video system operators. First, allowing non-LECs and out-of-region LECs to become open video system operators is not inconsistent with any provision of the statute. While the 1996 Act allows LECs to become open video system operators in their service areas, neither it nor the legislative history expressly prohibits non-LECs and out-of-region LECs from being open video system operators. Second, allowing non-LECs and out-of-region LECs to become open video system operators is necessary to the execution of the Commission's functions. Congress enacted Section 653 of the 1996 Act to promote competition in the video marketplace and to "meet the unique competitive and consumer needs of individual markets." Permitting non-LECs and out-of-region LECs to become open video system operators will serve these statutory objectives. It will achieve increased competition, particularly between facilities-based service providers, which Congress specifically sought to achieve. In addition to promoting competition between competing open video system providers, allowing non-LECs and out-of-region LECs to operate open video systems will benefit third party programmers by increasing the number of available outlets and by providing a non-discriminatory platform for distributing programming and services. We believe that under Section 4(i) we have the necessary authority to allow non-LECs and out-of- region LECs to become open video system operators. b. Public Interest Conditions on Non-LEC and Out-of-Region LEC Entry 23. We find that Section 653(a)(1) allows non-LECs and out-of-region LECs to operate open video systems, but only to the extent prescribed by the Commission consistent with the public interest, convenience, and necessity. In that regard, we find: (1) that it would serve the public interest, convenience and necessity to permit non-LECs and out-of-region LECs that are also not cable operators to own or operate open video systems; (2) that it would serve the public interest, convenience and necessity to permit cable operators to own or operate open video systems outside of their cable franchise areas; and (3) that it would not serve the public interest, convenience and necessity to allow a cable operator to own or operate an open video system within its franchise area where there is not "effective competition" as defined below. 24. The underlying premise of Section 653 is that open video system operators would be new entrants in established markets, competing directly with an incumbent cable operator. We believe that Congress exempted open video system operators from most Title VI regulations because, in the vast majority of cases, they will be competing with incumbent cable operators for subscribers. Thus, we believe that it is not in the public interest to permit incumbent cable operators, in the absence of competition, to convert their cable systems to open video systems. In certain circumstances, particularly where the entry of a facilities-based competitor into a market served by an incumbent cable operator would likely be infeasible, we believe that it would be consistent with the public interest to allow the incumbent cable operator to convert its cable system to an open video system. We will consider petitions from cable operators seeking such a public interest finding. 25. Because the concerns set forth above exist regardless of whether a cable operator also provides telephone service, we will not permit a cable operator to become an open video system operator in its cable franchise area if effective competition is not present for video programming delivery, even if it also becomes certified as a local exchange carrier within the franchise area. The second sentence of Section 653(a)(1) authorizes the Commission to determine when cable operators may become open video system operators, and the Commission retains this authority with respect to all cable operators, regardless of whether they are also providing local exchange service. Therefore, although the first sentence of Section 653(a)(1) allows LECs, without qualification, to operate open video systems within their telephone service areas, this sentence does not apply to cable operators that are also LECs. 26. Accordingly, we find that the public interest, convenience and necessity would best be served by allowing a cable operator to operate an open video system in its cable franchise area only if it is subject to "effective competition" pursuant to Section 623(l)(1). Our decision to permit cable operators to become open video system operators in their franchise areas if they are subject to effective competition pursuant to Section 623(l)(1) does not affect the terms of any existing franchising agreements or other contractual agreements. Conversion to an open video system would not relieve a cable operator of its existing contractual obligations to the local franchising authority, programming providers, or others. B. Certification Process 1. Notice 27. Section 653(a)(1) provides, among other things, that an open video system operator must certify to the Commission that it complies with the Commission's regulations under Section 653(b). The Commission must publish notice of the receipt of a certification and approve or disapprove the certification within ten days of receipt. The Notice sought comment on the timing of a certification filing, the appropriate level of review, the type of information that should be required, and the handling of any pleadings filed with respect to the certification within the ten-day review period. The Notice also asked what actions or representations should be required in the certification process to ensure that LECs comply with Part 64 of the Commission's rules, which require a LEC to segregate its cost of providing regulated telecommunications services from its cost of providing video programming over an open video system. 2. Discussion 28. In light of the brief period (ten days) allowed for Commission review of certification filings, we agree with those commenters that argue that Congress intended the certification process to be streamlined. This conclusion is consistent with Congress' elimination of the requirement that a common carrier obtain Commission approval under Section 214 to construct a new facility prior to the establishment of a video delivery system, including an open video system. 29. We also agree with those commenters that argue the Commission should avoid turning the certification process into a "back-door" Section 214 requirement. We do not believe that the ten-day certification period was intended to be the culmination of a lengthy proceeding. Thus, we will not require pre-certification submissions or approvals that erect the same barriers to entry and potential for delay that Congress sought to eliminate. We conclude that it is permissible, but not necessary, prior to certification for an open video system operator to: (1) modify and obtain approval of its cost allocation manual pursuant to Part 64 of the Commission's rules; (2) obtain the consent of local authorities for use of the public rights-of- way; or (3) obtain the approval of local authorities regarding the manner in which Section 611 obligations will be fulfilled. 30. In addition to the potential for delay, some of the pre-certification requirements suggested by commenters are beyond the scope of the certification process. Section 653(a)(1) requires an open video system operator to certify that it "complies with the Commission's regulations under subsection (b)." Some of the suggested pre-certification requirements arise under other subsections of Section 653 and thus are not properly part of the certification process (e.g., PEG obligations arise under subsection (c)). Others, such as the establishment of a separate subsidiary, are not provided for at all under Section 653. 31. A streamlined certification process does not mean, however, that the Commission may not request and review necessary information. We intend the certification process to provide purposeful representations regarding the responsibilities of the open video system operator. We also will require other information, if necessary, to determine compliance with the Commission's rules. In this regard, we will first require that certifications be verified by an officer or director of the applicant, stating that, to the best of his or her information and belief, the representations made therein are accurate. Second, the certification must contain particular facts and representations about the system, including: (1) the applicant's name, address and telephone number; (2) a statement of ownership, including all affiliated entities; (3) if the applicant is a cable operator applying for certification within its cable franchise area, a statement that the applicant is qualified to operate an open video system under Section 76.1501 of the Commission's rules; (4) a statement that the applicant agrees to comply and to remain in compliance with each of the Commission's regulations under Section 653(b); (5) a general description of the anticipated communities or areas to be served upon completion of the system; (6) the anticipated amount and type (i.e., analog or digital) of capacity (for switched digital systems, the anticipated number of available channel input ports); and (7) a statement that the applicant will comply with the Commission's notice and enrollment requirements for unaffiliated video programming providers. 32. The Commission's rules require incumbent local exchange carriers to allocate their costs between their regulated and nonregulated activities in accordance with specific cost principles. The largest incumbent local exchange carriers are further required by the Commission's rules to file cost allocation manuals with the Commission. These manuals include the specific accounting procedures the carriers use to allocate their costs between regulated and nonregulated activities. Such procedures must be consistent with the specific cost principles established by the Commission. The rules also provide that, for certain changes to the cost allocation manuals, such changes must be filed with the Commission "at least 60 days before the carrier plans to implement the changes." Companies seeking certification as open video system operators that are required to file cost allocation manuals need not modify their manuals prior to certification. These companies, however, must certify that they will modify their cost allocation manuals in a timely manner as set forth in the Commission rules. We now address what constitutes "a timely manner." 33. As indicated above, the rules require carriers to file proposed changes to their cost allocation manuals 60 days before the changes will be implemented. The changes are implemented when the carrier uses the new procedures to allocate its booked costs between regulated and nonregulated activities. Generally, there are two types of events that result in costs that are placed on the company's books of account and allocated between regulated and nonregulated activities: constructing facilities and providing service. Pursuant to our rules, the great majority of construction costs associated with plant will be used jointly to provide telephony and video services (regulated and nonregulated activities) do not affect the carrier's revenue requirement until the service is offered. We are most concerned with cost allocation compliance once the carrier begins charging customers for the service. Therefore, for purposes of the initial changes to the cost allocation manuals of carriers that are seeking certification as an open video system, we will require a certification that the changes to the manuals will be filed 60 days before service is offered. We will also require that the manuals address procedures to allocate the construction costs pursuant to our rules. 