Error! Main Document Only.******************************************************** 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 Corrected Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) ) Implementation of the Cable ) Television Consumer Protection ) CS Docket No. 98-82 and Competition Act of 1992 ) ) Implementation of Cable Act Reform Provisions ) CS Docket No. 96-85 of the Telecommunications Act of 1996 ) ) Review of the Commission's ) Cable Attribution Rules ) REPORT AND ORDER Adopted: October 8, 1999 Released: October 20, 1999 By the Commission: Commissioner Furchtgott-Roth concurring in part, dissenting in part and issuing a statement; Commissioner Tristani approving in part, dissenting in part and issuing a statement. Table of Contents Paragraph I. Introduction 1 II. Background 2 A. The Cable Attribution Rules 2 B. Questions Raised in the Cable Attribution Notice 7 C. Summary of the Decisions of this Order 11 III. Report and Order 15 A. The General Attribution Standard 15 1. Background 15 2. Comments 16 a. Industry Differences 17 b. The Cable Operators' Control Proposal 22 3. Discussion 33 B. Voting Equity Benchmark 40 1. Comments 41 2. Discussion 45 C. Passive Institutional Investor Benchmark 52 1. Background 52 2. Comments 53 3. Discussion 55 a. The Appropriate Passive Institutional Investor Benchmark 55 b. Definition of Passive Institutional Investors 56 D. Partnership Interests 57 1. Comments 57 2. Discussion 61 E. Directors and Officers 65 1. Comments 65 2. Discussion 66 F. Limited Liability Companies 70 1. Comments 70 2. Discussion 71 G. Single Majority Shareholder Exemption and an Equity plus Debt Rule 74 1. Background 74 2. Comments 76 3. Discussion 81 a. Single Majority Shareholder Exemption 81 b. Equity plus Debt Rule 82 H. Program Access Attribution Standard 93 1. Background 93 2. Comments 95 3. Discussion 102 I. Cable Reform Issues 113 1. Effective Competition 113 a. Background 113 b. Comments 119 c. Discussion 126 i. LEC Test 126 ii. Competing Provider Test 131 2. Cable-Telco Buy-Outs 134 a. Background 134 b. Comments 136 c. Discussion 137 J. Transition Issues 138 IV. Final Regulatory Flexibility Analysis 142 V. Paper Work Reduction Act 174 VI. Ordering Clauses 176 Appendix A Rule Changes Appendix B List of Commenters Appendix C Cable Alliances and Partnerships I. Introduction 1. This Report and Order resolves the issues presented for comment in the Notice of Proposed Rulemaking ("Cable Attribution Notice") in this proceeding, as well as two related issues raised in the Cable Reform Notice. In the Cable Attribution Notice, we initiated a review of our cable attribution rules, which define what constitutes an "attributable" or "cognizable interest" that triggers application of various Commission rules relating to the provision of cable television services (the "substantive cable rules"). In this Report and Order, we adopt amendments that will more accurately identify interests that confer on their holders the ability to influence or control the operations of the held entity or create the type of economic incentives that the substantive cable rules are intended to address. In this regard, our amendments to the cable attribution rules mirror to a certain extent those amendments we recently made to the broadcast attribution rules; thus, our reasoning herein largely incorporates and reiterates the reasoning set forth in the Broadcast Attribution Report and Order. II. Background A. The Cable Attribution Rules 2. A variety of statutory provisions and Commission rules govern the conduct of cable television system operators or other entities in terms of both ownership interests that they may hold in other cable operators or competitive firms, or in terms of their conduct when they own, are owned by, or are owned in common with a "video programmer," a "satellite cable programming provider," or with other entities. For each of these statutory provisions or rules it is necessary to identify what types of ownership interests or other relationships are sufficient that two legally separate entities should be treated as if they were commonly owned or managed or subject to significant common influence. The rules define that level of interest that brings the substantive statutory provision or rule in play to be an "attributable interest." Thus, for example, the Communications Act, Section 613(f)(1)(A), instructs the Commission to prescribe rules and regulations establishing reasonable limits on the number of cable subscribers a person is authorized to reach through cable systems owned by such person, or in which such person has an attributable interest. . . . Section 628(b) provides that: It shall be unlawful for a cable operator, a satellite cable programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers. The attribution rules seek to identify those corporate, financial, partnership, ownership and other business relationships that confer on their holders a degree of ownership or other economic interest, or influence or control over an entity engaged in the provision of communications services such that the holders should be subject to the Commission's regulation. 3. Depending on the particular substantive rule and objective to be accomplished, a variety of different attribution standards are used in the Commission's rules. In the cable television area, there are, generally speaking, two strains of attribution rules: the "general attribution standard" and the so-called "program access attribution standard." The general standard is based on, but not identical to, the broadcast attribution rules. Under the general attribution standard, voting stock interests of 5% or more are attributable. For passive institutional investors, voting stock interests of 10% or more are attributable. Non-voting stock interests, options, warrants and debt are not attributable. The general attribution standard provides a "single majority shareholder" exception to the voting stock threshold, which provides that a minority shareholder's voting interests will not be attributed where a single shareholder owns more than 50% of the outstanding voting stock. Partnership interests and direct ownership interests are attributable regardless of the level of equity invested. However, the interests of "insulated" limited partners are not attributed. Directors and officers are also deemed to have an attributable interest. The general attribution standard rules at issue in this proceeding are those that are used in conjunction with the cable horizontal ownership limits rule and the vertical channel occupancy limits rule. We applied the broadcast or general attribution standard to the horizontal limits and channel occupancy limits rules because they constitute broad structural rules designed to promote competition and diversity in the video-programming marketplace. 4. The Commission adopted the program access attribution standard for cable rules that are designed not only to promote competition and diversity, but also to deter specific discriminatory or improper conduct. The program access attribution standard captures more investment interests than the general attribution standard. Under the program access standard, the single majority shareholder and insulated limited partner exceptions do not apply. In addition, nonvoting stock and limited partnership equity interests of 5% or more are attributable. The program access attribution standard rules at issue in this proceeding are used in conjunction with the following rules: program access, carriage of an unaffiliated programmer, SMATV/cable cross-ownership prohibition, asset transfers between a cable operator and an affiliate, rate pass-throughs for the programming services of an affiliated programmer, leased access and open video systems. 5. This Report and Order will also adopt final rules for the definition of the term "affiliate" for purposes of the local exchange carrier ("LEC") portion of the "effective competition" test, and the cable-telco buy- out provisions enacted in the Telecommunications Act of 1996. We asked for comment on the appropriate definition of an affiliate under these rules in the Cable Reform Notice. However, because the Cable Attribution Notice initiated a more general review of the cable affiliation and attribution rules, we decided to address these two issues in this proceeding. We incorporate the Cable Reform comments into the record of this proceeding and rely on them in order to issue these final rules. 6. Finally, we note that the Broadcast Attribution proceeding addressed the attribution rules that apply to the cable/broadcast station and cable/MMDS cross-ownership prohibitions; thus we do not address those rules in this Report and Order. B. Questions Raised in the Cable Attribution Notice 7. The Cable Attribution Notice, independently and through reference to the Broadcast Attribution Notice, sought comment on a number of issues relating to the attribution standards, including: (1) whether to increase the voting stock benchmark from 5 percent to 10 percent and the passive institutional investor benchmark from 10 percent to 20 percent; (2) whether to expand the category of passive investors; (3) whether and, if so, under what circumstances to attribute nonvoting shares; (4) whether to retain the single majority shareholder exemption from attribution; (5) whether to revise our insulation criteria for limited partners; (6) how to treat interests in limited liability companies ("LLCs") and other new business forms under the attribution rules; and (7) how to treat financial relationships and multiple business interrelationships that, although not individually attributable, should be treated as attributable interest when held in combination. 8. In addition to the issues raised in the initial Broadcast Attribution Notice, the Broadcast Attribution Further Notice explored additional proposals to increase the precision of the attribution rules. First, we invited comment on whether we should add a new equity/debt attribution rule. Under such a rule, where an interest holder is a program supplier or same-market media entity, we would attribute its otherwise non-attributable equity and/or debt interests in a media entity subject to the cross-ownership rules if those aggregated interests exceed a specified benchmark, proposed to be set at 33 percent. Second, we invited comments on a Commission staff study of attributable ownership interests in broadcast television stations, appended to the Broadcast Attribution Further Notice, and on the implications of this study regarding the impact of the proposed attribution rule changes, particularly as to the voting stock benchmarks. 9. In addition to asking for comment on how these broadcast issues pertain to the cable industry, in the Cable Attribution Notice we asked for comment on (1) the proposed "equity plus debt" addition to the current cable attribution rules, and specifically those relationships in the cable context that may provide sufficient incentive and ability for an otherwise nonattributable interest holder to exert attributable influence or control; (2) the attribution of certain contractual or other business relationships in the cable context (including affiliations that allow different cable entities to purchase programming, technology or equipment on common terms) that may implicate diversity and competition concerns, irrespective of debt or equity; (3) the impact of raising the stock ownership benchmark for active and passive investors in the cable context, particularly seeking empirical data and analysis similar to the Commission staff study on the same subject in the broadcasting context; (4) whether to retain, modify, or eliminate the single majority shareholder exemption; and (5) whether a transition period or grandfathering of existing interests is appropriate if we decide to adopt more restrictive attribution rules. 10. We also asked for comment on whether and how we should re-evaluate the application of the program access attribution standard to certain of the rules described above, such as the program access and program carriage rules. Finally, we sought comment on whether and how any changes in our cable attribution rules should affect our various definitions of "affiliate." In particular, we sought comment on whether and how those affiliation rules that are expressly based on our cable attribution rules should change if the underlying attribution rules are changed. In the Cable Attribution Notice, we asked for comment on whether there were any relevant differences between the cable and broadcasting industries that would support a cable attribution standard that would differ from the broadcast attribution standard. In this regard, we sought comment on any differences in, among other things, the ownership, financing or management structures of the cable industry and the broadcast industry that might warrant a different attribution standard. C. Summary of the Decisions of this Order 11. In general, we conclude that the cable industry's ownership and management structures do not in any relevant way differ from those of the broadcast industry such that the cable attribution rules should differ from the broadcast attribution rules. Thus, a large portion of this Report and Order will incorporate by reference the reasoning set forth in the Broadcast Attribution Report and Order. Where certain cable attribution rules depart from the broadcast attribution rules, the reasons for the departure are discussed. This Report and Order takes the following specific actions with regard to the cable attribution rules: (1) retain the 5% voting stock attribution benchmark, but raise the passive institutional investor voting stock benchmark to 20%; (2) retain the current definition of passive institutional investor; (3) apply the limited partnership insulation criteria to limited liability companies; (4) amend the insulation criteria for attribution of limited partnership interests for purposes of the horizontal ownership and channel occupancy limits rules; (5) amend the waiver standard for the attribution of directors and officers for purposes of the horizontal ownership and channel occupancy limits rules; (6) eliminate the single majority shareholder rule; (7) adopt a 33% equity plus debt attribution rule that act as an exception to the insulated limited partner exception and the current exemptions from the attribution of non-voting equity and debt; and (8) adopt certain transitional provisions relating to the application of these new rules to existing interests. 12. In addition, we clarify which entities are covered by the program access attribution standard. Under our substantive cable rules, such as the program access rule, it is arguable that the general attribution standard is applied to determine who or what constitutes a cable operator while the program access attribution standard is applied to determine who or what constitutes a programming vendor or other entity covered by the rule. Because the program access attribution standard was intended to apply to all entities under the rules where this standard applies, and because these substantive rules are designed to deter specific misconduct by all covered entities, we will amend these rules in order to clarify that the program access attribution standard applies to all entities covered by those rules. To reflect these clarifications of the attribution rules, we will amend our rules' various definitions of the term "affiliate" where appropriate. 