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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 Wedgewood Communications Company ) ) Certification To Operate ) An Open Video System ) ORDER Adopted: November 20, 1997 Released: November 20, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On November 10, 1997, Wedgewood Communications Company ("Wedgewood") filed an application for certification to operate an open video system pursuant to Section 653(a)(1) of the Communications Act of 1934 ("Communications Act") and the Commission's rules. Wedgewood filed its application in response to the Commission's denial of Wedgewood's first open video system application ("Wedgewood I"). In accordance with our procedures, the Commission published notice of receipt of Wedgewood's revised certification and posted the application on the Internet. Timely comments opposing the application were filed by the City of Chicago, Illinois ("Chicago" or "City"); 21st Century Cable TV, Inc. ("21st Century"); and the Alliance for Community Media, the Alliance for Communications Democracy, the National Association of Telecommunications Officers and Advisors, and the Chicago Access Corporation ("Alliance"). We deny Wedgewood's application. 2. Pursuant to Section 653(a)(1) of the Communications Act, any person may obtain certification to operate an open video system. An operator of a cable system, however, generally may not obtain such certification within its cable service area unless it is subject to effective competition. In light of the brief period for Commission review of certification filings, the Commission concluded that Congress intended a streamlined certification process. 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. If no new construction is required, the applicant must obtain certification prior to the commencement of service, allowing itself sufficient time to comply with the Commission's requirements regarding notifications that must be provided to potential programming providers. 3. Despite the streamlined nature of the certification process, the Commission intended it to provide purposeful representations regarding the responsibilities of the open video system operator by requiring that applicants verify their certifications and provide specified information. To obtain certification, an applicant must file FCC Form 1275, which requires, among other things: (a) a statement of ownership, including a list of all affiliated entities; (b) a representation that the applicant will comply with the Commission's regulations under Section 653(b); (c) a list of the names of the communities the applicant anticipates it will serve; (d) a statement of the anticipated type and amount of capacity that the system will provide; and (e) a representation as to whether the applicant is a cable operator applying for certification within its cable franchise area. II. BACKGROUND 4. In its first application, in response to Part C, Question No. 1, on the Form 1275, which asks whether the applicant is a cable operator applying for certification within its cable franchise area, Wedgewood responded that the question was not applicable by marking the box labelled "N/A." Chicago and 21st Century opposed Wedgewood's certification on the grounds that Wedgewood is a cable operator and therefore misrepresented its status as such when it checked "N/A" on Part C, Question No. 1, of the Form 1275. The commenters described an ongoing dispute between Chicago and Wedgewood in which the City has maintained that Wedgewood is a cable operator and therefore must obtain a cable franchise under federal and local law, which Wedgewood has failed to do. 5. In Wedgewood I, the Bureau denied Wedgewood's certification application on the grounds that, by simply marking the box labelled "N/A" without providing any explanation of the controversy surrounding its regulatory status, Wedgewood failed to disclose material information concerning its qualifications to operate an open video system. We held that this omission was a breach of Wedgewood's duty of candor and stated that Wedgewood could refile its certification. III. WEDGEWOOD'S REVISED APPLICATION 6. Wedgewood's revised certification appears identical to its previous certification in most respects. The revised certification reflects the following modifications to the earlier filing: (i) Wedgewood attaches explanatory material to its "N/A" response to Part C, Question 1, of the Form 1275, which asks whether the applicant is a cable operator applying for certification within its cable franchise area; and (ii) the company official who verified the Form 1275 is identified as the "Chairman of the Board" of Wedgewood rather than the "President." In its explanatory materials, discussed below, Wedgewood provides factual information about its operations and responds to the arguments raised by Chicago and 21st Century in their oppositions to Wedgewood's previous certification. Wedgewood denies that its previous certification evidenced any lack of candor, states that its revised application is properly verified, and asserts that its application is pro-competitive. 