34. Open video system operators may apply for certification at any point prior to the commencement of service, subject to two conditions. If construction of new physical plant is required, the applicant must obtain Commission approval of its certification prior to the commencement of construction. This requirement will ensure that the public rights-of-way are disrupted only by those who are authorized to operate open video systems. If no new construction is required, certification must be obtained prior to the commencement of service, allowing sufficient time to comply with the Commission's notification requirements to programming providers. In order to facilitate the review process and to assure the completeness of submissions, applicants will be required to file for certification on FCC Form 1275, attached at Appendix C. In addition to requiring that hard copies of the certification forms be filed with the Office of the Secretary, Federal Communications Commission, we will also require applicants to file certification forms on computer disk so that the Commission can post them immediately on its Internet site. 35. We will consider comments or oppositions to a certification that are filed within five days of the Commission's receipt of the certification. Comments or oppositions must be served on the party that filed the certification. Disapproval of a certification will not preclude the applicant from filing a revised certification or from refiling its original submission with a statement addressing the issues in dispute. Such refilings must be served on any objecting party or parties. Any certification filing that the Commission does not disapprove within ten days will be deemed approved. 36. If the representations contained in a certification filing prove to be materially false or materially inaccurate, the Commission retains the authority to revoke an open video system operator's certification or to impose such other penalties it deems appropriate, including forfeitures. C. Carriage of Video Programming Providers 1. Allocation of Open Video System Channel Capacity a. Summary 37. This section summarizes the rules and policies we adopt below regarding the allocation of channel capacity on open video systems. These rules and policies are designed to implement Sections 653(b)(1)(A) and 653(b)(1)(B) of the Communications Act. Among other things, those provisions generally prohibit an open video system operator from discriminating among video programming providers with regard to carriage on its system and provide that if demand for carriage exceeds the system's channel capacity, the open video system operator may select the programming services on no more than one-third of the activated channel capacity. 38. Under the rules and policies set forth below, the allocation process generally will proceed as follows: An open video system operator will file a "Notice of Intent" ("Notice") with the Commission. The Commission will release the Notice to the public. The Notice will contain certain information that a video programming provider reasonably would need in order to assess whether to seek carriage on the system. The Notice must describe, among other things, the system's projected service area, the system's projected channel capacity and a description of the steps a video programming provider must follow to obtain carriage on the system. In addition to the information contained in the Notice, the open video system operator will be required to make available certain information upon written request from a video programming provider, including specific technical information regarding the system. The open video system operator may establish terms and conditions of carriage for video programming providers that are just and reasonable, and are not unreasonably or unjustly discriminatory. For instance, an open video system operator may: (1) take reasonable steps to ensure that a prospective video programming provider's request for capacity is bona fide; (2) generally exclude a competing, in-region cable operator from obtaining capacity on its system; (3) require video programming providers to obtain capacity in full-channel increments (i.e., prohibit part-time programming); (4) preclude unaffiliated video programming providers from selecting the programming on more capacity than the operator itself and its affiliates are selecting programming; (5) negotiate co- packaging agreements with unaffiliated video programming providers; and (6) require assurances that a video programming provider will actually deliver video programming over its allotted open video system capacity within some reasonable period of time after system activation. At the conclusion of the open enrollment or notice period, the open video system operator will determine whether demand for carriage, including its own demand, exceeds the system's channel capacity. For this purpose, analog and digital capacity must be treated separately. Specifically, if the system contains both analog and digital capacity, the open video system operator must separately assess whether analog demand exceeds analog capacity and whether digital demand exceeds digital capacity. - If demand for carriage does not exceed system capacity, the open video system operator should fill all video programming providers' demands for capacity, including its own. - If demand for carriage exceeds capacity, the open video system operator may select the programming services to be carried on no more than one- third of the system's activated channel capacity. PEG and must-carry channels carried pursuant to Sections 611, 614 and 615 of the Communications Act will not count against the operator's one-third limit. Channels carrying "shared" programming will count against the operator's one-third limit on a pro-rata basis, e.g., if the operator shares the channel with one other video programming provider, it will count as half of a channel against the operator's limit. - The remaining two-thirds of capacity, other than PEG and must-carry channels, must be allocated to unaffiliated video programming providers on an open, non-discriminatory basis. The Commission does not, however, require that a specific allocation methodology be used. After service commencement, an open video system operator will be required to allocate open capacity, if any is available, at least once every three years on an open, non-discriminatory basis, to the extent that there is demand. Such open capacity will include capacity that becomes available during the three year period, e.g., due to a system upgrade or the expiration of carriage contracts, and any capacity on which the open video system operator selects the video programming in excess of the one-third limit of activated channel capacity provided for under Section 653(b)(1)(B). 39. The following discussion addresses the issues summarized above. b. Open Video System Operator Participation in the Allocation Process (1) Notice 40. Since the open video system provides the opportunity for the operator as well as independent entities to distribute video programming, the administration of the system must reflect fair opportunities for all interested parties to pursue their strategies. To this end, Section 653 prohibits discrimination against independent entities with regard to carriage. The plain language of Section 653(b)(1)(A) refers to carriage of video programming providers by an "open video system operator." In the Notice, we thus tentatively concluded that Section 653's prohibition of discrimination did not require the Commission to prohibit an open video system operator from participating in the allocation of channel capacity. (2) Discussion 41. We affirm our tentative conclusion that the 1996 Act does not require that the open video system operator be prohibited from participating in the allocation of channel capacity. To the contrary, we believe that Section 653 clearly contemplates that open video system operators will play an active role in structuring and managing the platform, subject to clear non- discrimination requirements. Indeed, since it is the open video system operator that certifies it will comply with Section 653's non-discrimination requirements, and will be held responsible for any violation, it is unlikely that Congress intended to require the operator to delegate its authority to an independent entity. 42. We disagree with cable operators' and local governments' contentions that any participation by the open video system operator in the channel allocation process would be tantamount to the editorial control exercised by cable operators and result in impermissible discrimination against unaffiliated programming providers. We believe that the statute and implementing rules will prevent an open video system operator from discriminating against unaffiliated video programming providers, notwithstanding the operator's involvement in the allocation process. We also believe that allowing an open video system operator to allocate channel capacity will provide certain efficiencies that will enhance the overall system. With adequate protections in place, we believe it unnecessary and unduly restrictive to require the open video system operator to retain an independent entity to allocate system capacity. In the event that an operator acts discriminatorily in allocating channels, the Commission's dispute resolution process provides a mechanism for rectifying any individual harm without resorting to an absolute ban on the open video system operators' participation in the allocation process. c. Notification and Enrollment of Video Programming Providers (1) Notice 43. In the Notice, we sought comment on what procedures the Commission should adopt for an open video system operator to notify potential video programming providers that the operator intends to establish an open video system. We also sought comment on the proper form and scope of such notice, including what sort of information about the system a potential video programming provider may need to assess its interest in seeking carriage. Additionally, we solicited comment on the appropriate length of an enrollment period during which video programming providers could apply for capacity. (2) Discussion 44. We note that the notification and enrollment process is part of the capacity allocation process, and is therefore subject to Section 653's prohibition on discrimination. Given the importance of the notification and enrollment process in allocating capacity, we believe that ensuring an open, fair and non-discriminatory process is essential to comply with our mandate under Section 653(b)(1)(A). The process that the open video system operator follows is fundamental to demonstrating fairness, openness, and non-discrimination. For instance, if a video programming provider fails to receive adequate notice and files a complaint after system capacity has been allocated, it would be difficult, if not impossible, to provide an adequate remedy to the provider without significant disruption of the system, e.g., transferring capacity from one video programming provider to another. We believe that the approach suggested by most telephone commenters, which would allow an open video system operator to notify and enroll prospective video providers as it desired, subject only to the dispute resolution process may be inadequate to fulfill the statutory mandate of non-discrimination. Under our guidelines, video programming providers, including small, independent programming providers with limited resources, will be afforded a reasonable opportunity to obtain timely information, and the open video system operator will be given the stability and certainty of knowing that its notice and enrollment procedures satisfy the statute's non-discrimination requirements. 