13. With regard to the Cable Reform issues, we adopt the general cable attribution standard for the cable-telco buyout prohibition rule because that rule closely resembles the cable/SMATV cross-ownership rule, which is designed to promote competition. For the LEC affiliate prong of the effective competition test, we maintain the 10% voting equity benchmark proposed in the Cable Reform Notice, but devise a new attribution rule for the LEC test. 14. Finally, we reject the cable operators' proposals that we discard the attribution rules in favor of an actual control approach to identifying cognizable interests. Such an approach would not accurately capture potentially influential or controlling interests, and would not be workable. III. Report and Order A. The General Attribution Standard 1. Background 15. In the Cable Attribution Notice, we requested comments relating to the general structure of the attribution rules; invited parties to discuss recent developments in the cable industry, including strategic alliances, partnerships, system swaps, mergers and acquisitions, relevant to application of these rules; and asked whether there were any differences in the ownership, financing or management structures, industry health, typical stockholdings, informal business arrangements, or outside financial claims of the cable industry and broadcast industry that would warrant different cable attribution rules. This prompted a number of parties to suggest wholesale revisions to the traditional tools of the attribution rules. We address these comments first. 2. Comments 16. Cable operators generally, including NCTA, TCI, and MediaOne, argue that the cable horizontal ownership rules should not continue to follow the broadcast attribution rules because market conditions are different for the cable industry, new cable transactions allegedly insulate cable multiple system operators ("MSOs") from control over the newly created entities, and the Commission should adopt a "control" test for attribution. In response, alternative multichannel video programming distributors ("MVPDs") and a broadcaster argue that the market has not changed since the attribution rules were first enacted and that a "control" approach would not accurately capture influence and would not be workable. a. Industry Differences 17. TCI argues that the Commission has in the past distinguished between different industries when it rejected a request that the broadcast attribution standard be applied to the telephone carrier/cable cross-ownership rule "largely because these two categories of multiple ownership rules relate at least in part to different industries, affect the interests of different parties, and have disparate underlying objectives." 18. TCI notes that the purpose of the ownership rules is to promote competition and diversity. TCI contends that cable systems, unlike broadcasters, do not generally compete with each other in the same geographic areas for subscribers, local advertising revenues or programming. As a result, TCI argues that the analysis of ownership concentration, competition, collusion and program diversity should be different for cable than for broadcasting. TCI, Comcast and NCTA argue that concerns regarding diversity are different for cable because, unlike a broadcaster, a cable operator provides dozens of channels to satisfy consumers. Thus, NCTA argues that the ability of a minority interest in a cable system to significantly influence the viewing options available to a community cannot be equated with the magnitude of influence that a minority interest exerts on a single broadcast station that may only provide one programming option. 19. MediaOne argues that the operators have not discouraged the development of new cable programming services. By upgrading its systems from 550 MHz to 750 MHz, MediaOne states that it is adding 30 new analog channels, at least half of which will benefit unaffiliated programmers. In addition, given the growth of direct broadcast satellite ("DBS") services, such as DIRECTV, which offers over 175 channels of cable programming, MediaOne states there is no longer reason for concern that operators will discourage new programming. To compete with DBS, MediaOne states that operators must make diligent efforts to expand their channel capacity for new cable networks, regardless of an operator's interest in promoting affiliated programming. 20. TCI argues that the evidence indicates that vertically integrated cable operators do not disfavor unaffiliated programmers in terms of rates or carriage. In addition, TCI asserts that vertical mergers benefit consumers because a large, vertically integrated cable operator is better positioned than a stand-alone operator to know and satisfy consumers' viewing preferences. Moreover, investors in cable operators are interested in the financial performance of the operator and will not, TCI asserts, tolerate actions designed to foreclose viewpoints or opinions for ideological purposes. Thus, widely held operators, TCI asserts, are prevented from controlling the viewpoints of the services they carry. 21. Disputing the cable industry's arguments regarding the purposes of the applicable cable ownership rules, DIRECTV argues that the purpose of the various rules implicated in this proceeding is to check the bargaining power that MSOs have regarding programmers and the emerging MVPDs. DIRECTV and Univision argue that the MSOs have not shown that the market has changed or that their behavior has changed, especially with regard to program access and must carry. DIRECTV notes that Comcast has refused to sell its Philadelphia regional sports network to DBS providers on the grounds that the program access rules do not apply to the terrestrial delivery of vertically integrated programming. Univision states that regulatory safeguards such as must carry do not protect its cable network or its satellite-delivered network and that over half of its affiliated low-power stations are not entitled to must carry rights. b. The Cable Operators' Control Proposal 22. TCI and others, focusing on the horizontal ownership rules, argue that the current attribution standards impair the ability of cable operators to produce significant consumer benefits, realize efficiencies, and enhance competition in telephony and high speed data. Adelphia et al., Time Warner, NCTA, TCI, Cablevision, MediaOne and Comcast propose various alternatives to the attribution rules where the investor would certify that it does not exercise control over the cable system at issue. MediaOne, NCTA and TCI propose that minority interests not be attributable if the investor certifies that it does not control the company's programming. Regardless of the cable operator's interest or investment in a particular system, Adelphia et al. proposes that the Commission adopt a rule where a cable operator would be deemed to not "control" a system for horizontal ownership attribution purposes if it could certify that it (1) cannot dictate programming decisions, (2) does not control a majority of the governing board or committee, (3) does not prepare the operating or capital budget (but can review the budget prepared by the managing partner), (4) does not control personnel matters, (5) cannot dictate the use of particular technology, (6) does not have the unilateral right to acquire a controlling interest in the venture. Adelphia et al. argues that a cable operator's super-majority approval rights over the sale of assets, dissolution or change of status of an entity are not indicia of control for attribution purposes. 23. NCTA argues that unless an investor has control over a cable system, it is difficult to discern how diversity is implicated because there is little risk that a minority investor will restrict a company's editorial control. TCI argues that an attribution standard based on operational control is the least restrictive and most efficient method for the Commission to identify attributable interests. TCI states that attempting to identify "influential" interests in a set of rules is difficult given the alternative ways in which an interest holder's influence might be limited by factors which the rules do not examine. TCI argues that a bright line test, such as the 5% equity interest benchmark, does not necessarily identify interests that posed a threat to the purpose of the ownership rules and therefore unnecessarily limits beneficial investments. The cross-interest policy, which was adopted to identify influential interests not specifically addressed by the attribution rules, examined potential influential interests on a case-by-case basis. TCI argues that this ad hoc approach is slow and expensive. TCI argues that the Commission permits regulated entities to self-certify in a variety of other circumstances because self-certification is efficient and less costly and does not impose an overbroad restriction or require a case-by-case determination. 24. RCN argues that a "control" approach would not be workable because it is vague, would require the devotion of significant resources to a case-by-case analysis of each system, and would invite the creation of carefully designed corporate interests that would indicate lack of control on paper but would not reflect the actual influence that such interests would carry. RCN observes that the practicalities of corporate decision-making are different from structures set forth on paper. RCN argues that a rational decision-maker will make decisions in the best interests of its investors, whether the investors vote or not. CU states that cable operators need little or no direct ownership in a cable system in order to exert pressure with contractual rights. CU states that partners who have minimal ownership use methods to protect their interests by creating options, put-sell provisions, and rights of refusal provisions in partnership agreements. 25. NCTA asserts that the Commission has endeavored to "permit arrangements [under the attribution rules] in which a particular ownership or positional interest involves minimal risk of influence, in order to avoid unduly restricting the means by which investment capital may be made . . . ." Most of the cable operators argue that the current rules interfere with the benefits of clustering their systems. They argue that clustering benefits subscribers by enabling cable operators to lower costs; improve current services; more efficiently deploy new, innovative services such as internet, interactive video and telephony; develop and distribute regional programming services; and provide centralized, more responsive customer service. 26. AT&T, TCI, NCTA and MediaOne argue that the Commission should take into account not only the benefits to video programming, but also the benefits that clustering and economies of scale offer for bundled voice, data and cable services. They argue that the Commission should consider the benefits of enabling cable operators to compete with incumbent local exchange carriers ("ILECs") to provide these services. Cable operators argue that they cannot compete with ILECs without being able to form larger clusters comparable in size to the areas served by some of the newly merged ILECs, which are not subject to subscriber limitations and are able to enjoy the benefits of economies of scale. 27. Adelphia et al. argue that there are numerous benefits to their alliances with TCI: (1) TCI partners are able to create more efficient and larger regional clusters, (2) Falcon and Insight will be able to maintain a presence in the cable market unlike other independent cable operators who have been forced to sell, (3) TCI partners benefit from TCI's capital and technical experience, and (4) their alliances with TCI have enabled the partners to reach a critical mass so that they are able to offer better, less expensive technology to subscribers. As a result of clustering and TCI's financial, technical and programming support, TCA and Bresnan argue that they are able to rebuild their systems to provide hybrid fiber coaxial ("HFC") architecture which enables them to provide more channel capacity, multiplexed networks, advanced pay-per-view programming, internet service and telephony. 28. Cablevision acquired approximately 800,000 subscribers from TCI in the New York area, which brought Cablevision's number of subscribers to more than 2.5 million in the New York metropolitan area. Cablevision argues that without TCI's involvement, Cablevision would not have been able to cluster its systems and develop an economy of scale that would have permitted it to achieve the economic benefits of clustering. Through clustering, Cablevision argues that it was able to successfully develop local programming because there are more local subscribers. 29. DIRECTV and Ameritech argue that an MSO's subscribers do not pay lower costs simply because of the purported efficiencies of clustering. Rather, MSOs, they reason, are able to charge lower costs because they use their large size to obtain programming on more favorable terms than smaller companies: "Because this advantage is not grounded in superior efficiency, it is a barrier to effective competition in the multichannel video services industry." TCI argues that if another cable operator cannot achieve the scale necessary to achieve lower programming costs, it should be attributed to that cable operator's unpopularity with consumers rather than the fact that another cable operator is able to obtain lower programming costs. 30. RCN argues that how the MSOs will compete with LECs is irrelevant to this proceeding. RCN and Univision argue that TCI's stake in Cablevision and its joint ventures with Adelphia et al. will give TCI an important voice in their business plans, harm consumers, and impede competition. Ameritech argues that TCI's system swaps and joint ventures have significantly increased TCI's market power by giving it access to more subscribers. For example, Ameritech notes that TCI's contribution of 850,000 subscribers to Cablevision now gives TCI an attributable interest in Cablevision's 3.5 million subscribers. Given these joint ventures coupled with its ownership of Satellite Services, Inc. ("SSI") (a TCI subsidiary that sells to TCI partners "[m]any of the popular networks. . . at rates which are lower than those which would otherwise be obtainable"), TCI can obtain, Ameritech asserts, virtually any terms it wants from a cable programmer, including exclusivity and steep discounts from even unaffiliated cable programmers. Univision states that given TCI's investment in the joint ventures, it is implausible that the small cable operators will ignore any "suggestions" that TCI might make. RCN notes that the FTC approval of the TCI/Cablevision transaction was based on an antitrust analysis, rather than the public interest analysis that the Commission should apply under Section 613 of the Communications Act, and is therefore irrelevant to this proceeding. 