******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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 5105-E ) TCI TKR of Alabama, Inc.) Montgomery, AL ) CUID No. AL0147 ) Petition for Special Relief ) MEMORANDUM OPINION AND ORDER Adopted: December 23, 1997 Released: December 24, 1997 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. TCI TKR of Alabama, Inc. ("TCI") has filed a Petition for Special Relief seeking a determination of effective competition. TCI asserts that it is subject to effective competition in Montgomery, Alabama because of the presence of KNOLOGY of Montgomery's cable service in that City. This petition is unopposed. For the reasons discussed below, the Petition is granted. 2. The Communications Act of 1934, as amended ("Communications Act") provides that only the rates of cable systems that are not subject to effective competition may be regulated. The Act permits local franchising authorities to become certified to regulate the basic cable service rates of cable operators that do not face effective competition. The Commission's rules presume that effective competition does not exist and place the burden on the cable operator to show that it does face effective competition in a given franchise area. Cable operators must prove that they are subject to effective competition under one of the four tests set forth in Section 76.905(b) of the Commission rules. 3. One basis upon which a cable system may be deemed subject to effective competition is the competing provider test. Under the competing provider test, a cable system is subject to effective competition if the franchise area is (1) served by at least two unaffiliated multichannel video programming distributors ("MVPD") each of which offers comparable programming to at least 50 percent of the households in the franchise area; and (2) the number of households subscribing to multichannel video programming other than the largest MVPD exceeds 15 percent of the households in the franchise area. 4. Alternatively, a cable system may be deemed subject to local exchange carrier ("LEC") effective competition, as defined in Section 623(l)(1)(D) of the Communications Act. Section 623(l)(1)(D) provides that a cable system is subject to LEC 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. 47 U.S.C. 543(l)(1)(D). II. THE PLEADINGS 5. TCI states that it is subject to effective competition under the competing provider test set forth in Section 623(l)(1)(B) of the Communications Act due to the presence of KNOLOGY of Montgomery ("KNOLOGY"), a competing franchised cable operator in its Montgomery, Alabama franchise area. To demonstrate that the first prong of the competing provider test is satisfied, TCI asserts that it passes all of the 84,573 occupied, non-seasonal housing units in Montgomery, and estimates that KNOLOGY passes approximately 44,000 (or 52 percent) of the households. TCI adds that both KNOLOGY and it meet the relevant programming comparability criterion because each offers at least 12 channels of video programming, at least one of which is nonbroadcast programming. In regards to satisfaction of the second prong of the competing provider test, TCI contends that KNOLOGY, the smaller MVPD of the two systems, has approximately 16,530 subscribers, or 20 percent penetration, which exceeds the 15 percent penetration requirement. 6. TCI asserts that, in the alternative, it is subject to LEC effective competition. With regard to the LEC affiliation requirement, TCI asserts that KNOLOGY is wholly-owned by KNOLOGY Holding, Inc. which, in turn is 29 percent owned by ITC Holdings, Inc. ("ITC Holdings"). ITC Holdings, notes TCI, wholly owns Interstate/Valley Telephone Company ("IVT"), a local exchange carrier serving customers in Alabama and Georgia. TCI argues that through their common parent company, KNOLOGY and IVT are affiliates for purposes of the LEC effective competition test. 7. With regard to the requirement that the LEC competitor offer video programming service in the unaffiliated cable operator's franchise area, TCI asserts that KNOLOGY has completed an overbuild of more than 52 percent of the City of Montgomery and is committed to pass all households in the City by July, 1999. TCI believes that KNOLOGY is now providing service to more than 16,530 customers and can provide service to potential subscribers in Montgomery with only minimal additional investment. TCI adds that KNOLOGY has heavily marketed the availability of its cable service through local media and other means. TCI asserts there are no regulatory, technical, or other impediments to households taking service from KNOLOGY. 8. TCI also asserts that KNOLOGY offers comparable programming to Montgomery subscribers. Specifically, TCI provides KNOLOGY's channel line-up which demonstrates that KNOLOGY offers over 70 channels, of which at least 6 are local television broadcasting signals. TCI offers 60 channels of programming in Montgomery, of which at least 6 are local television broadcast signals. III. ANALYSIS 9. 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 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. TCI has met this burden by satisfying the competing provider test for effective competition. In light of this finding, we will not address TCI's contention that it is also subject to effective competition under the LEC effective competition test. 10. The first part of the competing provider test requires that the franchise area be served by at least two unaffiliated MVPDs, each of which offers comparable programming to at least 50 percent of the households in the franchise area. We find that TCI has provided sufficient evidence demonstrating that it is unaffiliated with KNOLOGY, and that both offer service to the requisite percentage of households. TCI offers cable service to 100 percent of the households in the City of Montgomery franchise area. KNOLOGY's service is technically available to 52 percent of households in the franchise area. With respect to the issue of programming comparability, we find that the programming of TCI and KNOLOGY is comparable because they offer at least 12 channels of video programming, including at least one nonbroadcast channel. We conclude, therefore, that TCI has satisfied the first part of the competing provider test. 11. The second part of the competing provider test requires that the number of households subscribing to KNOLOGY, the smaller of the two MVPDs, exceeds 15 percent of the households in the franchise area. KNOLOGY serves 20 percent of households. We find that TCI has demonstrated that KNOLOGY's penetration rate in the franchise area satisfies the requirement of the second prong of the competing provider test. We conclude that TCI has established that both prongs of the competing provider effective competition test have been met. IV. ORDERING CLAUSES 12. Accordingly, IT IS ORDERED that the Petition for Special Relief seeking a determination of effective competition filed by TCI TKR of Alabama, Inc. IS GRANTED. 13. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION William H. Johnson Acting Chief, Cable Services Bureau