45. Accordingly, we conclude that an open video system operator must take reasonable steps to inform prospective video programming providers of its intention to establish an open video system. First, we will require an open video system operator to file a "Notice of Intent" to establish an open video system with the Office of the Secretary, Federal Communications Commission. The Notice of Intent may be filed at any time, so long as the operator can provide the information detailed below to unaffiliated video programming providers. The Commission will issue a Public Notice announcing receipt of the operator's Notice of Intent and will attach to the Public Notice a copy of the Notice of Intent. As with all Public Notices, these Public Notices will be listed in the Commission's Daily Digest. For convenience, and to ensure maximum access by unaffiliated video programming providers, the Commission will place the Notice of Intent on our Internet site and make it available for inspection in the Cable Service Bureau's Reference Room. We also reject some commenters' suggestions that notice be disseminated to cable programming providers, community information providers, local newspapers, publications and magazines, trade publications, the local media, and state public utilities commissions. We will not require such dissemination of the Notice of Intent because any benefits of this additional distribution are outweighed by the costs involved, and the Commission's Public Notice process affords an expeditious means for this information to be sufficiently disseminated. An open video system operator may distribute the Notice of Intent or solicit demand for carriage as it sees fit in addition to the requirements described herein. 46. Second, we will require that the Notice of Intent include a certification that the open video system operator has complied with all relevant notification requirements under our open video system must-carry and retransmission consent regulations (47 C.F.R.  76.1506), including a list of all local commercial and non-commercial televisions stations entitled to must- carry treatment. The Notice also must include a certificate of service showing that it has been provided to all local cable franchising authorities located in the anticipated service area of the open video system. This is necessary to ensure that open video system operators meet any obligations under Sections 611, 614 and 615. We believe that this approach is consistent with new Section 653(c), which provides that the Commission shall, to the extent possible, impose obligations on open video system operators that are "no greater or lesser" than the obligations imposed on cable operators concerning PEG and must-carry program services. Providing a copy of the Notice to broadcast stations will also inform them of an open video system operator's belief that they may qualify for must-carry treatment on the open video system. With regard to PEG channels, the above requirement is consistent with a local cable franchising authority's ability under the Communications Act to designate channel capacity for PEG use. 47. We believe that including the following information in the Notice of Intent will be sufficient to notify potential video programming providers of an operator's intent to establish an open video system: A heading clearly indicating that the document is a Notice of Intent to establish an open video system. The open video system operator's name, address and telephone number. A description of the open video system's anticipated service area. A description of the system's projected channel capacity, in terms of analog, digital and other type(s) of capacity, upon activation of the system. A description of the steps a prospective video programming provider must follow to seek carriage on the system, including the name, address, and telephone number of a person to contact for further information. The starting and ending dates of the initial enrollment period for video programming providers. A certification that the open video system operator has complied with all relevant notification requirements under our open video system must-carry and retransmission consent regulations (47 C.F.R.  76.1506), including a list of all local commercial and non-commercial televisions stations served. The Notice of Intent also must include a certificate of service showing that the Notice has been served on all local franchising authorities entitled to establish requirements under Section 611 regarding the designation or use of channel capacity for public, educational and governmental programming. The process for allocating the channel capacity, in the event that demand for carriage exceeds the system's capacity. We believe that this basic information is necessary and not unduly burdensome and will allow a prospective video programming provider to make an initial assessment as to whether it wishes to seek carriage on a particular system. 48. In addition, we believe that a prospective video programming provider can reasonably be expected to need additional information concerning the system to assess whether to seek carriage on the system. We also recognize that the competitive position of an open video system operator should not be compromised by the required release of information unnecessary to make an informed enrollment decision. In this regard, we will require that an open video system operator provide the following information to all prospective video programming providers within five business days of the open video system operator's receipt of a written request from such a provider: The projected activation date of the system. If a system is to be activated in stages, an operator should describe the respective stages and the projected dates on which each stage will be activated. A preliminary carriage rate estimate. The information a video programming provider will be required to provide to qualify as a commercially bona fide potential video programming provider, e.g., creditworthiness. Technical information that is reasonably necessary for prospective video programming providers to assess whether to seek capacity on the system, including what type of customer premises equipment subscribers will need to receive service. Any transmission or reception equipment needed by a video programming provider to interface successfully with the open video system (e.g., scrambling, signal and audio quality, processing or security). The equipment available to facilitate the carriage of unaffiliated video programming and the electronic forms (e.g., baseband signal) that will be accepted for processing and subsequent transmission through the system. 49. Video programming providers must receive adequate notice and opportunity to participate in the allocation of system channel capacity. An enrollment period therefore may not expire fewer than 90 days after the Commission's release of the Public Notice of the Notice of Intent. In order to provide video programming providers with sufficient time to prepare for offering their programming to subscribers, an enrollment period must expire prior to activation of the system. Aside from these minimal time limitations, an open video system operator will be accorded substantial discretion to design and implement its enrollment process. An operator will be able to confirm that a prospective video programming provider's request for capacity is bona fide. For example, a system operator could require a video programming provider to provide (1) a reasonable deposit on the lease of capacity (e.g., one or two months of carriage), (2) reasonable evidence of the video programming provider's capability to offer video programming at the time the system is activated, or (3) assurances that the provider will actually deliver video programming over its allotted capacity within some reasonable period of time after system activation. We believe this approach enhances the stability of an open video system by helping to prevent the need to reallocate system capacity of a video programming provider that is ultimately unable to utilize the capacity which it has obtained. At the same time, however, an open video system operator shall be prohibited from deterring video programming providers from seeking carriage through the imposition of unreasonable qualification requirements (e.g., unreasonable technical carriage requirements). d. Open Video System Operator Discretion Regarding Video Programming Providers (1) Notice 50. Pursuant to Section 653(a)(1), we determined that it was consistent with the public interest, convenience and necessity to allow entities other than local exchange carriers to operate an open video system. In this section, we address whether, under the public interest standard, an open video system operator may preclude access to its open video system by other MVPDs. In the Notice, we sought comment on the extent to which open video system operators should have discretion regarding video programming providers entitled to carriage on the system, in light of the 1996 Act's general prohibition of discrimination by system operators among video programming providers. In particular, we asked whether an open video system operator should be permitted to limit or preclude, in the absence of Commission regulations, a competing, in- region cable operator from obtaining capacity on the system. (2) Discussion 51. We recognize that Section 653(b)(1)(A) generally prohibits discrimination by an open video system operator among video programming providers. Thus, we find that an open video system operator generally may not discriminate among video programming providers based on their identities. We disagree, however, with the cable operators' assertion that Section 653(b)(1)(A) ensures them unrestricted access to open video systems. As noted above, Section 653(a)(1) specifically addresses the conditions under which a cable operator may provide video programming over an open video system, whether the system is owned by the cable operator itself or another entity: To the extent permitted by such regulations as the Commission may prescribe consistent with the public interest, convenience, and necessity, an operator of a cable system or any other person may provide video programming through an open video system that complies with this section. We believe that this provision, because it specifically addresses the provision of video programming by a cable operator, allows the Commission discretion to determine when to permit a cable operator to provide video programming over an open video system, consistent with the "public interest, convenience and necessity," notwithstanding the 1996 Act's general non- discrimination requirements. 52. In general, we believe that it would serve the public interest, convenience and necessity to permit an open video system operator to limit the ability of a competing, in-region cable operator to select programming on the open video system where facilities-based competition would be impeded. We thus will permit an open video system operator to limit the ability of the competing, in-region cable operator, or a video programming provider affiliated with such a cable operator, to select programming on the open video system. This approach serves the public interest because, as some commenters note, a competing, in-region cable operator should generally be encouraged to develop and upgrade its own system, rather than to occupy capacity on a competitor's system that could be used by another video programming provider. We note that the Commission made a similar determination in the context of cellular telephone systems, where we adopted an exception to the general prohibition on resale restrictions. This exception permits a carrier to deny access to its facilities where the competitor's system is fully operational. As MFS Communications notes, the Commission stated that this exception promotes competition "by encouraging each licensee to build out its network." 