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XXViceChairman Hall Northcott, Matsushita Doug Horstman, Maytag Corp. Robert Cushman, Amana Ref. A. J. Takacs, Whirlpool Corp.  bD  ALTERNATE MEMBERS:  Dan Elliott, White Consolidated Inds. Michael Thompson, Whirlpool Corp  bD  PORT. APP. DIV. LIAISON: Joe Berney, National Presto Neil Halvorson, West Bend William Yager, Rival Mfrg. Gary Turner, Teledyne Water Pik  bDc  SUPPLIER DIV. LIAISON:  Robert Brown, Robertshaw Controls Steven Bowsher, Ryerson Coil  bD  INFORMATION COPIES:  David Wolbrink, Broan Mfrg. James Ruberti, Brown Stove Works Ted Baily, Carrier Corp. Roni Liberman, Cold Point Corp. Thomas Benua, Ebco Mfrg. John Verwiel, Emerson Electric Joel Zillioux, Friedrich Lisa Bloom, GoldStar Elect. William Brashares, AHAM Counsel Gordon Stauffer, Northland Corp. Russell Zipkin, Russell Range Bunzo Shiono, Sanyo Fisher (USA) Anne Howard, Sharp Electronics Allen Wilkins, SubZero Freezer James Robinson, Toshiba America Philip Uihlein, ULine Corp. 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Bates LabelsBates Labels - Page Full - (NEC) 3'3'Standard3'3'Standard(̰  ,  Pt X` hp x (#%'0*,.8135@8:"(#h 2 XI.OVS IS INTENDED TO BE DIFFERENT FROM CABLE TELEVISION AND THEREFORE OVS PROVIDERS MUST ADHERE TO THE PRINCIPLE OF NONDISCRIMINATION TO QUALIFY FOR REDUCED REGULATORY OBLIGATIONS p>"(#h 5 XX` ` A.` ` The Commission Must Ensure That Open Video Systems Do Not Become De Facto Cable Systems Subject to Reduced Regulation ` p>"(#h 5 XX` ` X #` ` 1. #The Selection of Video Programmers and Allocation of Channel Capacity Must Be Nondiscriminatory, Prospective, and Verifiable p>"(#h 6 XX` `  #a.` *The Commission's Rules Must Promote Congress' Nondiscriminatory Vision for OVS(#p>"(#h 6 X` `  #b.*The Video Dialtone Experience Teaches That the (# ` `  #` *LECs Will Discriminate Absent Specific Uniform Rules(#p>"(#h 7 X` `  #c.*OVS Operators Must Be Precluded from Controlling (# ` `  #` *Over One Third of OVS Channel Capacity(#p"(#h 10 X` `  #d.*The Commission's Regulations Must Bar Preferential (# ` `  #` *Treatment of Favored Programmers Even if They Are (# ` `  #*Not "Affiliates"p"(#h 12 XX` ` X #` ` 2. #The Commission Must Ensure that OVS Operators Do Not Abuse Channel Sharing p"(#h 14 XX` ` X #` ` 3. #The FCC Must Prevent the Provision of Marketing Services from Skewing Unfairly the Competitive Video Marketplace p"(#h 17 XX` ` ` ` 4.X #Rules Requiring An OVS Operator To Make Programming (# ` `  #Contracts Public Will Reduce Discriminationp"(#h 20 R%0*((ԌXX` ` B.` ` REGULATORY PARITY DEMANDS THAT THE COMMISSION ENFORCE ALL TITLE VI OBLIGATIONS THAT ARE MANDATED BY THE ACT ` p"(#h 20 XX` ` X #` ` 1. #OVS Operators Must Comply With PEG, MustCarry, and Retransmission Consent Requirements p"(#h 21 XX` ` X #` ` 2. #OVS Operators Must Fulfill Other Mandated Requirements p"(#h 23 XX` ` X #` ` 3. #The OVS Rules Must Not Undermine the Public Policies Underlying State Level Playing Field Statutes p"(#h 24 XII.THE STATUTORY OBLIGATION TO OFFER JUST AND REASONABLE RATES REQUIRES THAT RATES BE BASED ON COST CAUSATION PRINCIPLES p"(#h 25 XIII.THE PUBLIC INTEREST IN ROBUST VIDEO COMPETITION WILL BE SERVED BY PERMITTING NONLOCAL EXCHANGE CARRIERS TO OPERATE AND UTILIZE OVS p"(#h 31 XX` ` A.` ` Congress Contemplated That Cable Operators May Be ` ` ` Given the Option to Become OVS Operators(#` p"(#h 31 XX` ` B.` ` There Is No Reasonable Basis to Conclude That Cable ` ` ` Operators And Their Affiliates Can Be Prevented From Becoming (#` ` ` Video Programmers On An OVS(#` p"(#h 34 XCONCLUSION p"(#h 38 |0*((  Y   % 9  %(7 Before the V ,FEDERAL COMMUNICATIONS COMMISSION  X 1Washington, D.C. 20554 ă In the Matter of #*hh29) ` `  #*hh29) Implementation of Section*hh29) 302 of the Telecommunicationshh29)@CS Docket No. 9646 Act of 1996` `  #*hh29) ` `  #*hh29) Open Video Systems #*hh29) ` `  #*hh29)  Yz 4 JOINT COMMENTS OF * +CABLEVISION SYSTEMS CORPORATION AND  XM  'THE CALIFORNIA CABLE TELEVISION ASSOCIATION Ѓ  Y Cablevision Systems Corporation ("Cablevision")0H T ԍCablevision Systems Corporation owns and operates cable television systems in six states with over 2 million subscribers and has ownership and/or managerial interests in other cable systems which serve an additional 662,000 subscribers. and The California Cable  Y Television Association ("CCTA"),`0H T ԍCCTA is a trade association representing cable television operators with over 400 cable television systems in California, including both small rural systems and national multiple system operators. CCTA's members are potential facilitiesbased competitors of local telephone companies in the provision of video services and local exchange telephone services to the public in California. (collectively "Joint Commenters")8@0H T ԍCablevision is not a member of CCTA, as it does not operate cable systems in California. In the past, CCTA and Cablevision have not filed jointly in proceedings before the Federal Communications Commission ("FCC" or "Commission"). In response to the Commission's request that parties with similar positions file together, however, Cablevision and CCTA submit these comments jointly. hereby submit these Comments in response to the Commission's Notice of Proposed Rulemaking in the  Y abovecaptioned proceeding.@ 0H T' ԍImplementation of Section 302 of the Telecommunications Act of 1996, Report and Order and Notice of Proposed Rulemaking, CS Docket No. 9646 (released March 11, 1996) ("NPRM").0*0*0*Ԍ Y  0 INTRODUCTION AND SUMMARY ă  Y The Telecommunications Act of 1996 (the "1996 Act")~ TM ԍTelecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56 (Feb. 8, 1996).~ authorizes telephone common carriers to enter the video programming marketplace through a broad variety of strategies and technologies, including radiobased communication technologies regulated  YJ under Title III of the Communications Act,YJh Tc ԍ47 U.S.C.  301 et seq.Y as common carriers regulated under Title II,VJ T ԍId. at  201 et seq.V  Y as cable systems regulated under Title VI,\  Tu ԍId. at  521 et seq.\ or by means of open video systems ("OVS") as  Y described in Section 653 of the 1996 Act.s H T ԍ1996 Act,  653(a)(1) (to be codified at 47 U.S.C.  573(a)(1)).s In creating OVS, Congress sought to create a new video services delivery mechanism to encourage the development of video competition  Y in the marketplace and to provide consumers with a diversity of program choices.E  T+ ԍSee H.R. Conf. Rep. No. 458, 104th Cong., 2d Sess. 172173 ("Conference Report"). In addition, Congress sought to "encourage investment in new technologies," id. at 172, which appears to be linked to the primary goal of fostering competition in the video marketplace.E A principal feature that distinguishes OVS from cable television service is the tenet of  Y6 nondiscrimination. Although not regulated under the Title II common carriage scheme,r 68  T ԍId. at 172; see also 1996 Act,  651(a)(3)(B). r OVS, just as with video dialtone before it, seeks to achieve nondiscrimination goals by mandating open access and by ensuring the establishment of just and reasonable rates, terms,  Y and conditions.I   T5' ԍ1996 Act,  653(b)(1)(A).I In return for complying with these basic obligations, OVS operatorsx 0*((  Y qualify for reduced regulatory burdens under Title VI.4 p Ty ԍId. at  653(a)(1), (c); see also Conference Report at 177. In order to qualify for reduced regulation, the 1996 Act requires that open video system operators certify compliance with nondiscrimination and certain other requirements as established by the Commission. 1996 Act, 653(a)(1), (c); see also NPRM at  5. OVS operators are exempt from Title VI provisions that require the designation of channel capacity for commercial use by unaffiliated entities; antitrafficking; the bulk of Part III that requires franchising; and Part IV's miscellaneous provisions. See 1996 Act,  653(c)(1)(C). OVS operators certified by the Commission need only satisfy selected provisions of Title VI regarding: the provision of public, educational, or governmental ("PEG") channels; must carry; retransmission consent; certain ownership restrictions; privacy; equal employment opportunity guidelines; negative option billing; and program access. See Id. at  653(c)(1).4 Thus, although the LECs may utilize similar network facilities as cable operators, Congress intended that they act in a  Y wholly different manner with respect to their basic programming obligations.  