7. Wedgewood states that it provides video programming service to over 9000 subscribers in multiple dwelling units ("MDUs") through a headend it has constructed in the Presidential Towers complex. Wedgewood asserts that it does not construct facilities in the public rights of way but instead uses the facilities of Ameritech, a local exchange carrier ("LEC") that provides tariffed video transport service to Wedgewood under its Supertrunking Video Service, Tariff FCC No. 2. Wedgewood adds that it pays Chicago a technology-neutral entertainment tax in the same amount that Chicago collects from franchised cable operators through both the entertainment tax and franchise fees (7% of gross revenues, 5% of which is treated as franchise fees for franchised cable operators). 8. Wedgewood contends that it is a private cable operator that is exempt from cable franchising requirements because it does not own facilities located in the public rights-of-way. Wedgewood recounts the history of its dealings with Chicago regarding the City's franchise ordinance, stating that it contacted the City to inquire whether the City would require it to obtain a cable franchise. In response to its inquiry, the City informed Wedgewood on December 5, 1995, that it would not need to obtain a franchise. On April 23, 1997, however, the City sent Wedgewood a letter where it reversed its position and directed Wedgewood to obtain a franchise. Wedgewood states that it offered to apply for a franchise if the City would allow Wedgewood to continue to market its services and add subscribers pending issuance of the franchise. According to Wedgewood, the City rejected the offer and on October 3, 1997, ordered Wedgewood to cease and desist executing contracts to serve buildings Wedgewood was not already serving. 9. Wedgewood asserts that the Commission's decision in Metropolitan Fiber Systems/New York, Inc., and Metropolitan Fiber Systems/McCourt, Inc. ("MFS") presented the same issues as Wedgewood's certifications and therefore is controlling in this proceeding. Wedgewood cites MFS in support of its claim that its regulatory status should not be determined in this proceeding. Wedgewood asserts that the term "cable operator," as it is used on Form 1275 and in the Commission's rules to establish open video system qualifications, refers to franchised cable operators. Wedgewood concludes that because it has not obtained a cable franchise, it is not a franchised cable operator, and its certification therefore is proper. 10. Wedgewood claims that even if it is deemed to be a cable operator, it is subject to effective competition and therefore is qualified to operate an open video system. Wedgewood's argument is premised on its use of Ameritech's facilities to provide video programming service in the franchise areas of the incumbent cable operators serving Chicago. According to Wedgewood, its use of Ameritech's facilities satisfies the "LEC effective competition test." Wedgewood asserts that its programming services are comparable to the services provided by the incumbent cable operators and claims that the MDU market, in particular, is "extremely competitive." 11. Wedgewood denies that it has violated Section 76.1502(a) of the Commission's rules, which requires open video system applicants to seek certification prior to constructing facilities if construction is necessary and prior to initiating service where no construction is necessary. Wedgewood asserts that it has not constructed open video system facilities or provided open video system service because the Commission has not yet granted its certification to operate an open video system. Wedgewood claims that it is currently operating as a "franchise exempt private cable operator." IV. COMMENTS 12. Chicago maintains that Wedgewood's revised application is still deficient because Wedgewood is a cable operator and cannot properly represent otherwise on its Form 1275. As in its earlier comments, Chicago asserts that because Wedgewood uses the facilities of Ameritech to transport video signals along portions of the transmission path from Wedgewood's headend to its subscribers, and because Ameritech's facilities are located in the public rights-of-way, Wedgewood itself is using the public rights-of-way. Chicago concludes that Wedgewood's facilities, in combination with Ameritech's facilities, create a closed transmission path that uses the public rights-of-way. Wedgewood operates a "cable system," Chicago argues, and is a "cable operator," as those terms are defined in the Communications Act. Chicago adds that Wedgewood's Explanation of Issues suggests that Wedgewood in fact does own facilities in the public rights-of-way. Chicago states that Wedgewood continues to breach its duty of candor because it has not explained whether it in fact does own facilities that are located in the public rights of way. 13. Rejecting Wedgewood's claim that it is subject to effective competition, Chicago asserts that Wedgewood has not satisfied, and in some cases has not even addressed, all of the elements established by the Commission under the LEC effective competition test. Specifically, Chicago argues that (i) Wedgewood has not shown that it can physically provide service throughout Chicago; (ii) Wedgewood's failure to obtain a franchise is a regulatory impediment to its ability to provide service; (iii) Wedgewood has not provided marketing materials or other evidence to demonstrate that subscribers are reasonably aware that they may purchase Wedgewood's services; and (iv) Wedgewood has not demonstrated that its programming is comparable to programming provided by the incumbent cable operators. 