53. Moreover, this approach is consistent with Congress' intent to "encourage common carriers to deploy open video systems and introduce vigorous competition in entertainment and information markets." By promoting facilities-based competition in this manner, we recognize in most cases that an open video system will be a new entrant into video markets where a dominant, incumbent cable operator will be present. Additionally, we note that the 1996 Act generally prohibits acquisitions and joint ventures between local exchange carriers and cable operators that operate in the same market. We believe that Congress expressed a clear preference, where possible, for facilities-based competition in the video marketplace from both cable operators and telephone companies. 54. Thus, an open video system operator will be permitted to limit access to the open video system by the competing, in-region cable operator, and any video programming provider that is affiliated with that cable operator, whether the competing, in-region cable operator or video programming provider is a packager of multiple programming services or an individual programming service. We clarify, however, that a programming service affiliated with a competing, in-region cable operator may not be precluded from being carried on the system as part of the package of any video programming provider that is not affiliated with the competing, in-region cable operator. We also clarify that an open video system operator may not limit the ability of any video programming provider that is unaffiliated with the competing, in-region cable operator to obtain capacity on the open video system, except as consistent with the 1996 Act and the rules adopted herein. 55. We are giving the open video system operator discretion in this regard because we believe that, at least in some instances, the open video system operator will find it in its interest to allow the competing, in-region cable operator to obtain capacity on the open video system (e.g., where the operator believes that the programming offered by the competing, in-region cable system or programming affiliate is necessary to the success of the open video system operation). Thus, allowing the open video system operator to exercise this discretion will advance Congress' goal of facilities-based competition because, in some instances, it may impact on the open video system operator's decision to build, or further deploy, its open video system. 56. Contrary to the arguments of some cable operators, we do not believe that promoting the goal of facilities-based competition in the manner adopted herein constitutes a "complete ban on access to channel capacity" implicating First Amendment concerns. First, alternative avenues for speech by competing, in-region cable operators will exist, i.e., their own cable system, or open video systems, as set forth herein. Second, open video system operators may not limit access to their systems by out-of-region cable operators or video programming providers affiliated with such cable operators. Third, we will consider petitions from competing, in-region cable operators showing that facilities-based competition will not be significantly impeded in their particular circumstances. We will provide a specific exception in a situation in which: (1) the competing, in-region cable operator and affiliated systems offer service to less than 20% of the households passed by the open video system; and (2) the competing, in-region cable operator and affiliated systems provide cable service to a total of less than 17,000 subscribers within the open video system's service area. We believe that considering such petitions sufficiently addresses the concerns of some cable commenters that restrictions on access to an open video system based on the identity of a video programming provider would "fundamentally undermine" Congress' intent in repealing the cable-telephone company cross- ownership restriction or impair competition. e. Measurement of Capacity (1) Analog, Digital and Switched Digital Video (a) Notice 57. As described above, new Section 653(b)(1)(B) provides that, if demand for carriage exceeds the channel capacity of the open video system, the Commission's rules must prohibit an open video system operator and its affiliates from "selecting the video programming service for carriage on more than one-third of the activated channel capacity on such system . . . ." This requires the Commission to address how channel capacity should be measured, recognizing that technology continues to evolve. In the Notice, we sought comment on these issues. We sought comment on whether it would be appropriate to measure the activated channel capacity based on a system's total bandwidth, or on the number of channels on the system's analog portion and on the bandwidth of the system's digital portion. Second, we sought comment on how capacity should be measured on open video systems that employ "switched digital" video technology, and tentatively concluded that capacity on such systems may be presumed to be unlimited. (b) Discussion 58. The appropriate measure of analog capacity is relatively straightforward because the National Television System Committee ("NTSC") standard, which occupies a 6 MHz bandwidth, has been the broadcast television standard in the United States for close to four decades. Further, with very few exceptions, television sets currently in use in the United States are designed to receive 6 MHz NTSC channels. No alternative as well known and accepted exists. Therefore, we will require that analog capacity on an open video system be measured in 6 MHz channel increments. 59. The measurement of digital channel capacity on an open video system is more complex. As HBO states, "[t]he measurement of analog and digital capacity is different in that only one service at a time can be transmitted over a 6 MHz analog channel regardless of the service's underlying content, whereas the number of simultaneous services that can be transmitted over the same 6 MHz in digital format will vary depending on the type of information delivered and the picture quality the programmer desires." For example, transmitting a live sports event (e.g., 5-6 MHz) generally will require more bandwidth than transmitting a live interview show (e.g., 2-3 MHz). The determination is further complicated by the rapidly evolving nature of digital technologies, combined with the current lack of uniform standards in digital video delivery methods. We reject the telephone companies' argument that the continuing development of digital technologies makes it impossible to prescribe a specific way to measure capacity that will be appropriate for all systems, such as bandwidth. The approach we adopt is not inconsistent with these commenters' contention that open video system operators be given the discretion to determine how to measure system capacity consistent with the statutory non-discrimination requirements and the technical characteristics of their system. 60. We conclude that capacity on an open video system that is available for the distribution of digital communications should also be measured in bandwidth. An open video system will determine whether carriage demand exceeds the system's capacity in terms of bandwidth on the digital portion of the system. While the number of communication pathways in this bandwidth may vary greatly depending on the equipment and transmission systems involved, measuring "capacity" in terms of bandwidth will carry out the objectives of the one- third occupancy allocation in Section 653(b)(1)(B). We are unpersuaded by the Telephone Joint Commenters' assertion that measuring the capacity of an open video system based on bandwidth is impermissible because Section 653(b)(1)(B) refers to "channel capacity," "activated channel capacity," and "number of channels." Because there is no meaningful definition of a "channel" in a digital world, bandwidth remains the only reasonable measure of capacity on the digital portion of an open video system. 61. A switched video system design generally allows the operator to deliver only the programming and services requested by its subscribers from a local switching or control center. In comparison, broadband cable systems deliver practically all of their video programming and services to subscribers continuously. With regard to switched video, Broadband Technologies states that its switching technology will eliminate the importance of a system's bandwidth, referring to it as "essentially unlimited." The National League of Cities, however, cautions the Commission that infinite expansion of capacity may not be "economically reasonable or technologically feasible" due to the cost and physical limits of connecting additional switches and input ports, and therefore that no basis exists for relieving a switched digital open video system operator from the two-thirds capacity set-aside requirement. Moreover, General Instruments contends, and we agree, that a variety of technologies may be employed to provide switched digital video, some of which may have greater restraints than others. General Instruments points out that even the most serviceable of such technologies can be subject to severe interference or blocking during peak periods and other limitations. We thus determine that it is premature to make any broad findings with respect to switched digital video. We will therefore reexamine the impact of switched digital technology on the measurement of open video system capacity on a case-by-case basis. 62. We anticipate that concerns regarding appropriate methods for soliciting carriage demand, calculating system capacity, and allocating channel capacity to video programming providers will be alleviated on open video systems with capacity significantly higher than carriage demand. Therefore, when an open video system operator can demonstrate that, due to the technology employed in its system, the system's capacity is plentiful as compared to demand, we will consider waiving our rules concerning enrollment periods and allocation methods. (2) Counting the System Operator's One-Third Limit (a) Notice 63. In the Notice, we sought comment regarding the calculation of the one-third of capacity on which the open video system operator may select programming if carriage demand exceeds capacity. First, we tentatively concluded that channels devoted to PEG and must-carry should not count against a system operator's one-third cap. We reasoned that neither the system operator nor its affiliates would "select" this programming, as that term is used in section 653(b)(1)(B) of the 1996 Act, because these obligations are established as a matter of law or through negotiations with local franchising authorities. In addition, we sought comment on whether a system operator should be deemed to "select" the video programming that is placed on shared channels when: (1) the system operator or its affiliated video programming provider is one of the video programming providers carrying such programming; or (2) the system operator has delegated responsibility for implementing channel sharing to an independent entity. (b) Discussion 64. We adopt our proposal to exclude PEG and must-carry channels from the one-third of system capacity on which an open video system operator or its affiliates may select programming (when demand for capacity exceeds system capacity). In adopting this approach, we endorse our reasoning in the Notice that an open video system operator does not select PEG and must-carry channels because their carriage is mandated by law or established through negotiations with local franchising authorities. Broadcast television stations electing retransmission consent, however, as well as any program services granted carriage in connection with such consent, will count against an open video system operator's one-third limit, in accordance with the rules adopted herein. This approach recognizes that a television station, electing retransmission consent rather than must-carry status, is essentially electing to be treated as any other non-broadcast video programming service, and negotiates with the open video system operator over carriage on the open video system. 