TU ԍFor instance, Cablevision is undertaking substantial network facilities upgrades that will enable vast expansion in capacity and capabilities. Joint Commenters have considerable experience with both the promise and the pitfalls of video dialtone. The proposals for and deployment of video dialtone systems by the Southern New England Telephone Company ("SNET"), Pacific Bell ("Pacific"), Bell Atlantic and others have underscored the need for vigilant enforcement by the FCC of the bedrock nondiscrimination obligation, as the incentives of the local exchange carriers ("LECs") to act anticompetitively are powerful. Consequently, in crafting the regulations for OVS, the FCC must recall the lessons of video dialtone and act so as to ensure that the discriminatory and anticompetitive behavior of the past is not repeated in the future. Indeed, with OVS, the need for firm rules is even more compelling, because Congress has required the FCC to act  Y on any certification request within 10 days.Ix  T$ ԍId. at  653(a)(1).I Failure to adopt and enforce clear rules at0*(( the outset to ensure that OVS operators do not engage in discriminatory behavior will  Y frustrate competition and undermine Congressional goals."H  TK ԍThe Commission should require, and strictly enforce, letterperfect certification filings from all prospective OVS operators. A similar rule was implemented by the Commission in the context of cellular lotteries, where many of the same concerns arose with respect to a very short timetable to review applications. Amendment of the Commission's Rules to Allow the Selection from Among Mutually Exclusive Competing Cellular Applications Using Random Selection Lotteries Instead of Comparative Hearings, Memorandum Opinion and Order on Reconsideration, 101 F.C.C. 2d 577, 603 (1985) (all future cellular applications must be "letterperfect" and failure will result in rejection). By assuring that all certification filings meet this exacting standard, the Commission eliminates the possibility that changed circumstances might affect the outcome of a certification decision. This is the only way that a tenday certification period, see 1996 Act,  653(a)(1), can be reasonably implemented." Specifically, to fulfill the promise of OVS to increase competition in the video  Yv marketplace and diversify programming choices for consumers,Fv  T ԍConference Report at 172.F the Commission should: establish an open, verifiable, and prospective process for the selection of video programmers and for channel allocation; ensure that OVS operators do not utilize channel sharing mechanisms to undermine the Congressional goal of a new video services paradigm distinct from cable television; and enforce all Title VI obligations that are mandated by the 1996 Act. The Commission should also require OVS operators to demonstrate that the allocation of costs in joint use integrated networks is based upon sound economic principles. Here too, failure to ensure proper cost allocation will skew fair competition in the video marketplace to the ultimate detriment of both video and telephone consumers. All costs, including personnel and service costs, must be fairly allocated and reflected in OVS rates so that the OVS operations bear the burden of their true costs. Moreover, given the articulated public interest benefits of OVS, the Commission should permit cable operators to provide open video|x 0*(( systems. Finally, the Commission should adhere to the statutory mandate that permits all video programmers, including cable operators and their affiliates, to utilize capacity on open video systems.  Xv   I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)I.XOVS IS INTENDED TO BE DIFFERENT FROM CABLE TELEVISION AND THEREFORE OVS PROVIDERS MUST ADHERE TO THE PRINCIPLE OF NONDISCRIMINATION TO QUALIFY FOR REDUCED REGULATORY  X1 OBLIGATIONS (#  X   A.` ` The Commission Must Ensure That Open Video Systems Do Not Become  X De Facto Cable Systems Subject to Reduced Regulation  (#` With the adoption of a nondiscrimination requirement, Congress intended for OVS to  Y be fundamentally different from cable television.8 T  ԍAt the heart of cable television is the right to exercise editorial discretion over the multichannel video system. See, e.g., Leathers v. Medlock, 499 U.S. 439 (1991). To the contrary, OVS operators may not discriminate among video programming providers and must limit their own programming to onethird of their systems where demand exceeds capacity. See 1996 Act,  653(b)(1)(A)(B). If the Commission is to ensure that open video systems enhance competition in the video programming marketplace, it must both target the specific discriminatory practices that have occurred in the past and establish a guiding principle of fair and nondiscriminatory competition for the future. These regulations should prescribe: (i) the manner of selection of video programmers and allocation of capacity; (ii) the development of channel sharing plans; and (iii) the provision of marketing services and other critical aspects of the service. Moreover, if the Commission is to monitor compliance, and afford the public the means to detect abuses, it should also require OVS operators to make their contracts with programmers publicly available. 0*((  X ` `  1. #The Selection of Video Programmers and Allocation of Channel  X Capacity Must Be Nondiscriminatory, Prospective, and Verifiable (#  X ` `  # a.` *The Commission's Rules Must Promote Congress'  X Nondiscriminatory Vision for OVS (# Section 653 of the 1996 Act directs the Commission to promulgate regulations that prohibit an operator of an open video system from selecting video programmers or allocating  Y capacity on an open video system in a discriminatory fashion.L  T ԍId. at  653(b)(1)(A).L By establishing this requirement, Congress sought to ensure an accessible system that provides consumers with the greatest possible diversity of program choices in a manner fundamentally different from  Y cable television.Th T ԍSee Conference Report at 177178.T Joint Commenters have had a multitude of experiences with LEC discriminatory practices in their deployment of video dialtone, which had a similar nondiscrimination requirement. The Joint Commenters assert that this pattern of behavior is not likely to change in the future simply because Congress has created a new regulatory structure. Thus, if the Commission is to fulfill the statutory vision for OVS, it must establish open, verifiable, and prospective regulations prescribing a selection process that: (i) includes a specific publiclynoticed time period of reasonable duration during which potential programmers may request capacity; (ii) allocates channels to programmers in a fair manner based upon the  Y video programmers' initial requests when demand exceeds capacity;( T$ ԍFor example, assuming 10 video programmers request 20 channels each during the initial allocation period but capacity is limited to 100 channels. A fair allocation based upon these requests would be 10 channels each, or an equal division of capacity.( (iii) sets forth X0*(( procedures to decide how channel positions will be determined among video programmers; and (iv) limits the percentage of channels that an affiliated programmer may reserve. Only by detailing the terms and conditions of enrollment, programmer selection, and capacity allocation in this manner can the FCC promote regulatory efficiency and serve the public interest by fulfilling the Congressional vision.  X  ` `  #b.` *The Video Dialtone Experience Teaches That the LECs Will  X Discriminate Absent Specific Uniform Rules (# In the history of video dialtone deployment, the LECs' demonstrated strategy was to discriminate in favor of a preferred video programmer which was utilizing all, or virtually all, of the platform's available capacity through individual discussions, closed negotiations,  YK or discriminatory channel reservation plans.TH K T ԍSee, e.g., Pacific Bell Petition for Expedited Waiver of Part 69 Rules to Permit the Establishment of Tariff Rate Elements for Video Dialtone Service, Pacific Petition for Expedited Waiver at 7 (filed Aug. 7, 1995); CCTA Opposition at 711, 21 (filed Oct. 2, 1995) (Pacific maintains conditional purchase option in two video programmers, which together controlled 60 percent of the analog capacity on Pacific's video dialtone platform, and established a channel reservation plan whereby Anchor Pacific and California Standard Television Corporation gained capacity and channel management in November 1993, 21 months before the existence of any firstcome, firstserved plan was made public); see also Application of SNET, to Amend Existing Authorization to Construct and Operate, on a Trial Basis, A Video Dialtone Platform for Provision of Programming to Subscribers, File No. WPC 6858, Petition to Deny of Cablevision and The New England Cable Television Association, Inc. at 3948 (filed Sept. 26, 1995).T In California, for example, Pacific granted significant benefits and advantages to Anchor Pacific Corporation ("Anchor Pacific"), a  Y company in which Pacific holds a conditional purchase option.  Tx! ԍThese benefits included assigning it the most desirable block of channels on the video platform, preallocating to it a majority of the available analog video capacity, and proposing volume discounts, term commitments, and marketing policies that were likely to benefit only Anchor Pacific to the detriment of other programmers. See In the Matter of Pacific Bell Tariff FCC No. 135, Transmittal No. 1834 (Channel Reservation), CCTA's Petition to Reject, or, in the Alternative, Suspend and Investigate Pacific Bell's Proposed Channel Reservation and Assignment Tariff (filed Sept. 11, 1995); Letter of July 7, 1994 to the Honorable Reed E. Hundt from Lee G. Camp, Pacific`'0*(( Bell; William F. Reddersen, BellSouth Corporation; Thomas M. Barry, Southwestern Bell Corp.; and Robert C. Calafel, GTE Corp.; Pacific Video Dialtone Service Tariff FCC No. 135 at 2.2.2(A); Description and Justification at 23; see also "Pacific Bell signs first video programmer," Connections, August 1, 1994 (attached to Letter of September 19, 1994 to Reed E. Hundt from Spencer R. Kaitz, California Cable Television Association). Similarly, in Connecticut, 0*(( SNET initially sought to allocate 49 of the 53 available broadcast channels to a single programmer with which it had a special relationship and refused to make capacity available  Y to cableaffiliated entities.` T ԍSee Application of SNET for Approval to Conduct a Dial Tone Transport and Switching Marketing Trial, Connecticut Department of Public Utility Control ("Connecticut DPUC"), Decision at 1415 (June 30, 1995) (Connecticut DPUC found that SNET's allocation of 49 of the 53 available broadcast channels to a single video programmer caused capacity problems).