Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Implementation of Section 302 of ) the Telecommunications Act of 1996 ) CS Docket No. 96-46 ) Open Video Systems ) To: The Commission COMMENTS OF THE NATIONAL LEAGUE OF CITIES; THE UNITED STATES CONFERENCE OF MAYORS; THE NATIONAL ASSOCIATION OF COUNTIES; THE NATIONAL ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADVISORS; MONTGOMERY COUNTY, MARYLAND; THE CITY OF LOS ANGELES, CALIFORNIA; THE CITY OF CHILLICOTHE, OHIO; THE CITY OF DEARBORN, MICHIGAN; THE CITY OF DUBUQUE, IOWA; THE CITY OF ST. LOUIS, MISSOURI; THE CITY OF SANTA CLARA, CALIFORNIA; AND THE CITY OF TALLAHASSEE, FLORIDA Nicholas P. Miller Tillman L. Lay Frederick E. Ellrod III MILLER, CANFIELD, PADDOCK AND STONE 1225 19th Street, N.W. Suite 400 Washington, D.C. 20036 (202) 785-0600 Their Attorneys April 1, 1996 TABLE OF CONTENTS Page I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. AN OVS OPERATOR MUST BE SUBJECT TO STRONG NONDISCRIMINATION AND REASONABLE RATE OBLIGATIONS TO PREVENT OVS FROM BECOMING A CABLE SYSTEM IN DISGUISE . . . . . . 6 A. The Commission Must Adopt Strong Nondiscrimination Rules . . . . . . . . . . . . . . . . 6 1. The OVS Model Is Distinct From the Cable Model . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2. The Commission's rules must prohibit discrimination and ensure just and reasonable rates, terms, and conditions. . . . . . . . . . . . . . . 8 3. OVS carriage obligations must be far stronger, and less carrier-favorable, than cable leased access . . . . . . . . . . . . . . . . . . . 10 4. The Commission cannot rely on competition to restrain OVS operators from discrimination. . . . . . . . 11 5. The OVS rules must affirmatively ensure nondiscrimination, rather than waiting for complaints from programmers that have already been harmed . . . . . . . . 13 B. Specific Rules Must Be Drawn to Prevent Discrimination and Ensure Open Access. . . . . . . . . . . . . 13 1. OVS carriage obligations must enable independent programmers to use capacity readily on the OVS. . . . . . . . . . . . . . . . . . . . 14 2. OVS rules must make it easy for programmers to identify and show discrimination by requiring uniform, public carriage rates. . . . . . . . . 15 3. The Commission must use either a yardstick or a cost-based approach to determine the reasonableness of rates. . . . . . . . . 19 4. The Commission's rules must prevent OVS operator-programmer relationships outside the carrier-user relationship . . . . . . . . . . 21 Page 5. Rules for allocation of OVS capacity must protect independent programming competition . . . . . . . 22 6. OVS program marketing and selection rules must protect access by independent programmers. . . . . . 25 7. OVS programmer application and usage rules must protect independent programming competition. . . . . 27 C. An OVS Operator That Violates the Commission's OVS Rules Should Be Required to Obtain a Cable Franchise. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 III. OPEN VIDEO SYSTEMS MUST MEET LOCAL COMMUNITY NEEDS AND INTERESTS . . . . . . . . . . . . . . . . 28 A. The Public Interest Necessarily Has Local As Well As Nationwide Components . . . . . . . . . . . . 29 B. PEG Obligations for Open Video Systems Must be Established Consistent With Local Needs and Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 C. An OVS Operator Should Be Subject To A "Match or Negotiate" Requirement: It May Choose Either To Match Each Incumbent Cable Operator's PEG Obligations, Or To Negotiate Agreements Acceptable to the Affected Communities. . . . . . . 31 1. Under the "match" option, the OVS operator must provide exactly what the cable operator provides. . . . . . . . . . . . . . . . . . . . . . . . . 32 2. Under the "Negotiate" Option, OVS Operators May Negotiate Alternative Arrangements with Communities, Which Could Result in Greater PEG Benefits for the Community . . . . . . . . . . . . . . . 35 3. In the exceedingly rare case where an OVS system is located in an area where no cable operator is franchised to serve, the OVS operator must negotiate its PEG obligations with the local government . . . . . . . . . . 37 4. The Commission should reject any proposals to average or "federalize" OVS PEG obligations across different franchising authority jurisdictions.. . . . . . . . . . . . . . . . . . . . . . 39 Page 5. PEG channels should be provided to all subscribers . . . . . . . . . . . . . . . 41 6. The Commission must ensure that any equipment necessary to deliver PEG programming to local communities is made available . . . . . . . . . . . . . . 43 D. Other Title VI Provisions Must Reflect the Purposes of the OVS Provision. . . . . . . . . . . 44 1. Program access. . . . . . . . . . . . . . . . . . . . . . 44 2. Negative option billing . . . . . . . . . . . . . . . . . 44 E. The 'Fee In Lieu Of Franchise Fees' Paid By An OVS Operator Must Similarly Be Matched To the Local Cable Operator's Obligations. . . . . . . 45 IV. CABLE OPERATORS SHOULD NOT BE PERMITTED TO BECOME OVS OPERATORS, BUT IF THEY ARE, SEPARATE AND PRIOR LOCAL APPROVAL WILL BE NECESSARY. . . . . . . . . . . . . . . . . . . . . 46 A. A Cable Operator Cannot Be An OVS Operator . . . . . . . . . . 46 B. Even If the Commission Were To Conclude That A Cable Operator May Be An OVS Operator, Separate Local Community Consent Would Still Be Required. . . . . . . . 48 C. A Cable Operator May Provide Programming Through An OVS, But Only If Consistent With Its Cable Franchise and the Public Interest. . . . . . . . . . 51 V. THE OVS CERTIFICATION PROCESS MUST ENSURE THAT AN OVS COMPLIES WITH LOCAL RIGHTS REGARDING THE PUBLIC RIGHTS-OF-WAY . . . . . . . . . . . . . 52 A. An OVS Remains Subject To the Right of Local Communities To Manage Their Public Rights-of-Way and To Receive Fair Compensation For Their Use . . . . . . . . 52 1. Local governments have an inherent right to manage and receive compensation for their rights of way . . . . . . . . . . . . . . . . . . . . . . 53 2. The right to control local rights-of-way is a property right like that of any private property owner, which is protected under the Fifth Amendment . . . . . . . . . . . 55 Page 3. Any Commission intrusion into local governments' property rights would violate the Fifth Amendment . . . . . . . . . . . . . . . . . . . 56 a. Commission-mandated access to local rights-of-way would be an impermissible permanent physical occupation. . . . . 56 b. Forced OVS provider access rises to the level of an unconstitutional taking. . . . . . . 57 4. Because Congress did not explicitly authorize a taking for OVS, the 1996 Act must be construed so as not to require such a taking . . . . . 58 B. Congress Did Not Give the Commission Power to Take the Property Interests of Local Governments for OVS. . . . . . 60 1. The Commission has no power of eminent domain. . . . . . . 60 2. Congress gave the Commission no implied authority to expose the federal government to fiscal liability. . . . . . . . . . 62 3. The "Fee In Lieu Of" provision in Section 653 does not satisfy the requirement of just compensation. . . . . . . . . . . . . . . . . . . . . . . 64 C. LECs' Existing Authorizations to Use Local Rights- of-Way to Provide Local Telephone Service do not Extend to OVS. . . . . . . . . . . . . . . . . . . . . . . . . 67 D. An OVS certification must demonstrate that the operator has obtained local authority to use the public rights-of-way. . . . . . . . . . . 69 E. The Commission's rules should recognize that disputes regarding an OVS's right to be in the local public rights-of-way cannot be resolved by the Commission, but only by the courts. . . . . 73 VI. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SUMMARY An open video system ("OVS") is one of four options for a local exchange carrier ("LEC") to provide video programming to subscribers. Thus, the OVS rules cannot be meant simply to give the LECs the "flexibility" to compete with cable operators. The LECs can do that by becoming cable operators themselves. Rather, OVS must be distinctly different than a cable system: an open, non-discriminatory access system, not a cynical vehicle for achieving the perceived benefits of being a cable operator while avoiding the obligations Congress left intact under Title VI. These comments address four key principles: (1) The Commission Must Adopt Strong Nondiscrimination Rules. The statute requires FCC rules that prohibit an OVS operator from discriminating among video programming providers, and that ensure just, reasonable, and nondiscriminatory rates, terms, and conditions for carriage. An OVS in which the operator could discriminate among programmers would simply be cable under another name. The NPRM is simply wrong in suggesting that the OVS rules should allow for some "discrimination." On the contrary, the OVS rules must affirmatively ensure nondiscrimination, rather than waiting for complaints from programmers that have already been harmed. In particular, the 2/3 capacity requirement should apply not only to OVS as a whole, but also separately to both analog and digital portions. Channel positioning rules must also be nondiscriminatory. Publicly-posted, uniform rates are the only reliable means of enforcing reasonable and non-discriminatory rates. In place of tariffing, we suggest that OVS operators must make all carriage contracts publicly available. Moreover, the OVS operator must justify any differences in the rates charged for carriage (including rates to affiliates) by verifiable and objective factors, such as special rates for PEG programmers, or volume discounts. All OVS programming contracts should contain a "most favored nations" clause. To ensure reasonable carriage rates, any programming affiliate of the OVS operator must file standalone financial statements. In addition, as a "reality check," rates should be presumed unreasonable unless (1) at least 1/3 of system capacity is occupied by independent programmers; and (2) at least four such programmers are on the system. The OVS operator's relationship with any such programmer should be restricted to a "carrier-user" relationship. An OVS operator should not be allowed to manage channel allocation. If initial demand exceeds system capacity, a proportional allocation appears best. But a one-time allocation that is frozen for years would be unacceptable. An OVS operator not fulfilling the 2/3 set-aside requirement should cede capacity to any requesting party within 30 days. Free trading and subleasing of capacity by unaffiliated programmers should be allowed. To prevent discrimination, an OVS operator may not market other programmers' channels, or choose what programming is carried on shared channels; impose unnecessary financial hurdles on programmers; or favor its affiliates over other programmers. If an OVS operator is found to be in violation of the OVS rules, it should be decertified and required to obtain cable franchises for the relevant areas. (2) Open Video Systems Should Meet PEG Obligations Through a "Match or Negotiate" Requirement. Congress recognized that OVS must meet local PEG needs and interests and that local governments have unique expertise in ascertaining those needs and interests. Thus, an OVS operator should be subject to a "match or negotiate" requirement: it may choose either to match each incumbent cable operator's PEG obligations, or to negotiate agreements acceptable to the affected communities. In either case, the OVS operator's certification should include an endorsement by the local government of its PEG requirements. If an OVS operator chooses to match the cable operator, it must also match any future changes in PEG obligations. These conditions extend to PEG and I-net facilities as well as capacity. The matching obligation of an OVS operator must be cumulative with the PEG obligations of the cable operator. Under the "negotiate" option, the franchising authority and the OVS operator may negotiate PEG obligations that provide an equivalent benefit to the community, with equivalent burdens on the two operators. In any areas where no cable operator is authorized to serve, the OVS operator must negotiate with the local government. The Commission should reject any proposals to average or "federalize" OVS PEG obligations. PEG requirements must be based on the particular needs and interests of each local community. Thus, where an OVS will overlap several franchise areas, it should be designed with the capability to fulfill the separate PEG requirements of each affected community. PEG channels should be provided to all subscribers. If special equipment is necessary to have PEG programming distributed over the OVS, the OVS operator must provide that equipment. The 'fee in lieu of franchise fees' paid by an OVS operator must be matched to the local cable operator's obligations. (3) Cable Operators Should Not Be Permitted to Become OVS Operators, But If They Are, Separate and Prior Local Approval Will Be Necessary. The statute makes clear that only a LEC may be an OVS operator. A cable operator may provide programming through an OVS, but only if consistent with its cable franchise and the public interest. In any case, a cable system cannot become an OVS without prior local community approval. A cable operator's only right to be in the public rights-of-way comes from its cable franchise. If a cable operator could unilaterally abrogate the local government's contractual rights under that franchise agreement, that would be a taking of the local government's property rights under contract. (4) The Certification Process Must Ensure That An OVS Complies With Local Rights Regarding the Public Rights-of-Way. OVS rules must acknowledge local governments' property interests in the public rights-of-way. Thus, a certification must show that the prospective OVS operator has obtained all necessary local consents to use of the rights-of-way for OVS. Any suggestion in the OVS rules that the Commission's approval makes local approval unnecessary would be a "taking" within the meaning of the Fifth Amendment, subject to the constitutional requirement of just compensation. Neither the OVS provisions of the 1996 Act, nor the legislative history, gives the Commission any authority to effect a taking of local government property. Nor would the "fee in lieu of franchise fees" provide just compensation for such a taking. No past grant of authority to a LEC could be construed to include a right to use the rights-of-way for OVS, which is not telephone service and which did not exist at the time of such grants. A prospective OVS operator must be required to show that it has obtained the authorizations necessary under state and local law to use local public rights-of-way for OVS. The short review period for OVS certification approval means that a prospective OVS operator must be required to prove that it has obtained local authority to use rights-of-way and fulfilled its PEG obligations before certification. Facial approval subject to later review is unacceptable. Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Implementation of Section 302 of ) the Telecommunications Act of 1996 ) CS Docket No. 96-46 ) Open Video Systems ) COMMENTS OF THE NATIONAL LEAGUE OF CITIES; THE UNITED STATES CONFERENCE OF MAYORS; THE NATIONAL ASSOCIATION OF COUNTIES; THE NATIONAL ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADVISORS; MONTGOMERY COUNTY, MARYLAND; THE CITY OF LOS ANGELES, CALIFORNIA; THE CITY OF CHILLICOTHE, OHIO; THE CITY OF DEARBORN, MICHIGAN; THE CITY OF DUBUQUE, IOWA; THE CITY OF ST. LOUIS, MISSOURI; THE CITY OF SANTA CLARA, CALIFORNIA; AND THE CITY OF TALLAHASSEE, FLORIDA To: The Commission The National League of Cities; the United States Conference of Mayors; the National Association of Counties; the National Association of Telecommunications Officers and Advisors; Montgomery County, Maryland; the City of Los Angeles, California; the City of Chillicothe, Ohio; the City of Dearborn, Michigan; the City of Dubuque, Iowa; the City of St. Louis, Missouri; the City of Santa Clara, California; and the City of Tallahassee, Florida, by their attorneys, and, where appropriate, on behalf of their members, hereby file the following comments in response to the Report and Order and Notice of Proposed Rulemaking ("NPRM") in the above-captioned proceeding, released March 11, 1996. These joint commenters have combined their comments in response to the Commission's request that filings be streamlined and consolidated wherever possible. I. INTRODUCTION The Telecommunications Act of 1996 ("1996 Act" or "Act") repeals the former telco-cable cross-ownership ban by providing not one, but four options for a local exchange carrier ("LEC") that wishes to provide video programming to subscribers. A LEC may: (1) provide video programming using radio transmission under Title III of the Communications Act of 1934 ("Communications Act"); (2) provide transmission on a common carrier basis under Title II of the Communications Act; (3) be a cable operator under Title VI of the Communications Act; or (4) operate an "open video system" ("OVS") under new  653. The fourth option, OVS, is a hybrid model. Particularly when viewed in light of the other three options, OVS is best viewed as a hybrid between the common carrier option and the cable option: one-third a cable system (in which all programming is selected and controlled by the system operator), and two- thirds a common carrier video transport system (in which the operator has no control or influence over content selection and unaffiliated parties may select programming independently and transmit it over the system). Because two-thirds of the OVS system is not cable-like, Congress exempted an OVS from many provisions of the Cable Communications Policy Act of 1984, as amended ("Cable Act"). Thus, under the 1996 Act there is no longer a question as to whether telephone companies will be able to offer video programming. They will. The new question is: how will they do it? The NPRM as a whole appears to suggest that the Commission believes it must make very loose, or "flexible" OVS rules because OVS must succeed, in order to allow the LECs to compete with the cable industry in the video market. This approach is fundamentally misguided. It reflects the pre-1996 Act assumption that a LEC could not be a cable operator. That assumption is now false. OVS is not the only way for a LEC to compete with cable; it is merely one of four. Thus, OVS must succeed or fail on its own merits as an alternative to the cable model that is distinctively different from that model, not as a replacement for the cable model. The NPRM misconstrues the type of "flexibility" that the Act gives LECs. Congress encouraged LECs to enter the video distribution field and compete with established cable operators not (as the NPRM suggests at  6) through lighter, more "flexible" OVS regulatory burdens, but through the "flexibility" of having four alternative options to enter the market. This means that (1) cable operators should not be allowed to become OVS operators; and (2) OVS is intended to be an alternative distinct from cable, not a cynical vehicle for achieving the perceived benefits of being a cable operator while avoiding the obligations Congress left intact under Title VI. If a LEC chooses to take advantage of the unique privileges of OVS, it may not at the same time be permitted in effect to seize those of a cable operator as well. Thus, for example, the NPRM quotes the Conference Report to the effect that OVS operators should be allowed great flexibility so that they can "tailor services to meet the unique competitive and consumer needs of individual markets." But the full sentence in the Conference Report makes clear that this "tailoring" is accomplished through the LEC's choice among the four statutory alternatives, not through the single option of OVS. The NPRM is simply wrong in suggesting that the Act sanctions such broad further "flexibility" within the OVS option. If it did, the other three options that Congress made available especially the cable franchise option would become meaningless. The purpose of the OVS rules cannot be simply to give the LECs the "flexibility" to compete with cable operators, since the LECs can do that simply by becoming cable operators themselves. Rather, the purpose of the OVS provision must be to give another model a chance: an open, non-discriminatory access system, fundamentally distinct from the closed, proprietary model of cable. In a sense, Congress has set out to see whether an open, nonproprietary scheme can do for video carriage what it did for the personal computer: create a level field on which numerous players may compete. Congress did not decree that LECs must choose the OVS option; nor did it suggest that OVS was favored over the other three options given LECs. Congress also did not set out to replace the cable franchise model of Title VI with OVS. If Congress had intended to do that, it could simply have deleted Title VI from the Communications Act, rather than widening its scope to include LECs, as the 1996 Act does. Rather, Congress decided that the market, rather than federal mandate, should determine whether subscribers would prefer OVS to cable. The Commission's role here, then, is merely to ensure that the two video delivery models are distinguished from another that OVS does not become a cable system in disguise and to ensure that market forces will then decide which model LECs prefer. The following sections address four key principles that must guide the Commissioner in formulating OVS rules. First, the Commission must adopt nondiscrimination provisions that prevent an OVS from becoming a cable system in disguise, and instead ensure that both large and small, and favored and unfavored, programmers will have truly open and affordable access to OVS. Second, the Commission's rules regarding the PEG obligations and other Title VI requirements mandated for OVS by the Act must ensure that OVS operators will meet local community needs and interests; this should be accomplished through a "match or negotiate" PEG requirement for OVS operators. Third, the statute does not permit cable operators to become OVS operators; but even if the Commission should (erroneously) conclude otherwise, a cable operator still cannot become an OVS operator without prior franchising authority consent and approval. Fourth, the Commission's rules must acknowledge the property interests that local governments hold in the local public rights-of-way that will be used by OVS systems; the Commission's OVS certification process must ensure that those property rights are protected by requiring an OVS applicant to demonstrate that it has obtained the necessary local permissions. II. AN OVS OPERATOR MUST BE SUBJECT TO STRONG NONDISCRIMINATION AND REASONABLE RATE OBLIGATIONS TO PREVENT OVS FROM BECOMING A CABLE SYSTEM IN DISGUISE. A. The Commission Must Adopt Strong Nondiscrimination Rules. 1. The OVS Model Is Distinct From the Cable Model. The guiding principle in the Commission's carriage rules for OVS must be that OVS is a distinct option under the Act, fundamentally different from cable. This fundamental difference, as the name indicates, consists in the open character of the system. Like its predecessor, video dialtone, OVS is intended to provide a genuine opportunity for independent programmers not of the OVS operator's choosing to obtain affordable capacity and compete not only with the OVS, but with the local cable operator as well. For this arrangement to work, the network must be truly accessible on a fair and practical basis, and not influenced by the OVS operator's preferences. An OVS in which the operator could either select most of the programmers or discriminate among programmers including discrimination among different unaffiliated programmers would simply be a classic cable system under another name. Just as a cable operator selects Discovery, ESPN, HBO, Nickelodeon, AMC, and the Family Channel, none (or not all) of which may be affiliated with the cable operator, so an OVS operator allowed to discriminate could select Discovery, ESPN, HBO, Nickelodeon, AMC, and the Family Channel, none of which might be affiliated with the OVS operator, as ostensibly independent programmers on its system, exercising the same degree and kind of editorial control over what the subscriber can receive. Such a "cable clone" model of OVS would achieve nothing. OVS must be more than merely cable under another name. If Congress had intended the regulatory structure of OVS to replace that of cable, Congress could simply have repealed Title VI and declared every cable system an OVS. But Congress did not do so. It is evident from the structure of the Act the four options offered to LECs to provide video service that OVS is intended to be a regulatory regime substantially different from that of the Cable Act, characterized by open access. Thus, to the extent rules proposed in the NPRM would give OVS operators "flexibility" comparable to that of cable operators, they do not comply with the statutory mandate. 2. The Commission's rules must prohibit discrimination and ensure just and reasonable rates, terms, and conditions. The language of the statute is unconditional: the Commission's rules must "prohibit an operator of an open video system from discriminating among video programming providers," and must "ensure that the rates, terms, and conditions for such carriage are just and reasonable, and are not unjustly or unreasonably discriminatory." The Commission may not merely hope that the unrestrained marketplace will yield fairness and reasonable rates. Rather, the Commission must make rules to ensure that an OVS has these attributes. Moreover, the Commission is not free to devise new interpretations of these terms at will. The key terms "discrimination," "just and reasonable" are already in use elsewhere in the Communications Act. The only logical conclusion is that Congress intended these terms of art to be used in the same way in the OVS section, since the OVS terms are not distinguished or redefined in that section. Thus, the OVS provision requires the Commission to achieve the same ends as in Title II, although not necessarily by the same means. What distinguishes OVS from cable is the carriage requirements for independent programmers that are not editorially selected or influenced by the OVS operator, either directly or indirectly. These obligations must foster new, non-facilities- based competitors on the OVS, or they would be pointless. Independent programmers and program packagers must exercise independent editorial selection, something that will be impossible in practice if the OVS operator is allowed to have any indirect or direct influence over any "unaffiliated" programmer or program packager. 3. OVS carriage obligations must be far stronger, and less carrier-favorable, than cable leased access. The NPRM appears to suggest that the cable leased access rules might be an appropriate model for the OVS carriage rules. But this suggestion is flatly contradicted by the statute. Even a cursory comparison of new Section 653 and existing Section 612 makes clear that an OVS operator's 2/3 capacity set-aside obligation and its non-discrimination and reasonable rate obligations are far different and far more exacting than a cable operator's leased access obligations under Section 612. Thus, cable leased access is entirely the wrong model to use for OVS, both statutorily and as a matter of policy. Choosing that model would guarantee that OVS would fail as a true vehicle for independent programming. Rather, OVS would become merely cable in sheep's clothing. Cable leased access has failed as a device for providing meaningful access to programmers unchosen by the cable operator, even though the leased access set-aside requirement is much smaller (in terms of percentage of capacity) than that required under new Section 653. This is because cable operators have been able both through the delays and costs of the individualized complaint process and through the lack of concrete, cost-based and non-discriminatory rate formulas to set their barriers to entry high enough that no programmers other than those favored by the cable operators can succeed. Absent a substantially different regulatory regime, OVS operators will have every incentive to do the same, because gaining control of all the capacity on the OVS would allow the OVS operator to gain more of the revenues paid by subscribers for program offerings (as on a cable system). Absent strong safeguards, OVS operators will be inclined to discourage independent programmers or, alternatively, enter into discriminatory relationships with favored unaffiliated programmers. Thus, the FCC's OVS rules should assume that any loopholes allowing the OVS operator "flexibility" to "tailor" its system's offerings will defeat the statute's purpose of a truly open system. 