65. Section 653(b)(1)(B) limits the open video system operator to one-third of the "activated channel capacity" when demand exceeds capacity. We agree with telephone companies that the PEG and must-carry channels should be included in total system capacity when calculating the open video system operator's one-third limit. Our rules define "activated channels" on a cable system as: "[t]hose channels engineered at the headend of a cable system for the provision of services generally available to residential subscribers of the cable system, regardless of whether such services actually are provided, including any channel designated for public, educational or governmental use." For example, on a system with 90 total channels, of which 15 are PEG and must-carry channels, the open video system operator may select the programming on 30 channels when demand exceeds system capacity. These parties contend, and we agree, that channels on which PEG and must-carry stations are carried qualify as "activated." 66. We disagree with NCTA that PEG and must-carry channels should be deducted from the total amount of system capacity in calculating the one-third cap. NCTA argues that excluding those channels would be more equitable to video programming providers because it would cause all providers, including those affiliated with the system operator, to share equally in the responsibility for these channels. As we have already observed, where demand exceeds system capacity, the open video system operator is entitled to select the programming on one- third of the activated channel capacity; if the operator has not selected a particular programming service there is no statutory basis for counting the service against the operator's one-third limit. This approach is consistent with our cable "channel occupancy" (or "vertical ownership") rules, that permit PEG and must-carry channels to be included in total activated channel capacity for purposes of calculating the percentage of activated channels that a cable operator may devote to affiliated programming. 67. Viacom and U S West argue that channels on which shared programming is carried should not be counted against the one-third cap because such programming should not be deemed to be selected by the operator or its affiliate. They contend that, by definition, programming on shared channels would be carried on the system regardless of whether the operator or its affiliate elects to share the programming, because the program services would be delivered on behalf of another video programming provider. While we agree with U S West that channel sharing promotes efficiency on the system, we disagree that the open video system operator has not "selected" the programming placed on shared channels. As long as the open video system operator or its affiliate has exercised the editorial discretion of deciding to include a program service in its package of offerings that are carried on its allocated channel capacity, the operator or its affiliate must be deemed to have selected the programming. 68. We do not believe that it is equitable to count a shared channel solely against the open video system operator's one-third limit, if one or more unaffiliated video programming providers has selected the programming service as well. Where a channel is shared by one or more unaffiliated video programming providers, we will assess a pro-rata share of the shared channel against the open video system operator. For instance, if the open video system operator shares a channel with one unaffiliated video programming provider, one-half of a channel will count against the capacity of the open video system operator's one-third limit; if the system operator shares a channel with three other video programming providers, it will be assessed only one-quarter of one channel. The approach we adopt for counting PEG, must-carry and shared channels will provide an open video system operator with maximum flexibility to create and offer a package of programming services that can viably compete with the incumbent cable operator. f. Allocation of Capacity Among Video Programming Providers (1) General Framework (a) Notice 69. We sought comment in the Notice generally on how capacity on an open video system should be allocated among unaffiliated video programming providers. We asked whether the allocation of channel capacity on an open video system should be left to the discretion of the operator, and if so, how unaffiliated video programming providers could be protected from discrimination under such an approach. (b) Discussion 70. We believe that an open video system operator should be given the flexibility to implement its own method for allocating capacity to unaffiliated video programming providers, subject to minimal guidelines ensuring that unaffiliated providers are treated in a non- discriminatory fashion. The telephone companies legitimately note that open video system operators will need to adapt their allocation method to myriad factors that may arise, such as the particular technology employed and the particular market to be served. Pursuant to the statute, however, the Commission must ensure that video programming providers are provided non-discriminatory access to open video systems. In this regard, Rainbow calls for detailed regulations, while the telephone companies urge the Commission to merely adopt a general rule prohibiting discrimination. We think that extensive rules regarding the allocation of channels and the administration of the system by the open video system operator will impose inefficiencies on the operator without necessarily precluding discrimination. We believe that the approach we describe below strikes the appropriate balance between the two views. (2) Allocation Methodology (a) Notice 71. In the Notice, we sought comment on how an open video system operator should allocate the two-thirds of channel capacity that must contain programming selected by unaffiliated video programming providers (where carriage demand exceeds the system's capacity). We also sought comment on establishing a range of acceptable options for allocating capacity, including first-come first-served, lottery, and proportional allotment. (b) Discussion 72. The allocation of channel capacity determines carriage on an open video system and is therefore subject to the statute's non-discrimination requirements. We require that the two-thirds of total capacity that must be allocated to unaffiliated video programming providers, when demand exceeds system capacity, must be allocated in an open, fair, non-discriminatory manner. The allocation process must be verifiable as well as insulated from any bias of the open video system operator. In the event that an aggrieved video programming provider files a complaint with the Commission alleging discrimination in the allocation process, the burden of proving that the particular allocation method employed was not discriminatory will rest with the open video system operator. We believe that this burden of proof is reasonable, given that the open video system operator is responsible for ensuring a non-discriminatory allocation process and possesses the relevant information regarding the allocation method. 73. Other than any general limitations addressed in Section III.D. concerning rates, terms and conditions of carriage, we do not adopt any specific requirements governing the length of a video programming provider's lease of allocated capacity. We believe these matters are best left to the involved parties. 74. We disagree with NCTA that a federal standard detailing a specific manner in which open video system capacity must be allocated is necessary so video programming providers will not have to expend the resources necessary to learn the allocation procedures in each jurisdiction where they seek capacity. We believe that it is reasonable to expect video programming providers to find out about the enrollment and allocation procedures for a particular open video system operator. Moreover, we believe that adopting required enrollment procedures would unreasonably restrict flexibility and prevent open video system operators from responding to the particular conditions of their markets. 75. We reject Alliance for Community Media's suggestion that an open video system operator be required to hold back 20% of the channel capacity from its initial allocation and then award these channels on an a la carte basis to all unaffiliated video programming providers. The Alliance for Community Media argues that this approach would ensure that small video programming providers have an opportunity to obtain their desired capacity, thereby enhancing program diversity on the system. We believe that this approach unnecessarily restricts the ability of an open video system operator to allocate capacity in accordance with existing demand for carriage. In addition, while we seek to encourage small video programming providers to obtain access on open video systems, we believe that their interests are adequately protected under our rules set forth herein. (3) Type of Capacity -- Analog/Digital (a) Notice 76. In the Notice, we sought comment on whether the allocation of specific types of open video system capacity could constitute impermissible discrimination under Section 653(b)(1)(A). In particular, we asked whether it would be permissible for an operator to assign all of a system's analog capacity to itself or its affiliate. In this regard, we sought comment generally on the current availability of digital technology, and any differences that may exist between analog and digital capacity. If analog and digital capacity currently are not interchangeable "products," we sought comment on whether it would be appropriate to treat analog and digital channels independently for allocation purposes. (b) Discussion 77. Based upon the record evidence, we find that analog and digital portions of an open video system must be treated independently for purposes of allocating system capacity to video programming providers. We believe that this finding is justified by various technical and economic factors demonstrating that, for the foreseeable future, analog capacity and digital capacity are not interchangeable. 78. First, the embedded equipment base is analog -- both the equipment used by programmers and distributors to create, process, and transmit the signals, and the customer premises equipment ("CPE"), such as television sets and video cassette recorders ("VCRs") used by subscribers to receive and display the signals. Such analog equipment is widely and competitively available in the marketplace. 