Ġ In fact, rather than establish a formal process to solicit  Yv capacity requests from potential video programmers, SNET, Pacific, US WEST,Qv  T ԍSee infra Section III.B.Q and,  YH initially, Bell Atlantic,hHh  Ta ԍAs originally proposed, the agreement between Bell Atlantic and its favored programmer, FutureVision of America Corp. ("FutureVision") committed 94% (60 of 64 channels) of the capacity on the Dover System to FutureVision. In the Matter of New Jersey Bell Telephone Company, File No. WPC 6840, 9 FCC Rcd 3677, 3680, n.44 (1994) ("Dover 214 Order"). After questions were raised regarding whether Future Vision's presence on the Dover Township system and its apparent right to control 60 of the 64 available channels were consistent with the video dialtone nondiscrimination and platform capacity requirements, Bell Atlantic amended its arrangement with FutureVision to restrict the use of any one programmer to 50 percent of the initial capacity as well as committed to expanding the platform capacity. Id.h acted to ensure that their affiliated or favored programming entities, rather than truly independent video programmers, would secure the lion's share of capacity on their video dialtone platforms under preferential terms and conditions that were not available to unaffiliated providers. Unless the Commission's rules clearly bar such conduct, experience teaches it will flourish. Open, verifiable, and prospective rules will further Congress' goals to reduce regulation and promote nondiscrimination without repeating the shortcomings of the video4 0*((  Y dialtone regulatory process._ Ty ԍSee 1996 Act,  653(a)(1), (b)(1)(A)._ First, such uniform regulation would provide OVS operators, video programmers, and competitors with easily understood and necessary guidance regarding those practices that the Commission finds are essential to compliance with  Yv the 1996 Act.Lvh T ԍId. at  653(b)(1)(A).L Second, as demonstrated by certain aspects of Bell Atlantic's channel  YH reservation process for video dialtone in Dover Township,y H T ԍWhile Bell Atlantic's video dialtone tariff in Dover Township, New Jersey proved deficient in many respects, its channel reservation mechanism ultimately provided a framework to establish firmly the ground rules for interested video providers with respect to open enrollment, channel allocation, and channel positioning that Joint Commenters believe can help promote the nondiscriminatory goals of OVS. Here too, however, Bell Atlantic initially attempted to confer special treatment upon its favored video programmer in the form of channel reservation deposit exemptions, preallocated channels, and preferential channel positioning. See In the Matter of Bell Atlantic Telephone Companies, Revisions to Tariff FCC No. 10, Rates, Terms and Regulations for Video Dialtone Service in Dover Township, New Jersey, Transmittal Nos. 741, 786, CC Docket No. 951457 Opposition of Rainbow Programming Holdings, Inc. to Bell Atlantic Direct Case at 89 (filed Nov. 30, 1995) ("Rainbow Opposition"). Such discriminatory practices were averted only after Commission intervention. Id. y such a plan can be relatively easy to establish and administer and should help provide interested programmers a framework from which to make business decisions regarding participation in OVS. Third, the rules would clearly define the nature of the obligations that OVS operators have and distill some of the key regulatory differences between OVS and cable. Finally, such regulations will ultimately reduce regulatory by eliminating the need for the Commission to entertain unnecessary proceedings to resolve the disputes that will otherwise arise if the4 0*(( Commission adopts only a general prohibition against discrimination, to be defined on a case Y bycase basis.X TK ԍThus, the Commission's suggestion that it may forgo prospective rules in favor of "regulation that simply prohibits an open video system operator from discriminating against unaffiliated programmers in its allocation of capacity" should be soundly rejected. See NPRM at  12. X  X  ` `  #c.` *OVS Operators Must Be Precluded from Controlling Over  X One Third of OVS Channel Capacity (# Section 653 of the 1996 Act also requires the Commission to adopt regulations prohibiting OVS operators and their affiliates from selecting programming for more than one Y third of the system capacity, if demand so dictates.Y  T ԍSee 1996 Act,  653(b)(1)(B).Y Given this Congressional mandate, the FCC must limit OVS operators and affiliates to no more than onethird of the nonshared, nonPEG, activated capacity on an OVS platform and to relinquish capacity to the extent  Yy there is insufficient capacity to meet future demand. 8y T ԍNPRM at 20. See 1996 Act,  653(b)(1)(B). In measuring the onethird capacity that would be allocated to OVS operators and their affiliates, Joint Commenters agree with the Commission's tentative conclusion that channel capacity for public, educational, or governmental ("PEG") use should not be counted against the onethird of capacity that an open video system operator or its affiliates may select. NPRM at  19.  In addition, the Commission should prohibit OVS operators from prescribing minimum or maximum capacity requirements for unaffiliated programmers. Such restrictions on unaffiliated programmers are contrary to the procompetitive nature of OVS, which is designed to minimize the considerable incentive that  Y OVS operators have to discriminate in favor of themselves and their affiliates.L!  T*# ԍSee Id. at  10.L Permitting OVS operators to impose minimum or maximum capacity restraints will likely X !0*(( enhance, not minimize, an OVS operator's ability to chill competition from unaffiliated video  Y programmers.F" TK ԍSignificantly, in the analogous context, leased access under Section 612, 47 U.S.C.  532, the Commission has found there has been demonstrated demand by video programmers for less than full channel capacity. The Commission has found that such parttime capacity substantially serves the public interest. See FCC News Release, Commission Adopts Order and Further Notice of Proposed Rulemaking Regarding Rules for Cable Television Leased Access Commercial Access, MM Docket No. 92266 and CS Docket No. 9660, March 21, 1996. F Accordingly, such limitations should be generally barred. The Commission should also recall its experience with video dialtone regarding the measurement of capacity on open video systems that employ "digital" and "switched video  YH technology."I#H T ԍNPRM at  18.I Thus, the Commission should not attempt to answer this question in the abstract. On the whole, despite the rosy forecasts for digital and switched video systems, the  Y fact is that such systems are a long way from being generally deployed.$8 @ T ԍSee, e.g., Patty Wetli, "It's Beginning to Look A Lot Like Cable; Video Dialtone," America's Network (Nov. 1, 1995); Evan Birkhead, "Reality Check: The Overselling of the Information Superhighway," Internetwork at 49 (Sept. 1995); Anthony Giorgianni, "Digital Delays Cost SNET Jobs," Hartford Courant, (Jan. 12, 1996) at F1; Kent Gibbons, "SNET Drops Digital from VDT Trial Plan," Multichannel News at 3 (Sept. 11, 1995).  In the rare instances where they are deployed, such as Bell Atlantic's Dover Township system, the Commission can adhere to its generally applicable rule of nondiscrimination. What the Commission should not do, however, is allow OVS operators to deploy an analog system and use the promise of future digital capacity to frustrate nondiscrimination goals. In light of the realities of today's systems, therefore, the Joint Commenters urge the Commission to focus@ $0*(( on the analog systems that are being planned and deployed today and postpone conclusions  Y with respect to hypothetical future systems.%8 TK ԍSignificantly, such systems promise virtually to eliminate existing capacity constraints. For example, video programmers have reserved only approximately 300 of 384 channels on Bell Atlantic's video dialtone system. See "BA Dover VDT Network," Broadcasting & Cable at 69 (Feb. 5, 1996).  To the extent there is proven unlimited capacity, Commission regulations may not be necessary, as capacity limitations would not exist.  X  ` `  #d.` *The Commission's Regulations Must Bar Preferential Treatment of Favored Programmers Even if They Are Not  Xv "Affiliates" (# Finally, if the Commission is serious about promoting an open video system that embodies the dual goals of competition and nondiscrimination, the Joint Commenters assert that the Commission's rules must recognize that the definition of "affiliate" does not always include all entities on which OVS operators may nonetheless have a strong incentive to  Y confer preferential treatment.&8 T  ԍSee 47 C.F.R.  63.08 (lines outside of a Carrier's Exchange Telephone Service Area). As defined in 47 C.F.R.  63.08, "the term 'affiliate' bars any financial or business relationship whatsoever by contract or otherwise, directly or indirectly between the carrier and the customer, except only the carrieruser relationship." The Commission should also clarify that this definition applies fully to open video systems within the carrier's service area. Thus, for OVS purposes, the regulations regarding fair allocation of capacity and selection of programmers must address situations in which there is  Y4 a clear financial incentive to act anticompetitively.@'4  T ԍSee id.@ As revealed time and again, video dialtone operators most often entered favored relationships with selected video programmers  Y which were the antithesis of armslength, nondiscriminatory transactions.