31. Cablevision argues that its transaction with TCI enhances competition by enabling Cablevision to compete with Bell Atlantic, DIRECTV and RCN. Furthermore, Cablevision argues that TCI's transactions actually reduce TCI's market power by transferring subscribers to another company. Time Warner argues that the structure of TCI's joint ventures will not pose an anticompetitive risk. 32. If the control certification proposals discussed above are not accepted or if an operator cannot make the necessary certification, Adelphia et al. argues that as long as the operator owns 50% or less of a venture and does not have managerial control, the operator should be attributed with only its pro rata share of the venture's subscribers. Likewise, Time Warner and MediaOne propose that an MSO should only be attributed with the percentage of a corporation or a partnership's subscribers that equals the MSOs percentage equity interest in the corporation or partnership. For example, if an MSO holds a 25% interest in a partnership, MediaOne argues that only 25% of the partnership's subscribers should be attributed to the MSO. 3. Discussion 33. The cable operators focus their arguments on the attribution rules applicable to the horizontal ownership rules. However, the cable operators have not presented a valid basis for a radical departure from our attribution rules framework, a framework that Congress found appropriate for the Commission to consider for the horizontal ownership rules. The cable operators have not shown differences in the ownership, financing or management structures between the cable and broadcast industries that would warrant creating such a different type of attribution standard for the cable horizontal ownership or other cable rules. 34. Cable operators argue that the programming market has evolved so that even large MSOs have a limited impact on programming, and the attribution rules associated with the horizontal ownership rules inhibit cable clustering. In addition, they argue that the cable attribution rules should be different from the broadcast attribution rules because, unlike broadcasters, cable operators generally do not compete on the local level and the purposes of the broadcast and cable rules are different. These arguments are more appropriately addressed to the scope of the horizontal ownership rule itself, rather than the attribution rules. As we recently stated in the Broadcast Attribution Report and Order, The attribution rules are designed to attribute entities that wield significant influence on core operations of the licensee. It is the ownership rules that limit investment based on our core policies of diversity and competition. Arguments with respect to the status of the programming market, vertical integration, non-cable competitors and cable clustering were properly raised and resolved in our companion Horizontal Ownership Third Report and Order. Any changes to the horizontal ownership limits should be accomplished directly through an alteration of the limit rather than through a manipulation of what is considered to be ownership. 35. In any event, we disagree with NCTA and TCI's argument that differences in the services that cable operators and broadcasters provide in the local market present a basis for establishing different sets of attribution standards for the local broadcast ownership rules and the cable horizontal ownership rules. What is relevant here is the market to which the rules are directed and the purposes of the rules. The appropriate market for an analysis of the horizontal ownership rules is the national market, not the local market. In the horizontal ownership limits statute, Section 613, Congress directed the Commission to set limits on the concentration of ownership at the national level. Congress was concerned that the anticompetitive effects of increased concentration at the national level might reduce the availability of diverse programming content. Thus, although the local broadcast rules and the horizontal ownership rules address different markets, their purposes are the same: both sets of rules are designed to promote competition within the industry and a diversity of viewpoints and programming. Given that the cable horizontal ownership limits and the broadcast ownership rules serve similar purposes, it is appropriate, with certain exceptions discussed below, to use the same attribution standards for these rules. As discussed below, the cable operators do not persuade us that the broadcast attribution standards do not accurately capture equity or debt interests that convey influence or control. 36. We also continue to believe that the cable operators' "control" proposals, which we previously rejected in the Horizontal Ownership Second Report and Order, do not take into account the variety of ways that an investor may exert influence or control over a company. An individual or firm does not need actual operational control over (or to be the management of) a company in order to exert influence and control over that company. As discussed below, equity, debt and partnership interests confer on their holders influence and control, regardless of whether the holders maintain operational control of the company. Moreover, the TCI transactions discussed in the record of this proceeding demonstrate the control proposal's lack of credibility. TCI's transactions include joint ventures where it has between a third and half the members of the board, rights of first refusal and supermajority rights or the right to veto fundamental decisions such as the sale of assets, declaration of bankruptcy, issuance of equity interests, consolidations, mergers, and capital calls. These rights clearly confer some degree of control or influence by TCI over the joint ventures. We agree with RCN and CU that, under these circumstances, it is more likely that a reasonable entity will consider the spoken or unspoken interests of its investors. 37. TCI's relationships with its partners demonstrates the influence that an investor can have over an entity even if the investor does not have actual, operational control over the entity's programming. Each of TCI's partners may take advantage of TCI's industry alliances, even if the partner is not required by TCI to do so. In the case of programming, each of TCI's partners can purchase at a low price cable programming networks that TCI has chosen to do business with. We find it unlikely that the TCI partners would purchase the same cable networks at a higher price from a company other than TCI's subsidiary, SSI. We agree with Ameritech that the programming purchases by TCI's partners from SSI extend TCI's power in the programming marketplace. Cable networks selected for carriage by TCI have a greater chance of being carried by the TCI partners. Conversely, cable networks not carried by TCI are placed at a disadvantage because they are required to compete with discounted SSI cable networks for carriage on the TCI partners' cable systems. 38. In addition, the control proposals would be unworkable and would not provide regulatory certainty. Under the control proposals, there are too many variables that the Commission and interested parties would have to weigh before a determination of non-control could be made. For example, the Commission would be required to examine, among other things, the contracts between the parties (such as contracts between TCI's programming distributor subsidiary SSI and the TCI affiliates), the entity's corporate documents, the prior and current course of dealings between the parties, the structure of their board and management, and the rights and obligations of the interested parties. Many of these factors are subject to change over time. 39. With regard to the proposal that an investor be apportioned a percentage of a cable system's subscribers equal to the investor's percentage equity interest, we find no basis in the statute or in fact or theory to support such a rule. This proposal assumes that there is some logical basis for attributing an investor only some proportional influence over a cable system commensurate with the investor's percentage equity interest or that there would be some equitable reason to proceed in this manner. Investor A's 25% equity interest in cable system X, however, does not limit investor A's influence to 25% of cable system X's subscribers or 25% of the decision made by the system. Investor A's 25% equity interest enables it to exert influence or control over all aspects of the operation of the system, including what programming the system selects for all of its subscribers B. Voting Equity Benchmark 40. We turn next to suggestions for more specific changes in the attribution rules and address first those provisions of the rules that apply in common to both the general and program access attribution provisions. For both types of rules a 5% voting equity interest would be considered an attributable interest. A number of parties have suggested that 5% is too low a number. 1. Comments 41. Bresnan, Time Warner, Chase, Mediacom and Comcast argue that the attribution standard for the cable horizontal ownership cap should be relaxed so that cable operators will have greater access to capital in order to upgrade their systems to true broadband service, to implement new technologies, such as digital television, and to increase investment in new programming services. Bresnan argues that TCI's ownership interest in it and TCI's assistance to it will benefit subscribers who will then have access to hundreds of channels of programming at low costs due to the cost efficiencies of Bresnan's partnership with TCI. Chase argues that the 5% voting interest threshold is simply too low a threshold for many institutions to invest. Chase reasons that raising the voting benchmark to10% will not give investors ultimate control over the company, but will recognize that investors must have some input to reduce the risk of the investment. 42. Except for the horizontal ownership attribution rules that Time Warner believes should be abolished, Time Warner argues that the Commission should raise the voting benchmark to at least 10% and could safely raise it to 20% in order to increase the availability of capital. NCTA argues that there has been no showing that an investor with a 5% interest has the ability to direct a system's core functions. NCTA notes that the Department of Interior uses a 10% threshold for acreage limitations, the SEC uses a 10% threshold for insider trading rules, and the Department of Transportation uses a 10% threshold for certain reporting requirements. Time Warner states that the Commission uses higher benchmarks for other rules such as a 20% direct and 25% indirect equity interest held by aliens in broadcast properties and the 40% interest that small businesses or rural telephone companies are permitted to hold for purposes of the CMRS spectrum aggregation limit. 43. TCI challenges the voting equity benchmark bright line test on the grounds that the "size of the financial interest [is] a highly imprecise indicator of the extent to which the financial interest conveys control." TCI asserts that, in order to determine an investor's control, other factors must be examined, such as the composition of the board, who has authority over management, and the size of other minority shareholders. However, TCI also argues that a case by case analysis of such factors would be too costly in terms of time and money. TCI therefore proposes that the Commission adopt its control certification approach as a middle ground between a bright line test and a case by case analysis. 44. RCN argues that the program access standard should apply to the horizontal ownership rules in order to prevent cable companies from clustering in major markets and blocking RCN from those markets. Comcast states that RCN's request is based on little more than a desire to achieve a competitive advantage. Time Warner states that the need for investment far outweighs a theoretical risk of anticompetitive influence and that RCN's proposal runs counter to the deregulatory intent of the Telecommunications Act of 1996. Because RCN's clustering proposal is more appropriately addressed in the context of the substantive horizontal ownership rules, we do not address it here. 2. Discussion 45. In establishing voting equity provisions of the attribution rules, we focus on issues of control or influence. The attribution rules are intended to exempt from attribution ownership or positional interests that present minimal risk of influence in order to avoid unduly restricting access to capital but to attribute those interests that permit a significant potential for influence or control. Based on the record of this proceeding, our parallel review of the broadcast attribution rules, a review of similar standards by other regulatory agencies, and academic studies relating to corporate governance, we conclude that the existing 5% voting share benchmark better takes into account the relevant considerations than any alternative that has been proposed. We recognize that the dynamics of corporate life are varied and change over time. Thus, it is understandable that a provision of this type may be thought to be an ill fitting test of control or influence in some circumstances that might be revealed by a detailed review of the facts of particular situations. Such a particularized review process, however, would provide no certainty to parties planning transactions and would not necessarily lead to enduring conclusions even as to a particular entity. It is necessary therefore to analyze general benchmarks in order to develop a proper standard. 46. In earlier proceedings, we found, based on an ownership survey, that, in a widely-held corporation, a 5% shareholder is likely to be one of the largest 2 or 3 shareholders and therefore to be in a position to command the attention of management, and that a 5% benchmark was an appropriate threshold for attribution of interests in a closely-held corporation based on several possible ownership scenarios. There is a body of more recent academic evidence that tends to confirm our earlier conclusions, demonstrating that interest holders of 5% can likely exert considerable influence on a company's management and operational decisions. One recent study demonstrated that block trades involving 5 to 10 percent of a firm's voting stock resulted in a 27 percent turnover rate of the chief executive officer of the traded firm, that a 20 to 35 percent block trade resulted in a 40 percent turnover rate of the CEO, and that block trades over 35 percent of the voting equity resulted in a 56 percent turnover rate. The turnover of the CEO was tracked over a one-year period following the date of the trade. These results, spanning an increasing level of ownership starting at 5 percent, demonstrate a consistent relationship between ownership trades and the rate of replacement of top management. The results imply that investors who acquire and hold such large blocks of voting stock can influence the choice of management of the firms in which they invest. 