79. By contrast, digital signal delivery technologies are rapidly and continuously evolving. The cost and availability of digital equipment is much less certain than that of analog equipment. In addition, as noted by Viacom and numerous cable operators, specialized digital processing equipment is not currently available. For instance, it appears from the record that the cost of digital set-top boxes is currently between $300 to $400, or approximately three times more than the cost of similar analog set-top boxes. The record also demonstrates numerous uncertainties with respect to digital capacity: (1) when the cost of digital set-top boxes will decrease to affordable levels; and (2) when such boxes will become available on a large-scale basis. As U S West states: [V]ideo programmers do not view analog and digital capacity as substitutable given the present state of technology [citing its Omaha video dialtone trial, in which analog capacity was over-subscribed and had to be allocated while digital capacity was freely available and "barely used"]. At some point in the future, when digital standards are established and incorporated into set-tops and other peripheral devices, digital programming will most likely replace analog programming and there will be no need to distinguish between the two for capacity purposes. 80. Given these significant differences, we find that it would constitute impermissible discrimination under Section 653 for an open video system operator to treat its analog and digital capacities as fungible for allocation purposes. For instance, assuming a system with 100 analog channels and capacity for 200 digital channels, an open video system operator would be prohibited from taking the 100 analog channels as the one-third of capacity on which it may select programming (when carriage demand exceeds system capacity), and relegating all other video programming providers seeking analog capacity to the digital channels. Rather, the system operator must treat the analog and digital capacity separately. If analog demand exceeds analog capacity, the operator would be limited to selecting the programming on one-third of the analog channels; similarly, if the digital capacity were over-subscribed, the operator would be limited to selecting the programming on one-third of the digital capacity. We agree with U S West that the Commission should revisit this distinction if and when analog and digital capacities become relatively interchangeable. 81. The Telephone Joint Commenters do not argue that analog and digital capacity are fungible. Instead, the Telephone Joint Commenters contend that the 1996 Act makes no distinction between analog and digital capacity, and that "[open video system] operators must be given flexibility to select their channels from the total base of channels to the extent necessary to provide programming packages that can compete with those offered by incumbent cable operators." In making this argument, the Telephone Joint Commenters essentially acknowledge that analog and digital capacities are not fungible, or there would be no need for them to argue that they must occupy the analog channels in order to compete with the incumbent cable operator. We view our obligations under the statute to ensure non-discriminatory access to encompass affording actual access to subscribers by video programming providers, and not access that is not technologically possible. To do otherwise is to place the challenge of digital delivery unfairly, we believe, on those not affiliated with the open video system operator. While we recognize the telephone companies' concern, we believe that there are other ways to ensure that an open video system can assemble a competitive product that would not entail discriminatory conduct (e.g., not counting PEG and must-carry channels against the one-third limit; making use of channel sharing and joint marketing opportunities). (4) Amounts of Capacity (a) Notice 82. As noted, Section 653(b)(1)(B) of the Communications Act provides that, "if demand exceeds the channel capacity of the open video system," the Commission's regulations must prohibit an open video system operator and its affiliates from "selecting the video programming services for carriage on more than one-third of the activated channel capacity on such system . . . ." In the Notice, we interpreted this provision to mean that, so long as carriage demand does not exceed system capacity (after video programming providers have been allowed a reasonable opportunity to seek carriage), there will be no limit on the amount of capacity on which an open video system operator and its affiliates may select programming. 83. Further, we sought comment in the Notice on whether the Commission should allow an open video system operator to prescribe minimum or maximum amounts of capacity that an unaffiliated programming provider may obtain. For example, we sought comment on the situation where carriage demand exceeds the system's capacity, but only the open video system operator and one other video programming provider have acquired capacity on the system. We asked whether it would be appropriate to limit the open video system operator and its affiliates to selecting programming on one-third of the system while allowing the unaffiliated video programming provider to select the programming on the remaining two-thirds of the system. (b) Discussion 84. As an initial matter, we affirm, and no commenter disputed, our conclusion that a system operator and its affiliates may select the programming on more than one-third of the system's capacity if carriage demand does not exceed system capacity. In these situations, the carriage requests of all unaffiliated video programming providers will be fulfilled, and the system operator will be permitted to select the programming on the remaining capacity, under the regulations adopted in this Order. This approach is consistent with the plain language of the statute and comports with Congress' intent to encourage investment in new technologies by not requiring usable capacity to lie fallow. (i) Minimum Channel Allocations 85. We believe it is reasonable for open video system operators to require video programming providers to request carriage in no less than one-channel increments. A system operator, therefore, could prohibit the purchase of "part-time" programming capacity. We believe that such a restriction is just, reasonable, and not unjustly or unreasonably discriminatory under the statute because of the expense and administrative and technical burdens of accommodating part-time programming. 86. We disagree with those commenters which contend that, since the Commission's cable leased access rules require that channels be made available in increments as short as 30 minutes, parity and program diversity concerns demand that open video system operators face similar requirements. First, under our leased access rules, cable operators must accommodate part-time programmers on only a small portion of their capacity. By contrast, an open video system operator may be required to lease two-thirds of its capacity to part-time unaffiliated video programming providers. Second, in enacting cable leased access, Congress was addressing the cable operator's editorial control over virtually its entire system. We believe that while the goals of the cable leased access requirements may be similar to those here, the methods to achieve those goals are different. Open video systems, through the one-third limitation on the open video system operator, are intended to attract multiple video programming providers, that can also accommodate the needs of part-time programmers. 87. In addition, however, open video system operators will not be permitted to require video programming providers to obtain capacity in increments of more than one channel. We also find that this restriction is just, reasonable, and not unjustly or unreasonably discriminatory under the statute because allowing an open video system operator to require video programming providers to obtain multiple channels, such as five-channel increments, would unfairly disadvantage smaller video programming providers which do not have sufficient programming to fill multiple channels. We think that such a condition of carriage would be unreasonable and would contravene the statute's non-discrimination prohibition. As discussed more fully below, however, an open video system operator may establish reasonable levels of differentiation in carriage rates, such as volume discounts, provided that the bases for differentiation are not unjust or unreasonable. (ii) Maximum Channel Allocations 88. We conclude that open video system operators should be permitted to limit unaffiliated programming providers to selecting the programming for carriage on no more capacity than the amount obtained by the open video system operator or its affiliate. We therefore disagree with the argument of certain cable operators that, under Section 653(b)(1)(B), if the demand for carriage exceeds capacity with only a single unaffiliated video programming provider and the open video system operator requesting capacity, the unaffiliated programming provider would be entitled to two-thirds of the capacity while the open video system operator would be restricted to one-third. First, we believe that Section 653(b)(1)(B) contemplates the presence of robust demand for channel capacity by multiple video programming providers, such that the system capacity would not be dominated by a single programming provider. Moreover, we believe that such a result would discourage the deployment of open video systems by permitting an unaffiliated video programming provider to dominate the selection of programming on the system. Given that the financial risk of constructing the open video system rests primarily on the open video system operator, we do not believe that Section 653(b)(1)(B) requires that the open video system operator entrust the success or failure of its system to an entity with limited risk in building the infrastructure. 89. For the above reasons, we find that a term or condition of carriage limiting unaffiliated programming providers to selecting the programming on no more of the capacity than the open video system operator or its affiliate would not violate the Commission's rules, and would be just, reasonable, and not unjustly or unreasonably discriminatory under Section 653(b)(1)(A). 