$(h  T# ԍSuch relationships were forged notwithstanding the requirement that video dialtone platform providers were to act as a completely indifferent provider of a video transmission conduit. See NCTA v. FCC, 33 F.3d 66, 71 (D.C. Cir. 1994). $ That these(0*(( programmers did not rise to the technical level of "affiliation" did not change these anticompetitive incentives. For example, under the carriage agreement between SNET and Connecticut Choice Television ("CCT"), SNET had a direct financial incentive to discriminate in favor of CCT at the expense of other programmers on the platform. SNET had a conditional purchase option in the bulk of CCT's capacity, a right to veto any potential thirdparty purchase of  Y CCT, and a right to acquire CCT's business interest.b)  Te ԍCCT Agreement at  12.112.4 (public version).b Likewise, under Pacific's video dialtone structure, Pacific had conditional purchase options in two video programmers, Anchor Pacific and California Standard Television Corporation ("CSTC"), which together  Yb controlled 60 percent of the analog capacity on Pacific's video dialtone platform.2*bh T{ ԍSee, e.g., "Pacific Bell Signs First Video Programmer," Connections, August 1, 1994 (attached to Ex Parte Letter of September 19, 1994 to Chairman Reed E. Hundt from Spencer R. Kaitz, California Cable Television Association).2 Similarly, in Dover Township, New Jersey, there was evidence of a continuing preferential arrangement between Bell Atlantic and one particular video information provider FutureVision that enabled FutureVision to provide service at announced rate levels that no  Y other competitor could legitimately match if it was not sofavored.$+ T ԍSee Bell Atlantic Telephone Companies, Revisions to Tariff FCC No. 10, Rates, Terms, and Regulations for Video Dialtone Service in Dover Township, New Jersey, Transmittal Nos. 741, 786, CC Docket No. 95145, Rainbow Opposition at 626.$ There is no reasonable basis for the Commission to conclude that OVS operators will act in a nondiscriminatory manner with respect to channel capacity and allocation decisions regarding favored programmers, any more so than with the video dialtone proposals to date, ""j  +0*((ԑthe risk of such anticompetitive behavior by OVS operators in favor of entities in which they have an interest is not hypothetical. Because Congress dictated that onethird of an OVS platform's capacity will be allocated to the OVS operator or its affiliate and twothirds to unaffiliated programmers, the Commission must adopt rules requiring nondiscrimination and equality not only with respect to treatment of "affiliates," but also with respect to situations of actual and prospective ownership or financial interests between the OVS operator and the video programmer.  X  ` ` 2. #The Commission Must Ensure that OVS Operators Do Not Abuse  X Channel Sharing (# In addition to establishing clear rules prohibiting discrimination by OVS operators in the selection and allocation of the capacity, the Commission must also ensure that channel sharing is not used to advantage favored and affiliated programmers and essentially to  Y provide traditional cable service under the guise of OVS.`,` Th ԍThe 1996 Act permits OVS operators to implement channel sharing. 1996 Act, 653(b)(1)(C). The stated purpose of this provision is "to permit an [OVS] operator to require channel sharing . . . provided that subscribers have ready and immediate access" to any shared channels. Conference Report at 177.` Channel sharing should not become a means to allow the OVS operator to demand video programmers "share" the channels that offer common video programs. While proponents of channel sharing believe it  Ye provides efficiencies and increases programming diversity,M-e T! ԍSee NPRM at  36.M as the Commission has recognized in the past, channelsharing proposals can raise genuine fairness and other7-0*(( concerns, especially with respect to the terms and conditions under which shared channels  Y are made available to video programmers.|. TK ԍSee id. at  3641. Telephone CompanyCable Television CrossOwnership Rules, Sections 63.5463.58, Memorandum Opinion and Order On Reconsideration and Third Further Notice of Proposed Rulemaking, 10 FCC Rcd 244, 371 (1994) ("Video Dialtone Reconsideration Order"). Indeed, the Commission elsewhere has recognized that channelsharing arrangements "raise significant legal and policy issues, such as the possibility of unreasonable discrimination." In the Matter of the Applications of Pacific Bell, FCC 95302, WPC Nos. 69136916, at  32 (rel. August 15, 1995) ("Pacific Bell Order"). The Commission has also stressed that channelsharing proposals must conform to, and not supplant, the principles of nondiscrimination. Video Dialtone Reconsideration Order, 10 FCC Rcd at 371. |  Y While the 1996 Act explicitly allows channel sharing,I/(  T} ԍ1996 Act,  653(b)(1)(C).I the Commission must implement the governing regulations in a manner that is faithful to the basic procompetitive and nondiscriminatory premises of OVS. Thus, contrary to the Commission's tentative conclusion, the 1996 Act does not permit an OVS operator to choose "how and which  Y programming will be selected for shared channels."0  Te ԍNPRM at 37. Nor is the Commission correct in tentatively concluding that an OVS operator should be allowed to choose the entity that administers the channel sharing arrangement. Id. Rather, the statute provides an OVS operator with the ability to determine whether or not to implement a channel sharing  Y arrangement.I1@  T ԍ1996 Act,  653(b)(1)(C).I The underlying premise remains that an OVS operator shall not engage in  Yb unreasonable discrimination.V2b T ԍSee id. at  653(b)(1)(A).V Shared channels are not and should not become a "basic tier" controlled by the OVS operator. Instead, to the extent they are offered, they should be a mechanism that benefits all video programmers equally, whether affiliated or independent. 20*((ԌJoint Commenters' experience with the LECs' deployment of video dialtone foreshadows the likelihood that OVS operators will seek to exclude unaffiliated or nonfavored video programmers from any genuine role in the process of selection of the shared  Yv channel programming services.$3v T ԍSee Video Dialtone Reconsideration Order, 10 FCC Rcd at 371. While the video dialtone rules and regulations have been repealed by the 1996 Act,  302(b)(3), the basic policy issues raised by channel sharing plans remain unchanged. $ For example, channelsharing plans proposed by both Pacific and SNET were designed to preserve and strengthen unlawful discriminatory advantages afforded to programmers with which they were directly or indirectly affiliated. SNET's channelsharing plan in effect requested that the Commission ratify a channelsharing arrangement that SNET forged with its favored programmer, CCT, almost two years  Y earlier.q4` TY ԍSee Application of SNET, to Amend Existing Authorization to Construct and Operate, on a Trial Basis, A Video Dialtone Platform for Provision of Programming to Subscribers, File No. WPC 6858, Petition to Deny of Cablevision and The New England Cable Television Association, Inc. at 3948 (filed Sept. 26, 1995).q With respect to Pacific, the Commission felt so strongly that Pacific's channel sharing plan was without merit that it required that Pacific request additional authority under Section  Y 214 when it granted Pacific's video dialtone applications.]5@ T ԍSee Pacific Bell Order, supra.] Pacific developed a channel Y sharing proposal that was to be administered by CSTC, a favored entity.H6  Ti! ԍSee supra n.46.H It required video programmers to commit to distributing unknown programming services, pay an unspecified deposit amount, and bear an unknown portion of shared programming costs| 60*((  Y computed according to an unspecified formula.7 Ty ԍApplication of Pacific Bell, Pacific Amendment and Request for Expedited Modification, File Nos. WPC 6913, 6916, at 57 (filed Dec. 8, 1995); CCTA Petition to Deny at 1421. In effect, Pacific sought to force the Commission and prospective unaffiliated video programmers, to buy sight unseen its channel Y sharing plan.68@ T ԍId.6 Unless the Commission establishes clear guidelines as to what is and is not acceptable, this pattern will almost certainly continue. Indeed, abuses will likely flourish. If the Commission is to ensure channel sharing plans do not enable OVS operators to act as de facto cable operators, the Commission should prescribe rules for channel sharing that require: (i) all initial video programmers on the platform are involved in the process of selecting the programming for the shared channels; (ii) a shared channel costsharing formula does not require unaffiliated programmers to bear a disproportionate share of the costs; and (iii) OVS operators may not enter into arrangements which could disproportionately favor the OVS operator or its affiliated programmer with respect to the distribution of advertisement availabilities ("ad avails") and related revenue. Moreover, to promote the underlying OVS goals to the maximum extent, the Commission should also require that channel sharing arrangements are structured and administered in a nondiscriminatory fashion by an independent third party agreed to by all video programmers on the platform.  