47. Another study presents evidence that 5 percent or greater stockholders vote more actively than less-than-five percent shareholders, and they tend to vote more often against the recommendations of management in votes over corporate anti-takeover amendments. This study suggests that larger owners, starting at a 5 percent level of ownership, tend to be more active in influencing management than smaller owners. The two studies considered together provide evidence that ownership percentages starting at 5 percent can influence management policies. 48. Based on these studies, we therefore disagree with TCI's argument that the voting equity benchmark is too highly imprecise to be usable in the rules. Moreover, the voting equity benchmark is superior to a test requiring a case-by-case review of each and every cable transaction because it reduces regulatory costs, provides regulatory certainty, and permits planning of financial transactions. 49. We also disagree with commenters' arguments that the cable equity benchmark should conform to certain 10% benchmarks adopted by other federal agencies. Those agencies' rules serve different interests than the Commission's ownership rules. For example, the Department of Transportation's 10% rule is designed to identify substantial interests, and the SEC's insider trading rule is designed to prevent intrinsically illegal or undesirable activities. Our rule is more analogous to the SEC's 5% ownership reporting benchmark. Under the SEC 5% benchmark, any person who becomes a direct or indirect owner of more than 5% of any class of stock of a company must file a statement with the SEC. The general purpose of this reporting requirement is to ensure that investors are alerted to potential changes in control, which is similar to the attribution rule's goal of identifying interests which confer on their holders the potential for influence or control. 50. The commenters in this proceeding have not shown that other Commission attribution rules have similar purposes to the cable rules such that the attribution standards should be the same. The 40% CMRS spectrum rule is designed to foster ownership by certain entities that have traditionally had difficulty gaining access to capital. Likewise, the commenters have not show how the alien ownership limits have objectives similar to the rules involved in this proceeding. 51. Regarding access to capital, we note that total capital available for cable investment is projected to double in 1999 at $ 24.160 billion from $12.326 billion in 1992. Available capital has steadily grown from $16,731 billion in 1996, $21.396 billion in 1997 and $22.607 billion in 1998. In addition, in 1999, cable operators are projected to have approximately $3.44 billion in surplus capital available. This dramatic increase in cable capital and capital surpluses decreases any cause for concern regarding the availability of capital. Nevertheless, to the extent there remain any capital concerns, as discussed below, we are raising the passive investor benchmark to 20%. C. Passive Institutional Investor Benchmark 1. Background 52. Our attribution rules do not attribute voting stock interests held by "passive investors" of less than 10%. Passive investors are "investment companies, as defined by 15 U.S.C.  80a-3, insurance companies and banks holding stock through their trust departments in trust accounts." In the Attribution Order, we concluded that these entities play passive roles because they lack the interest and the ability to actively participate in the firms in which they invest, and that setting a higher investment benchmark for such investors posed little risk of influence or control 2. Comments 53. Some commenters request that the passive ownership benchmark be raised and the definition of passive investor be expanded. To increase capital availability, Time Warner argues that the threshold should be raised to 20%, and TCI argues that it should be raised to 49%. NCTA argues that the Commission should relax the passive ownership benchmark because passive investors by definition are not involved in a system's core functions and raising the benchmark will increase the flow of capital. For small cable operators, NCTA argues that passive investments should not be attributable at all in order to give them more access to capital. 54. Mediacom, Chase and Comcast argue that institutional investors should be treated as passive investors. Chase argues that institutional investors invest in entities to obtain returns on their equity, not to harm the entities and diminish their profits; therefore, Chase argues that attribution standards for ownership rules should be distinguished from rules designed to control behavior, such as program access and program carriage. Chase asserts that investment companies should be permitted to control seats of the board so long as they do not control the board and do not participate in the day-to-day operations of the entity in question. Chase urges the Commission to recognize that investors must have some input to reduce the risk of the investment. 3. Discussion a. The Appropriate Passive Institutional Investor Benchmark 55. For the reasons set forth in the Broadcast Attribution Report and Order, we will raise the cable passive investor benchmark to 20%. We believe that the legal and fiduciary requirements that constrain a passive institutional investor will ensure their passivity with respect to the management and operational affairs of a company. In addition, we believe that raising the benchmark is a relatively safe way to increase access to capital while continuing to capture influential interests. We will not raise the benchmark higher than 20%. As we stated in the Broadcast Attribution Report and Order, we must act cautiously when relaxing the attribution rules so that the purpose of the rules is not undermined. Based on the record before us in the Broadcast Attribution Proceeding, we found that voting stock held by passive investors could become decisive in proxy disputes, and passive investors accordingly could not be considered equivalent to limited partners or non-voting shareholders. b. Definition of Passive Investors 56. We will not expand the passive investor definition to include other types of investors. We are not convinced that other types of investors lack the interest or the ability to participate actively in companies in which they have invested. This is particularly true of public pension funds, many of which have apparently become increasingly active in proxy fights and other devices to put pressure on management perceived to be under- performing. Furthermore, commercial and investment bank activities do not fall under the same fiduciary restrictions, discussed above, that apply to bank trust departments. In addition, we have not been presented with sufficient evidence thus far to revise our earlier tentative conclusion not to include SBICs and SSBICs in the definition of passive investors. As we have noted, under certain circumstances, these entities are authorized to exercise control over debtor companies for temporary periods. Furthermore, an investment advisor, acting on behalf of its client, might exert the same level of influence or control as might the client. Therefore, unlike the categories currently defined as passive investors, we do not find evidence of regulatory or other safeguards ensuring that other types of investors will remain passive. While several commenters favored expanding the definition of the passive institutional investor category, they did not supply persuasive evidence or analysis to support their case and, in particular, to contradict evidence that these institutional investors can be actively involved in the companies in which they invest. Indeed, the record here shows that some classes of institutional investors believe they should have the right to control seats on the board and to be actively involved. D. Partnership Interests 1. Comments 57. Under the Commission's current attribution rules governing partnership interests, general partners and non-insulated limited partnership interests are attributable, regardless of the amount or percentage of equity held. An exception from attribution applies only to those limited partners who meet the Commission's insulation criteria and certify that they are not materially involved in the management or operations of the partnership's media interests. 58. Time Warner argues that the attribution standards applicable to limited partnerships are overly restrictive in that a limited partnership investment no matter how small is attributable unless it is "insulated" under what Time Warner asserts are the Commission's overly-stringent standards. Time Warner states that the Commission should change its insulation criteria to make them consistent with federal and state securities regulations which require that limited partners in "business development companies" be given the right to vote to elect or remove their general partners. In addition, Time Warner argues that the Commission should permit investors to communicate with the partnership about their investments and to enter into arms-length contractual relationships with respect to the partnership's business, as nonvoting or de minimus voting shareholders in corporations are permitted to do, without being attributable. Finally, Time Warner argues that a limited partnership interest of less than 33% should not be attributable in any partnership with at least 20 limited partners if the partnership certifies that the interest holder will not be actively involved in the partnership's media affairs. 59. CU argues that the limited partner insulation exemption should be eliminated because, even though "insulated," limited partners nevertheless exercise some persuasion in partnership affairs that the attribution rules might not capture. 60. Bresnan argues that the Commission should not eliminate its insulated limited partner exception because it would frustrate Bresnan's ability to upgrade its systems. In addition, Bresnan argues that the Commission should apply its "single majority shareholder" exemption to partnerships because a minority shareholder does not have control, Bresnan asserts, over the entity. 2. Discussion 61. For the reasons set forth in the Broadcast Report and Order, we find no basis to alter our conclusion that limited partnership interests are distinct from corporate equity voting interests and that our limited partnership insulation criteria are necessary to identify partnership interests that confer influence or control. As we have previously found, partners in a limited partnership have the power, through contract, to determine their respective rights. As a result, the power of a limited partner to influence or control the operations of the partnership may not be proportional to the limited partner's equity interest, because the extent of its power may be modified by contract. Thus, the insulation criteria are designed to identify situations within which it is safe to presume that a limited partner will not be materially involved in the media management and operations of the partnership. 62. We decline to loosen the insulation criteria to accommodate widely held limited partnerships, such as "business development companies," that are organized under federal and state laws that require that investors have powers to exert significant influence or control over their partnerships. Like partnerships, these new business entities have contractual flexibility for organizing their management, thereby giving their investors the contractual ability to determine their rights. More importantly, the federal and state laws that regulate business development companies and partnerships may permit and sometimes require those entities to organize themselves in a manner that would enable their members to exert significant influence or control over the partnership. Thus, federal and state laws may fail to provide sufficient assurances that a limited partner lacks the ability to be materially involved in the partnership's media activities, which is the central purpose of the insulation criteria. Accordingly, if an investor in a business development company cannot meet the insulation criteria because of a federal or state law, then the investor has the ability to significantly influence or control the company, which warrants attribution under our rules. 63. Nevertheless, for the horizontal ownership and channel occupancy limits rules, we agree with Time Warner that the insulation criteria should be revised. The horizontal ownership and channel occupancy limits are designed to address the ability of one MSO or a group of MSOs, by virtue of their size, to impede the flow of programming from the programmers to consumers. An MSO may extend its ability to affect the programming marketplace when it invests in other cable companies. However, where the MSO is not materially involved in the video-programming activities of a limited partnership, its investment does not extend its national programming power and the concerns of Section 613 are not implicated. In these circumstances where programming is not affected, the current insulation criteria prevent investments between companies whose combination may bring benefits to the public, such as cable broadband and telephony services and competition to the incumbent local exchange carriers or Internet. In order for the limited partnership to benefit from an investor's expertise in these areas, it is necessary to craft insulation criteria that will not prevent the investor from offering its services to the partnership so long as those services are unrelated to the partnership's video-programming activities. 