90. We also disagree with Adelphia/Suburban Cable that Section 653(b)(1)(B)'s one- third limit is actually a maximum rather than a minimum, and that the statute does not require the Commission to allow an open video system operator and its affiliates to occupy one-third of the channel capacity in all cases. For instance, assume a 100-channel system on which the open video system operator itself seeks as much capacity as possible, and four unaffiliated video programming providers each seek 25 channels. Under this scenario, Adelphia/Suburban Cable argues that all five programmers should receive 20 channels, rather than allowing the system operator to obtain one-third of the system's capacity (33 channels) while requiring that the four unaffiliated video programming providers divide the remaining two-thirds of capacity (67 channels), as will occur under our interpretation of Section 653(b)(1)(B). Adelphia/Suburban Cable contends that absent this interpretation, the system operator will have no incentive to construct additional capacity to meet demand. We find that nothing in the plain language of Section 653(b)(1)(B) or its legislative history supports Adelphia/Suburban Cable's interpretation. We believe that Adelphia/Suburban's approach would contravene the statute's intent that an open video system operator and its affiliates be afforded one-third of the system's capacity when carriage demand exceeds the system's capacity. We believe that Adelphia/Suburban Cable's method would unduly restrict an open video system operator's ability to compete, and undermine Congressional intent by discouraging the deployment of open video systems. (5) Subsequent Changes in Capacity or Carriage Demand (a) Notice 91. In the Notice, we sought comment on how additional capacity that becomes available on an open video system after the initial allocation should be distributed. We also sought comment on what rules should apply when initial demand for carriage does not exceed system capacity, but subsequent demand triggers Section 653(b)(1)(B)'s one-third limit. In this context, we sought comment on whether it would be permissible for an open video system operator to hold periodic enrollment periods during which capacity would be reallocated, rather than requiring such reallocation immediately. (b) Discussion 92. To ensure that open video systems remain open after the initial allocation of channel capacity, we will require an open video system operator to allocate open capacity, if any is available, at least every three years, beginning three years from the date service commenced. By "open capacity" we mean channel capacity that has become available during the course of the year, whether due to a system upgrade, the expiration of video programming providers' carriage contracts, or for any other reason. Capacity held by the open video system operator or its affiliate above the one-third of the system's activated channel capacity will be considered "open capacity." For example, if the demand for carriage did not exceed system capacity when capacity was initially allocated, and the open video system operator was able to select the programming on 50% of the system's activated channel capacity, the 17% of capacity on which the open video system operator is providing programming above the one-third limit (50% - 33%) will be considered "open capacity" for purposes of the allocation process. 93. We note that capacity on an open video system may become available due to the efficiencies of channel sharing, under which a video programming service to be offered by multiple video programming providers is placed on a single channel and shared by the multiple providers. We believe that all existing video programming providers should share in the efficiencies of channel sharing. Thus, additional capacity resulting from channel sharing will not count as "open" capacity and should be allocated through an open, fair, non-discriminatory process among existing video programming providers as soon as practicable after channel sharing is implemented. 94. In order to assess the demand for additional capacity, we will require open video system operators to maintain a list of bona fide video programming providers that have requested carriage or additional capacity during the previous three year period. Information regarding how a video programming provider should apply for carriage and the closing date for that three year period's allocation must be made available to potential video programming providers upon request. An operator should establish a closing date by which video programming providers may seek to lease additional capacity that reasonably relates to the time when programming services to be carried on the additional capacity will first be provided to subscribers. The open video system operator need not file a new Notice of Intent with the Commission, nor otherwise solicit additional demand, after the initial allocation of capacity has been completed. An open video system operator will not be required to follow these rules if there is no open capacity to be allocated. 95. Once the open video system operator has determined that additional capacity is available and has assessed carriage demand, it must allocate the open capacity at least once every three years through an open, fair, non-discriminatory process. Consideration should be given to all video programming providers that properly apply for carriage prior to the closing date in that three year period's allocation of open capacity. Additional must-carry obligations must be accommodated in accordance with our open video system must-carry rules. Additional PEG access obligations must be accommodated in accordance with the regulations adopted in this Order. In the absence of additional PEG access obligations, the open video system operator may use any capacity that becomes available during the remainder of the current three year allocation cycle. 96. After careful consideration of the record, we decline to require periodic enrollment periods at which time the total channel capacity of an open video system would be subject to re- allocation. That is, so long as an unaffiliated video programming provider continues to meet the conditions of carriage, it may continue to use its initially allocated capacity until its carriage contract expires, instead of facing the potential of periodic displacement. We believe that this approach will provide stability, certainty and flexibility to the platform. For subscribers, this approach will mean less confusion and less disruption of their channel line-ups; for video programming providers, this approach will provide additional incentive and ability to invest in and market their services; and for open video system operators, this approach will provide the flexibility to negotiate the length of carriage arrangements based on their business judgment and offer a more stable product to consumers. While we acknowledge the National League of Cities, et al.'s concern that an open video system operator could limit subsequent access to the system by negotiating for long-term carriage contracts, we believe that, as of now, the above benefits outweigh the speculative harm. If it becomes apparent that long-term contracts are being used in a discriminatory or anti-competitive manner, we may re-examine our conclusion. 97. We reject suggestions that an open video system operator should have to re- allocate open capacity in response to subsequent carriage requests in less than three years. An open video system operator must be able to accommodate subsequent demand without causing unreasonable disruption to the system and confusion for subscribers. Specifically, we reject the approach suggested by National League of Cities, et al., that would require a system operator or its affiliates to relinquish capacity within 30-60 days of a request for demand until the two- thirds of system capacity allocable to unaffiliated programming providers is completely occupied. According to National League of Cities, et al., this approach would preserve access to open video systems and would help prevent channels from going unused or being "locked up" by affiliated video programming providers. We disagree. Requiring the affiliated video programming provider to relinquish capacity within 30-60 days of receiving additional requests for carriage unduly compromises the stability of the affiliated provider's programming package, and would undermine its ability to market its offerings. (6) Channel Positioning (a) Notice 98. In the Notice, we sought comment on whether the channel positions to which video programming providers' program services are assigned should be subject to Section 653(b)(1)(A)'s non-discrimination requirements. In this regard, we asked whether it would violate Section 653 for an open video system operator to reserve the lower numbered channels for itself or its affiliates, since these channels may be considered more valuable to the extent they are more accessible to consumers. We further asked for information on any technology, such as "channel mapping," that could resolve any perceived problems in this area. (b) Discussion 99. Channel positioning is an important part of allocating channel capacity to video programming providers, and therefore we will require an open video system operator to assign channel positions in a manner that is not unjustly or unreasonably discriminatory. Certain channels, such as the lower-numbered channels, may be considered more valuable because they may be more accessible to consumers who scroll through the channels in sequence. In determining whether an open video system operator has assigned channel positions in a non- discriminatory manner, we will weigh whether the operator has implemented any technology that substantially alleviates concerns in this area, such as channel mapping, as well as the process employed by the operator to allocate channel numbers. We also find that, given Section 653(b)(1)(A)'s specific exemption of must-carry and PEG from its general non-discrimination requirements, an open video system operator must comply with the channel positioning requirements contained in those rules. g. Channel Sharing (1) Notice 100. New Section 653(b)(1)(C) of the Communications Act requires that the Commission's regulations permit an open video system operator "to carry on only one channel any video programming service that is offered by more than one video programming provider, including the local exchange carrier's video programming affiliate, provided that subscribers have ready and immediate access to any such video programming service." The Conference Report states that this provision was intended "to permit an open video system operator to require channel sharing." 101. We tentatively concluded in the Notice that open video system operators should be permitted to choose how and which programming will be carried on shared channels, and sought comment on this conclusion. Further, we sought comment on whether the Commission should prescribe any terms under which channels may be shared, and in particular, whether channel sharing is subject to the 1996 Act's non-discrimination requirements. In this regard, we sought information on any differences that may exist between shared and non-shared channels that might make non-shared channels more attractive to video programming providers. We also sought comment on the meaning of the phrase "ready and immediate access" as used in the statutory provision, such as whether channel sharing must be "transparent" to consumers. Finally, we tentatively concluded that the rights of programming vendors and licensors should be preserved by requiring each video programming provider seeking to offer programming carried on a shared channel to first obtain separate permission from the program service. (2) Discussion 102. As an initial matter, we believe that the statute permits an open video system operator to decide whether to create shared channels for some or all of the duplicative programming on its system. We therefore affirm our tentative conclusion that an open video system operator may implement and administer the channel sharing process. We disagree with NCTA's argument that a system operator should be required to employ an independent entity, or to create a committee comprised of the video programming providers on the system, in order to administer channel sharing. We believe that an operator of an open video system should have the flexibility to address technical and other factors that may affect channel sharing. 