XN ` `  3. #The FCC Must Prevent the Provision of Marketing Services from  X7 Skewing Unfairly the Competitive Video Marketplace (# Critically, the 1996 Act also seeks to prevent discrimination in favor of an open video system operator or its affiliates with regard to "material or information (including advertising) provided by the operators to subscribers for the purposes of selecting!80*(( programming on the open video system, or in the way such material or information is  Y presented to subscribers."I9 TK ԍ1996 Act,  653(b)(1)(E).I Thus, the 1996 Act mandates that the Commission implement regulation which prevents the provision of marketing services and other critical aspects of service provision from undermining the goals of OVS and from disadvantaging competing  YH video service providers.6:Hh Ta ԍId.6 Central to the Commission's determinations in this regard are decisions involving joint marketing and subscriber information. First, the Commission should establish clear rules with respect to the joint marketing of OVS and voice telephony services by LECs in order to ensure that it is not tilting the competitive playing field unfairly. In order to promote parity and enhance opportunities for facilitiesbased competition, the Commission should prohibit joint marketing by an incumbent  Y6 LEC until such time that the incumbent cable operator undertakes such joint marketing.;86 T ԍFor example, to avoid the possibility that a LEC could use its monopolyderived customer lists to gain an unfair advantage in the outbound telemarketing of unregulated services, the Commission should bar such telemarketing at least until the LEC can show that a competing multichannel video programming distributor is engaged in the outbound joint marketing of local telephony and video services. Given the overwhelming advantages that incumbent LECs have as a result of their monopoly enterprises, such a rule would assist greatly in fostering true competition. ;0*((Ԍ Y Thereafter, relying on its experience in implementing "equal access"< Ty ԍSee Investigation of Access and Divestiture Related Tariffs, Memorandum Opinion and Order, 101 F.C.C.2d 911, 928 (1985) (requiring the LECs to notify end users of their options between IXCs). and customer  Y premises equipment ("CPE") rules,y=` T ԍThese rules are analogous to the Commission's rules governing the joint marketing of local telephone service and customer premises equipment by LECs. See Furnishing of Customer Premises Equipment by the Bell Operating Telephone Companies and the Independent Telephone Companies, Order, 66 RR 2d 1551, 1554 (1989).y the Commission should require that for all inbound  Y telemarketing,>@ T ԍ"Inbound telemarketing" refers to telemarketing or referrals that occurs during a call initiated by a customer or a potential customer of the service. OVS operators advise customers of their video services options. Thus, just as the Commission required specific information be given to consumers with respect to interexchange providers and the availability of CPE from independent vendors, the Commission should limit the inbound telemarketing or referral services provided by the OVS operator to a listing, on a rotating basis, of video programmers and cable operators, including the OVS operator's programming affiliate, that request such a listing service. Moreover, to prevent the OVS operator from using its inbound telemarketing in a manner that disadvantages a video programmer utilizing OVS or other video service providers, such as cable operators, the OVS operator should be prohibited from including any information about the price, terms, or conditions of the video services offered by any video programmer or other video program provider, as well as engaging in comparisons of various video programmers and other service providers. | >0*((  X  ` ` 4. #Rules Requiring An OVS Operator To Make Programming  X Contracts Public Will Reduce Discrimination (# The Commission tentatively concluded "that an OVS operator should be required to make its contracts with all video programmers publicly available, which will disclose the  Y_ rates charged to programming providers and other terms and conditions of carriage.";?_ T ԍ NPRM at  34.; The Joint Commenters strongly support this tentative conclusion given the pattern of private dealings that occurred with video dialtone and urge the Commission to clarify that these key  Y contracts cannot and should not be hidden under the claim of "confidentiality."5@ h T ԍIn one particularly egregious instance, a LEC intentionally parsed out selected words of a protected video dialtone carriage agreement before the FCC and then subsequently sought to withhold all remaining words in the contract from review. See, e.g., In the Matter of SNET, File Nos. WPC 6858, 7074, Order, 10 FCC Rcd 10588 (1995) (requiring SNET to file CCT Agreement); see also Joint Motion for Production of Cablevision, NECTA, NCTA, TCI, and Cox at 46 (filed July 26, 1995). 5 Full and open disclosure of the contractual relationship between OVS operators and video providers on the OVS platform will promote nondiscrimination and fair dealings that must be the bedrock of an open video system. Indeed, failure to do so will create a strong incentive for OVS operators to act as traditional cable operators, contrary to the new statutory paradigm.  X  B.` ` REGULATORY PARITY DEMANDS THAT THE COMMISSION ENFORCE ALL TITLE VI OBLIGATIONS THAT ARE MANDATED  X BY THE ACT (#` As a matter of parity and competitive equity, the 1996 Act mandates that the Commission apply all Title VI requirements to OVS operators, except those that are  Y7 inapplicable because the OVS operator qualifies for "reduced regulatory burdens."A7@ T(& ԍSee 1996 Act,  653(a) (setting forth general framework) and (c) (setting forth reduced regulatory burdens). As7 A0*(( Congress expressly provided that the obligations imposed on OVS operators should be "no  Y greater or lesser" than obligations imposed on cable operators,oB TK ԍId. at  653(c)(2)(A); see NPRM at 57. o the Commission's rules must clearly and fully apply the requirements of Title VI.  Xv ` `  1. #OVS Operators Must Comply With PEG, MustCarry, and  X_ Retransmission Consent Requirements (# OVS operators are required by the explicit language of the Act to comply with  Y Sections 611, 614, and 615 and Section 325 of Title III,OC h T ԍ1996 Act,  653(c)(1)(B).O which detail: the obligations of cable operators, and now OVS operators, to provide channels for public, educational, or governmental ("PEG") use; mustcarry obligations; and retransmission consent requirements. In order to achieve the robust competition that is the overarching objective of the 1996 Act, each of these statutory obligations must be applied to OVS operators just as they are applied to cable operators. With respect to PEG access obligations, the Commission seeks comment on how it should implement this provision given the fact that OVS operators do not have a franchise  Y requirement and may provide service in multiple cable franchise areas.ID TL ԍNPRM at  57.I The Commission's concern about the absence of a franchise requirement, however, is misplaced. Congress certainly understood that PEG access requirements are now imposed by localities to  Y  meet critical localism goals.CE  Tb% ԍ47 U.S.C.  531(a).C Thus, the Commission can require OVS operators to HE0*((  Y comply with these obligations in all areas they offer service.MF Ty ԍSee NPRM at 57.M Likewise, that open video systems may offer services to more than one cable franchise area is no reason to reduce obligations in this regard. Indeed, today cable operators operate in multiple cable franchise territories and must comply separately with each municipality's requirements. There is absolutely no basis for the Commission to require cable systems to share  Y PEG channels, either by interconnecting or otherwise, with an OVS operator.RG h T3 ԍSee Id. at  57.R Such an interconnection or sharing requirement would undermine the Congressional objective of  Y competitive parityPH  Tw ԍSee Conference Report at 178.P by imposing all PEG obligations on cable operators and none on OVS operators. In fact, even obligating OVS operators to fund their share of the costs associated with providing PEG programming, standing alone, is unfair as PEG obligations frequently  Y4 extend far beyond the simple payment of funds.UI`4 T ԍFor example, cable operators often devote considerable human resources, equipment, and studio space to PEG programming. Yet, if the Commission truly seeks to implement a nondiscriminatory system based solely on remittance of funds for PEG access, cable operators should also have such an option.U Moreover, as PEG obligations frequently involve capital outlays made by cable companies over a long period of time, requiring interconnection would permit OVS operators to benefit unfairly from expenses incurred over that period of time. Notably, in some cases, cable operators voluntarily make significant additional investments in PEG services to distinguish their own offerings. OVS operators should not be permitted to profit from cable operators' investments.N I0*((ԌFinally, although the Commission should not compel cable operators and OVS operators to share PEG programming, OVS operators should be free to negotiate with cable systems to contract for PEG channel feeds. In the event that arrangements cannot be reached between the parties, the OVS operator should be required separately to comply with the PEG requirements, as mandated by Congress.  