14. Chicago also contends that Wedgewood may not be able to provide the 240 analog channels it claims on its certification it will provide. Chicago alleges that existing wiring in some of the buildings Wedgewood serves or intends to serve will not support 240 channels of service and states that Wedgewood's contracts with some or all of these buildings may not permit Wedgewood to replace the existing wiring and upgrade its facilities as needed. 15. Chicago reiterates the argument that Wedgewood is in violation of Section 76.1502(a) of the Commission's rules, arguing that Wedgewood's position on this issue, if followed to its logical conclusion, would render the Commission's requirements meaningless because all open video system applicants could claim that existing facilities and services are not open video system facilities or services until the Commission grants certification. In addition, as in its previous comments, Chicago asserts that the Commission's five-day comment period for open video system certifications denies interested parties a meaningful opportunity to comment on applications and therefore violates the constitutional right to due process. 16. Chicago states that the Commission should deny Wedgewood's certification because it is factually deficient and evidences a continuing lack of candor. As in its earlier comments, Chicago claims that the Commission's anticipated ruling in Motion of Entertainment Connections, Inc. for Declaratory Ruling, DA 97-353 ("ECI"), will likely be dispositive as to Wedgewood's status as a cable operator. Chicago maintains that the Commission should not grant certification to Wedgewood until it issues an order in the ECI proceeding. In addition, Chicago urges us to further defer ruling on Wedgewood's qualifications to operate an open video system until we issue a further order in the Cable Act Reform proceeding, which will address outstanding issues regarding the LEC-effective competition test. 17. 21st Century, like Chicago, argues that Wedgewood is a cable operator because Wedgewood's wire and Ameritech's fiber create a closed transmission path leading directly to subscribers, thus meeting the statutory definition of a cable system. 21st Century asserts that Wedgewood's unlawful operation of its system without a franchise raises the question of whether the Commission can rely on the statements in Wedgewood's application. In further support of its argument that Wedgewood is a cable operator, 21st Century alleges that Wedgewood's system at the Presidential Towers complex crosses a city street and that Ameritech must undertake special construction within the public rights of way in order to reach the buildings served by Wedgewood. 21st Century agrees with Chicago in urging the Commission to defer ruling on Wedgewood's certification until we issue an order in the ECI proceeding. 18. 21st Century also questions Wedgewood's ability to provide 240 channels of analog service, arguing that the technology to support this level of service is not commercially available. In addition, 21st Century alleges that the Wedgewood has exclusive contracts with the MDUs it serves, and it contends that Wedgewood may not be able to provide unaffiliated programmers with access to subscribers, as required by the Communications Act and our rules. These defects, 21st Century asserts, constitute independent grounds for the Commission to deny Wedgewood's certification. 19. Like Chicago and 21st Century, the Alliance also opposes Wedgewood's certification on the grounds that Wedgewood is a cable operator and is not subject to effective competition. The Alliance supports deferral of our ruling on Wedgewood's certification until we have issued an order in ECI. V. DISCUSSION 20. According to Wedgewood, it initiated cable franchise negotiations with Chicago after Chicago directed it on April 23, 1997, to obtain a cable franchise. On September 25, 1997, Wedgewood stated in a letter to the City that it intended to obtain a franchise for the areas in which it was already offering service. Wedgewood states in its revised application that it offered to obtain a franchise on the condition that the City allow Wedgewood to continue adding subscribers pending issuance of the franchise. Chicago subsequently ordered Wedgewood to cease and desist from contracting to serve additional MDUs. 21. The open video system certification process is not easily conducive to resolving extensive factual and legal issues presented by the parties. That does not mean that our only alternative, when presented with myriad issues, is to approve each application presented. Nor does it mean that to resolve issues there must be a seriatim of