103. The National League of Cities, et al. expresses concern that, if an open video system operator selects the programming placed on shared channels, in advance of video programming providers' decisions to carry such programming, the operator will be exercising editorial control over unaffiliated programming providers' offerings, and therefore will be engaging in impermissible discrimination. Nothing in Section 653(b)(1)(C) allows an open video system operator to select which programming will be carried on shared channels prior to the existence of duplicative programming on the system. For the open video system operator to pre-determine the shared channels not only distorts the normal meaning of shared, but undermines the statutory intent that the system afford access to independent entities. Section 653(b)(1)(C) permits a system operator to place on a single channel a programming service "that is offered by more than one video programming provider." We clarify that channel sharing may be implemented by an open video system operator only after a determination is made regarding which programming services will be offered by more than one video programming provider. We disagree with telephone companies that argue that the statutory reference to "any video programming service" means that an open video system operator may select -- in advance of any actual duplication -- which program services to place on shared channels. We also note that certain cable operators and programmers argue that the placement of a programming service on a shared channel must be conditioned on the approval of the programming service. We take this to mean simply that each video programming provider using the shared channel has reached its own agreement with the programming service. We reaffirm our statement in the Notice that nothing in our regulations concerning channel sharing should be construed to impair the rights of program services. Consistent with our rules governing competitive access to video programming, a program vendor will still possess the right to negotiate over specific terms and conditions with each video programming provider. Once the programming service has reached agreements with all of the relevant video programming providers, however, we do not believe that additional consent is necessary for the open video system operator to place the programming service on a shared channel. 104. We find that the statutory provision requiring that subscribers have "ready and immediate" access to programming carried on shared channels means that channel sharing must be transparent to subscribers. This requires that subscribers be able to access programming carried on shared channels with no more difficulty than programming carried on non-shared channels. We do not believe this is unduly burdensome for open video system operators. Many cable operators currently provide different programming on the same channel in a manner transparent to subscribers receiving the respective signals. Moreover, we believe that, given this advance guidance that channel sharing must be transparent to consumers, open video system operators will be able to design and construct their systems to accommodate this requirement and avoid subsequent costs or disruption of the system. We thus reject telephone companies' assertions that we should merely codify the "ready and immediate" provision because the adoption of any specific regulations might inhibit deployment of open video systems. h. Technical Issues (1) Notice 105. In the Notice, we sought comment on whether certain technical requirements could restrict video programming providers' access to open video systems, and whether it would be necessary for the Commission to adopt any regulations or standards regarding technology to promote such access. (2) Discussion 106. We clarify that the availability of technology necessary to access an open video system operator is part of the overall process for allocating open video system channel capacity, and therefore subject to the statute's non-discrimination requirements. An operator may not discriminate among video programming providers with respect to technology or technical information necessary to access the system. This would include all technology and equipment related to compression techniques, arranging the digital data for transport, and the "last-mile" physical transport of the signal to the customer's premises. We believe that this approach will allow open video system operators to design technical standards in accordance with market forces rather than regulation, while preserving fair access for unaffiliated video programming providers. 2. Open Video System Operator Co-Packaging of Video Programming Selected by Unaffiliated Video Programming Providers a. Notice 107. In the Notice, we stated that new Section 653(b)(1)(B) of the Communications Act restricts the amount of capacity for which an open video system operator and its affiliates may select programming, where carriage demand exceeds system capacity; however, that section also provides that nothing therein should be construed to limit "the number of channels that the carrier and its affiliates may offer to provide directly to subscribers." We tentatively concluded that this provision allows a system operator and its affiliates to enter into agreements to co-package to subscribers the programming services selected for carriage by unaffiliated video programming providers, and sought comment on this conclusion. Co-packaging would permit one video programming provider to package its services with those of another video programming provider, and market the combined offerings to consumers as one package of video programming. b. Discussion 108. We affirm our tentative conclusion that Section 653(b)(1)(B) permits an open video system operator to enter into agreements to co-package the video programming selected by other video programming providers with the operator's selected programming, and market the combined offerings as one package to subscribers. We also note that video programming providers that are not affiliated with the open video system operator are free to enter into co- packaging arrangements with each other. We believe that this approach can provide efficiencies to independent programmers that may find it difficult to market their service to consumers on an individual basis. We also believe that consumers may benefit from having multiple options for subscribing to program services. 109. We further believe that co-packaging may not be imposed by an open video system operator as a condition of carriage on an open video system, such that an open video system operator could refuse access to a video programming provider that is unwilling to subject its video programming to co-packaging. Such a condition would allow an open video system operator to exercise editorial control over the two-thirds of capacity allocable to unaffiliated video programming providers (when carriage demand exceeds system capacity). This would violate the statute's non-discrimination requirements by allowing the operator to limit the access of video programming providers not amenable to co-packaging arrangements. We further note that Congress applied Section 616 of the Communications Act governing the regulation of carriage agreements to open video system operators. Under this section, multichannel video programming providers, including open video system operators, may not: (1) require a financial interest in a program service as a condition of carriage; (2) coerce a video programming service to provide, or retaliate against such a service for failing to provide, exclusive rights against other MVPDs as a condition of carriage; or (3) engage in conduct the effect of which is to unreasonably restrain the ability of an unaffiliated video programming service to compete fairly by discriminating based on affiliation or non-affiliation in the selection of terms and conditions of carriage. We believe that prohibiting an open video system operator from requiring co- packaging as a condition of carriage is consistent with Congress' intent in applying Section 616 on open video system operators. 110. Co-packaging arrangements therefore must be purely voluntary among the parties involved. Differences in co-packaging arrangements would be permissible, however, so long as the open video system operator complies with the rules described below regarding the rates, terms and conditions of carriage. 111. Only the National League of Cities, et al. object to the Commission's tentative conclusion that an affiliated programming provider may co-package programming selected by unaffiliated video programming providers. They argue that Section 653(b)(1)(B) merely clarifies that the one-third limit on the amount of capacity for which the system operator and its affiliates may select the programming is not absolute -- that is, if the operator builds additional capacity, then it may also select the programming for one-third of that additional capacity. We do not believe, however, that Congress would have found it necessary to delineate specifically the fact that an open video system operator is allowed to select the programming on one-third of a system's capacity, regardless of the size of the system. D. Rates, Terms, and Conditions of Service 1. Just and Reasonable Carriage Rates a. Notice 112. Section 653 (b)(1)(A) requires that rates for carriage on open video systems be just and reasonable and not unjustly or unreasonably discriminatory. This provision reflects the goal of affording unaffiliated video programming providers access to, and fair treatment on, open video systems, while at the same time preserving for operators the viability of open video systems through the ability to realize a return on the economic value of their investment. 113. In the Notice, we sought comment on how to ensure that open video system carriage rates are just and reasonable and not unjustly or unreasonably discriminatory, as required by Section 653(b)(1)(A). We asked whether market incentives and the presence of existing competitors will ensure such carriage rates or whether a specific regulatory framework or pricing formula is necessary. We also asked for comment on a "safe harbor" approach, e.g., rates will be presumed reasonable if a certain number of unaffiliated programmers are willing to pay existing rates on a certain percentage of available capacity, and whether an open video system operator should be required to charge rates to unaffiliated programmers that are no greater than the rates it charges itself or its affiliates for carriage. b. Discussion 114. Our intent is to provide maximum flexibility to open video system operators to respond to market forces consistent with the statutory obligation that carriage rates are just and reasonable and not unjustly or unreasonably discriminatory. We believe that primary reliance on a "presumption" approach best achieves these goals. We will accord a strong presumption that carriage rates are just and reasonable for open video system operators where at least one unaffiliated video programming provider, or unaffiliated programming providers as a group, occupy capacity equal to the lesser of one-third of the system capacity or that occupied by the open video system operator and its affiliates, and where the rate complained of is no higher than the average of the rates paid by unaffiliated programmers receiving carriage from the open video system operator. Where these conditions are met, the complainant will have the burden of demonstrating that the rate is not just and reasonable. Where these conditions are not met, and a potential video programming provider files a complaint with the Commission, the open video system operator will bear the burden of demonstrating that the contested carriage rate is no greater than a carriage rate that could be imputed to the operator's affiliated video programming. We will require the operator to show that it charges the unaffiliated programmer no more for carriage than it earns from carrying its own affiliates' programming. As noted in Section III.C.1.f.(3), analog and digital channel capacity will be treated separately for this purpose. 115. Commenters suggest several rate regulation approaches. LEC interests generally oppose the establishment of a specific regulatory scheme for open video system carriage rates. They a