64. Therefore, we will amend the insulation criteria referenced in footnote 163 above for the horizontal and channel occupancy limits rules to provide that a limited partnership interest shall be attributed to a limited partner unless the partnership certifies that this limited partner is not materially involved, directly or indirectly, in the management or operation of the video-programming-related activities of the partnership. In order to qualify for the insulated limited partnership exemption for purposes of these two rules, (1) the limited partner cannot act as an employee of the partnership if his or her functions, directly or indirectly, relate to the video-programming enterprises of the company; (2) the limited partner may not serve, in any material capacity, as an independent contractor or agent with respect to the partnership's video-programming enterprises; (3) the limited partner may not communicate with the licensee or general partners on matters pertaining to the day-to-day operations of its video-programming business; (4) the rights of the limited partner to vote on the admission of additional general partners must be subject to the power of the general partner to veto any such admissions; (5) the limited partner may not vote to remove a general partner except where the general partner is subject to bankruptcy proceedings, is adjudicated incompetent by a court of competent jurisdiction, or is removed for cause as determined by a neutral arbiter; (6) the limited partner may not perform any services for the partnership materially relating to its video-programming activities, except that a limited partner may make loans to or act as a surety for the business; and (7) the limited partner may not become actively involved in the management or operation of the video-programming businesses of the partnership. Certifications pursuant to these rules should be served on the Commission as described in the notes to these rules. In order for the Commission to accept the certification, the certification must be accompanied by facts, e.g. in the form of documents, affidavits or declarations, that demonstrate that the insulation criteria are satisfied. E. Directors and Officers 1. Comments 65. Time Warner makes three requests for clarification of the attribution rules. First, according to Time Warner, alleged "dicta" in Mass Media decisions suggests that the power of a shareholder to appoint a corporate director is in itself an attributable interest. Time Warner requests that the Commission expressly disaffirm this type of attributable interest. Second, Time Warner argues that the Commission's recusal standard for the directors and officers of a parent company with regard to a subsidiary is imprecise and overbroad. Third, Time Warner requests that the Commission clarify that, for purposes of Section 310(b) of the Communications Act, an alien entity may hold (1) noninsulated limited partnership interests in a broadcast licensee of up to 20% of equity or (2) indirect noninsulated limited partnership interests in a broadcast licensee of up to 25% of equity. Time Warner also requests that the Commission employ the multiplier to calculate the equity held indirectly by a noninsulated alien limited partner. 2. Discussion 66. Directors and officers are deemed to have an attributable interest in the entities that they serve. We disagree with Time Warner regarding the parameters of the directors and officers attribution rule. A party that has the right to appoint a director to the board of an entity has the ability to influence the entity's conduct by virtue of the director the party selects; thus under the directors and officers rule that party has an attributable interest in the entity. Likewise, if two entities share common directors or officers, or have employees that serve as directors or officers of the other entity, the directors and officers render the entities attributable because of the influence that directors and officers have over an entity. 67. Time Warner argues that the recusal standard for the officers and directors of a parent company with regard to a subsidiary is imprecise or overbroad. As a general matter, we believe that the recusal standard is appropriate. In addition to the guidance provided by the rule, 47 C.F.R.  76.503(h) (officer or director's duties must be "wholly unrelated to the broadcast licensee or cable television system subsidiary"), the Commission has provided interpretative guidance in a series of decisions. We have stated that parties must take steps to prevent "the recused director from exercising authority or influence in areas that will affect" the subsidiary. For example, we have approved steps where the recused director is not involved in decisions or discussions regarding the particular subsidiary, financial reports are aggregated so that the subsidiary's performance figures are not separately displayed for the director, and reports to the director are redacted to remove information regarding the subsidiary. 68. For purposes of the horizontal ownership and channel occupancy rules, we will amend the matters for which a director or officer must recuse himself or herself in order to achieve the purpose of those rules. As discussed in Section III.D above, the horizontal ownership and channel occupancy rules are designed to place limits on a cable operator's programming power. As long as directors and officers appointed by a partial owner of a cable operator are not involved in the video-programming activities of the partially owned cable operator, the concerns of Section 613 that an MSO's programming power will be extended by its ownership interest are not implicated. Permitting directors or officers who have knowledge and expertise in areas other than video programming, such as telephony or Internet, to serve with a cable company will benefit the cable company as technologies converge. Therefore, to achieve these objectives for the horizontal ownership and channel occupancy limits rules, appointed or common directors and officers, and the partnership equivalent thereof, shall not be attributable if they do not participate in the video programming activities of either entity. To demonstrate that the officer or director meets the above-stated criteria, the relevant entity shall petition the Commission for a waiver as set forth in the rule. 69. Finally, we will not address Time Warner's request regarding alien ownership of broadcast licensees. The Cable Attribution Notice did not raise for comment the attribution rules applicable to those rules; therefore, this is not the appropriate forum to address Time Warner's request. F. Limited Liability Companies 1. Comments 70. Chase and Mediacom request that we expand the insulated limited partner exception to include insulated members of limited liability companies LLCs. Mediacom argues that the insulation criteria will prevent an LLC investor from exerting control over management. 2. Discussion 71. For the reasons set forth in the Broadcast Attribution Report and Order, we will treat LLCs and other new business forms including registered limited liability partnerships ("RLLPs") under the same attribution rules that currently apply to limited partnerships. The insulation criteria applied above to limited partnerships will apply also to these new business forms. 72. State laws grant more liberal organizational powers to LLCs and RLLPs than to limited partnership forms. Thus, equity holders can retain their limited liability even though they participate in the management of the entity. Under these circumstances, we believe that it is important to apply the insulation criteria to assure that those equity holders that purport to be insulated from management are in fact so insulated. In addition, even when an LLC adopts a "corporate form" of organization, there is still sufficient discretion afforded by state law so that the owners of the enterprise may retain some level of operational control on their own part. The organizational restrictions applicable to corporations do not necessarily apply to LLCs. 73. To reduce paperwork burdens, we will not routinely require the filing of organizational documents for LLCs. However, to remain consistent with our treatment of limited partnerships and insulation criteria, we will apply the same "non-involvement" requirements for LLC members who are attempting to insulate themselves from attribution that we require for limited partners who are attempting to insulate themselves. We will also require LLC members who seek not to be attributed to submit a statement that the relevant state statute authorizing LLCs permits an LLC member to insulate itself/himself in the manner required by our criteria, since our experience shows that state laws vary considerably with respect to the obligations and responsibilities of LLC members. This policy will help us to avoid any potential confidentiality concerns, referred to in the Broadcast Attribution Notice, which may arise if we require the filing of organizational documents. G. Single Majority Shareholder Exemption and an Equity Plus Debt Rule 1. Background 74. In the Notice in this proceeding and through cross-reference to the Broadcast Attribution Notice, we asked for comment on whether adjustments should be made in the general attribution rules to eliminate the single majority shareholder exemption. We also asked whether there should be an exemption to the single majority shareholder, debt and nonvoting equity exceptions in cases where a minority shareholder held a significant portion of an entity's equity (voting and nonvoting) and debt. We asked whether such a shareholder's interests in the entity might give the shareholder the ability to influence or control the entity. We asked for comment on a specific proposal for a new "equity or debt plus" ("EDP") attribution rule. The proposed EDP rule would ascribe an attributable interest to an investor that has an interest that exceeds 33% of the total assets (equity plus debt) of an entity and the investor is either (1) a program supplier of the entity or (2) a same-market media entity subject to the broadcast cross-ownership rules. Where an investor held an EDP interest, the nonvoting equity and single majority shareholder exceptions would not apply. 75. We also asked whether there are relationships in the cable context that would enable an otherwise nonattributable interest holder to exert significant influence or control that would warrant a new attribution rule capturing that interest. We asked whether contractual or other business relationships between cable entities (such as affiliations that allow cable entities to purchase programming, technology or equipment on common terms) implicated the diversity and competition concerns of the cable rules. 2. Comments 76. CU states that cable operators have a monopoly and need little or no direct ownership in a cable system in order to exert pressure with their retransmission consent and other contractual rights. CU states that partners who have minimal ownership use methods to protect their interests by creating options, put-sell provisions, and rights of refusal provisions in partnership agreements. Thus, CU supports the equity and debt test and proposes that debt and equity be regarded together under a new attribution rule. CU opposes relaxing the program access standard to permit an exemption where there is a single majority shareholder because vertically "integrated cable programmers . . . can use their assets to force business practices on supposedly dominant partners or shareholders." 77. TCI, Time Warner and NCTA argue that an EDP rule would not be appropriate for the cable industry. Noting that the EDP rule proposed in the Broadcast Attribution Further Notice is designed to capture currently unattributable interests by a program supplier in a broadcast station or interests by a media entity in another media entity within the same market, NCTA argues that these two types of interests are not present in the cable context. NCTA states that a cable operator typically does not compete with another operator within the same market. In addition, NCTA, Bresnan and Time Warner argue that a cable programmer is not likely to gain an investment in a cable operator that would enable the programmer to influence the cable operator in the same manner that a network can influence a local television station. Time Warner argues that the investments of the four major broadcast networks in their affiliated television stations do not prove that there is similar conduct in the cable industry. 78. NCTA argues that the Commission should keep the single majority shareholder exception because minority interest holders cannot direct the core operations of the entity. First, NCTA argues that there is no evidence that this exception has harmed competition or diversity. Second, NCTA argues that the exception permits investments in smaller cable operators, which is critical for the small operators' continued financial well being. TCI and Bresnan argue that an EDP rule would severely constrain access to capital when the cable industry needs additional capital for its transition to digital services and where cable is facing increasing competitive pressures. TCI argues that an EDP rule would only serve to capture influential interests, which TCI argues should not be attributable. Time Warner argues that nonvoting stock should remain unattributable because as a matter of corporate law a nonvoting shareholder cannot influence the day-to-day operations of a cable operator. 79. Time Warner argues the Cable Attribution Notice erroneously asked for the identification of "financial" and "other business relationships" that might confer influence or control. Time Warner asserts that those interests are not traditional formulations of an attributable interest. Time Warner states that attributing certain "contractual or other business relationships in the cable context (including affiliations that allow different cable entities to purchase programming, technology or equipment on common terms, analogous to JSAs and LMAs in the broadcast context)" would raise the same types of problems that the Commission faced with the cross interest policy. In particular, a cable operator or programmer, Time Warner asserts, would not know whether a proposed business relationship would fall under the rule without going through a burdensome and time-consuming process seeking a FCC ruling. In this regard, Time Warner argues that the cross-interest policy should be eliminated because the interests covered by the policy are not relevant to the cable or programming rules. 80. Time Warner and NCTA argue that current cable industry practices regarding the purchase of programming, technology and equipment do not raise the same concerns that broadcast station agreements do. In addition, Time Warner argues that the Commission does not have the statutory mandate to seek comment on how attributable interests might influence the "technology practices" of an entity. NCTA asserts that there is no record evidence that cable business relationships that may influence technology and equipment purchases harm the marketplace. 3. Discussion a. Single Majority Shareholder Exemption 81. We will eliminate the single majority shareholder exemption from the general cable attribution rules. None of the parties in this proceeding provided evidence that they are using this exemption or presented credible arguments that it should be retained. Given our concern that a minority shareholder may be able to exert influence over a company even where a single majority shareholder exists, and given the lack of a record in this proceeding that the exemption should be retained, on balance we believe that it is appropriate to eliminate the exemption from the general cable attribution rules. b. Equity plus Debt Rule 82. The "equity plus debt" proposal discussed in the Cable Attribution Notice will be incorporated into both the general and the program access attribution rules. We will tailor the rules to address the structure of the cable industry and to serve the particular purposes of each of the substantive cable rules at issue in this proceeding. The rule we adopt will act as an exception to the insulated limited partner, debt and nonvoting stock exemptions as follows: the cable equity and debt rule ("ED rule") will ascribe an attributable interest to an investor that holds an interest that exceeds 33% of the total asset value (equity plus debt) of the applicable entity. As a shorthand, we will use the term "total assets" herein to refer to the total asset value of the entity. We will define equity to include all stock, whether common or preferred and whether voting or nonvoting, and all partnership interests. Debt includes all liabilities, whether short-term or long-term. Total assets, by definition, are equal to the sum of all debt plus all equity. 