4. The Commission cannot rely on competition to restrain OVS operators from discrimination. Contrary to the NPRM's suggestion (at  31), the FCC cannot assume that competition in the video delivery market will deter either OVS or cable operators from taking advantage of any such loopholes the FCC may create. As an initial matter, it is not yet clear whether there will be any such competition. While the Act clearly seeks to encourage vigorous competition, the market will determine whether it actually arrives. However, even if geographically widespread facilities-based competition develops between OVS and cable systems, the result will at best be a duopoly. That is hardly robust competition in the classic sense, since a two-player market is subject to market distortions and anticompetitive tactics (particularly through signaling and tacit collusion between the duopolists) only slightly less damaging than those typical of a monopoly. Thus, the hope of competition will not permit the Commission to avoid the need to make strong rules that will prophylactically protect against any sort of discrimination. Indeed, the presence of a cable operator competitor will increase, not decrease, an OVS operator's incentive to discriminate. To compete with the cable operator, the OVS operator will want to behave like a cable operator to control all capacity on the system, directly or indirectly, picking the programming that it believes (rightly or wrongly) will attract the most subscribers. To this end, a rational OVS operator is likely to use any cable operator-like techniques of discrimination that the Commission's OVS rules permit. For example, an OVS operator may seek to fulfill its 2/3 set-aside obligation with "friendly" unaffiliated programmers. The OVS operator could accomplish this in many indirect and hard-to- detect ways, such as providing attractive financing, promotion or cooperative marketing arrangements only to its favored unaffiliated programmers. Certainly some LECs employed such artifices in efforts to evade the former cable-telco cross- ownership rules, and there is evidence that some cable operators have used similar devices to avoid their leased access obligations. 5. The OVS rules must affirmatively ensure nondiscrimination, rather than waiting for complaints from programmers that have already been harmed. The complaint-based process suggested in the NPRM at  12- 13 will not suffice to protect independent programmers against discrimination. Without clear rules, it is too easy for the OVS operator, controlling all access to the system, to fend off potential programmers through a series of legal proceedings that place an intolerable and inequitable financial burden on the frequently less well-heeled programmers seeking access. This has been thoroughly demonstrated in the cable leased access area. Small independent entrepreneurs in particular will need both certainty and assured, ready access to prosper in the open programming business. Thus, the statute requires the Commission to make rules that will ensure just, reasonable, and non- discriminatory rates, terms and conditions not just correct injustices after the fact. B. Specific Rules Must Be Drawn to Prevent Discrimination and Ensure Open Access. In light of the Act's strong and essential nondiscrimination requirements, many of the NPRM's proposals are misguided. They would impermissibly result in indirect, but nevertheless effective, OVS operator control over most or all programming on the system in other words, in a cable system. 1. OVS carriage obligations must enable independent programmers to use capacity readily on the OVS. The Commission must shape specific antidiscriminatory OVS rules to make it possible for independent programmers to compete without depending on the operator's discretion for carriage. The first such rule, clearly, must protect the statutory requirement that 2/3 of system capacity be actually available to independent programmers. The 2/3 capacity requirement should apply not only to the OVS system as a whole, but also separately to both analog and digital portions, since (at least for the near term) most programmers will not be able to use all modes of transmission. For the same reason, it would be inconsistent with the Act to allocate all analog capacity to one programmer. An OVS must provide nondiscriminatory access, not only to capacity in general, but to specified types of capacity. All programmers, including the OVS operator and its affiliates, must have an equal opportunity to use each type of capacity. For the same reasons, if the Commission allows an OVS operator to impose limits on the amount of capacity that one independent programmer may occupy, such a limit must not be less than the same 1/3 capacity the OVS operator may use, as long as capacity is available. Comparable amounts of channel capacity will be necessary to allow such an independent programmer to compete with the OVS operator itself. Thus, a maximum capacity restriction below 1/3 of the total OVS capacity should be permitted only insofar as excess demand for the 2/3 set-aside capacity requires fair allocation among the competing programmers. Similarly, channel positioning rules must also be nondiscriminatory. Rules allowing the OVS operator any significant control over channel arrangements would make it too easy for the OVS operator to gain a competitive advantage over disfavored independent programmers and become too much like a cable operator. The operator could manipulate menus and channel assignments so that viewers "surfing" the channel sequence, or (where applicable) pursuing certain sorts of programming via menu systems, are steered preferentially to the OVS operator's channels. 2. OVS rules must make it easy for programmers to identify and show discrimination by requiring uniform, public carriage rates. The NPRM is simply wrong in suggesting that the OVS rules should allow for some "discrimination." Such a result would be contrary to the language of the Act (quoted at NPRM  9). It would permit an OVS operator easily to exclude all truly independent programming by manipulating rates and terms. A common carriage analogy (or related analogies in antitrust or for wholesale transactions under Federal Power Act, Natural Gas Act, or possibly resale arrangements for telephone service) is far more apt than leased access. The Act's requirement that an OVS operator not "unjustly or unreasonably" discriminate is a direct lift from the common carrier model. As such, it must be read to allow only reasonable differences among reasonable classes of programmers, such as special rates for PEG programmers, or volume discounts based on lower equipment costs for transmission or switching of multiple channels to a subscriber in package form. But such classifications must be open, objective and verifiable, and not based on content. And they may be established only to the extent that the rules encourage truly open access by independent programmers of all sizes and budgets. New section 653(b) requires the operator to establish reasonable and nondiscriminatory rates. This is not the language of individualized case-by-case contracts. Rather, it implies a common rate structure that must be applied without discrimination to all programmers. But if programmers are to be able to identify discrimination when it occurs, and demonstrate it to gain the necessary relief, the rate structure must also be publicly available in advance. Tariffing (otherwise referred to as rate filing) is the primary means recognized by the Supreme Court through which this problem has been addressed. For example, in Maislin Industries, U.S., Inc. v. Primary Steel, Inc., the U.S. Supreme Court rejected an Interstate Commerce Commission (ICC) policy that permitted a carrier in bankruptcy to collect negotiated rates lower than its tariff rates, on the grounds that such a policy worked to violate the statutory requirements of nondiscrimination and reasonable rates contained in the Interstate Commerce Act. The Court stated that published tariffs that are charged (with limited exceptions) universally have been considered "essential to preventing price discrimination and stabilizing rates." The Court further endorsed tariffs as an essential component of nondiscriminatory rate-setting for telecommunications providers in MCI Telecommunications v. American Tel. & Tel.: The tariff-filing requirement is. . . the heart of the common-carrier section of the Communications Act. In the context of the Interstate Commerce Act, which served as its model, ... this Court has repeatedly stressed that rate filing was Congress's chosen means of preventing unreasonableness and discrimination in charges. . . " We recognize, of course, that Section 653 provides that OVS operators will not be subject to all of the requirements of Title II. At the same time, however, OVS operators are subject to the same requirement of reasonable and non-discriminatory rates as common carriers, and the courts have repeatedly concluded that publicly-posted, uniform rates are the only reliable means of enforcing such a requirement. We suggest the following way to resolve this conundrum in the Act. OVS operators may be permitted to set their rates without requiring prior Commission approval in the fashion of a tariff, but the OVS operator must make all carriage contracts publicly available. Moreover, the OVS operator must justify any differences in the rates charged for carriage including the rates charged to its own affiliates or itself by reference to verifiable and objective factors, such as genuine cost-justified differences (such as volume discounts), and the non-profit nature of the programmer (as with the special status of PEG programmers under the Act). The OVS operator should not, however, be permitted to draw distinctions based on programming content. For the same reason, the Commission's rules should ensure that all OVS programming contracts contain as a matter of course a "most favored nation" clause, providing that the programmer will automatically receive the benefit of any better deal the OVS operator gives to another similarly-situated programmer. It will still be necessary to publicize contracts, so that differences can be discovered, but such clauses should make it a routine matter to adjust any such differences found. If any carriage contract does not include a most favored nation clause, an explanation should be required from the OVS operator and the Commission should investigate. Making all contracts public will be one powerful way to ensure real, not merely sham, availability. As long as this requirement applies to everyone (including the OVS operator's own affiliates), no operator or programmer can claim to suffer a competitive disadvantage from such public availability. Any claims that secret "proprietary" contract terms are somehow necessary should be rejected. After all, the LEC can always choose the cable franchise option if it wishes. To the extent that cable operators may be permitted to make secret contracts with programmers, this is a privilege the OVS operator gives up in exchange for the advantages of OVS. 3. The Commission must use either a yardstick or a cost-based approach to determine the reasonableness of rates. Even eliminating discrimination, however, does not resolve the equally critical problem of determining whether a carriage rate is "reasonable," and effectively auditing the rates an OVS operator would charge to its own affiliates. The Commission should require any programming affiliate of the OVS operator to file standalone financial statements from which the affiliate's rate of return and cash flow can be determined. Repeated losses or inadequate rates of return by the OVS operator's programming affiliate would indicate that the OVS operator's carriage rates represent artificially high transfer prices designed to discourage independent, disfavored programmers. Such a reporting requirement might reduce somewhat the need to regulate the OVS operator's carriage rates directly in the traditional sense, by reviewing its ratebase and costs. But financial disclosures alone would still be insufficient to define the reasonableness of the rates, in the absence of any cost-based rule. If the Commission does not apply a rate-of- return criterion, there must be some "yardstick" test to ensure that there are actually independent programmers on the OVS system, as a check on the reasonableness of rates. We propose that rates will be presumed unreasonable unless (1) at least 1/3 of system capacity is occupied by independent programmers not of the OVS operator's choosing; and (2) at least four such programmers are on the system. This "reality check" would serve as an independent means to ensure that undetected tricks with the financial reports could not be used to exclude independent programmers. These two criteria multiple entities, together with a percentage of independent channel capacity are necessary to guard against an OVS operator's using sub rosa "sweetheart" deals to evade the affiliation rules: it would be more difficult to make and conceal such deals with many programmers than with a few. The only alternative to the stringent yardstick presumption approach we have outlined would be a utility-like, cost-based pricing mechanism to determine whether carriage rates are reasonable and nondiscriminatory as Section 653 requires. And the Act does not preclude the Commission from using such a mechanism. While the Act says that OVS is not subject to Title II obligations, this does not imply that OVS operators are immune from whatever regulatory mechanisms the Commission finds necessary to determine the reasonableness of carriage rates. Otherwise, OVS operators would be free to violate the reasonable rate requirements of Section 653 that form the heart of the entire OVS model. 