X ` `  2. #OVS Operators Must Fulfill Other Mandated Requirements (# The 1996 Act requires that OVS operators comply with the Commission's regulations  Y concerning sports exclusivity, network nonduplication, and syndicated exclusivity.J  T7 ԍ1996 Act, 653(b)(1)(D). See 47 C.F.R. 76.67 (sports exclusivity); 47 C.F.R.76.92 et seq. (network nonduplication); and 47 C.F.R.76.151 et seq. ("synd/ex"). Here too, just as cable operators already comply with these requirements across multiple  Yb community units or geographic zones,K8b@ TS ԍNPRM at 46. The Act does not accommodate circumstances where certain channels on an open video system, which distribute network affiliates, are shared by two or more programming providers. In order to comply with the Act, the rules must be enforced: the OVS operator will have to drop the channel, determine how to comply, or carry the network separately for each separate programming provider's offering. OVS operators should be required to do so as well. The Act also provides that OVS operators are subject to the Commission's program  Y access rules.IL@ T ԍ1996 Act,  653(c)(1)(A).I Just as cable operators comply with the Commission's rules, so too must OVS operators. What the Commission should not do, however, is interpret this provision to dilute the "rights of programming producers, vendors, and other entities responsible for  YN programming content to exercise control over their products."CMN  T& ԍNPRM at 41.C Congress intended OVSN M0*(( operators to have equivalent obligations as cable operators in this regard, but this does not mean that Congress intended to supplant the rights of video programmers utilizing OVS to make decisions regarding channel capacity or to determine the manner in which their program services are to be provided. Thus, Congress did not intend for the program access rules to be used by certain OVS video programmers to license programming for OVS. Any other interpretation would vitiate the nondiscrimination premise of OVS and thwart the robust competition that was envisioned.  X X 3.X` ` The OVS Rules Must Not Undermine the Public Policies Underlying State  X Level Playing Field Statutes (#` In implementing OVS regulation, the Commission must also be cognizant of state "level playing field" statutes, which typically require that all potential new cable entrants are subject to terms and conditions that are no more favorable than those imposed on existing  Y cable operators.N Th ԍSee, e.g., Conn. Gen. Stat.  16331(i); California Government Code  53066.3. Such state level playing field laws have been enacted in order to promote the critical public interest objectives of providing consumers with additional programming choices and the development of effective and equitable competition in the cable marketplace. In addition, by ensuring that all competitors build out their services areas fully, rather than selectively deploy service, these laws help promote equality of service to  Y  consumers./O h T"" ԍ Id./ Significantly, such state level playing field provisions are wholly consistent with and promote the Congressional intent that the Commission "impose obligations that are no greater!O0*((  Y or lesser" than those imposed on cable operators.IP Ty ԍ1996 Act,  653(c)(2)(A).I For example, the California "level playing field" statute provides that additional cable television franchisees must "contain the same public, educational, and governmental access requirements that are set forth in the  Yv existing franchise."Qvh T ԍCalifornia Government Code, Section 53066.3. See also Conn. Gen. Stat.  16331(i). The fundamental purpose of this provision is to ensure that the needs and interests of local communities are served fully by all cable providers without the threat of anticompetitive forces such as redlining and greenmailing. Accordingly, imposition of different or lesser obligations on OVS operators providing cable service than on existing cable operators within their franchise areas is not only contrary to the 1996 Act, but also undermines these critical public interest determinations by state legislatures.  Xb  II.XTHE STATUTORY OBLIGATION TO OFFER JUST AND REASONABLE RATES REQUIRES THAT RATES BE BASED ON COST CAUSATION  X4 PRINCIPLES (# While the 1996 Act enables a LEC, at its election, to offer video programming over its own facilities as an OVS operator, it does not authorize the LEC to subsidize such a  Y system at the expense of its telephone ratepayers.SR Tc ԍSee 1996 Act,  653(b)(1)(A).S Indeed, the 1996 Act explicitly  Y| requires that OVS "rates, terms, and conditions" shall be "just and reasonable."6S| T ԍId.6 The only truly effective means for achieving this statutory obligation is the economically correct assignment of the underlying network costs to the video services and telephony categories. Moreover, if the Commission is to fulfill its obligation to provide "just and reasonable rates"HS0*((  Y for the subscribers of Title II common carriage services,ZT Ty ԍSee, e.g., 47 U.S.C.  201(b).Z it must commit to a fundamental and thorough examination designed to reach the critical determination that all costs incurred due to a decision to deploy a particular service are to be assigned to that service. The Commission must prescribe cost allocation procedures as a precondition to the deployment of any OVS platform to segregate the common costs, including facilities, personnel, and other service costs, depreciation expenses, and overhead costs of providing video and telephone services over the same facilities. Indeed, failure to prescribe costcausative rates will thwart fair competition in the video arena and undermine the economically efficient provision of services. The FCC has previously recognized that LECs have strong incentives to shift costs from competitive video services such as video dialtone  Y4 and similar services to regulated telephone service.uU4h TM ԍSee Video Dialtone Reconsideration Order, 10 FCC Rcd at 344.u Even though video dialtone  Y regulations were repealed by the 1996 Act,V T ԍSee 1996 Act,  302(b)(3). Video dialtone systems approved by to the date of enactment need not be terminated. Id.İ incentives for crosssubsidization have not changed. Common carriers seeking to become OVS operators remain the new entrants in the video marketplace with powerful economic assets and the intense desire to dominate the  Y| industry.W| T! ԍSee e.g., L. Moss, "Smith Urges Advertisers to Pursue Interactive World," Multichannel News at 24 (Feb. 6, 1995); see also "Align and Conquer," Wired at 116 (Feb. 1995). They still have every incentive to gain a competitive edge in the marketplace, especially by setting prices as low as possible however it is achieved to gain market share asNW0*((  Y quickly as possible.X Ty ԍ See "Interview with Lee Camp," Inside Line News Bulletin at 3 (Sept. 27, 1995); "Pacific Telesis Telco to Offer Wireless Cable Television,"; Press Release (July 25, 1995) (quoting Pacific CEO Michael Fitzpatrick). In the absence of a basic cost allocation framework, there is no reasonable or articulated basis to conclude that LECs operating OVS platforms will not crosssubsidize their integrated systems to the detriment of both their telephone customers and  Yv competing video programming services.Y8v T? ԍIn the Matter of Telephone CompanyCable Television CrossOwnership Rules, Sections 63.5463.58, CC Docket 87266, Fourth Report and Order at  18 (rel. Aug. 14, 1995) ("Streamlined Section 214 Order"). ("In light of the injunctions barring enforcement of Section 613(b) of the Cable Act, a primary concern about LEC construction of standalone cable systems is that telephone ratepayers not bear the burden of the investment in those systems.") Record evidence and experience suggest that the commingling of video costs with  Y telephony service costs is likely.MZ   T ԍSee Price Cap Performance Review for Local Exchange Carriers; Treatment of Video Dialtone Services Under Price Cap Regulation, CC Docket 941, Second Report and Order and Third Further Notice of Proposed Rulemaking, 10 FCC Rcd 11098, 11102 (1995) ("In our view, the record in this proceeding does not demonstrate that LEC productivity gains in the provision of video dialtone service will equal or exceed historic productivity in the provision of telephony."). Thus, any commingling of costs will negatively affect price cap rates.M A NARUC audit of Pacific Bell's performance under price caps in California from 19901994 demonstrated that Pacific Bell improperly crosssubsidized hundreds of millions of dollars of investment and expense in competitive  Y broadband development.[ T1 ԍSee Letter from CCTA to Kathleen M.H. Wallman, FCC, dated September 21, 1994, at 54 (citing National Association Regulatory Utility Commissioners, An Audit of the Affiliate Interests of the Pacific Telesis Group, July 1994). In addition, SNET has consistently promoted a proposed cost allocation methodology that would improperly shift the substantial majority of the costs of itsb@[0*((  Y $4.5 billion hybridfiber coaxial network to its telephony customers.h\ Ty ԍSee, e.g, Connecticut DPUC Docket No. 950310, Application of SNET for Approval to Conduct a Dial Tone Transport and Switching Market Trial, Decision (June 30, 1995) at 12, 16; Connecticut DPUC Docket No. 950617, Application of SNET for Approval to Offer Unbundled Loops, Ports and Associated Arrangements and Application of SNET for Approval to Offer Wholesale Local Basic Service and Certain Related Features and Implement a Universal Service Fund, Decision (Dec. 20, 1995) at 7778 ("[T]he Department remains unconvinced that SNET's approach conforms with the economic principle of cost causation. Furthermore, the methodology wholly ignores consideration for issues of capacity utilization and derived benefit. . . . The Department, therefore again rejects SNET's proposed allocation formula.").h Other LECs, such as Bell Atlantic and Pacific continue to justify installation and construction of new multiuse networks on the basis of the alleged significant cost advantages the network will provide for  Yv telephone service.]v(  TO ԍPacific initially proposed to allocate 95% of its costs to telephony. Only after a year and a half and diligent and persistent efforts by the Common Carrier Bureau, Pacific relented and reduced this to 78%. See Letter from Alan Ciamporcero, Pacific Telesis to Kathleen M.H. Wallman, FCC, dated March 21, 1995, at 59. See also Amendment to The Bell Atlantic Telephone Companies Tariff FCC No. 10, Video Dialtone Service, Transmittal Nos. 741, 786 (Amended), CC Docket No. 95145, Bell Atlantic Direct Case (filed Oct. 26, 1995). See also Application of SNET Personal Vision, Inc. for a Certificate of Public Convenience and Necessity to Operate a Community Antenna Television System, Connecticut Department of Public Utility Control, Docket No. 960124, Testimony of Hoshang Mulla at 3 (filed Jan. 25, 1996). For these reasons, the Commission should require all information  YH before OVS certification that it has previously deemed crucial to cost allocation issues.