83. The equity/debt approach is intended to resolve our concerns, expressed in the Broadcast Attribution Notice, that multiple nonattributable business interests could be combined to exert influence over entities. As we stated in the Broadcast Attribution Notice, we are concerned that our nonvoting stock, debt and insulated limited partner exemptions can permit nonattributable investments that could carry the potential for influence such that they implicate diversity and competition concerns and should be attributed. In adopting the ED rule, we affirm our conclusion in the Broadcast Attribution Report and Order that there is the potential for certain substantial investors or creditors to exert significant influence over key decisions, which may undermine the diversity of voices we seek to promote. They may, through their contractual rights and their ongoing right to communicate freely with the entity, exert as much, if not more, influence or control over some corporate decisions as voting equity holders whose interests are attributable. The current attribution rules are thus simply too broad with respect to certain currently nonattributable interests. 84. As we decided in the Broadcast Attribution Report and Order, we intend to aggregate the equity and debt interests of an investor (including both non-voting stock in whatever form it is held and voting stock) in the applicable entity for purposes of applying the investment threshold. Thus, when the investor's total investment in an entity, aggregating all debt and equity interests, exceeds 33% of all investment in the entity (the sum of all equity plus debt), that investment would be attributable. In aggregating the different classes of investment, equity and debt, we intend to use total assets (debt plus voting, non-voting, and preferred stock) as a base. We will not apply the percentage threshold separately to debt and to equity interests because this could lead to distortions in applying the ED rule, depending on the percentage of total assets that each class of interests comprises. For example, were we to apply the percentage thresholds separately, a company with only 10 percent of its capital from debt would be attributable to a creditor providing only 3.4 percent of the company's total assets, while any equity holder providing 32 percent of the total capital would be nonattributable. 85. We have decided to follow our decision in the Broadcast Attribution Report and Order to adopt a 33% investment threshold. In the Broadcast Attribution proceeding, some commenters advocated a higher threshold, while others advocated a lower threshold. ABC stated that a 50% threshold, rather than 33%, more realistically identifies the type and level of interest that conveys a realistic potential to control the core operations of a licensee. Paxson argued for a 25% benchmark, but only for the 4 major networks. MAP advocated a 20 percent benchmark. Viacom agreed with 33% in cases where the investor is contractually restricted from influencing budget, hiring and programming decisions, but argued for a 10% benchmark when contractual safeguards are not present. Viacom believed that an investment of even 10% of the capitalization of a station, particularly if coupled with the ability to influence station operations, carries as much influence as a 10% voting stake. CBS stated that the threshold should be set no lower than 33% to avoid prohibiting relationships the Commission has already deemed permissible. 86. In the Broadcast Attribution proceeding, we stated that a 50 percent threshold would be inappropriately high. Our goal is not merely to attribute interests with the potential to control but also those with a realistic potential to exert significant influence. On the other hand, we found that the suggested thresholds of 25 percent or 10 percent appeared to be too low. In setting the threshold for attribution of these newly attributable interests, we must be cautious not to set the limit so low as to unduly disrupt capital flow to the cable industry. In addition, we believe that the threshold for attribution of nonvoting interests should be substantially higher than the attribution level for voting interests, which give the holder a ready means to influence the company. The proposed 33% threshold seems to be an appropriate and reasonable attribution threshold. We note that we have discretion to exercise our judgment in setting a percentage threshold in this regard and to draw an appropriate line, a challenging yet inevitable task for government agencies. We have employed a 33 percent benchmark applied in the context of the broadcast cross-interest policy, and that particular benchmark does not appear to have had a disruptive effect. In Cleveland Television, the Commission held that a one-third non-voting preferred stock interest by a broadcaster in another station in the same market conferred "insufficient incidents of contingent control" to violate the multiple ownership rules or the cross-interest policy, and that the holders, by virtue of ownership of the non-voting preferred stock interest would not retain the means to directly or indirectly control the station. More recently, we have applied Cleveland Television's 33 percent threshold in Roy M. Speer, where we limited the non- attributable equity holdings of a same-market television licensee in another local television station to 33 percent. We will use this threshold in applying the ED rule but note that we could adjust the threshold later, if warranted. 87. We recognize that the attributable status of a particular investment could change, based, for example, on a change in the firm's assets, resulting in the investor's interests dropping below the 33 percent threshold, or vice versa. We will require parties to maintain compliance with the attribution criteria as any such changes occur. Where sudden, unforeseeable changes take place, however, we will afford parties a reasonable time, one year, to come into compliance with any ownership restrictions made applicable as a result of the change in attributable status. 88. We note that the broadcast EDP attribution rule has additional prongs that the cable ED rule does not. In order for the broadcast EDP rule to apply, an investor must not only have an interest that exceeds 33% of the total assets of the applicable entity, but must also either (1) provide over 15% of the entity's programming or (2) be a same-market media entity subject to the broadcast cross-ownership rules. These additional prongs were added to identify "those relationships that may trigger situations in which there is significant incentive and ability for the otherwise nonattributable interest holder to exert influence over the core operations of the licensee." We stated these prongs reflect our "recognition that the category or nature of the interest holder is important to whether an interest should be attributed." 89. In this regard, we explicitly identified two types of interest holders the major program supplier and the same-market media entity that would have the incentive and the means to exert influence over the broadcast licensee. The 15% programming prong was designed to capture interests of major television broadcast networks, among other substantial programmers, in local broadcast stations whereby the networks were extending their nationwide programming reach through previously unattributable relationships. Interests captured by the 15% programming EDP rule count toward the broadcast network's or other programmer's national ownership limit. The same-market entity prong was designed to capture controlling or influential interest in two media entities within the same market that would then trigger the local cross-ownership rules, thereby implicating the Commission's goals of promoting diversity and competition. 90. The cable ED attribution rule implicitly identifies relationships that confer on otherwise unattributable investors significant incentive and ability to exert influence over the core interests of the applicable entity. Thus, we do not find it necessary in the attribution rule to refer explicitly to the nature of the investor. With regard to the cable horizontal ownership limits, the competitive structure of the cable industry differs from that of the broadcast industry. As the cable operators in this proceeding have stated, unlike broadcasters, cable operators generally do not compete in the same markets. This lack of competition permits and encourages cable operators to form combinations with one another across markets, as established in this record, in ways that the broadcast industry does not. These combinations extend the reach of an MSO's influence and control over programming, thereby expanding its power in the national programming marketplace and accordingly triggering the purpose of the horizontal ownership limits. Because cable operators do not compete in the same markets, cable subscribers are limited to the programming selections that a single system chooses. One MSO thus has no incentive to distinguish itself through different programming from another MSO because they do not compete in the same market and likely hold interests in one another across markets. Because of this market structure, if an MSO has a significant ED interest in a system, that interest enables the MSO to significantly influence or control a cable system's core functions, such as programming, the heart of the horizontal ownership rule. Thus, the ED interest by itself implicates the concerns of the rules without the addition of an additional prong. We also believe that the ED attribution rule should be applied to the program access type attribution standard, for the reasons set forth in Section H below. 91. Finally, with regard to the same-market media entity cross-ownership prohibition rules at issue in this proceeding (47 C.F.R.  76.501(d) (cable/SMATV cross-ownership), 76.505 (cable-telco buy-out prohibitions), and 76.905(b)(2) (effective competition), we will apply the broadcast EDP attribution test applied to the broadcast/cable cross-ownership prohibition rule for the reasons set forth in the Broadcast Attribution Report and Order because they serve the same purpose, promoting competition and diversity within a local media market. 92. We decline at this time to examine contract language on a case-by-case basis to determine whether the contract gives one of the parties thereto an attributable interest. We believe that a bright-line ED test is superior to a case-by-case analysis because it permits the planning of financial transactions and minimizes regulatory costs. Nevertheless, we retain discretion to review cases that present unique issues where the public interest requires such a review. Such cases might occur, for example, when there is substantial evidence that the combined interests held are so extensive that they raise an issue of significant influence such that the Commission's multiple ownership rules should be implicated, notwithstanding the fact that these combined interests do not come within the parameters of the ED rule. We do not intend for this type of review to replace the cross-interest policy that we abolished in the Broadcast Attribution Report and Order. We reserve the discretion to examine in the future whether contractual relations between cable entities that enable them to purchase programming, technology or equipment on common terms implicates the diversity and competition concerns of the cable rules. H. The Program Access Attribution Standard 1. Background 93. The discussion above relates to attribution criteria that are common to both the "general" and "program access" attribution rules. There are important areas, however, where these two sets of rules differ. More particularly, the rules differ in that the program access attribution rules attribute nonvoting stock interests, attribute all partnership interests above 5%, and do not exempt what would otherwise be attributable interests because of the presence of a single majority shareholder. 94. We also asked for comment on whether and how we should re-evaluate the program access attribution standard. In particular, we sought comment on (1) whether the program access attribution standard serves the purposes for which it was intended; (2) whether the program access standard is over- or under-inclusive; (3) whether the program access attribution standard should be revised in relation to the broadcast attribution standard; (4) whether these two attribution standards should be treated as completely separate and independent formulations; and (5) whether, in view of the purposes it serves, we should require a more compelling showing before modifying the program access standard. 2. Comments 95. CU and DIRECTV argue generally that the program access rules should not be relaxed. WCA seeks clarification as to whether the "program access" attribution rules apply to all entities subject to the program access rule. WCA argues that there is currently a "gap" in the program access rules' definition of an attributable interest. WCA states that, although the program access rules are designed to address problems created by the common ownership of a cable company and a satellite cable programming vendor, the rules appear to apply only where a cable company has an attributable interest in a programming vendor and not vice versa. Section 76.1001 of our rules covers a "cable operator, [a] satellite programming vendor in which a cable operator has an attributable interest, [and] a satellite broadcast programming vendor." Because this language does not specifically state that the rule applies to an entity that holds an attributable interest in both a cable operator and a cable programmer, WCA states that some parties have asserted that the program access rules do not apply where a cable programmer holds an ownership interest in a cable operator. 96. For example, Microsoft Corporation maintains a 50% equity interest in the cable programmer MSNBC and an 11.5% non-voting stock interest in Comcast. According to WCA, Microsoft has argued that the program access rules' definition of attributable interest does not explicitly state that the definition applies to interests in cable companies; thus Microsoft has argued that its interest in Comcast is not attributable and that MSNBC is not covered by the program access rules. Based on this argument, Microsoft has never made MSNBC available to wireless cable operators or other alternative MVPDs. 