4. The Commission's rules must prevent OVS operator-programmer relationships outside the carrier-user relationship. If an OVS is to be a truly open system, OVS rates and terms must encourage both large and small programmers (the well-heeled and those of more limited means) to use the OVS. The Commission's OVS rules must make it as straightforward and easy as possible for all programmers to obtain OVS capacity. There must be as bright a line as possible to discourage improper behind-the-scenes relationships between the OVS operator and favored non-affiliated programmers. Absent such a bright line, it will be impossible to monitor and enforce whether ostensibly independent programmers have relationships with the OVS operator outside the carriage arrangement. In the past, the Commission has found only one mechanism able to deal with such artifices. The "carrier-user" restriction in the Commission's former telco-cable cross-ownership rules was designed to deal with many of the same concerns. We therefore recommend that the Commission's OVS rules should provide that, for a programmer to qualify toward an OVS operator's 2/3 set-aside obligation, the OVS operator's relationship with that programmer should be restricted to a "carrier-user" relationship. The OVS operator should, however, be allowed to perform billing and collection services for such programmers on a non-discriminatory basis. 5. Rules for allocation of OVS capacity must protect independent programming competition. The NPRM suggests that the OVS operator should be allowed to manage channel allocation, either in general, or when demand exceeds capacity. Clearly, any such control by the OVS operator would be tantamount to the editorial control exercised by cable operators, since choosing the program packager or managing channel allocations amounts to choosing the programming indirectly. If the initial demand exceeds system capacity, a proportional allocation, in which all comers will receive some capacity in proportion to the total capacity available, appears to be most equitable and to promise the widest diversity of program offerings. The question of reallocating capacity to accommodate later applicants, however, is at least equally important. The Commission's discussion of an enrollment period and isolated later updates only every few years (NPRM  14, 25-26) seems to presume a one-time allocation that is then frozen in stone for a period of years. That is unacceptable and inconsistent with the purpose of OVS. We believe that, until or unless any OVS operator's 2/3 set- aside obligation is completely filled, any programmer willing to meet the "open" contract must be allowed on the system within 30 to 60 days, and the OVS operator is obliged to reduce the number of channels under its control accordingly. This sort of responsibility is the essence of being an open system operator rather than a cable operator. It is essential to remember that if the need to remain perpetually "open" to new comers is a burden to the OVS operator (see NPRM,  25), the LEC need not put up with that burden: it can always be a cable operator. Once the OVS capacity is entirely filled, the best solution to allow new programmers to enter may be rules that ensure an open market in subleasing capacity and free trading of access rights (as against the operator-centric approach of NPRM  15). Unless the Commission can develop other means to ensure that at least some capacity remains available at all times, it will be essential that OVS channels be assignable, so that programmers can resell their capacity freely, without interference from the OVS operator. In this way a new programmer willing to pay the market price may always in principle be able obtain capacity from existing users. While this rule, without more, may not ensure that affordable capacity is always available for programmers of modest means, it should help to prevent OVS capacity from being locked up once for all. Once again, it is essential to the OVS model that the OVS operator does not have the right to exercise editorial control and hence to monopolize speech on all channels. A LEC that wishes to exert such total editorial control may always choose the cable option. The NPRM also erroneously seems to assume that switched digital systems will have unlimited capacity. This is not the case. Any switched system has limits on its throughput capacity, switches, input ports, and the like. The public switched telephone network, for example, is a switched network, but it clearly has capacity limits (cf. NXX and other area code issues). Thus, there is no basis for relieving switched systems from the set-aside obligations that Section 653 requires. 6. OVS program marketing and selection rules must protect access by independent programmers. The NPRM suggests that the OVS operator may be allowed to market other programmers' channels. This, however, would be indistinguishable from what a cable operator does. For example, when a cable operator carries HBO or TNT, the cable operator is selecting and offering to its subscribers a package of programming put together by other often unaffiliated parties. HBO or Turner have chosen the particular programs that run on the HBO and TNT channel feeds, and the cable operator is merely transmitting the programming chosen by its program providers. Thus, if the OVS operator were allowed to market other programmers' products along with its own, this would make it a cable operator. In addition, it is hard to imagine how an independent programmer could compete with the OVS operator if the OVS operator could bundle the independent's programming in with its own products, but not vice versa. In effect, the OVS operator would be able to offer all the channels on its system to subscribers not just 1/3 while the independent could only offer its own channels. Such an arrangement would doom intra- system competition, not promote it. Similarly, the NPRM suggests that the OVS operator may choose what programming is carried on shared channels, or select another entity to do so. Either notion would result in impermissible editorial control by the OVS operator and potential discrimination against independent programmers. If the OVS operator could determine which channels could be shared, it would gain considerable control over all programmers' packaging decisions. To allow the OVS operator to select another entity to do so would merely permit an OVS operator to do indirectly, through an agent, what it should not be allowed to do directly. A simpler solution would be to require the OVS operator to carry on only one physical channel any program feed requested by two or more OVS programmers, and to make that channel accessible to all of those programmers' subscribers. If the OVS operator itself wants to carry the shared channel, it must negotiate with the program providers in exactly the same way as do the OVS program packagers. It must be kept in mind that precluding OVS operators from exercising any influence over program selection on the two-thirds of system capacity set aside for others on OVS is consistent with the First Amendment. After all, any would-be OVS operator that wishes to select all the programming itself always has the option under the Act of being a cable operator instead if it wishes. 7. OVS programmer application and usage rules must protect independent programming competition. Financial Conditions. The Commission should resist any suggestion that potential programmers demonstrate financial resources or meet other artificial hurdles, which would simply deter competition. Rather, the Commission should specify a maximum financial commitment for programmers that would not form a barrier to entry for competing independent programmers for example, one month's carriage fees in advance as a deposit, to be returned on termination. Parity With Affiliates. It is difficult to know what to make of the NPRM's question whether an OVS operator should be allowed to charge independent programmers higher rates than it charges its own affiliates. We think it should be obvious that the OVS operator and its affiliates can get no better deal than other programmers. If nondiscrimination means anything, it must mean this. Minimum Channel Requirements. If the OVS operator could set minimum requirements for example, refuse to make available less than five channels to a programmer it would be simple for the OVS operator to eliminate small or niche-market programmers from competition for its capacity. Thus, the OVS operator should be required to make single channels and partial (part-time) channels available, to accommodate those of limited means. C. An OVS Operator That Violates the Commission's OVS Rules Should Be Required to Obtain a Cable Franchise. If an OVS operator is found to be in violation of the OVS rules, it should be decertified and required to obtain cable franchises for the relevant areas. This remedy would ensure that the operator could stay in business as a video competitor, but would deprive it of the special OVS privileges it had abused. In cases where the violation does not fall clearly within the Commission's rules, the Commission may wish to provide the OVS operator with notice and sixty days' opportunity to cure before decertification. III. OPEN VIDEO SYSTEMS MUST MEET LOCAL COMMUNITY NEEDS AND INTERESTS. The Act requires the Commission to make rules that will impose on an OVS obligations no greater or less than those contained in sections 611, 614, and 615 of the Cable Act and section 325 of the Communications Act (PEG access, must-carry and retransmission consent). The following comments address this statutory requirement that the Commission's rules require PEG commitments equal to those of a cable operator. A. The Public Interest Necessarily Has Local As Well As Nationwide Components. When the Commission attempts to identify the public interests relevant to OVS PEG requirements, the Commission cannot limit its investigation to national or federal interests. The Commission must also consider, and affirmatively take into account, the interests of the various state and local jurisdictions. This imperative is reflected in the legislative history of the Act. House Report No. 104-204 states: In considering how to implement the capacity, services, facilities, and equipment requirements for PEG use . . . the Committee intends that the Commission give substantial weight to the input of local governments, which have long-standing and extensive experience in establishing and implementing such requirements. Congress recognized that local governments have unique expertise in the ascertainment of public needs and interests in connection with PEG requirements, and determined that such expertise should be brought to bear on the determination of the PEG obligations of OVS within the local communities. B. PEG Obligations for Open Video Systems Must be Established Consistent With Local Needs and Interests. New Section 653(c)(1)(B) of the Communications Act provides that Section 611 of the Cable Act, "Cable Channels for Public, Educational, or Governmental Use," shall apply to OVS operators in accordance with regulations to be prescribed by the Commission. Those regulations must ensure that OVS operators fulfill "obligations that are no greater or lesser" than the obligations contained in Section 611. The legislative history relating to Section 653(c)(1)(B) makes clear that the regulations to be promulgated by the Commission to implement that section must be crafted so as to impose PEG access requirements on OVS that are "equivalent" to the obligations agreed to by cable operators. Section 611 of the Cable Act, of course, authorizes each local franchising authority to establish requirements in a franchise for the designation of channel capacity for PEG use, including institutional networks. To establish PEG requirements, each local franchising authority typically conducts an ascertainment process to determine its individual PEG access needs and interests. Once determined, these needs and interests are translated into specific requirements for facilities, equipment, and channel capacity and are incorporated into a negotiated franchise. Such requirements may include, for example, dedicated channel capacity; upstream feeds to allow PEG programming to reach the cable headend; PEG studio and production facilities and equipment; institutional networks and related equipment. The resulting PEG obligations are thus tailored to each individual community's needs and interests as a product of either negotiations or a formal renewal process, equitable to both the community and to the cable operator. Both the statute and sound policy require that the PEG obligations of OVS operators must likewise be tailored to each local community's needs and interests as determined by each affected local franchising authority. C. An OVS Operator Should Be Subject To A "Match or Negotiate" Requirement: It May Choose Either To Match Each Incumbent Cable Operator's PEG Obligations, Or To Negotiate Agreements Acceptable to the Affected Communities. OVS operators should be obligated to fulfill their statutory PEG obligations through a "match or negotiate" system. Under our proposal, an OVS operator must, as a pre-condition to certification, either: (a) agree to match the PEG obligations of each incumbent cable operator in each affected franchise area, and any future changes therein; or (b) reach agreement on an alternative arrangement with each affected franchising authority in whose jurisdiction the OVS will be. In either case, the OVS operator's certification to the Commission should include a statement of the PEG requirements to be imposed by each affected community with which the OVS operator will comply. See 47 U.S.C.  531, 544 and 546. Moreover, the statement of PEG requirements should bear the endorsement of each affected franchising authority. 1. Under the "match" option, the OVS operator must provide exactly what the cable operator provides. Under the first (or "match") option, the OVS operator would simply agree to match the PEG requirements contained in the cable franchise of the incumbent cable operator in each cable franchise area covered by the OVS system. If an OVS operator chooses this option, it must also certify in its OVS application that it will match any future changes in a cable operator's PEG obligations, as may well occur when the cable operator's franchise is renewed or periodically renegotiated or modified. Each community's PEG needs and interests are likely to change over time. Indeed, the franchise renewal process specifically contemplates that each franchising authority will ascertain each individual community's cable-related needs and interests. See 47 U.S.C.  546. Based on the results of that ascertainment, the PEG obligations delineated in a renewal franchise may and typically do differ from those in the prior franchise. This means that after an OVS system matches existing PEG obligations, if the cable operator's PEG obligations increase under a subsequently granted renewal franchise, the OVS operator's PEG obligations must likewise increase. To conclude otherwise that is, to refrain from requiring an OVS operator to match a cable operator's new PEG obligations would result in the OVS operator having "lesser" PEG obligations than those of the cable operator. That would be directly contrary to the clear language of the Act. It also would do violence to the renewal provisions of the Cable Act by interfering with the community's ability to upgrade its PEG requirements as contemplated by 47 U.S.C.  546, and would tend to produce a competitive imbalance between the cable and OVS operators. Hence, where new PEG obligations are imposed upon the incumbent cable operator, the OVS operator must be required to match those obligations as well. Logic dictates that this rationale must extend to the provision of PEG facilities as well as capacity. For example, if, based on local community needs, a franchise requires the cable operator to provide certain PEG facilities and equipment, any OVS operator coming into that community must provide equivalent PEG facilities and equipment. Similarly, if local community needs and interests dictate that the incumbent cable operator must provide an institutional network, then any OVS operator coming into that community must likewise provide an institutional network. See 47 U.S.C.  531. This result is entirely consistent with both the letter of new Section 653(c)(2)(A) and with the legislative history. Moreover, it promotes nondiscriminatory treatment of similar providers of similar services. 2. Under the "Negotiate" Option, OVS Operators May Negotiate Alternative Arrangements with Communities, Which Could Result in Greater PEG Benefits for the Community and, at the Same Time, Greater Cost Efficiency for the OVS Operator. The matching obligation of an OVS operator with respect to PEG must be cumulative with the PEG obligations of the cable operator. The PEG obligations for OVS should not, as the NPRM seems at times to suggest, be used as an excuse for halving the cable operator's PEG obligations. The Act contemplates that the PEG obligations of OVS operators will be "equivalent to the obligations imposed on cable operators." If the OVS operator and the cable operator were simply to share the incumbent cable operator's existing PEG obligations, the OVS operator would, by definition, be providing less PEG support than the cable operator was providing, and the cable operator would be providing less PEG support than required by its franchise. The Act cannot be construed to sanction such a "dumbing down" of PEG access. At the same time, we recognize that in some cases, it may be more practical and cost-effective to allow an incumbent cable operator and an OVS operator to have different (but equivalent), rather than identical, PEG obligations. We therefore propose that OVS operators be given a second (or "negotiate") option in addition to the "match" option. Under the "negotiate" option, the franchising authority and the OVS operator may negotiate PEG obligations that are not identical to those of the incumbent cable operator, but that provide an equivalent benefit to the community, provided that the franchising authority agrees to such an arrangement prior to the OVS option's certification application. For example, if the cable operator were already providing an institutional network, the OVS operator, rather than providing a second such network, might agree to provide terminal equipment for use with the institutional network, at a comparable cost. Thus, the burdens on the two operators would be the same, but the community would benefit from intelligent planning of the combined compensation. A variation of the "negotiate" option would be to allow the franchising authority, the incumbent cable operator, and the OVS operator to negotiate a "win-win-win" solution. The two operators and the franchising authority could enter into a trilateral agreement that would result in greater PEG support than the incumbent cable operator is providing while, at the same time, costing the OVS operator and the cable operator less than simple duplicate "matching" of the cable operator's existing PEG obligations. Thus, for example, rather than matching the cable operator by building a PEG studio duplicative of the one built by the cable operator, the OVS provider might instead agree to provide an equivalent amount of equipment or support to the existing PEG studio, thereby strengthening the PEG programming capabilities of the existing studio facilities. Under this approach, the total PEG obligations of the two operators would be greater than the cable operator's alone, but perhaps less than a simple doubling of these obligations. And the relative PEG obligations of each operator could be proportional to the number of subscribers served by each, or perhaps to their respective revenues. Conceivably, such an agreement could allow for the automatic adjustment of the companies' relative obligations thereunder based on changes in the number of each operator's subscribers or level of revenues. It is conceivable that under such a scheme, with the franchising authority's consent, the cost of the cable operator's PEG obligations could be decreased somewhat, particularly if the cable operator loses subscribers or revenue to the OVS competitor, while the OVS operator would not have to take on all of the burden of "matching" the cable operator's original PEG obligations. 3. In the exceedingly rare case where an OVS system is located in an area where no cable operator is franchised to serve, the OVS operator must negotiate its PEG obligations with the local government. An OVS operator's "match or negotiate" obligation should apply to any area that is within the franchise area of a cable operator, regardless whether the cable operator has actually extended service to the area. The NPRM asks what an OVS operator's PEG obligations should be in areas where there is no incumbent cable operator. Properly construed, such cases should be exceedingly rare. The number of places in the nation where no cable operator is franchised to serve (as opposed to areas where the cable operator is franchised but has not extended its system) is exceedingly small. And it seems unlikely that OVS operators would be attracted to such areas, which by definition would have been unattractive to cable operators, including LECs that otherwise could have qualified under an exception to the former cross-ownership rule. In the exceptionally few cases where an OVS operator seeks certification in an area that no cable operator is authorized to serve, the OVS operator should be required to undertake negotiations with the local government. Of course, these negotiations may be much narrower in scope than negotiations for a cable franchise. But they will be no less important. Negotiations between the OVS operator and the local government in such cases will be imperative because, due to the absence of any prior cable franchising process, such negotiations would be the only practical mechanism by which the community can both impart to the OVS operator the community's PEG access needs and interests, and bind the OVS operator to an obligation to fulfill those needs and interests. As suggested above, the Commission should require OVS operators to include in any OVS certification to the Commission the local government's endorsement of its local PEG obligations. Such a requirement will help ensure that OVS operators negotiate in good faith with the local governments. 4. The Commission should reject any proposals to average or "federalize" OVS PEG obligations across different franchising authority jurisdictions. When considering the several alternative suggestions on the OVS PEG issues that the Commission is sure to receive, the Commission should resist any impulse to establish universal, federalized OVS PEG requirements across franchising authority boundaries, whether by averaging or by other means. As demonstrated in the discussion above, local PEG requirements must be based on the particular needs and interests of each local community, as determined by each local government. Due to its lack of contact with local citizens and organizations, the Commission is peculiarly ill-suited to determine the PEG needs and interests of individual communities. And any OVS PEG requirements that are based on something other than each individual community's needs and interests would fail to satisfy the Act's requirements that those PEG obligations be no greater or lesser than those of the cable operators in those areas. The Commission should likewise reject any "averaging" approach to PEG requirements across franchise areas. Such an approach would result in a "dumbing down" of PEG access, effectively punishing those communities with the greatest demonstrated need for PEG with a system that fails to meet their PEG needs and interests. If OVS operators were permitted to provide "one size fits all" PEG programming on open video systems that overlapped several jurisdictions, by definition that programming would not address the individual communities' distinctive PEG access needs and interests. Such a result would defeat the whole purpose of PEG access programming. Moreover, to the extent that local cable operators are providing PEG access in one or more of the effected communities, such a result would be contrary to the Act, since it would permit OVS operators to provide services not equivalent to those provided by the local cable operators. Consequently, requiring an OVS operator to fulfill the PEG requirements of each individual community served by its system is the only way to ensure that the OVS operator meets each community's PEG access needs and interests. Thus, where an OVS will overlap several franchise areas, it should be designed with the capability to fulfill the separate PEG requirements of each affected community. This capability is commonly referred to as "narrowcasting." As demonstrated in the comments of the Alliance for Community Media, et al., it is neither technically difficult nor expensive for OVS operators to build systems that deliver PEG tailored to each community. Cable operators have done it with older technologies in system "clusters." OVS systems, by contrast, will be brand new. Any suggestion that LECs would somehow be unable to accomplish with new technology what cable operators have already accomplished with older technology is nonsense. It is important to realize that by definition, our proposed community-specific approach imposes PEG obligations on the OVS operator that are no greater or less than those imposed on the cable operators against whom they will compete. It thus encourages parity and fair competition. Moreover, any OVS operator that finds the "match or negotiate" formula unattractive always has another option: it can obtain a cable franchise and become a cable operator instead (or, for that matter, pursue other options available under the Act, such as wireless transmission). Thus, comparable PEG obligations help to ensure that both OVS and cable subscribers in the same area will be equally well served, while imposing no disadvantage on either competitor. 5. PEG channels should be provided to all subscribers. The principal purpose of PEG channels is to provide access to electronic media for individual citizens and groups that traditionally have had no means of contributing to television programming. Such access fosters a wide diversity of information sources for the public, including important but not commercially lucrative programming; the "electronic soapbox"; participation by diverse members of the public, including minorities; and community dialogue over important issues and events. This diversity is a fundamental goal of the First Amendment of the United States Constitution. This goal would be thwarted if PEG channels were not made available to all OVS subscribers. The provision of OVS PEG channels to all subscribers would be consistent with the Act's requirement that OVS operators' PEG obligations be no less than the PEG obligations of cable operators. In this respect, the OVS PEG channels (along with must-carry channels) could be part of a "basic package" similar to the basic tier on a cable system. 6. The Commission must ensure that any equipment necessary to deliver PEG programming to local communities is made available. In the event that special equipment is necessary for local communities to have their PEG programming distributed over the OVS, the Commission must promulgate rules that ensure that the OVS operator will provide that equipment. The failure of the Commission to require the provision of such equipment could make the availability of PEG channel capacity meaningless and preclude actual participation by most PEG producers. For example, to the extent that available system capacity may be primarily or wholly digital or compressed, it will be necessary for the OVS operator to handle conversion from the more common analog format that is more accessible (and affordable) to PEG programmers. Otherwise, the expense of conversion facilities could form as prohibitive a barrier to PEG programmers as a discriminatory denial of capacity. Similarly, where an OVS is not capable of carrying live broadcasts, the Commission should ensure that program sources of whatever type (typically videotape) will be transposed by the OVS operator into a format that is compatible with the OVS, whether digital or analog, multicast or on-demand, tape or hard disk. Thus, PEG programming should be made available as soon as the necessary conversions can be made, as will presumably occur with any other live programming. Commission regulations must ensure that PEG programs are treated equally with other programs in scheduling such conversion. In the short term, this means that all OVS PEG channels should be carried on analog channels, unless the franchising authority agrees to an alternative arrangement. D. Other Title VI Provisions Must Reflect the Purposes of the OVS Provision. In addition to the express provision for PEG access, new Section 653(c)(1)(A) provides that OVS operators will be subject to certain other Title VI provisions. 1. Program access. The role of the program access rules (requirements of 47 U.S.C.  536 and 548) in OVS is the same as with cable systems: to ensure that potential competitors can obtain the programming necessary, on the prices, terms, and conditions that are necessary, so that they can provide true competition. To the extent that the Commission's current rules achieve that end, there seems no reason not to apply them to OVS as well. After all, OVS and cable systems will at best be duopolistic competitors in video distribution. For the same reasons, OVS- originated programming should be equally available to other competing video delivery systems. 2. Negative option billing. The Commission should be able to apply negative option billing standards (47 U.S.C.  543(f)) without the complications introduced by the Commission's rate regulation rules in the cable context. Since all OVS services will by definition be new, there will be no need to allow the various negative option exceptions that the Commission has allowed for the restructuring of pre- existing cable services offerings. In accordance with the purposes of the statute, the Commission's rules should focus on providing clear choices to subscribers, rather than on preserving tier structures or packages designated by operators. E. The 'Fee In Lieu Of Franchise Fees' Paid By An OVS Operator Must Similarly Be Matched To the Local Cable Operator's Obligations. The Act authorizes a local franchising authority or other governmental entity to require an OVS operator to pay fees in lieu of cable franchise fees, based on its gross revenues for the provision of cable service. The intent of the statute is to ensure that cable systems and OVS have the same obligations in the franchise fee area as well as in PEG requirements. Thus, the statute provides that the rate at which OVS "in lieu of" fees are paid may not exceed that applied to a cable operator in the same franchise area. For the same reason, as with PEG requirements, an OVS operator should be required to pay at a rate no less than that of a cable operator in the same franchise area. To ensure that OVS and cable systems are subject to comparable obligations, the principles of 47 U.S.C.  542 should apply here as well. Thus, for example, an OVS operator's fees should be calculated based on all revenues derived from the "operation of the [OVS] system to provide cable services." 47 U.S.C.  542(b). That should include not only recurring subscriber revenues for programming but also, as is the case with cable operators, installation, disconnection, reconnection, change-in-service and equipment fees. It also means that, as is the case with cable operators, non-subscriber revenues related to cable service must be included as well. Examples include late fees and administrative fees; fees, payments, or other consideration that the OVS operator receives from programmers for carriage of programming on the system; advertising revenues; and revenues from home shopping and bank-at-home channels. Any other construction of the "fee in lieu of" provision would result in an unlevel playing field between the OVS operator and the cable operator. IV. CABLE OPERATORS SHOULD NOT BE PERMITTED TO BECOME OVS OPERATORS, BUT IF THEY ARE, SEPARATE AND PRIOR LOCAL APPROVAL WILL BE NECESSARY. A. A Cable Operator Cannot Be An OVS Operator. As the NPRM points out, the statute draws an explicit distinction between LECs and cable operators with respect to OVS. New  653(a)(1) says: "A local exchange carrier may provide cable service . . . through an open video system that complies with this section." When referring to cable operators, on the other hand, the Act uses distinctly different language: "To the extent permitted by such regulations as the Commission may prescribe consistent with the public interest, convenience, and necessity, an operator of a cable system or any other person may provide video programming through an open video system that complies with this section." If Congress had intended that a cable operator could do what a LEC can do under this section operate an OVS Congress would have used the same term ("cable service") rather than a different term ("video programming") to describe the cable operator's permissible role in OVS. Since Congress did not do so, the only logical conclusion is that Congress envisioned that only a LEC is eligible to be an OVS operator. Thus, properly read, the Act mandates that only a LEC may operate an OVS, but a cable operator like any other "person" is eligible to be an independent programmer on the system, subject to Commission determination of the public interest. The reason for this difference is evident in light of the goals of the OVS provisions. The Conference Report makes clear that the reason for OVS is to provide an additional route by which LECs may enter the video market to compete with established cable operators. An incumbent cable operator, however, certainly does not need special encouragement to enter: it is already there. No purpose would have been served for Congress to allow cable operators to become OVS operators. Certainly there is no suggestion in the legislative history that OVS was cynically intended to allow a cable operator to abrogate its existing franchise obligations, which would appear to be the result of allowing a cable system to be converted to an OVS. Thus, the statutory reference to cable operators indicates that a cable operator, like any other person, may be a programmer on an OVS, but not an OVS operator. It seems clear that Congress inserted this reference to clarify the ongoing dispute over whether a cable operator could be a programmer on a video dialtone system under the Commission's former rules. There is no need to suppose that Congress intended, absurdly, to apply entry incentives to cable operators that are already in the video market. B. Even If the Commission Were To Conclude That A Cable Operator May Be An OVS Operator, Separate Local Community Consent Would Still Be Required. Even if the Commission were to conclude (incorrectly) that cable operators may become OVS operators, any such FCC approval would be subject to the public interest, convenience, and necessity. The Commission would certainly need to consider as part of the public interest any effect the cable operator's transition to OVS might have on the benefits the cable operator had previously agreed to provide to the community through its cable franchise, including franchise fees, PEG channels, facilities, and services, and the like. The Commission would also have to face the issue of whether converting a cable system to an OVS would remove it from the scope of the buyout restriction in new section 652 and thus tend to reduce competition by allowing consolidation of cable and LEC systems. One key element the Commission cannot ignore, however, is whether the affected local franchising authority has consented to a cable operator's conversion to OVS. A cable system cannot become an OVS without prior local community approval, for at least two reasons. First, unlike a LEC, a cable operator's only right to be in the public rights-of-way comes from its cable franchise. Thus, if the cable operator were to try to abandon its cable franchise to become an OVS operator, the operator would thereby forfeit its right to be in the local public rights-of-way at all, and would be subject to immediate eviction for abrogating its franchise agreement with the local community. Second, a cable franchise is a contract between the cable operator and the local government, under which the community allows the operator to use the public rights-of-way in return for certain conditions and benefits. If the Commission were to make rules that allowed a cable operator unilaterally to abandon the local government's contractual rights under that franchise agreement, that would be a taking of the local government's property rights under contract. As such, it would be vulnerable under all of the Fifth Amendment arguments set forth in section V below. As also noted below, the short review period for OVS certification approval means that a prospective OVS operator must be required to make all the necessary showings at the time of application. Thus, any OVS certification the Commission may allow a cable operator to present must include an express agreement by each affected local franchising authority assenting to the conversion. For the reasons discussed below, it must also include an agreement between the operator and the local government authorizing use of the public rights-of-way for OVS purposes. An OVS certification without the necessary local government agreements should be considered facially incomplete and rejected. C. A Cable Operator May Provide Programming Through An OVS, But Only If Consistent With Its Cable Franchise and the Public Interest. The Act seems clearly to contemplate that a cable operator may be eligible to be among the independent, unaffiliated video programmers on an OVS, at least in some instances but only to the extent the Commission deems such carriage "consistent with the public interest, convenience, and necessity." The NPRM, however, disturbingly suggests that it should be left to the "discretion" of the OVS operator to decide whether a cable operator may become a programmer on the OVS system. While such discretion might certainly be convenient to the OVS operator, there is no reason to think it would be so to the public. To the contrary, allowing the incumbent cable operator and the OVS operator to engage in such arrangements perhaps trading carrier and programmer relationships in different geographic areas raises the troubling possibility of effectively allowing LECs and cable operators to end-run the Act's prohibitions on mergers between cable operators and LECs in the same area. Conversely, in some cases, allowing cable operators to consume capacity on an OVS might be construed as anticompetitive foreclosure of capacity otherwise available to its competitors. These are not matters that should be left to the "discretion" of either the OVS operator or the cable operator. Instead, the Commission should review and apply the requisite public-interest analysis on a case-by-case basis. V. THE OVS CERTIFICATION PROCESS MUST ENSURE THAT AN OVS COMPLIES WITH LOCAL RIGHTS REGARDING THE PUBLIC RIGHTS-OF-WAY. Any OVS rules adopted by the Commission must acknowledge local governments' rights specifically, their property interests in the public rights-of-way within their jurisdictions that OVS systems will use. Thus, an OVS certification must show that the prospective OVS operator has obtained all necessary local consents to use of the rights-of-way for OVS, and any approval of an OVS certification by the Commission should be expressly conditioned on the applicant's having and maintaining those consents. A. An OVS Remains Subject To the Right of Local Communities To Manage Their Public Rights-of-Way and To Receive Fair Compensation For Their Use. While the 1996 Act makes the Commission responsible for approving a LEC's certification of compliance with Commission rules, the FCC, as a federal agency, lacks the power to grant an OVS operator permission to use local public rights-of-way that do not belong to the federal government. Any suggestion in the OVS rules that the Commission's approval makes separate approval by local rights-of-way owners unnecessary would violate the Takings Clause of the Fifth Amendment. 1. Local governments have an inherent right to manage and receive compensation for their rights of way. Local governments are landlords responsible for managing the use and occupation of the public rights-of-way. It is the responsibility of local governments (or in some cases state governments, as noted below), to schedule common trenching and street cuts for the most efficient use of local rights-of-way; to repair and resurface streets damaged by such construction; to ensure public safety in the use of the rights-of-way by gas, telephone, electric, cable, and similar companies; to keep track of the various systems using the rights-of-way so that one system operator does not interfere with another's facilities; and, not least, to obtain fair compensation for the public from the private, profit-making use of this valuable public property. Neither the Commission nor the federal government can grant a right to use public rights-of-way that do not belong to the federal government. Over a century ago, the Supreme Court recognized the limits on federal authority to infringe on the rights of local governments to control their property, including local rights-of-way. It is a misconception . . . to suppose that the franchise or privilege granted by the act of 1866 [the federal post roads act] carries with it the unrestricted right to appropriate the public property of a state. . . . No one would suppose that a franchise from the federal government . . . would authorize it to enter upon the private property of an individual, and appropriate it without compensation. . . . And the principle is the same when, under the grant of a franchise from the national government, a corporation assumes to enter upon property of a public nature belonging to a state. In the 1996 Act, Congress explicitly recognized local governments' right to manage and receive compensation for use of local rights-of-way by telecommunications service providers and OVS providers. In discussing the OVS provisions of the Act, for instance, the Conference Report states that "The conferees intend that an operator of an open video system under this part shall be subject, to the extent permissible under State and local law, to the authority of a local government to manage its public rights- of-way in a nondiscriminatory and competitively neutral manner." Similarly, new  253(c) provides: Nothing in this section affects the authority of a State or local government to manage the public rights- of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis . . . 2. The right to control local rights-of-way is a property right like that of any private property owner, which is protected under the Fifth Amendment. As the St. Louis and Western Union cases make clear, local governments' interests in their rights-of-way are property rights. Like the property rights of individuals and private corporations, those of local governments are protected by the Fifth Amendment of the Constitution. The Supreme Court has ruled that the takings clause of Fifth Amendment encompasses the property of state and local governments, and the same principles of just compensation apply to local government property interests as to the property interests of private persons. Thus, a local government has the same rights against federal appropriation of its property as did Bell Atlantic against required physical collocation of a competitor's wires in its central offices. And just as an apartment building owner has the right to grant or deny consent to a telecommunications company that wishes to run cables through or on its building, a local government may grant or deny consent to a telecommunications company that wishes to run cables through rights-of-way belonging to that local government, and any attempt by the federal government to take away that right of consent is subject to the Takings Clause. 3. Any Commission intrusion into local governments' property rights would violate the Fifth Amendment. a. Commission-mandated access to local rights-of-way would be an impermissible permanent physical occupation. Any attempt by the FCC in its OVS rules to give OVS providers the right to place OVS systems in local rights-of-way, without regard to local governments' proprietary interests in such rights-of-way, would violate each affected local government's rights under the Fifth Amendment. Any federal grant of authority to build and operate an OVS system on a local governments' rights-of-way would be a "taking" within the meaning of the Fifth Amendment, subject to the constitutional requirement of just compensation. To require a local government to permit a private party to occupy space and construct an OVS system in its rights-of-way without the local government's consent would be directly analogous to Loretto, where the Court ruled that such a physical intrusion plainly crossed the line between permissible regulation and impermissible taking. Where the "character of the governmental action" is "a permanent physical occupation of property, our cases uniformly have found a taking to the extent of the occupation, without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner." b. Forced OVS provider access rises to the level of an unconstitutional taking. An OVS system will inherently make a physical intrusion into the local public rights-of-way. Nor is this a merely minimal intrusion: every new line (or replacement of pre-existing telephone wire with new fiber or video cable) places an increased burden on the rights-of-way in the form of immediate damage from new trenching and street cuts, more frequent street resurfacing due to reduced life from cuts, new facilities on crowded poles, and the like. OVS construction also will cause increased traffic congestion, disruption and inconvenience for the local government and the residents it represents. Practically speaking, any invasion of the local public rights-of-way by OVS operators will be far more extensive than the intrusion in Loretto. In any case, no de minimis test can validate a physical taking. The size of the affected area is constitutionally irrelevant. Any forced access to the local rights-of-way contemplated by an OVS certification would be legally indistinguishable from the intrusion in Loretto, where the Court found a "permanent physical occupation" of the property. 4. Because Congress did not explicitly authorize a taking for OVS, the 1996 Act must be construed so as not to require such a taking. The authority to take property must be explicitly authorized by Congress. Courts will look to the plain language of the 1996 Act to determine if Congress has explicitly declared its intent to authorize a taking. If such language is ambiguous, courts will look to the legislative history. And courts will not construe any law to be a taking if it can be construed to avoid such a result. The OVS provisions of the 1996 Act language contain no language authorizing the FCC to appropriate local governments' property rights. Nor does the legislative history reveal any intent by Congress to effect a taking of local government property. Under such circumstances, the OVS provisions of the 1996 Act must be construed to avoid sanctioning a taking of local public property interests. In the analogous context of construing Section 621(a)(2) of the Cable Act, 47 U.S.C.  541(a)(2), which allows cable operators to use compatible public utility easements under certain circumstances, courts have consistently construed the provision to avoid a takings problem. Thus, in Media General Cable, the Fourth Circuit refused to extend 47 U.S.C.  541(a)(2) to cover the installation of cable wires in compatible private easements in common areas of a condominium. Joining the Eleventh Circuit's view earlier in Cable Holdings, the court reasoned that any other construction of the statute would render Section 541(a)(2) indistinguishable from the New York statute held unconstitutional in Loretto. The Fourth Circuit recognized that it had a general duty to "avoid any interpretation of a federal statute which raises serious constitutional problems or results in an unconstitutional construction." Given the lack of any clear intent in the 1996 Act to provide for takings in an area where Congress, as shown in the legislative histories of the 1984, 1992, and 1996 Acts, has consistently been sensitive to such issues, courts are unlikely to be willing to construe the OVS provisions of the Act to grant the FCC authority to promulgate any rules that would effect a taking of local public property. Any contrary construction, of course, would subject the federal government to liability for just compensation. B. Congress Did Not Give the Commission Power to Take the Property Interests of Local Governments for OVS. 1. The Commission has no power of eminent domain. As the D.C. Circuit made clear in the Bell Atlantic case, Congress did not confer the power of eminent domain on either the Commission or the communications companies it regulates. Only Congress, not the Commission, has the power of eminent domain, and such power must be exercised pursuant to specific legislation. Unless Congress specifically delegates that power, no administrative agency may exercise it. A delegation of the right of eminent domain must be in express terms or by necessary implication. The OVS provisions of the 1996 Act, however, make no such delegation by express terms. Moreover, since the Commission certainly could promulgate OVS rules without infringing on the property interests of local governments (simply by requiring OVS operators to obtain any required local consents), the 1996 Act does not create any such right by necessary implication. The Commission therefore has no authority to appropriate local rights-of-way by eminent domain. Moreover, even if the 1996 Act were implausibly viewed as conferring on OVS providers some right to use local public rights-of-way that belong neither to the federal government nor those providers (and it cannot), it would not follow that those providers could use the rights-of-way free of charge. In City of St. Louis v. Western Union Telegraph Company, the Court made it perfectly clear that even if Congress authorized carriers to use local public rights-of-way, such authorization did not carry with it the power to take non-federal property without compensation. Where a taking of real property for public uses is involved, the usual procedure is for the Department of Justice to initiate judicial proceedings at the request of the agency pursuant to 40 U.S.C.  257 or  258a in U.S. district court under 28 U.S.C.  1358. Nothing in the 1996 Act authorizes the Commission to deviate from this prescribed procedure. 2. Congress gave the Commission no implied authority to expose the federal government to fiscal liability. The Commission's lack of explicit statutory authority to engage in a taking of property cannot be rectified by any reliance on implied authority. The courts have long interpreted statutes narrowly so as to prohibit federal officers and personnel from exposing the federal government under the Tucker Act, 28 U.S.C.  1491(a), to fiscal liability not contemplated or authorized by Congress. Since the Constitution assigns Congress exclusive control over appropriations, the courts have required a clear expression of intent by Congress to obligate the federal government for claims that require an appropriation of money. In Bell Atlantic, the D.C. Circuit declared that where an administrative application of a statute constitutes a taking for an identifiable class of cases, the courts must construe the statute to avoid such a taking wherever possible. The court further made clear that this narrow construction of the laws is necessary to prevent encroachment on the exclusive authority of Congress over appropriations. This means that any FCC rules that would accomplish a taking will not receive the traditional deference accorded to administrative agency interpretations. The reason is that any deference on such a matter would provide the FCC with unbounded power to use statutory silence or ambiguity on a particular issue to create unlimited liability for the U.S. Treasury. 3. The "Fee In Lieu Of" provision in Section 653 does not satisfy the requirement of just compensation. As noted above, any federal statute that is construed to authorize a lawful taking must provide for just compensation in order to be valid. But the FCC cannot avoid the takings objection to any mandated access to the local public rights-of- way its rules might allow by requiring the OVS provider benefitted thereby to make a nominal payment to the local government for access. In Loretto, the New York statute at issue provided for a one-dollar fee payable to the landlord for damage to the property. The Court concluded that the state legislature's assignment of damages equal to one dollar did not constitute the "just compensation" required by the Fifth Amendment. Thus, neither the Commission nor Congress can prescribe a nominal amount as compensation for right-of-way access. Rather, the affected local government would be constitutionally entitled to compensation measured by fair market value. It is therefore no answer to the takings problem that the Act provides that any OVS operator "may" be required to pay a fee to the local government in lieu of the cable franchise fee. To the extent that such a fee falls short of what the local government receives from cable operators, it does not represent the fair market value of the local government's property interests. It is important to note in this regard that a cable franchise may and typically does include compensation to the local government above and beyond the cable franchise fee. Such compensation includes payments or in-kind contributions that fund public, educational, and governmental ("PEG") access facilities and (for franchise agreements entered into prior to the 1984 Cable Act) PEG operations. Local governments' compensation from cable operators for use of local rights-of-way also often includes in-kind compensation in the form of dedicated PEG channels and facilities and institutional networks, which are explicitly authorized under 47 U.S.C.  531 and 544. Such facilities and local requirements contribute directly to the development of the nation's information infrastructure, filling the gaps that would otherwise be left by commercial networks. For example, more schools have been wired pursuant to cable franchises than by telephone companies. Similarly, institutional networks make feasible the dissemination of computerized information by local governments to citizens. Thus, the in-kind compensation agreed to in cable franchises helps serve the purposes of the Act. The total compensation cable operators pay for use of the local public rights-of-way, then, consists of both franchise fees and the additional types of compensation described above. Thus, cable franchise fee payments alone do not represent the full market value of the compensations for use of local rights-of-way that a cable operator pays to a local government. Thus, a "fee in lieu of" of a franchise fee that equals the cable franchise fee alone (much less "a fee in lieu of" that is less than a cable franchise fee), would fall short of the fair market value of the local public rights-of-way in any particular jurisdiction. Unless the Commission interprets the "fees in lieu of" provision to include compensation over and above cable franchise fees, that provision in the Act fails to provide full compensation to a local government for an OVS operator's use of local rights-of-way. It is therefore insufficient to validate any taking of the local government's property rights by OVS operators under color of Commission rules. C. LECs' Existing Authorizations to Use Local Rights-of- Way to Provide Local Telephone Service do not Extend to OVS. LECs will no doubt argue, as they did in the video dialtone proceedings, that even though a LEC needs local permission to use the local public rights-of-way, a LEC that is currently using those rights-of-way to provide telephone service needs no additional permission to build an OVS system and provide OVS service. This is incorrect. OVS falls far outside the scope of any pre-existing authority granted to LECs. Grants made to LECs in the past gave them only the authority to use the rights-of-way to build and operate a local telephone network to provide telephone service subject to state law definitions of telephone service and subject to Title II of the Communications Act. But the 1996 Act specifies that an OVS is not a telephone network subject to Title II. And the new creature called OVS certainly does not fall within the scope of the "telephone service" for which LECs were granted authority to use local rights-of-way by local governments or states decades ago. Thus, no past grant of authority to a LEC could be construed to include a right to use the rights-of-way for OVS, which is not telephone service and which did not exist at the time of such grants. Because an OVS is not subject to Title II, it cannot be considered part of the original regulatory arrangement an implicit or explicit contract with the public that a LEC made with state and local governments and that was subject to corresponding state regulation. Any prior grants to LECs were made to public utilities subject to comprehensive state and local price and service quality regulation, which required universal service under established regulatory structures. It appears, however, that an OVS will use the public rights-of-way on a non- utility basis, free from the comprehensive state and local price and service quality regulation and universal service requirements that were part of the LEC's original compact to use local rights- of-way. Thus, any ancient telephone right-of-way grant will not apply to OVS usage. There are additional policy reasons not to construe any pre- existing LEC right-of-way grant to include authority to provide OVS. Unlike the case with traditional telephone service, the consumers of OVS services will not be synonymous with the taxpayer public in general, because some taxpayers will subscribe to OVS while others will not. Thus, taxpayers as a whole should not be required to subsidize OVS, though the grant of below- market access to taxpayer-funded local rights-of-way. An OVS operator should therefore have to make new arrangements with the local government to provide fair compensation for the crucial resource the local rights of way that the community is contributing to the OVS operator's new business. This compensation represents a user fee charged directly against the entities that make a profit from using the rights-of-way, rather than the taxpayer subsidy that would result if an OVS operator did not pay just compensation. D. An OVS certification must demonstrate that the operator has obtained local authority to use the public rights-of-way. To avoid a takings problem, a prospective OVS operator must be required to demonstrate that it has obtained the authorizations necessary under state and local law to use local public rights-of-way for OVS. The conditions laid down by the Act, however, require that this be done in the LEC's initial certification filed with the Commission. This is because the statutory ten-day certification requirement precludes any more than a facial review by the Commission. Moreover, although the statute does require public notice when the Commission receives a certification, the ten-day time period effectively precludes any meaningful opportunity for interested parties to comment on or oppose the certification filing for example, by informing the Commission that the OVS applicant has not obtained the necessary local right-of-way authorizations. Consequently, the Commission cannot assume that affected parties will bring any problems to the Commission's attention: they will not have time. Indeed, unless the Commission's rules provide clear and immediate notice to all affected parties, they may not even know that such a filing has been made. For this reason, FCC rules must require the OVS operator's application to prove that it has done all of its homework beforehand. Since, as noted above, the Act does not give the FCC authority to infringe on local government control over local rights-of-way, the Act must be construed to require an OVS operator to obtain authority from the local right-of-way owner as a pre-condition to certification (or at least as a pre-condition to constructing and operating an OVS). The Commission's requirements for the OVS certification must therefore ensure that OVS operator clearly and unmistakably demonstrates, on the face of its filing, that it has obtained all the necessary approvals and authority to use local rights-of-way. The certification must include incontestable evidence of specific authorization from each affected local government to use its public rights-of-way for OVS purposes either in the form of attached licenses or franchises from each local community, or through written certifications by each affected community that such authority has been granted. If a prospective OVS operator were to obtain Commission approval without obtaining the necessary local authorizations, and the operator were to proceed to invade the public rights-of- way under color of a claim to Commission authorization, then the Commission and the federal government would be subject to an immediate takings claim. To avoid subjecting the federal government to such major fiscal liabilities, not to mention extensive litigation, the Commission's OVS rules should not allow OVS operators to certify without clear local authorization. Any other approach would not only impose unnecessary costs on federal and local taxpayers and the Commission, but would also unduly delay the entire OVS experiment. For this reason, the NPRM's proposal (at  68) for facial approval subject to later review is unacceptable. Such a rule would encourage LECs to file OVS certifications and then, on the strength of an incompletely informed Commission approval, seek to circumvent local authorities altogether: either by beginning to build OVS systems without authorization, forcing local governments to sue the LECs (and the Commission) to preserve their rights, or by claiming that local governments cannot reject the OVS operator's intrusion where the Commission has given its blessing. The only way to avoid such a labyrinth of litigation is to require that the OVS applicant have its ducks in a row before filing for certification that is, by requiring unmistakable evidence of local consent to accompany the certification itself. As noted in Section III.C above, the OVS operator also should be required to show in its certification application that it has met PEG and other local requirements. The local authorization attached to the operator's certification can thus do double duty by satisfying the PEG criterion as well. The operator should be able to show that it will meet each applicable PEG requirement through a similar showing of local approval, since the affected local governments are the only ones who will be in a position to verify that the OVS operator will match the PEG obligations of the incumbent local cable operator. Requiring OVS applicants to make the necessary arrangements prior to filing for certification should not cause undue delay. Local governments are not only willing, but eager to invite competition to the incumbent cable operator. Thus, LECs should not have difficulty in securing the necessary permissions, as long as they are willing to negotiate fairly and in good faith. By the same token, any FCC approval of an OVS certification should be made expressly subject to the applicant's obtaining and maintaining all necessary local approvals. Such a condition is directly analogous to the approach the Commission has taken by imposing conditions on its consent to CARS license transfers by cable operators. E. The Commission's rules should recognize that disputes regarding an OVS's right to be in the local public rights-of-way cannot be resolved by the Commission, but only by the courts. New section 653(a)(2) gives the Commission authority to resolve disputes "under this section." A dispute over an OVS operator's local right-of-way authority, however, would not arise under  653. Rather, such a dispute would be arise from more fundamental constitutional issues regarding local communities' property interests. Thus, the Act gives the FCC no jurisdiction to resolve such disputes. Moreover, the FCC has no expertise or fact-finding capacity to resolve disputes concerning the conditions under which an OVS operator should be permitted to use the local rights-of-way, which will vary depending on local circumstances and local law. It will simplify matters if any such claims are excluded from Commission responsibility at the outset. Thus, in bringing any OVS dispute to the Commission, the petitioner should be required to certify that the dispute does not involve a local right-of-way controversy. Parties may pursue right-of-way issues simultaneously, if necessary, in court. VI. CONCLUSION OVS is intended to be distinctively different from cable. It is not intended to allow an OVS operator to be a cable operator in disguise, subject to different regulatory requirements than its cable operator competitor. The market will determine whether the OVS or the cable operator model is more feasible. If the Commission were to give OVS special regulatory advantages over cable, this would substitute federal planning for the free market. Accordingly, the flexibility of an OVS operator must be bounded by the requirements of the statute and the policy objectives of the OVS provision. Based on the foregoing, the attachments that should be required for every OVS certification filing must, at a minimum, include the following.  Authorization from all affected state or local authorities to use the public rights-of-way in each affected area.  Certification from all affected local governments that the proposed OVS will fulfill PEG obligations no less than those of any incumbent cable operator in each jurisdiction, either through directly matching such obligations or through a negotiated agreement with each affected local government.  All necessary amendments to the LEC's Cost Allocation Manual and the date such amendments were filed with the Commission. If the Commission cannot clearly determine on the face of each certification that it is accompanied by all the necessary attachments, the certification must be rejected. Only such a clear "checklist" approach will permit the Commission to verify that the certification meets minimal statutory requirements within the required ten-day period. Respectfully submitted, THE NATIONAL LEAGUE OF CITIES; THE UNITED STATES CONFERENCE OF MAYORS; THE NATIONAL ASSOCIATION OF COUNTIES; THE NATIONAL ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADVISORS; MONTGOMERY COUNTY, MARYLAND; THE CITY OF LOS ANGELES, CALIFORNIA; THE CITY OF CHILLICOTHE, OHIO; THE CITY OF DEARBORN, MICHIGAN; THE CITY OF DUBUQUE, IOWA; THE CITY OF ST. LOUIS, MISSOURI; THE CITY OF SANTA CLARA, CALIFORNIA; AND THE CITY OF TALLAHASSEE, FLORIDA By Nicholas P. Miller Tillman L. Lay Frederick E. Ellrod III Miller, Canfield, Paddock and Stone, P.L.C 1225 19th Street, N.W. Suite 400 Washington, D.C. 20036 (202) 785-0600 Their Attorneys April 1, 1996 WAFS1\44189.5\104257-00010 APPENDIX A. In the Matter of Telephone Company-Cable Television Cross- Ownership Rules, Sections 63.54-63.58, CC Docket No. 87-266, Comments of the United States Conference of Mayors; the National Association of Counties; the City of Alexandria, Virginia; the Alliance for Communications Democracy; Anne Arundel County, Maryland; the City of Baltimore, Maryland; Baltimore County, Maryland; the City of Dallas, Texas; Howard County, Maryland; the City of Indianapolis, Indiana; the City of Los Angeles, California; Manatee County, Florida; Montgomery County, Maryland; Prince George's County, Maryland; and the City of Santa Clara, California, on the Fourth Further Notice of Proposed Rulemaking (March 21, 1995) B. In the Matter of Telephone Company-Cable Television Cross- Ownership Rules, Sections 63.54-63.58, CC Docket No. 87-266, Reply Comments of the United States Conference of Mayors; the National Association of Counties; the City of Alexandria, Virginia; the Alliance for Communications Democracy; Anne Arundel County, Maryland; the City of Baltimore, Maryland; Baltimore County, Maryland; the City of Dallas, Texas; Howard County, Maryland; the City of Indianapolis, Indiana; the City of Los Angeles, California; Manatee County, Florida; Montgomery County, Maryland; Prince George's County, Maryland; and the City of Santa Clara, California, on the Fourth Further Notice of Proposed Rulemaking (April 11, 1995) WAFS1\44189.5\104257-00010