BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 ______________________________________ ) In the Matter of ) ) Implementation of Section 302 of the ) CS Docket No. 96-46 Telecommunications Act of 1996 ) ) Open Video Systems ) ) REPLY COMMENTS OF THE GENERA L SERVICES ADMINISTRATION EMILY C. HEWITT General Counsel VINCENT L. CRIVELLA Associate General Counsel Personal Property Division MICHAEL J. ETTNER Senior Assistant General Counsel Personal Property Division Economic Consultant: Snavely King Majoros O'Connor & Lee, Inc. GENERAL SERVICES ADMINI STRATION 1220 L Street, N.W. 18th & F Streets, N.W., Room 4002 Washington, D.C. 20005 Washington, D.C. 20405 April 11, 1996 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 ______________________________________ ) In the Matter of ) ) Implementation of Section 302 of the ) CS Docket No. 96-46 Telecommunications Act of 1996 ) ) Open Video Systems ) ) REPLY COMMENTS OF THE GENERA L SERVICES ADMINISTRATION The General Services Administration ("GSA"), on behalf of the Federal Executive Agencies, submits these Reply Comments in response to the Commission s Notice of Proposed Rulemaking ( NPRM ), FCC 96-99, released March 11, 1996. In this NPRM, the Commission requested comments and replies on the implementation of open video systems ( OVS ). I. Introduction In Comments filed on April 1, 1996, GSA urged the Commission to modify its Part 64 rules to provide an effective accounting safeguard against the cross-subsidization of OVS by telephone ratepayers. GSA recommended that the Commission require local exchange carriers ( LECs ) to classify all video dialtone ( VDT ) and OVS costs as unregulated immediately. Comments were also filed by a broad range of interested parties, including: - The United States Telephone Association ( USTA ), the National Telephone Cooperative Association ( NTCA ) and nine individual LECs; - The National Cable Television Association ( NCTA ) and twenty-two other cable parties; - The National Association of Broadcasters ( NAB ) and seven other broadcaster parties; - The National Association of Regulatory Utility Commissioners ( NARUC ) and four state commissions; - Nine cities and city representatives; - Eight consumer advocates; - Six providers of video programming; and - Two interexchange carriers ( IXCs ). In these Reply Comments, GSA responds to the positions and proposals of these parties. II. The Commission Should Not Require Telephone Ratepayers To Subsidize the Provision of Video Services By LECs. In its Comments, GSA expressed its concern that, as a large user of telecommunications services, it might be forced to subsidize LEC provision of OVS. GSA urged the Commission to modify its Part 64 rules to prevent such cross- subsidization. There was broad support for GSA s position in the Comments of other parties. MCI, in its capacity as a large customer of LEC services, urges the Commission to fully address the dangers to telecommunications customers of cross-subsidizing open video systems. NARUC states: Both these statements implicitly recognize the 1996 Act s intent that ratepayers of basic telephone services not subsidize LEC competitive offerings. Such cross-subsidies not only could result in telephone ratepayers paying higher rates, or not receiving deserved rate reductions, but also would give LECs an unfair competitive advantage over competing providers of multichannel video distribution services. At least one of the LECs, U S West, Inc. ( U S West ), acknowledges that cost allocation is necessary to ensure that an OVS operator s regulated telephone business is not bearing a disproportionate share of the cost of commonly used network infrastructure. Virtually all commenting cable operators also emphasize the importance of preventing cross-subsidization. Time Warner Cable ( Time Warner ) explains that LEC cross-subsidization could not only reduce competition in the video business, but also in the telephone business. Time Warner states: There is a significant risk that LECs will enter the video business not because they believe such entry will be profitable but in an attempt to limit the resources cable operators will have available to invest in entry into the telephone business. Thus, subsidized LEC video service rates may not only be a means of unfairly capturing customers in the MVPD marketplace, but also (and perhaps primarily) as a means of preserving the LEC s local telephone monopoly. There is agreement among all commenting parties that the Commission s Part 64 rules, properly modified, will provide an effective safeguard against cross-subsidization. The California Commission states: The proper allocation of costs between regulated and unregulated services under Part 64 of the Commission s rules assures that ratepayers of regulated services are not subsidizing unregulated competitive services. This is necessary to ensure a level playing field for the competitive market - in this instance the open video systems market. Most commenting parties also emphasize that the LECs must modify their procedures to comply with the Commission s Part 64 rules, as modified in an upcoming proceeding, before they apply for certification as an OVS provider. TCI states: Even with a bright-line test for allocating costs, there would be insufficient time during the ten-day certification period to ensure compliance with cost allocation rules. Fortunately, the statute does not require the Commission to do so....Establishment of cost allocation rules and a carrier s demonstration of compliance are matters applicable to the regulated carrier and not to OVS, and they can and must occur outside the OVS certification process if they are to be effective. GSA agrees with TCI s assessment, and urges the Commission to require the LECs to comply with its modified Part 64 rules prior to their making application for OVS certification. III. The Commission Should Require LECs to Classify All VDT And OVS Costs As Unregulated. In its Comments, GSA pointed out that the substantial investments the LECs have already made under the Commission s VDT rules are now in a state of regulatory limbo. GSA urged the Commission to issue either a Declaratory Ruling or a Responsible Accounting Officer Letter to ensure that both VDT and OVS costs are immediately classified as unregulated by the LECs pursuant to the Commission s Part 64 rules. Other commenting parties agreed that the status of costs associated with VDT must be addressed by the Commission. Whether individual LECs ultimately decide to convert their VDT systems to OVS or cable service is immaterial as far as the application of Part 64 rules is concerned. VDT investments are not used or useful in the provision of telephone service and must now be classified as unregulated. Until the Commission formally addresses this problem, many LECs will undoubtedly continue to consider their VDT costs as regulated, distorting both interstate and intrastate ratemaking. The Commission should act immediately to rectify this situation. IV. Conclusion As the agency vested with the responsibility for acquiring telecommunications services on a competitive basis for use of the Federal Executive Agencies, GSA urges the Commission immediately to require LECs to classify all VDT and OVS costs as unregulated for purposes of Part 64 of its rules. Respectfully submitted, EMILY C. HEWITT General Counsel VINCENT L. CRIVELLA Associate General Counsel Personal Property Division MICHAEL J. ETTNER Senior Assistant General Counsel Personal Property Division GENERAL SERVICES ADMINISTRATION 18th & F Streets, N.W., Rm. 4002 Washington, D.C. 20405 (202) 501-1156 April 11, 1996 CERTIFICATE OF SERVICE I , do hereby certify that copies of the foregoing Reply Comments of the General Services Administration" were served this 11th day of April, 1996, by hand delivery or postage paid to the following parties: Meredith Jones Chief, Cable Services Bureau Federal Communications Commission 2033 M Street, N.W., Room 918 Washington, D.C. 20554 Regina M. Keeney Chief, Common Carrier Bureau Federal Communications Commission 1919 M Street, N.W., Room 500 Washington, D.C. 20554 Larry Walke Cable Services Bureau Federal Communications Commission 2033 M Street, N.W., Room 408A Washington, D.C. 20554 Kenneth P. Moran Chief, Accounting and Audits Division Common Carrier Bureau Federal Communications Commission 2000 L Street, N.W., Room 812 Washington, D.C. 20554 Ken Ackerman Chief, Accounting Systems Branch Accounting and Audits Division Common Carrier Bureau Federal Communications Commission 2000 L Street, N.W., Room 812 Washington, D.C. 20554 International Transcription Service, Inc. Suite 140 2100 M Street, N.W. Washington, D.C. 20037 Paul Schwedler, Esquire Asst. Regulatory Counsel, Telecommunications Defense Info. Agency, Code AR 701 South Courthouse Road Arlington, VA 22204-2199 Edith Herman Senior Editor Communications Daily 2115 Ward Court, N.W. Washington, D.C. 20037 Telecommunications Reports 11th Floor, West Tower 1333 H Street, N.W. Washington, D.C. 20005 Richard B. Lee Vice President Snavely King Majoros O'Connor & Lee, Inc. 1220 L Street, N.W., Suite 410 Washington, D.C. 20005 Daniel L. Brenner National Cable Television Association 1724 Massachusetts Ave., N.W. Washington, D.C. 20554 . Alan J. Gardner California Cable Television Association 4341 Piedmont Avenue Oakland, CA 94611 Michael Hammer Attorney for Time Warner Cable Wilkie Farr & Gallagher Three Lafayette Center 1155 21st Street, N.W Washington, D.C. 20036 Stephen R. Effros Cable Telecommunications Assoc. 3950 Chain Bridge Road P.O. Box 1005 Fairfax, VA 22030-1105 Michael S. Schooler Attorney for Comcast Cable Communications Dow, Lohnes & Albertson 1200 New Hampshire Ave., N.W. Suite 800 Washington, D.C. 20036 Peter H. Feinberg Attorney for Cox Communictions Dow, Lohnes & Albertson 1200 New Hampshire Ave., N.W. Suite 800 Washington, D.C. 20036 Donna N. Lampert Attorney for Cablevision Systems Corp. Mintz, Levin, Cohn, Ferris Glovsky and Popeo, P.C. 701 Pennsylvania Ave., N.W. Suite 900 Washington, D.C. 20004 Howard J. Symons Attorney for Tele-Communications Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. .701 Pennsylvania, Ave., N.W. Suite 900 Washington, D.C. 20004 Mark Melnick, Esq. Group W Satellite Communications 250 Harbor Drive Stamford, CT 06904-2210 John D. Seiver Attorney for Cable Telecommunications Association Cole, Raywide & Braverman, L.L.P. 1919 Pennsylvania Ave., N.W. Suite 200 Washington, D.C. 20006 Frank W. Lloyd Attorney for Continental Cablevision Mintz, Levin, Cohn, Ferris Glovsky and Pepeo 701 Pennsylvania Ave., N.W. Suite 900 Washington, D.C. 20004 Sondra J. Tomlinson US West 1020 19th Street, N.W. Suite 700 Washington,D.C. 20036 David Cosson National Telephone Cooperative Assoc. 2626 Pennsylvania Ave., N.W. Washington, D.C. 20037 Leslie A. Vial Bell Atlantic Telephone Companies 1320 North Court House Road Eighth Floor Arlington, VA 22201 Donald C. Rowe, Esq. NYNEX Corporation 1111 Westchester Avenue White Plains, NY 10604 Andrew D. Lipman Attorney for MFS Swidler & Berling, Chartered 3000 K Street, N.W. Suite 300 Washington, D.C. 20007 Mary Gardiner Jones Alliance for Public Technology 901 15th Street, N.W. Suite 230 Washington, D.C. 20005 Jeffrey Hops Alliance for Community Media 666 11th Street, N.W. Suite 806 Washington, D.C. 20001-4542 Lawrence Fenster MCI 1801 Pennsylvania Ave., N.W. Washington, D.C. 20006 Blossom A. Peretz, Esq. Ratepayer Advocate 31 Clinton Street, 11th Floor P.O. Box 46005 Newark, NJ 07101 Mark C.Rosenblum AT&T Corporation 295 North Maple Avenue Room 3245F3 Basking Ridge, NJ 07920 Paul Rodgers National Assoiciation of Regulatory Utility Commissioners 1102 ICC Building P.O. Box 684 Washington, D.C. 20044 Mary Mack Adu Public Utilities Commission 505 Van Ness Avenue San Francisco, CA 94102 John A. Levin Public Utility Commission G-31 North Office Building Commonwealth and North Streets P.O. Box 3265 Harrisburg, PA 17105-3265 Maureen O. Helmer Department of Public Service Three Empire State Plaza Albany, NY 12223 Charles S. Walsh Attorney for Motion Picture Assocition of America, Inc. Fleischman and Walsh, L.L.P. 1400 16th Street, N.W. Suite 600 Washington, D.C. 20036 Howard J. Symons Attorney for Rainbow Programming Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 701 Pennsylvania Ave., N.W. Suite 900 Washington, D.C. 20004 Samuel A. Simon, Esq. Access 2000 901 15th Street, N.W. Suite 230 Washington, D.C. 30005 Lawrence W. Secrest, III Attorney for Viacom, Inc. Wiley, Rein & Felding 1776 K Street, N.W. Washington, D.C. 20006 Andrew D. Lipman Attorney for Residential Communications Network Swidler & Berlin, Chartered 3000 K Street, N.W. Suite 300 Washington, D.C. 30007 Michael H. Hammer Attorney for Home Box Office Willkie Farr & Gallagher Three Lafayette Centre 1155 21st Street, N.W. Suite 600 Washington, D.C. 20036 Quincy Rodgers General Instrument Two Lafayette Center 1133 21st Street, N.W. Suite 405 Washington,D.C. 20036 John V. Roach Attorney for Electronic Industries Association 1800 One Tandy Center Fort Worth, TX 76102 Jeffrey L. Sheldon UTC 1140 Connecticut Ave., N.W. Suite 1140 Washington, D.C. 20036 Jot D. Carpenter, Jr. Telecommunications Industry Association 1201 Pennsylvania Ave., N.W. Suite 315 Washington, D.C. 20044-0407 Philip R. Hochberg Attorney for National Basketball Assoc. Verner, Liipfert, Bernhard, McPherson & Hand, Chartered 901 15th Street, N.W. Suite 700 Washington, D.C. 20005 Robert Alan Garrett Attorney for Baseball Arnold & Porter 555 12th Street,N.W. Washington, D.C. 20004 Henry L. Baumann National Association of Broadcasters 1771 N Street, N.W. Washington, D.C. 20036 Peter Tannenwald Attorney for Community Broadcasters Association Irwin, Campbell & Tannenwald, P.C. 1730 Rhode Isalnd Ave., N.W. Suite 200 Washington, D.C. 20036-1811 Marilyn Mohrman-Gillis Association of America s Public Television Stations 1350 Connecticut Ave., N.W. Washington, D.C. 20036 Mark W. Johnson CBS, Inc. 1634 I Street, N.W. Suite 1000 Washington, D.C. 20006 Sam Antar Capital Cities/ABC, Inc. 77 West 66th Street New York, NY 10023 Robert B. Jacobi Attorney for Golden Orange Broadcasting Co., Inc. Cohn and Marks 1333 New Hampshire Ave., N.W. Suite 600 Washington, D.C. 20036 Lawrence R. Sidman Attorney for National Broadcasting Company Verner, Kiipfert, Bernhard, McPherson & Hand, Chartered 901 15th Street, N.W. Suite 700 Washington, D.C. 20005 James J. Popham Association of Local Television Stations, Inc. 1320 19th Street, N.W. Suite 300 Washington, D.C. 20036 Matthew Lampe Dept. Of Administrative Services 616 Second Avenue 12 Floor - Alaska Building Seattle, WA 93104-2214 Deborah L. Ortega City and County Building 1330 Fox Street - 2nd Floor Denver, CO 80204 Thomas D. Creighton Attorney for Political Subdivisions Bernick and Lifson, P.A. 5500 Wayzata Boulveard Suite 1200 The Colonnade Minneapolis, MN 55416 Walter S. de la Cruz Department of Information Technology and Telecommunications 11 Metrotech Center Third Floor Brooklyn, NY 11201 Janis D. Everhart Attorney for the Texas Cities 1500 Marilla, Room 7/D/N Dallas, TX 75201 James E.Meyers Attorney for City of Olathe 1555 Connecticut Ave., N.W. Suite 500 Washington, D.C. 20036 Tom Nicholas General Metro Cable Consortium 14949 East Alameda Drive Aurora, CO 80012 Rick Maultra 200 East Washington Street City-County Building Room G-19 Indianapolis, IN 46204 Nicholas P. Miller Attorney for the National League of Cities Miller, Canfield, Paddock and Stone 1225 19th Street, N.W. Suite 400 Washington, D.C. 20036