97. WCA argues that Microsoft's argument defies common sense. Under Microsoft's interpretation, it would not hold an attributable interest in Comcast even if it held a sizable minority voting stock interest in that company. WCA also notes that Time Warner holds its cable systems and its cable programmers in separate subsidiaries, Time Warner Entertainment ("TWE") and Turner Broadcasting respectively. In addition, after the proposed AT&T and TCI merger, WCA states that AT&T will hold Liberty cable networks and the TCI systems in separate subsidiaries. WCA states that Time Warner and AT&T should not be able to argue that the Turner cable networks and the Liberty cable networks are exempt from the program access rules because Time Warner's 100% ownership of TWE and AT&T's 100% ownership of the TCI systems are not attributable. 98. WCA requests that the Commission amend Section 76.1000(b) to make it clear that common ownership of, or an attributable interest in, both a cable operator and a cable programmer will trigger the rules. WCA states that this was the intent of Congress and that the Commission has recognized that vertical integration also occurs where a cable programmer holds an ownership interest in a cable operator. 99. As a preliminary objection, MediaOne states that WCA should file a program access complaint to resolve this issue. Comcast and TCI argue that the Commission should not amend the program access rules because Section 628 of the Communications Act, which authorized the implementation of the rules, specifically addresses only situations where a cable operator has an attributable interest in a satellite cable programming vendor. Paragraphs (b) and (c)(2)(B) of Section 628 refer to a "satellite cable programming vendor[s] in which a cable operator has an attributable interest." Section 682(c)(2)(A) refers to a "cable operator which has an attributable interest in a satellite cable programming vendor." TCI and Comcast thus argue that the plain language of Section 628 cannot be read to apply to a third party noncable entity that holds simultaneous ownership interests in a cable operator and a satellite cable programming vendor. Moreover, TCI argues that, even if Section 628 could be read as WCA requests, the Commission should decline to grant WCA's request because the potential anticompetitive effects associated with vertical concerns do not warrant stringent Commission regulation. 100. WCA also requests that the Commission initiate a process to examine on a case-by-case basis whether unique and substantial non-ownership relationships between a cable operator and a nonvertically integrated cable programmer should be classified as de facto "attributable interests." WCA states that the consolidation of cable systems and new joint ventures between cable companies and cable programmers is further tightening the MSOs stranglehold over cable programming. Ameritech and WCA state that as a result, a number of nonaffiliated cable networks such as Fox News, MSNBC, Game Show Network, Eye on People, Home & Garden Television and TV Land act like vertically-integrated programmers and refuse to sell their products to alternative MVPDs. WCA proposes that the Commission develop procedural and proof requirements for a case-by-case approach that would capture these harmful relationships while preventing frivolous complaints against cable programmers. 101. Comcast argues that the Commission should deny this request because the program access rules already encompass non-ownership relationships that confer "actual working" control over cable operators. Comcast also argues that WCA has not presented any evidence that WCA has been denied video programming due to a joint venture that is not covered by Section 76.1000(b). TCI argues that the Commission should adopt TCI's control "certification proposal" as a less costly approach. 3. Discussion a. Changes to the Standard 102. The proceeding before us raises the general question of whether the different attribution standards employed can be justified based on the underlying purposes of the different cable rules; whether for one set of rules it is justifiable to attribute any stock interest above the 5% level, even if it is non-voting stock, whereas other rules do not attribute nonvoting stock or other financial interests even if they represent a very significant portion of the total value of the entity involved. Because different rules address different economic interests and different policy objectives it is not illogical that different attribution criteria might be more appropriate for one set of rules than another. The rules derived from the broadcast attribution rules, including for example the horizontal ownership and channel occupancy rules, were discussed in terms of promoting competition and diversity and focused on the influence one entity was likely to have over another. When the program access attribution criteria, which are used, for example, in the program access, program carriage rules, and for certain rate regulation purposes, were adopted it was thought desirable to attribute more interests because these rules were designed not only to promote competition and diversity but to deter specific discriminatory or improper conduct by specific cable operators, programmers, or other entities. Having reviewed the rules in question we continue to believe that the program access attribution rules appropriately take into account the relevant considerations but that an ED rule should be added to capture debt interests. In addition, given the purposes of the various rules subject to this proceeding, we find it appropriate to switch the SMATV/cable cross-ownership rule from the program access attribution standard to the general attribution standard. 103. As discussed above, the rules covered by the "program access" attribution standard are designed to address specific misconduct that adversely affects competition and to focus on economic incentives to discriminate. These rules are triggered only where there have been allegations of specific misconduct based on a relationship between two specific parties. At that point, we examine the relationship between the parties, and because specific misconduct has been alleged, the relationship warrants stricter scrutiny. By contrast, the ownership rules, such as the horizontal limits and cable/broadcast cross-ownership, are not designed to identify misconduct per se, but rather are designed to act as structural safeguards against potential anticompetitive conduct. 104. Moreover, we note that, unlike the horizontal ownership and broadcast/cable cross-ownership prohibition, the program access type rules are not designed to limit ownership in entities covered by those rules. Rather, the program access type rules simply provide that if an investor holds an interest in an entity covered by the rules, that investor will be subject to the behavioral constraints of the program access type rules. Thus, attributing nonvoting equity and not permitting a single majority shareholder or insulated limited partner exemptions for these rules in no way deters investment in entities covered by these rules. In other words, the program access attribution standard's broader sweep does not raise the capital and investment concerns that the general attribution standard raises. 105. It is appropriate to attribute nonvoting equity and to not allow the insulated limited partnership and single majority shareholder exceptions to the "program access" type rules. By virtue of a significant nonvoting equity interest, one party has the incentive to influence or favor the other party, and all of the "program access" type rules are designed to prevent the harm caused by this type of influence or favoritism. For example, the program access rules identify investments where a cable operator has an incentive to influence a programmer to deny access to a cable competitor and the programmer has an incentive to favor the cable operator to keep its investor satisfied. The program carriage rules identify situations where an investor has a financial incentive to influence a cable operator not to carry unaffiliated programming so that the investor's interest in a favored affiliate is not harmed. Likewise, the leased access and open video systems rules identify situations where investors have incentives to favor programmers in which they have investments over other programmers. Finally, the rules governing asset transfers between a cable operator and an affiliate and rate pass-throughs for the programming services of an affiliated programmer target behavior favoring an investment. Thus, for the "program access" type rules, even if there is a single majority shareholder or the investor does own voting stock in a company, the investor has the incentive to influence the company, and the company has the incentive to keep its investor satisfied. 106. Allowing a limited partnership exception here would shield from the scope of these "program access" type rules the very kinds of relationships they are intended to address. A cable operator cannot insulate itself from its investment in a programmer when it is charged with denying carriage to unaffiliated programmers, vertical foreclosure that denies program access to another cable operator, or asset transfers or rate pass-throughs between the cable operator and the programmer. Moreover, to be covered by most of these rules, the parties would have had to enter into a contractual relationship, such as an affiliation agreement. Thus, the exemption for insulated limited partners could not apply because insulated limited partners are limited in terms of the contracts they may enter into with the partnership and still be exempt from attribution. 107. We also believe that it is appropriate to adopt an ED rule for the "program access" type rules. As discussed above, these rules are designed to identify specific misconduct between two parties, and their attribution rules are designed to identify interests that would confer on their holder the incentive to influence or favor the other party. A 33% ED interest would provide such an incentive. In addition, while the program access type attribution rules count nonvoting equity, they do not recognize debt. We find that the types of investors covered by the program access rules that hold over 33% of the total assets of an entity in the form of debt and equity would have the incentive to influence that entity. 108. Given the different purposes of the general and program access type attribution rules, it is appropriate to realign one of the cable rules. The program access type rules currently apply to the SMATV/cable cross-ownership prohibition. However, because the SMATV/cable cross-ownership prohibition is a structural safeguard against anticompetitive conduct, we will now apply the general attribution standard to the SMATV/cable cross-ownership rule. b. WCA's Proposal 109. We specifically asked for comment on whether the program access attribution standard was under-inclusive; thus, we disagree with MediaOne that WCA's request is not within the purview of the Cable Attribution Notice. Although the program access rule clearly sets forth in its provisions a program access attribution standard, we agree with WCA that it is not clear as to which entities are covered by the program access attribution standard with respect to the program access rule. We find that the program access attribution standard should be applied to all entities covered by the program access rule, including cable operators. Moreover, to the extent there is a lack of clarity with respect to the remainder of the "program access" type rules, we clarify that the program access attribution standard should be applied to all entities covered by the "program access" type rules. 110. For purposes of the program access rule, the issue is what person or entity constitutes a "cable operator" that holds an attributable interest in a programmer such that the program access rule is triggered. Congress defined the term "cable operator" in Section 602 of the Communication's Act as follows: [T]he term "cable operator" means any person or group of persons . . . who provides cable service over a cable system and directly or through one or more affiliates owns a significant interest in such cable system. . . . The Commission established the attribution rules to determine what constitutes a "significant interest." 111. The program access attribution rules define what constitutes a "significant interest." The purpose of the program access rule, as well as all of the other rules covered by the program access attribution standard, is to deter discriminatory or improper conduct. These rules are designed to deter misconduct by all parties covered by the applicable rules, including cable operators. To the extent that there is any confusion regarding the definition of cable operator for purposes of these rules, we will amend these rules to make it clear that any party with an attributable interest in a cable operator under the program access attribution standard shall be treated as a cable operator for purposes of these rules. Thus, if a third party has an attributable interest in a cable operator under the program access attribution standard, it shall be treated as a cable operator for purpose of the program access type rules. 112. We decline to adopt WCA's proposal that we examine on a case-by-case basis whether the relationship between a cable operator and an unaffiliated cable programmer suggests that they are de facto affiliated. As noted above, we favor a bright line test in order to promote regulatory certainty. I. Cable Reform Issues 1. Effective Competition a. Background 113. In this section, we establish rules for the definitions of affiliate for purposes of the "LEC test" and the "competing provider test" of the effective competition rules. Under Section 623 of the Communications Act, a cable operator is not subject to rate regulation if it is subject to effective competition in its franchise area. Section 623(l) as amended by the 1992 Cable Act provides three tests for determining effective competition. A cable system is exempt from rate regulation if any of the following three tests is met: (A) fewer than 30 percent of the households in the franchise area subscribe to the cable service of a cable system [the "low penetration test"]; (B) the franchise area is- (i) served by at least two unaffiliated multichannel video programming distributors each of which offers comparable video programming to at least 50 percent of the households in the franchise area; and (ii) the number of households subscribing to programming services offered by multichannel video programming distributors other than the largest multichannel video programming distributor exceeds 15 percent of the households in the franchise area [the "competing provider test"]; or (C) a multichannel video programming distributor operated by the franchising authority for that franchise area offers video programming to at least 50 percent of the households in that franchise area [the "municipal provider test"]. The 1996 Act adds a fourth test to Section 623(l). Under the new test, a cable operator will be subject to effective competition if comparable video programming is offered to subscribers within the cable operator's franchise area by, or over the facilities of, a LEC or its affiliate. Section 623(l)(1)(D) (the "LEC test") provides that effective competition exists when: (D) 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. 