^ H T ԍIn numerous proceedings before the Commission, Joint Commenters repeatedly asked that the Commission require all common carriers that have constructed, or intend to construct, regulated telephone service and cable, video dialtone, or open video systems over the same network to prepare and submit complete and fully documented cost studies that demonstrate not only their estimated incremental costs for cable, video dialtone or open video systems, but also the incremental costs for telephone services, the joint and common costs for video and telephony services and the method for allocating joint and common costs between these service categories. See, e.g., Price Cap Performance Review for Local Exchange Carriers, CC Docket No. 941, CCTA Comments (filed May 9, 1994); CCTA Reply Comments (filed June 29, 1994); Price Cap Performance Review for Local Exchange Corners, Treatment of Video Dialtone Service Under Price Cap Regulations, CC Docket No. 941, CCTA Comments at 1214 (filed April 17, 1994); CCTA Reply Comments at 1619 (filed May 17, 1995). See, e.g., Third Data Request of Kathleen M.H. Wallman, Chief, Common Carrier Bureau, to Alan F. Ciamporcero, Pacific Telesis File Nos. WPC 6913, 6914, 6915, and 6916 (Dec. 9, 1994). With respect to the Commission's own actions in video dialtone proceedings, similar requests were made by the Common Carrier Bureau after Applications were filed.H^0*((ԌThroughout the Commission's video dialtone proceedings, the cable industry asked that the Commission establish at the outset a coherent and verifiable policy grounded in sound economic principles for the allocation of the costs of an integrated system. Although, the Commission recognized that LECs had the potential to engage in anticompetitive conduct by "imposing added costs on the monopoly ratepayer by crosssubsidizing . . . new  Y broadband services,"_  T ԍTelephone CompanyCable Television Cross Ownership Rules, Notice of Proposed Rulemaking, 2 FCC Rcd. 5092, 5093 (1987). . the Commission determined that it would be better to address pivotal cost allocation issues on a casebycase, ad hoc basis, which ultimately proved to be extremely contentious and inefficient. The Commission should build upon its previous experiences and address at the outset these critical determinations so that it can minimize the potential for crosssubsidization. In this regard, Joint Commenters applaud the Commission  Y4 for recognizing that a separate proceeding to address cost allocation issues is necessary.M`4@ T% ԍSee NPRM at  70, n.82.M The Commission, however, should not relegate these critical issues solely to the Cost  Y Allocation Manual ("CAM") process,Za Ti ԍ47 C.F.R.64.901(a), 64.903(a), (c).Z as it is insufficient to address the cost allocation  Y issues that arise with the deployment of OVS.Mb T ԍSee NPRM at  70.M The CAM process is not, and was not, designed to resolve the basic cost questions that are presented with the deployment of integrated video/telephony networks. Rather, the CAM rules were developed for more "traditional" (and less farreaching) nonregulated  b0*((  Y services such as electronic messagingc Ty ԍSee, e.g., Pacific Bell's CAM for the Separation of Regulated and Nonregulated Costs, 6 FCC Rcd 5196 (1991). and payphone message delivery service.sd@ T ԍSee, e.g., Ameritech, 10 FCC Rcd 9359 (1995). s As such, the CAMs were not designed to provide the FCC and interested parties with detailed information regarding all of the LECs' costs. Indeed, the CAM rules do not require carriers  Yv to submit actual cost information as part of their filings,Cev T ԍ47 C.F.R.  64.903.C but instead require only a brief narrative description of the regulated and nonregulated services and supplies provided  Y between the carrier and its unregulated affiliates and the allocation method utilized.f  TK ԍSee, e.g., Pacific Cost Allocation Manual, Revisions, at v2, v35, v50, vi4 (filed Sept. 14, 1995). Consequently, the information contained in CAM filings does not provide interested parties or the Commission with an opportunity to analyze or discern any critical joint cost allocation issues. Without the cost data, including the cost studies used to develop the data, there is no legitimate opportunity to uncover carrier subsidization of the costs of deploying  Y4 video services with funds from regulated services..g4 T ԍAs has been previously demonstrated, price caps as currently instituted will not prevent crosssubsidy. See, e.g., In the Matter of Price Caps Performance Review for Local Exchange Carriers, CC Docket 941, at 2228 (filed March 1, 1996).. If the Commission is to fulfill its core duty in this regard, it cannot and should not rely on such an inadequate framework. The only effective means of ensuring that telephone ratepayers do not subsidize telephone company entry into unregulated video services is for the Commission to prescribe appropriate cost allocation rules. Moreover, this must be done prior to the filing of OVS|!H g0*(( certification applications, given the extremely short timetable provided for approving these  Y filings under the 1996 Act.Fh TK ԍ1996 Act,  653(a)(1).F Therefore, the Joint Commenters recommend that the Commission initiate a separate cost allocation rulemaking in order to determine both permanent and interim rules for cost allocation such as a gross allocation factor prior to certifying any OVS operators under the 1996 Act. In the event such proceeding is not completed prior to the time LECs may begin to seek OVS certification, the Commission should continue to address the issue on a casebycase basis before issuing a certification by requiring the provision of all relevant information, including cost studies, to show that all common costs and depreciation expenses have been allocated properly.  X4  III.XTHE PUBLIC INTEREST IN ROBUST VIDEO COMPETITION WILL BE SERVED BY PERMITTING NONLOCAL EXCHANGE CARRIERS TO  X OPERATE AND UTILIZE OVS (# In order to promote the Congressional objective that OVS introduce vigorous  Y competition into entertainment and information markets,Fih T ԍConference Report at 178.F the Commission should not preclude entities that are not LECs from operating their own open video systems or from obtaining access to another open video operator's system as a video programmer. Not only did Congress envision that OVS would provide an alternative regulatory scheme for cable operators to provide video programming, but as the Commission recognizes, allowing non"i0*((ԫLECs to offer OVS will promote regulatory parity among providers and thereby foster  Y competition and consumer choice in the video marketplace.@j TK ԍNPRM  64.@  X  A.` ` Congress Contemplated That Cable Operators May Be Given the Option  X to Become OVS Operators (#` Section 653(a)(1) of the 1996 Act states that "an operator of a cable system or any  Y1 other person may provide video programming through an open video system."Fk1h TJ ԍ1996 Act,  653(a)(1).F The Commission seeks comment on whether the statutory language in Section 653(a)(1) limits its  Y ability to permit cable operators to become open video system operators,Kl  T ԍNPRM at  64. K apparently based on the fact that Congress used the term "provide video programming" to apply to the activities that cable operators may undertake on open video systems rather than the term  YK "cable service."9mK T ԍ"Cable service" is defined as "(A) the oneway transmission to subscribers of (1) video programming, or (ii) other programming service, and (B) subscriber interaction or use, if any, which is required for the selection of such video programming or other programming service." See 47 U.S.C.  522(6), as amended by the 1996 Act,  301(a)(1). Video programming means "programming provided by, or generally considered comparable to programming provided by, a television broadcast station." 