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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) CSR 4935-E ) Time Warner Entertainment-Advance/Newhouse ) Wayne, MI Partnership d/b/a Time Warner Cable ) CUID No. MI0600 ) Petition for Determination of ) Effective Competition ) MEMORANDUM OPINION AND ORDER Adopted: March 12, 1997 Released: March 13, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. Time Warner Entertainment-Advance/Newhouse Partnership d/b/a Time Warner Cable ("Time Warner") has filed a Petition for Determination of Effective Competition asserting that it is subject to effective competition in Wayne, Michigan ("Wayne") because of the presence of Ameritech New Media's cable service in that City. This petition is unopposed. 2. Section 623(a)(4) of the Communications Act of 1934, as amended ("Communications Act") allows franchising authorities to become certified to regulate basic cable service rates of cable operators which are not subject to effective competition. For purposes of the initial request for certification, local franchising authorities may rely on a presumption that cable operators within their jurisdiction are not subject to effective competition unless they have actual knowledge to the contrary. Certification becomes effective 30 days from the date of filing unless the Commission finds that the authority does not meet the statutory certification requirements. In Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996 ("Cable Act Reform Order"), the Commission instructed cable operators believing themselves subject to local exchange carrier ("LEC") effective competition under Section 623(l)(1)(D) of the Communications Act to file a petition for determination of effective competition pursuant to Section 76.7 of the Commission's rules. Section 623(l)(1)(D) of the Communications Act provides that a cable operator is subject to effective competition where: a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area. A successful LEC effective competition petition will exempt a cable operator from rate regulation as of February 8, 1996, the enactment date of the Telecommunications Act of 1996 (the "1996 Act"). II. THE PLEADINGS 3. Time Warner asserts that it is subject to LEC effective competition in its Wayne, Michigan franchise area. With regard to the LEC affiliation requirement, Time Warner asserts that Ameritech New Media ("Ameritech") is a competing franchised cable operator wholly owned by Ameritech Corporation, a local exchange carrier serving customers in Ohio, Illinois, Indiana, Michigan, and Wisconsin. 4. With regard to the requirement that the LEC competitor offer video programming service in the unaffiliated cable operator's franchise area, Time Warner asserts that Ameritech, which activated its system in early November 1996, is physically able to offer service to subscribers in Wayne. Time Warner asserts that Ameritech has overbuilt nearly all of Time Warner's franchise area. Time Warner adds that Ameritech has heavily marketed the availability of its cable service through local media and notes that it has experienced subscriber loss since the introduction of Ameritech's cable service. Time Warner asserts there are no regulatory, technical, or other impediments to households taking service. Time Warner additionally states that Ameritech's franchise with the City of Wayne requires it to: (1) provide at least 80 channels of video programming to all residential subscribers within the City; (2) file a guaranty by its corporate parent or a performance bond of $150,000; (3) provide free cable service to Wayne City Hall, police and fire stations, public schools, public libraries, and up to eight additional buildings in Wayne; and (4) pay 1% of its gross annual revenues to the City for the development and use of PEG access channel capacity, equipment and facilities. Time Warner asserts that these requirements show Ameritech is making a large investment in the City, the type the Bureau has noted in other LEC effective competition opinions as being characteristic of an effective competitor. 5. Time Warner asserts that Ameritech offers comparable programming to Wayne subscribers. Specifically, Time Warner provides Ameritech's channel line-up which demonstrates that Ameritech offers over 80 channels, 9 of which are local television broadcasting signals. Time Warner offers 78 channels in Wayne. 6. Time Warner adds that it has made changes in its channel line-up, service, and pricing to better distinguish itself from the competition. It specifically states, for example, that it has: (1) expedited its plant upgrade by expanding bandwidth to 750 Mhz, with 550 Mhz being used for analog and 200 Mhz reserved for digital; (2) moved two premium channels, the Disney Channel and the sports PASS channel, to expanded basic; (3) added 10 new cable channels to the expanded basic tier; (4) multiplexed three premium channels; (5) added new premium service Flix, Starz and Encore; (6) reduced prices on premium service, and froze basic and expanded basic rates; and (7) instituted a customer rewards program, giving customers the option of two price incentives (either two free months of basic a expanded basic service in a year, or one year's free service to Cinemax together with a free converter box) in exchange for a year-long commitment to Time Warner's service. III. ANALYSIS 7. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition as defined in the Communications Act. The cable operator bears the burden of rebutting the presumption that such effective competition does not exist and so must provide evidence sufficient to demonstrate that effective competition, as defined by Section 76.905 of the Commission's rules, is present in the franchise area. Time Warner has met this burden. 8. With regard to the first part of the LEC effective competition test, which requires that the alleged competitive service be provided by a LEC or its affiliate (or any multi-channel video programming distributor ("MVPD") using the facilities of such LEC or its affiliate), we find that Time Warner has provided sufficient evidence demonstrating that Ameritech New Media is an MVPD wholly owned by a LEC. Ameritech is unquestionably a LEC as defined by the Communications Act, and Ameritech New Media meets the Commission's definition of MVPD. Therefore, we find that Time Warner satisfies the affiliation prong of the LEC effective competition test. Time Warner is unaffiliated with both Ameritech New Media and Ameritech. 9. We also find that Time Warner has submitted sufficient evidence that the programming of Ameritech is comparable to that which it provides. The channel information for Ameritech submitted by Time Warner establishes that Ameritech offers more than 80 channels of programming, including 9 local broadcast channels; this satisfies the Commission's programming comparability criterion. 10. To meet the LEC effective competition test, the alleged competitive service must also be offered directly to subscribers in the franchise area. In enacting the LEC test, Congress indicated that the Commission should apply its preexisting definition of the term "offer" to the new LEC effective competition test. Under that definition service is offered: (1) When the multichannel video programming distributor is physically able to deliver service to potential subscribers, with the addition of no or only minimal additional investment by the distributor, in order for an individual subscriber to receive service; and (2) When no regulatory, technical or other impediments to households taking service exist, and potential subscribers in the franchise area are reasonably aware that they may purchase the services of the multichannel video programming distributor. 11. Based on the information before us, we find that Ameritech is offering service in Time Warner's franchise area sufficient to demonstrate the presence of effective competition. Time Warner has provided Ameritech's construction schedule, maps of wired areas, and other demonstrations of Ameritech's actual offering of service. Ameritech's overbuild of Time Warner's system is virtually 100% complete in the City of Wayne and Ameritech is now directly competing for customers with Time Warner in all parts of the area at issue. We find Ameritech's presence and Time Warner's subscriber loss as additional evidence that Ameritech is physically able to offer service in the cable community at issue. Ameritech's franchise agreement, which imbues the City of Wayne with numerous public benefits, demonstrates that Ameritech is committed to providing service to the City. We find that investment in the community will continue as it has since Ameritech was awarded its franchise. 12. Ameritech's aggressive marketing efforts, combined with the extensive press coverage of Ameritech in the local media, ensure that potential subscribers are reasonably aware of the availability of Ameritech's service. Subscribers in Wayne are able to receive service for only a minimal additional investment and without regulatory, technical or other impediments. We also note that Time Warner has upgraded its physical plant and substantially reconfigured its prices and services for the benefit of its subscribers. In the circumstances, consistent with Congressional intent in adopting Section 623(l)(1)(d) of the Communications Act, we find "effective competition" to be present. IV. ORDERING CLAUSES 13. Accordingly, IT IS ORDERED that the Petition for Determination of Effective Competition filed by Time Warner Entertainment-Advance/Newhouse Partnership d/b/a Time Warner Cable, challenging the certification of the City of Wayne, in Wayne, Michigan IS GRANTED. 14. IT IS FURTHER ORDERED that the certification of the City of Wayne, Michigan to regulate the basic cable rates of Time Warner in Wayne, Michigan IS REVOKED. 15. This action is taken pursuant to the interim rules adopted in Implementation of Cable Reform Provisions of the Telecommunications Act of 1996, and is without prejudice to any further action taken by the Commission in adopting final rules pursuant to the Notice of Proposed Rulemaking contained therein. 16. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau