Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Implementation of Section 302 of ) CS Docket No. 96-46 the Telecommunications Act of 1996 ) ) Open Video Systems ) In the Matter of Telephone Company- ) Cable Television Cross-Ownership Rules, ) CC Docket No. 87-266 Sections 63.54-63.58 ) REPLY COMMENTS OF THE ELECTRONIC INDUSTRIES ASSOCIATION CONSUMER ELECTRONICS MA NUFACTURERS ASSOCIATION, AND CONSUMER ELECTRONIC S RETAILERS COALITION Gary Shapiro John V. Roach PresidentRonald L. Parrish Consumer Electronics Tandy Corporation Manufacturers Association 1800 One Tandy Center 2500 Wilson Boulevard Forth Worth, Texas 76102 Arlington, VA 22201 (817) 390-3779 (703) 907-7600 Richard L. Sharp W. Stephen Cannon Circuit City Stores, Inc. 9950 Mayland Drive Richmond, Virginia 23233 (804) 527-4014 Of Counsel: Joseph P. Markoski Squire, Sanders& Dempsey 1201 Pennsylvania Avenue, N.W. P.O. Box 407 Washington, D.C. 20044-0407 (202) 626-6600 April 11, 1996 Before the FEDERAL COMMUNICATI ONS COMMISSION Washington, D.C. 20 554 In the Matter of ) ) Implementation of Section 302 of ) CS Docket No. 96-46 the Telecommunications Act of 1996 ) ) Open Video Systems ) In the Matter of Telephone Company- ) Cable Television Cross-Ownership Rules, ) CC Docket No. 87-266 Sections 63.54-63.58 ) REPLY COMMENTS OF THE ELECTRONIC INDUSTRIES ASSOCIATION CONSUMER ELECTRONICS MA NUFACTURERS ASSOCIATION, AND CONSUMER ELECTRONI CS RETAILERS COALITION The Consumer Electronics Manufacturers Association ("CEMA"), a sector of the Electronics Industries Association ("EIA"), and the Consumer Electronics Retailers Coalition ("CERC"), hereby reply to the comments that were filed in response to the Commission's Report and Order and Notice of Proposed Rulemaking ("Notice") in the above-captioned proceedings on April 1, 1996. I. INTRODUCTION In our initial comments, we made a number of recommendations regarding the Commission's interpretation of the open video system ("OVS") framework established by Congress in Section 302 of the Telecommunications Act of 1996 ("Telecommunications Act"). Specifically, CEMA urged the Commission to conclude that:  Use of the OVS model should be confined to common carriers seeking to provide "cable service". Congress did not intend to allow cable system operators to recast themselves as OVS providers and take advantage of the inducements intended for new entrants to the video marketplace.  As contemplated by the Act, "cable service" encompasses multichannel video programming, interactive information services, and other advanced services. The Act does not extend to common carriers the right to use the OVS framework to provide basic communications service or dial-up access to information services over telephone lines.  Consistent with Congressional policy and the Commission's statutory obligations to safeguard the public interest, OVS providers should be prohibited from bundling OVS service with customer premises equipment (CPE). A review of the comments filed by other parties confirms the validity of these recommendations. II. THE PARTIES AGREE THAT THE ACT DOES NOT GIVE CABLE OPERATORS THE OPTION OF CONVERTING THEIR CABLE SYSTEMS INTO OVS A significant number of commenters, representing both private and public sector interests, agree that cable operators should not be allowed to convert their cable systems into OVS. Not unexpectedly, the majority of the cable interests submitting comments interpret the Act as affording cable operators the same opportunity to become OVS providers as afforded to common carriers. Cable proponents base this claim on the language found in Section 653(a)(1) of the Act that "an operator of a cable system or any other person may provide video programming through an open video system that complies with this section". Such a position is unsupported by the language or legislative history of the Act. Section 653(a)(1) clearly distinguishes between common carriers and cable system operators. Specifically Section 653(a)(1) allows local exchange carriers to "provide cable service", while restricting cable operators to "[providing] video programming" through an open video system. By statutory definition, the provision of video programming is a different and more limited activity than the provision of cable service. Video programming is described as "programming provided by, or generally considered comparable to programming provided by, a television broadcast station". Cable service is defined to include video programming in addition to transmission of other service. If Congress had intended cable operators to operate open video systems, it would not have expressly restricted their activities to provision of video programming in Subsection 653(a)(1). Instead, the intention of Section 653(a)(1) is to allow cable systems to offer programming over competing OVS systems subject to such regulations as may be prescribed. As implicitly acknowledged by the cable proponents, nowhere in the Act is there any specific authorization for cable providers to transform themselves into OVS providers. Indeed, the express purpose of the new OVS provisions is to provide telephone companies with a modified regulatory regime that would induce them to enter the business of providing video programming. This Congressional intent is clearly manifested in the legislative history of the 1996 Act which reads, in relevant part: New Section 651 of the Communications Act specifically addresses the regulatory treatment of video programming services provided by telephone companies. Recognizing that there can be different strategies, services and technologies for entering video markets, the conferees agree to multiple entry options to promote competition, to encourage investment in new technologies and to maximize customer choice of services... The arguments advanced by cable interests that allowing cable operators to convert to OVS would create a "level playing field" are not persuasive To the contrary, the Conference Report indicates that Congress intended to enhance the competitive position of common carriers vis-a-vis incumbent cable systems: First, the Conferees hope that this approach will encourage common carriers to deploy open video systems and introduce vigorous competition in entertainment and information markets. Second, the conferees recognize that common carriers that deploy open systems will be "new" entrants in established [i.e. cable] markets and deserve lighter regulatory burdens to level the playing field. Third, the development of competition and the operation of market forces mean that government oversight and regulations can and should be reduced. Cable companies are obviously not "new entrants" as contemplated by Congress, nor do they need any special inducement to enter the video marketplace. Allowing cable providers the advantages of OVS status would confound Congress' avowed purpose of inducing telephone companies to enter the video marketplace. Nor would the conversion of cable operators to OVS fulfill the Act's goals of enhancing competition and maximizing consumer choice. The more likely result would be to allow incumbent cable operators to maximize their existing competitive advantage, entrench themselves in the marketplace, and undermine two-wire competition. As evidenced by the large number of municipalities, local franchising authorities, and public interest groups opposing cable entry into OVS, allowing cable companies to opt out of their current regulatory obligations would have profound consequences for the American public. If Congress truly intended to dismantle the existing cable regulatory structure, it would have expressly done so. III. THE COMMISSION SHOULD REJECT ARGUMENTS THAT OVS ARE EXEMPT FROM COMPETITIVE AVAILABILITY REQUIREMENTS In its initial filing, we stressed the manifest public interest in allowing consumers to choose the customer premises equipment ("CPE") that best suits their needs. We urge the Commission to reject suggestions that OVS providers be allowed to bundle service with such CPE. The Telecommunications Act embodies a policy choice by Congress in favor of competition in all aspects of the market. There is nothing in the Act or the legislative history indicating a retreat by Congress from this policy with regard to OVS providers. On the contrary, Section 629 of the Act expressly establishes the right of consumers to use their own CPE to receive service from a multichannel video programming distributor ("MVPD"). Section 602 of the Act defines MVPD as all providers of multiple channels of video programming, including but not limited to cable operators. Although Section 653(c) exempts OVS from certain Title VI obligations applying to "cable operators", it does not exempt OVS from regulations applying to MVPD. Nowhere in the Act does Congress indicate an intent to exempt OVS operators from regulation as MVPD, nor would such an exemption make sense in the context of Section 629's explicit direction to the Commission to implement regulations to ensure the competitive availability of set top boxes, navigation devices, and other consumer video equipment. Instead, the clearest indication of Congressional intent lies with the specific directive that all MVPD be subject to the Section 629 competitive availability requirement. The Commission should note that Section 629(a) does not prohibit MVPDs from offering CPE to the public; but it merely ensures that MVPDs separately state equipment charges and do not subsidize equipment through program charges. It would be contrary to the public interest to allow MVPDS to evade the consumer protections contained in Section 629(a) merely because they provide video programming through an OVS. The same reasoning applies to the need for continued application by the Commission of equipment compatibility regulations to OVS providers. Full consumer enjoyment of the features and functions of video related CPE depends upon the Commission's enforcement of regulations implementing Section 624(A) of the Act. There is no public interest rationale for exempting OVS systems from the Commission's equipment compatibility regulations. IV. THE COMMISSION SHOULD ENSURE THAT OVS PROVIDERS PLAY A ROLE IN THE SUCCESSFUL DEPLOYMENT OF ATV We join with Capital Cities/ABC in encouraging the Commission to require OVS systems (as well as cable systems) to carry both local stations' NTSC and ATV broadcast signals. As Capitol Cities/ABC aptly states: Such a course would help to ensure that the goal of the 1992 Cable Act of preserving free over-the air television is achieved. Moreover, it would advance the Commission's ATV goals of boosting the market penetration of ATV technology and accelerating the channel give- back in order to expedite the ATV transition. In previous filings with the Commission, EIA has explained why cable systems must-carry obligations should extend to both a broadcast station's ATV and NTSC signals. We similarly believe that the must-carry obligations found in Section 614(b)(4)(B) of the Act should be applied to OVS operators. Because the competitive video market of the future will allow millions of Americans to receive their television programming through OVS, OVS providers will play a key role in the public acceptance of ATV. Simultaneous transmission of NTSC and ATV signals, as originally broadcast, will allow the public to observe the differences between the two formats and encourage the adoption of ATV. For similar reasons, we encourage the Commission to require OVS providers to carry ATV signals based on the ATV standard adopted by ACATS for over-the-air broadcasting. Such a requirement would ensure that OVS consumers transitioning to ATV are not faced with the unnecessary costs of converter boxes or receivers supporting multiple formats. V. CONCLUSION For all the reasons set forth above and in our initial comments, we urge the Commission to interpret the OVS provisions of the Act to further Congress' express purpose of encouraging the entry of telephone companies into the video marketplace. Specifically, the Commission should preclude cable systems from becoming OVS providers. In light of Congress' intent to promote competition in all aspects of the market, the Commission should ensure that OVS CPE is competitively available on an unbundled basis and that OVS providers are subject to existing equipment compatibility regulations. Finally, the Commission should ensure that OVS providers play a role in the successful deployment of ATV. Respectfully Submitted Electronic Industries Association Consumer Electronics Manufacturers Association By: Gary Shapiro President Consumer Electronics Manufacturers Association 2500 Wilson Boulevard Arlington, Virginia 22201 703-907-7600 Consumer Electronics Retailers Coalition By: John V. Roach Chairman and Chief Executive Officer Ronald L. Parrish Vice President of Corporate Development Tandy Corporation 1800 One Tandy Center Fort Worth, Texas 76102 (817) 390-3779 Richard L. Sharp Chairman, President and Chief Executive Officer Of Counsel: W. Stephen Cannon Senior Vice President and Joseph P. Markoski General Counsel Squire, Sanders & Dempsey 1201 Pennsylvania Avenue, N.W. Circuit City Stores, Inc. P.O. Box 407 9950 Mayland Drive Washington, D.C. 20044-0407 Richmond, Virginia 23233(202) 626-6600 (804) 527-4014