47 U.S.C.  522(19).9 When read in context and in light of explicit Congressional goals, the 1996 Act permits the Commission to allow cable operators to become OVS operators. Given the identified public interest benefits, the Commission should do so. The plain language of Section 653(a)(1) permits cable operators to "provide video  Y programming through an open video system that complies with this section."Fn  T% ԍ1996 Act,  653(a)(1).F As set forth in the Conference Report, Congress enacted Section 653 to promote competition in thee# n0*(( video marketplace and thereby "meet the unique competitive and consumer needs of  Y individual markets."Fo TK ԍConference Report at 177.F Permitting cable operators or other persons to offer services in this manner, by offering an outlet for unaffiliated video program providers, would significantly further this goal by allowing cable operators to use their significant experience in the video distribution marketplace to serve as an outlet for diverse programming. In addition, it would enhance competitive parity by ensuring that cable operators and local telephone companies operate under similar regulatory constraints. Likewise, cable operators choosing to become OVS operators would be forced to make twothirds of their capacity  Y available to unaffiliated programmers.Iph T ԍ1996 Act,  653(b)(1)(B).I There is no evidence that Congress had any intent to prevent cable operators from offering services on an open video system. Indeed, if it had intended to do so, Congress could have expressly so stated. Moreover, Congress has often used the phrase "provide video programming" and even the term "transmission" of video programming interchangeably with the term "cable service." For example, in the nowrepealed cable Y| telephone company crossownership provision, former Section 613(b)(1),gq| T5 ԍ47 U.S.C.  533(b) (repealed by 1996 Act,  302(b)).g Congress made it unlawful for any common carrier to "provide video programming" directly to  Y  subscribers.6r  Ty$ ԍId.6 The Fourth Circuit has interpreted the term "provide video programming" expansively and determined that Section 613(b)(1) "essentially prohibits local telephone$Hr0*(( companies from offering, with editorial control, cable television services to their common  Y carrier subscribers."zs TK ԍChesapeake & Potomac Telephone Co. of Virginia v. United States, 42 F.3d 181, 185 (4th Cir. 1994), cert. granted, 115 S. Ct. 608 (1995), vacated, remanded, sub nom. United States v. Chesapeake & Potomac Tel. Co., 134 L.Ed. 2d 46, 64 U.S.L.W. 4115 (1996) ("C&P Telephone"). z Indeed, even the "transmission" of video programming has been  Y used to mean the provision of cable service.st` Tm ԍThus, the District of Columbia Circuit has defined the term "transmission" of video programming" to implicate "active participation in the selection and distribution of video programming," or cable service. See National Cable Television Ass'n v. Federal Communications Commission, 33 F.3d 66, 73 (D.C. Cir. 1994).s Based upon previous use of these terms, it is most reasonable to conclude that Congress used the term "provide video programming" in Section 653(a)(1) to avoid the confusion that would have resulted from use of the term "cable service" in referring to cable operators offering video programming pursuant to Section 653(a)(1). By constructing a separate regulatory regime under Section 653, Congress plainly meant to distinguish cable operators who are not required, for example, to make capacity available to other programmers, from cable operators operating open video systems that must comply with such  Y4 obligations.Su4@ T% ԍSee 1996 Act,  653(b)(1)(B).S Given the language that refers to the provision of an "open video system that complies with this section," that is intended to clarify that an open video system operated by a cable operator or other nonLEC must nonetheless meet all OVS obligations, it is only logical to conclude that Congress meant to use the term "provider of video programming" as it has been used in the past to refer to the offering of cable service. |% u0*((ԌFor these reasons, the Commission should find that Section 653(a)(1) permits cable operators to operate their own open video systems and should take such action in this proceeding.  Xv  B.` ` There Is No Reasonable Basis to Conclude That Cable Operators And Their Affiliates Can Be Prevented From Becoming Video Programmers On  XH An OVS (#` The basic premise of OVS is that they are open, nondiscriminatory systems available to all programmers on a fair basis. The 1996 Act specifically provides that open video system operators may not discriminate among video programming providers with respect to  Y carriage on an open video system.Rv T  ԍId. at  653(B)(1)(A).R Except when demand exceeds capacity on an open video system, capacity is not limited to any specific providers, and then only to limit the OVS operator itself from selecting video programming on more than onethird of the  Y system.Mwh T ԍId. at  653(b)(1)(B). M Nevertheless, the Commission asks whether an OVS operator "should be permitted to limit or preclude . . . the competing cable operator's ability to obtain capacity  Y on the open video system . . . ."x Tc ԍNPRM at  15. There is absolutely no basis to conclude this is consistent with Congressional intent. Not only is there no legitimate statutory basis to exclude cable operators or their affiliates from utilizing the open video systems of local exchange carriers or other providers, there is no valid public policy reason to do so. Restrictions on the identity of video programmers that are permitted to seek carriage on open video systems would fundamentally undermine the Congressional intent in repealing the cabletelephone company cross &x0*((ԫownership restriction. As the Fourth Circuit has determined, a complete ban on access to  Y channel capacity is a drastic measure that implicates the First Amendment.Vy TK ԍC&P Telephone, 42 F.3d at 201202. V As such, cable operators and affiliates should be permitted to obtain access to the open video systems. In fact, cable operators and their affiliates are the most likely class of video programmers in the marketplace that can take advantage of the opportunities created by OVS. Unless the Commission expressly states that cable operators and their affiliates may obtain access to channel capacity on their open video systems, they will likely be excluded.  Y For instance, Rainbow Programming Holdings, Inc. ("Rainbow"),Ez h T ԍRainbow is the managing partner of several partnerships that provide national and regional video programming distribution systems that serve millions of subscribers. These programming services include American Movie Classics, Bravo, News 12 Long Island, News 12 Westchester, News 12 Connecticut, MuchMusic, seven regional SportsChannel Services, NewSport, the national backdrop sports service of Prime SportsChannel Networks, The Independent Film Channel, and PRISM, a premium sports and movie service serving the Philadelphia market. E a whollyowned subsidiary of Cablevision, has made several forays into the video dialtone business, seeking access to the video dialtone systems of US WEST, SNET, and Bell Atlantic, often to be denied or delayed. Thus, Rainbow sought capacity from US WEST for the Omaha video dialtone system, but US WEST denied Rainbow's request because Rainbow had allegedly applied after US WEST's selection process, of which Rainbow had no notice or knowledge. Ultimately, unused channels surrendered on the platform were reallocated to other providers despite  YN Rainbow's outstanding request.{N@ T?% ԍSee Letter of James T. Hannon to William F. Caton, File No. WPC6868 (June 7, 1995); Letter of James T. Hannon to William F. Caton, File No. WPC6868 (Nov. 15, 1995). Rainbow had an even more blatant situation withN' {0*(( SNET, which initially delayed answering Rainbow's request for capacity because of its  Y affiliation with Cablevision.| TK ԍSee Application of SNET for Approval to Trial Video Dial Tone Transport and Switching, Connecticut DPUC Docket No. 950310, Hearing Transcript at 181186, 658665. Ultimately, SNET denied Rainbow's request for capacity, pointing to a neverbefore established "formal" request policy and the fact that its own  Yv affiliate had exhausted all remaining capacity.}v@ Tg ԍSee, Letter of Donna N. Lampert, Counsel for Rainbow Programming Holdings, Inc., to Kathleen M.H. Wallman, Chief, Common Carrier Bureau, File No. WPC 6858 (July 6, 1995). In fact, even when Rainbow has achieved its objective of obtaining access to channel capacity on a video dialtone system, it has been the victim of anticompetitive stall tactics. Rainbow requested and received 192 channels as a video programmer on Bell Atlantic's Dover Township system, but has had difficulty gaining access to the interface software and digital converters necessary to provide video programming to its enduser subscribers. Without clear rules mandating equal access for all video programmers, regardless of  Y4 their affiliation, robust competition, and the goals of OVS will be frustrated.@~4 T ԍNPRM  15.@ In short, ensuring that cable operators and their affiliates can utilize the capacity on an OVS will enhance, rather than compromise, competition. (X~0*((  Y G7 CONCLUSION ă The OVS paradigm has tremendous potential to precipitate many public interest benefits. Based on its vast experience with related issues, the Commission should implement the 1996 Act's OVS mandate in accordance with the foregoing.  ` `  #*hh29@Respectfully submitted, ` `  #*hh29@__________________________ d ` `  #*hh29@Donna N. Lampert ` `  #*hh29@James J. Valentino ` `  #*hh29@Charon J. Harris ` `  #*hh29@MINTZ, LEVIN, COHN, FERRIS, ` `  #*hh29@ GLOVSKY AND POPEO, P.C. ` `  #*hh29@701 Pennsylvania Avenue, N.W. ` `  #*hh29@Suite 900 ` `  #*hh29@Washington, D.C. 20004 ` `  #*hh29@(202) 4347300 Robert Lemle #*hh29@Alan J. Gardner Charles Forma #*hh29@Jerry Yanowitz Marti Green` `  #*hh29@Jeffrey Sinsheimer CABLEVISION SYSTEMS CORPORATION@CALIFORNIA CABLE TELEVISION One Media Crossways*hh29@ ASSOCIATION Woodbury, New York 11797hh29@4341 Piedmont Avenue (516) 3648450 #*hh29@Oakland, California 94611 ` `  #*hh29@(510) 4282225 Dated: April 1, 1996  VC" F1/51089.1