114. In the Cable Reform Notice, seeking comment on rules to implement this statutory change, the Commission sought comment on the definition of "affiliate" for purposes of the LEC test. Resolution of this issue was then transferred to this proceeding. 115. Although not specifically related to the effective competition test, the 1996 Act amended Title I, Section 3 of the Communications Act by adding a definition of "affiliate:" The Term "affiliate" means a person that (directly or indirectly) owns or controls, is owned or controlled by, or is under common ownership or control with another person. For purposes of this paragraph, the term "own" means to own an equity interest (or the equivalent thereof) of more than 10 percent. In the Cable Reform Notice, we noted that this definition applies to our rules "unless the context otherwise requires," and that the definition of "affiliate" in Title VI of the Communications Act concerning cable television was not changed by Congress. As noted above, Title VI provides: [T]he term "affiliate," when used in relation to any person, means another person who owns or controls, is owned or controlled by, or is under common ownership or control with, such person. 116. Given that Title VI does not set a percentage threshold as to ownership, we found that we have discretion to establish an ownership threshold other than 10% for purposes of Title VI. However, as an interim rule, we decided that it was reasonable to adopt the 10% threshold until this rulemaking was completed. We decided that active or passive equity interests of 10%, or the equivalent thereof, would constitute an affiliation. In addition, we concluded that affiliation could be established through de facto control and that we would determine on a "case-by-case" basis whether other interests besides equity would be "the equivalent" of an equity interest." 117. We tentatively concluded that, although the Title I definition was not mandated for use for purposes of Title VI, we found it reasonable to use this test for purposes of the LEC effective competition rule. We asked for comment on this proposal as well as whether passive ownership interests and beneficial interests should be included. 118. In addition, in the Cable Attribution Notice, we stated that we intended to review how and whether any changes in our cable attribution rules should affect our various definitions of "affiliate." In reviewing the effective competition rules, we ascertained that the "competing provider test" does not have its own specific definition of affiliate. The competing provider test provides that there is effective competition in certain circumstances where there are at least two "unaffiliated multichannel video programming distributors" in the franchise area. As discussed below, we will amend this rule to clarify its definition of the term "affiliate" to bring it into alignment with our other same market cross-ownership rules. b. Comments 119. Cable operators argue that the Commission should adopt the Title I 10% threshold or a lesser threshold for purposes of defining a LEC affiliate. They argue that both active and passive equity interests should be deemed attributable. They also argue that beneficial interests, options, warrants, and convertible debentures should be attributable as the "equivalents" of equity interests. Time Warner argues that the Commission should define the term "beneficial interest" in the same broad manner as the SEC in its Rule 13d-3 under the Securities and Exchange Act of 1934. The cable operators argue that these types of "equivalent" interests should be attributable based on the Commission's policy of assessing ownership based on economic realities. 120. Some parties argue that the Commission should adopt a 5% threshold for the effective competition test. CCTA argues that LECs are using video service businesses as a defensive strategy to keep capital out of the hands of cable operators who seek to compete with LECs in telephony. 121. Time Warner proposes that the Commission modify FCC Form 430 to require wireless cable licensees to certify: (1) whether the licensee is LEC-affiliated; and (2) whether the entity offering service over the wireless facilities is LEC-affiliated. This certification requirement, according to Time Warner, would save public and private resources by eliminating the need to investigate the relationships for compliance with the Commission's rules. 122. LECs and public interest groups argue that the Title VI definition of affiliate should continue to govern the implementation of Title VI provisions, including the effective competition test. BellSouth states that the definition in Title VI is unambiguous and should be followed. GTE argues that the application of a 10% benchmark is arbitrary and does not comport with realities of telecommunications marketplace. Bell Atlantic argues that Commission should use Title VI definition because the use of specific thresholds are overly intrusive and burdensome. ICTA favors retaining the Title VI definition of "affiliate" in determining when effective competition exists, and urges the Commission to exclude beneficial or passive interests in this context. 123. RCN contends that the application of the Title I 10% benchmark to rules arising under Title VI would create a disparity in the regulatory treatment of cable affiliates and LEC affiliates. Under the Title I definition, RCN argues that the presence of any competitive MVPD in which a LEC has a passive, non-controlling 10% or greater equity investment would establish a basis for a cable operator to claim that effective competition exists in the market. Cable operators, on the other hand, would be unfairly advantaged because, RCN asserts, they would be considered "affiliated" with other entities only if actual control is established under the broader Title VI definition of "affiliate." Accordingly, RCN argues that cable operators would be entitled to deregulation while maintaining a much higher ownership interest in a purported "unaffiliated" competing provider. 124. USTA opposes the application of the Title I benchmark in the Title VI context. USTA argues that the Commission has developed expertise in applying the Title VI definition of "affiliate" in attribution cases, and should continue to do so. USTA contends that Congress' decision not to extend the Title I benchmark to the definition of "affiliate" contained in Title VI means that Congress did not intend to extend a benchmark to Title VI situations. 125. While SBC did not take a position on whether the Commission should adopt the Title I definition, SBC argues that the term "beneficial interests" is not commonly understood to constitute an ownership interest and therefore should not be deemed an "equivalent interest" under the Title I definition. C. Discussion i. LEC Test 126. We reaffirm our decision in the Cable Reform Notice that, given that Congress left Title VI's definition of affiliate unaltered, Title VI's definition continues to govern rules promulgated thereunder. In our discretion under Title VI, we believe it reasonable to adopt, with some modifications, the 10% threshold proposed in the Cable Reform Notice because we believe 10% will reasonably capture active LEC participation in a MVPD that may give the MVPD access to the resources of the LEC that Congress envisioned would be necessary to provide effective competition to cable. 127. Congress expected that the LECs would be robust competitors of cable operators because of their financial and technical resources. Congress also expected that the LECs would be effective competitors because their presence would be ubiquitous. Congress did not envision deregulation until competition was in place. 128. Thus, unlike the other cable attribution rules at issue in this order, which are designed to promote competition by ascertaining the minimum interest necessary for one entity to potentially influence another, the LEC test is designed to promote competition where a LEC participates in the ownership and operation of a MVPD to such an extent that the MVPD may truly enjoy the financial and technical resources of the LEC in order to compete with cable. Based on the distinct purpose here involved to identify not the potential for influence but the existence of significant involvement we believe a higher attribution standard is in order for the LEC test. 129. More specifically, it is appropriate to set the equity threshold higher than the standard 5% threshold in order to serve this different purpose and to require greater LEC involvement in MVPDs before deregulation takes place based on this test. We set the equity threshold at 10% threshold to reflect when a LEC has become a MVPD competitor in the relevant market. Given our relatively limited experience with the LEC test to date, we hesitate to set the threshold higher than 10% at this time. Nevertheless, we reserve the option to raise the 10% threshold in the future if we determine that 10% does not accurately capture the entrance of LEC competition in the marketplace. The 10% threshold will apply to corporate voting stock and partnership interests. The 10% threshold will apply only to active LEC investors. An MVPD competitor cannot be effectively a LEC competitor by virtue of its affiliation with a LEC that is a passive investor only, unless the LEC has an ED interest in the MVPD. We believe that an ED investment, given its size, by a LEC gives an MVPD significant access to the resources of a LEC such that it can be presumed that there is effective LEC competition. The LEC effective competition test presumes, without any market share or market penetration test, that the presence of a LEC competitor or use of a LEC's facilities, given the LEC's identity, resources, and functions, has significance beyond that of other competitors. Consistent with this rationale we will not treat positional interests (officers and directors) or insulated limited partnership interests as creating attributable interests that would result in a finding of LEC effective competition because these interests would not give the MVPD access to the LEC's significant resources. Given that we have not adopted the Title I definition of affiliate, we need not determine what constitutes an interest "equivalent" to an equity interest. 130. We also decline to adopt Time Warner's proposal that we require wireless cable licensees to certify with the Commission whether they are LEC-affiliates and whether any entity offering services over their facilities is LEC affiliated. In the Cable Reform Report and Order, we adopted a mechanism for cable operators to obtain evidence from their competitors in order to establish effective competition. ii. Competing Provider Test 131. As discussed above, in reviewing the effective competition rules, we ascertained that the "competing provider test" does not have its own specific definition of the term "affiliate." The competing provider test provides that there is effective competition in certain circumstances where there are at least two "unaffiliated multichannel video programming distributors" in the franchise area. Because the competing provider test provides the same function as our cross-ownership prohibitions, we will apply cable/SMATV cross-ownership attribution rules to determine whether two MVPDs serving the same market are "affiliated." 132. Given that the competing provider test does not have its own definition, the default definition in Part 76's definition section applies: When used in relation to any person, [the term affiliate means] another person who owns or controls, is owned or controlled by, or is under common ownership or control with, such person. Our rules then define cognizable ownership and control interests under this rule through our attribution rules. However, our rules do not specify which attribution rules apply to the competing provider test. Although, in the Cable Attribution Notice, we initiated a review of our various definitions of "affiliate" in light of our attribution rules, no party filed comments on the competing provider rule. 133. We find it appropriate to apply the general attribution rules to the competing provider test because it is designed to act as a structural safeguard in order to promote competition. Certainly we could not find that a cable operator faced effective competition in its franchise area if the "competing" MVPD was partially owned by the cable operator. The cable/SMATV cross-ownership attribution standards will capture interests that would enable their holders to engage in anticompetitive behavior. We will accordingly amend the competing provider rule to clarify its attribution standard. 2. Cable-Telco Buy-Outs a. Background 134. Section 302 of the 1996 Act added Section 652 to the Communications Act. Section 652 provides in relevant part: (a) Acquisitions By Carriers. No local exchange carrier or any affiliate of such carrier owned by, operated by, controlled by, or under common control with such carrier may purchase or otherwise acquire directly or indirectly more than a 10 percent financial interest, or any management interest, in any cable operator providing cable service within the local exchange carrier's telephone service area. (b) Acquisitions By Cable Operators. No cable operator or affiliate of a cable operator that is owned by, operated by, controlled by, or under common ownership with such cable operator may purchase or otherwise acquire, directly or indirectly, more than a 10 percent financial interest, or any management interest, in any local exchange carrier providing telephone exchange service within such cable operator's franchise area. 135. In the Cable Reform Notice, we implemented Section 652 by adopting its terms into our rules. We solicited comment regarding the definition of "affiliate" as that term is used in the context of the cable-telco buy-out provision. b. Comments 136. Alliance argues that the Commission should interpret the term "affiliate" as broadly as possible in order to protect programming choices. BellSouth and USTA argue that the definition should capture only controlling interests pursuant to Title VI's definition of affiliate. Time Warner argues that the context of the cable- telco buyout prohibitions requires the same affiliation rules as the other cable cross-ownership rules. c. Discussion 137. We agree with Time Warner that the cable-telco buyout prohibitio