applications, each seeking to resolve the issues raised by an applicant's previous application. Each application comes with its own circumstances. The certification process, as confined as it is, must resolve the legitimate issues each application presents, and the applicant bears the burden of providing a record allowing the Commission to determine whether the salient elements of the certification process have been met. 22. In this application, we are presented with a record showing that Wedgewood committed to obtain a cable franchise from the City. It does not appear that having commenced a process with the City to obtain a cable franchise, Wedgewood has ever communicated directly to the City that it no longer seeks a franchise. Instead, Wedgewood and the City exchange a variety of allegations regarding each other's conduct. 23. The open video system framework was established as an alternative means to provide video programming to subscribers. It was not created to be used as a bargaining element in the negotiations between a municipality and a prospective video provider. While video providers can, of course, change their plans as to what regulatory alternative to pursue, where, as here, there is no clear understanding, outside Wedgewood's open video system applications, that Wedgewood has abandoned its pursuit of a cable franchise, we are reluctant to allow Wedgewood to use the certification process as the means of conveying its purported decision to the City. Where a local process is pending, we are hesitant to take action that would disrupt it. Because we do not think that the open video system certification process should be intertwined with local franchise negotiations, Wedgewood's application is denied. 24. Beyond the uncertain status of its cable franchise negotiations, there are questions regarding Wedgewood's current status and its eligibility to be an open video system operator. Under the Commission's rules, a cable operator subject to effective competition may apply for open video system certification in its cable franchise area. There is an unresolved assertion that Wedgewood is an unfranchised cable operator. The record in this proceeding is not adequate to allow us to determine whether Wedgewood is a cable operator as defined by the Communications Act. Yet, if Wedgewood is ultimately determined to be a cable operator, it is clearly an unfranchised cable operator serving subscribers in violation of Section 621 of the Communications Act. Such a finding bears on Wedgewood's eligibility as an open video system operator. While the certification process may not encompass resolving Wedgewood's status, we must be able to determine its eligibility to be an open video system provider. Our rules would present a blatant contradiction if the unfranchised operator had less of a burden than a franchised operator. Because the record is unclear regarding the status of the applicant, we must construe the circumstances in the light least favorable to the applicant, and require Wedgewood to demonstrate that it is subject to effective competition. 25. While we take no position on either Wedgewood's status or whether it faces effective competition, we note that there is no Commission precedent supporting Wedgewood's assertion of effective competition. Wedgewood asserts that, because it is subject to LEC effective competition, its operation as an open video system is permitted. Wedgewood misinterprets the LEC effective competition test, which acts to deregulate the rates of an incumbent cable operator faced with competition from a LEC, a LEC affiliate, or an entity using the facilities of a LEC to provide comparable programming directly to subscribers. Contrary to Wedgewood's assertion, the LEC effective competition test is not for the benefit of a LEC, a LEC affiliate, or an entity using the facilities of a LEC to provide video programming directly to subscribers. 26. Moreover, opposing parties also contend that Wedgewood essentially does not have and will not have the capacity or capability to fulfill its obligations under the open video system rules. These assertions are distinguishable from previous cases, where parties have challenged the representations of the open video system applicant where no facilities existed, and where there were no recent or ongoing disputes or negotiations with local governments. We found such assertions insufficient to deny certification. While we need not currently address Wedgewood's alleged inability to fulfill its obligations as an open video system operator, we note that something more than assertions are necessary. Credible evidence must be submitted that Wedgewood cannot, or will not, meet its obligations as an open video system operator, such as, evidence that Wedgewood cannot provide video programmers access to end-user subscribers. VI. ORDERING CLAUSES 27. Accordingly, IT IS ORDERED that the certification of Wedgewood Communications Company to operate an open video system IS DENIED. 28. This action is taken by the Chief, Cable Services Bureau, pursuant to the authority delegated by Section 0.321 of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau