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: REPLY COMMENTS OF MICHIGAN, ILLINOIS AND TEXAS COMMUNITIES CONSISTING OF: Michigan: City of Detroit, City of Grand Rapids, Allendale Township, Alpine Township, Charter Township of Au Sable, Baldwin Township, City of Birmingham, Byron Township, City of Cedar Springs, Village of Chelsea, Village of Clinton, Coldwater Township, Gaines Charter Township, City of Garden City, Georgetown Charter Township, City of Gladwin, Grand Haven Charter Township, Grand Rapids Charter Township, City of Grandville, Holland Township, City of Ishpeming, City of Kalamazoo, City of Kentwood, Lincoln Charter Township, City of Livonia, City of Marquette, Milton Township, City of Muskegon, City of Petoskey, Plainfield Township, City of Reed City, Richmond Township, City of Roseville, City of Southfield, Village of Spring Lake, City of Sturgis, City of Walker, City of West Branch, City of Westland, Whitewater Township, City of Wyoming, Zeeland Township, Michigan Chapter of the National Association of Telecommunications Officers and Advisors Illinois: City of Batavia, Village of Downers Grove, City of Wheaton, Illinois Chapter of the National Association of Telecommunications Officers and Advisors Texas: City of Arlington, City of Edgecliff Village, City of Kennedale, City of Longview, City of Watauga, City of Weatherford John W. Pestle Patrick A. Miles, Jr. VARNUM, RIDDERING, SCHMIDT & HOWLETTLLP Bridgewater Place Post Office Box 352 Grand Rapids, Michigan 49501-0352 (616) 336-6000 April 10, 1996 Their Attorneys TABLE OF CONTENTS Page(s) SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 A. MIT Communities and Their Interest In This Matter. . . . . . . .1 B. Missing Commentators . . . . . . . . . . . . . . . . . . . . . .2 C. Independent Programming as Infant Industry . . . . . . . . . . .3 D. Importance of Municipal Comments . . . . . . . . . . . . . . . .4 E. General Position of MIT Communities. . . . . . . . . . . . . . .4 II. NON-DISCRIMINATORY ACCESS TO CHANNELS . . . . . . . . . . . . . . . .5 A. Public Disclosure of Contracts . . . . . . . . . . . . . . . . .5 B. True Independence. . . . . . . . . . . . . . . . . . . . . . . .6 C. Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . .7 D. Rate Discrimination. . . . . . . . . . . . . . . . . . . . . . .8 E. Digital Allocation Problems. . . . . . . . . . . . . . . . . . .9 1. Home Wiring . . . . . . . . . . . . . . . . . . . . . . . .9 2. Converters Needed . . . . . . . . . . . . . . . . . . . . 10 3. Fuzzy Signal. . . . . . . . . . . . . . . . . . . . . . . 11 4. Rules Needed. . . . . . . . . . . . . . . . . . . . . . . 11 F. Channel Increments . . . . . . . . . . . . . . . . . . . . . . 12 G. Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 III. THE 1996 TELECOMMUNICATIONS ACT PROHIBITS NON-LECS FROM BEING OVS OPERATORS. . . . . . . . . . . . . . . . . . . . . . 14 A. Statutory Provisions . . . . . . . . . . . . . . . . . . . . . 15 B. Local Obligations. . . . . . . . . . . . . . . . . . . . . . . 17 IV. THE OVS CERTIFICATION PROCESS MUST REQUIRE RECEIPT OF LOCAL APPROVAL . . . . . . . . . . . . . . . . . . . . . . . . . 17 A. Local Consents Required before Certification . . . . . . . . . 17 B. Right-of-Way Issues. . . . . . . . . . . . . . . . . . . . . . 18 C. Right-of-Way Summary . . . . . . . . . . . . . . . . . . . . . 19 D. Congestion of the Public Rights-of-Way . . . . . . . . . . . . 20 1. Introduction. . . . . . . . . . . . . . . . . . . . . . . 20 2. Discussion. . . . . . . . . . . . . . . . . . . . . . . . 20 E. Disruption Caused by Construction of the New Open Video System 23 1. Construction Generally. . . . . . . . . . . . . . . . . . 23 2. Construction on Private Property. . . . . . . . . . . . . 25 3. Insurance and Indemnity . . . . . . . . . . . . . . . . . 25 4. Home Wiring . . . . . . . . . . . . . . . . . . . . . . . 27 5. Regulations Suggested . . . . . . . . . . . . . . . . . . 28 V. PEG OBLIGATIONS OF OVS OPERATORS. . . . . . . . . . . . . . . . . . 29 A. Match or Negotiate . . . . . . . . . . . . . . . . . . . . . . 29 B. Certification Process. . . . . . . . . . . . . . . . . . . . . 30 C. Regional PEG Requirements Not Allowed. . . . . . . . . . . . . 31 D. Technical Feasibility. . . . . . . . . . . . . . . . . . . . . 32 E. No Evidence Supporting Impossibility . . . . . . . . . . . . . 33 F. Policy Objectives. . . . . . . . . . . . . . . . . . . . . . . 34 G. Franchise Fee Base . . . . . . . . . . . . . . . . . . . . . . 35 H. Grandfathered Franchise Fees . . . . . . . . . . . . . . . . . 35 I. Compatible Equipment . . . . . . . . . . . . . . . . . . . . . 37 J. PEG Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 38 K. Institutional Networks . . . . . . . . . . . . . . . . . . . . 39 VI. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 EXHIBIT A EXHIBIT B EXHIBIT C APPENDIX 1 SUMMARY The Michigan, Illinois, and Texas Communities ("MIT Communities") offer their Reply Comments to express support for the previous comments of municipal and independent programmer participants in this rulemaking concerning open video systems. In addition, the MIT Communities are compelled by the importance of this rulemaking to elaborate further on such comments and to address the comments of the cable industry and telephone industry interests. The Commission must assist the development of independent programmers to increase subscriber choice. In this regard, municipalities, like the Commission, represent and are charged with protecting the public interest. Open access to and nondiscrimination are critical to implementing Congress' concept of OVS. Moreover, local involvement in the certification process of prospective OVS operators is required. Municipalities and local governments are uniquely suited and situated to protect the public by controlling their public rights-of-way. The 1996 Telecommunications Act recognizes this and the Commission should affirm a local role in the OVS certification process. Aside from the numerous legal reasons for such a role, special local needs, concerns, and policies bolster the necessity of local consent prior to invasive open video system construction and operation. It is also important that the open video system rules not contravene the plain language and intent of the 1996 Telecommunications Act by allowing cable operators to become OVS providers. The stated Congressional goal in creating the open video system option for telephone common carriers is to facilitate competition and new entrants into the video delivery market. Allowing incumbent cable operators to forestall competition by receiving the reduced regulatory treatment of an OVS provider is simply unacceptable from any perspective. Finally, the Commission should adopt the "match or negotiate" proposal described in the National League of Cities comments regarding OVS operators providing public/educational/governmental ("PEG") access channels. Like most communities, the MIT Communities desire and look forward to the benefits of increased competition in the video marketplace. But, the fruits of competition will be spoiled by inattention to and avoidance of particularly local needs. This Commission's open video system rules must correctly implement Congress' goals of competition, and preservation of local control and compensation when public rights-of-way are utilized. 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: REPLY COMMENTS OF MICHIGAN, ILLINOIS AND TEXAS COMMUNITIES I. INTRODUCTION A. MIT Communities and Their Interest In This Matter: Michigan, Illinois and Texas communities ( MIT Communities ) are composed of the following: From Michigan 42 communities, plus the Michigan Chapter of the National Association of Telecommunications Officers and Advisors ( Michigan NATOA ). From Illinois three municipalities and the Illinois Chapter of NATOA, and from Texas six cities. Each of the municipalities is the franchising authority for cable television service in its area and has had a franchise with its cable television operator for some time. Collectively the municipalities in the three states have approximately two million residents. The two state chapters of NATOA inform and participate in legislative judicial, regulatory and technical developments that impact local government in their states on cable and telecommunications matters. Their membership includes municipal officials actively involved in and responsible for cable and telecommunications matters throughout the States of Michigan and Illinois. All the municipalities and the NATOA Chapters are vitally concerned about this Commission s development of open video system ( OVS ) regulations and submit these Reply Comments to forward the public interest in that regard. B. Missing Commentators: One of the most notable features of the comments received by the Commission to date in this rulemaking is the near absence of any comments by independent programmers (that is, programmers unaffiliated with any cable or telecommunications provider) and the similar near absence of any comments by subscribers. The only comments submitted by independent programmers were those of the Alliance for Community Media et. al. and Access 2000, and the only subscriber commentator was the Consumer Federation of America. Yet as the Notice of Proposed Rulemaking in the above- captioned proceeding (released March 11, 1996)( NOPR ) and many of the comments emphasized, access to and actual use of open video systems by large numbers of independent programmers is essential for OVS to succeed. Such success is ultimately measured by subscriber satisfaction, rates and choice. Given the importance of independent programmers, this Commission must give great weight to the comments of the Alliance for Community Media and Access 2000, as these are the only comments from the independent programming industry showing what they need for OVS to succeed as Congress envisioned. C. Independent Programming as Infant Industry: The lack of comments by independent programmers, particularly when compared with the large number of comments filed by telephone companies, cable operators and their affiliates, shows the current weak state of the independent programming industry. It indicates, in effect, that independent programming is an infant industry much like cable television was decades ago. For similar reasons, this infant industry must have the OVS rules, presumptions and burdens of proof written substantially in its favor to grow and become a healthy competitive force that can fulfill the role Congress intended for it and for OVS. The Commission should use this infant industry approach in all aspects of its OVS rulemaking and should reject the suggestions made by Bell Atlantic and others which effectively ignore (or affirmatively reject) this premise, such as by leaving substantial amounts of discretion with the OVS provider. History shows that such discretion is often abused to prevent third parties (such as the independent programmers) from using telephone company lines to reach subscribers. D. Importance of Municipal Comments: The lack of comments by independent programmers and subscribers reinforces the importance of the various municipal comments in this rulemaking as proxies for these entities and for the public interest. The cable operators, telephone companies and others similarly situated represent private interests. Cities and other local units of government represent the public interest -- and have had substantial first-hand experience at the local level with cable television for decades. For these reasons, the MIT Communities respectfully suggest that the positions of the municipal commentators in this proceeding take on added importance and should be subject to great deference. In particular, where the viewpoints of the various commenting parties differ, the comments of local units of government should be viewed as a sound indication of where the true public interest lies. E. General Position of MIT Communities: The MIT Communities strongly support the joint comments of the National League of Cities, the United States Conference of Mayors, the National Association of Counties, the National Association of Telecommunication Officers and Advisors, and several cities ( NLC Comments ) and the proposals therein to implement the OVS regulatory framework. The NLC Comments discuss the critical principles this Commission must incorporate in its open video system rules. These principles include: (1) ensuring community needs and interests are met under the PEG and other Title VI requirements Congress established for OVS; (2) preventing discrimination by OVS operators against non-affiliated programmers; (3) increasing competition and new entrants by prohibiting cable operators and other non-telephone companies from becoming OVS operators; and (4) preserving local control and management of the public rights-of-way and reasonable compensation for the use thereof. II. NON-DISCRIMINATORY ACCESS TO CHANNELS A. Public Disclosure of Contracts: There is substantial agreement among the commentators (other than the telephone companies) that the rates charged programmers, the contracts with the programmers, or both, must be public. See e.g., NCTA Comments, at 19-20; Alliance for Community Media Comments, at 16 and following; National League of Cities Comments, at 15 and following. The MIT Communities agree. The entire contract (or contracts, as the case may be) between an OVS provider and any entity providing programming on the system must be public. Requiring that all such contracts be public will help fulfill the Commission s statutory obligation to ensure (emphasis supplied) that the rates, terms and conditions for carriage are just and reasonable; by itself will tend to prevent discrimination by OVS providers (which is prohibited by the Act); and will tend to disclose any such discrimination which has occurred so that redress can be sought promptly. See Communications Act  653(b). Arguments to the contrary by the telephone companies on this point are incorrect. Public disclosure will clearly aid in achieving the statutory purposes just quoted and there are no legitimate business reason under the circumstances for such contracts to be kept secret. Put more simply, secret contracts are not compatible with the concept of an open video system easily accessible to all programming providers. B. True Independence: There is a history of telephone companies concealing or hiding their affiliations with supposedly independent programmers. See, for example, the instances cited by Tele-Communications, Inc. ( TCI ) in its comments at page 8. MIT Communities therefore support the comments of the National League of Cities and others that independent programmers must be truly independent to be counted towards the two-thirds requirement of the Act. The Commission s former rule which barred any financial or business relationship whatsoever by contract or otherwise, directly or indirectly between the carrier and the customer, except only the carrier-user relationship must be applicable here, including the explanatory note accompanying that section. C. Procedures: The procedures by which independent programmers can obtain access to an OVS are as important as the rates that are charged. Access delayed can be access denied in a very real sense. For example, an independent programmer attempting to launch a channel simultaneously on multiple cable systems can be easily thwarted if access to the system(s) in question can be strung out by the kind of regulatory delays which have occurred in the regulated telecommunications environment. Thus, regulatory procedures delayed for years the ability of customers to supply that mundane item, the telephone, that everyone uses -- and now can purchase freely. New competitors in the telephone industry have experienced analogous delays on interconnection, co-location, access charges, number portability and other issues. See Leslie Canley, Rivals Are Hung Up On Baby Bells Control Over Local Markets, Wall Street Journal, (October 24, 1995, at 1 attached as Exhibit A). Similar claims have been made against the cable companies for their use of the regulatory process to delay video dial tone. These examples indicate how the procedures for independent programmers to obtain access to OVS systems must be quick and easy for programmers to use. The proposal made by the Alliance for Community Media at page 24 (and following) of their initial comments, provides the best means to satisfy the preceding goals with its combination of a filing with this Commission, State PUC s and franchise authorities of a preliminary notice of intention to apply for an OVS permit and the filing of affiliate contracts or tariffs for system use by independent providers. D. Rate Discrimination: Large amounts of programming from independent providers is essential for OVS to succeed. As is noted above, such independent programming is in many respects an infant industry. Combining the preceding concepts with the Congressional thrust toward lessened regulation mandates the MIT Communities support of the following points made by the National League of Cities, Alliance for Community Media and others on OVS access rates, terms and conditions: -- Rates must be a part of a rate structure and not negotiated on a case by case basis. -- Rate differences can only be based on easy, objective, verifiable criteria such as volume discounts, special rates for non-profit programmers or the like. Any other approach will not satisfy the statutory mandate of rates that are non- discriminatory, just and reasonable and minimize regulation. -- All rate structures and individual contracts must contain a broad, most favored nations clause. Such a clause is important because it will automatically (without any action by this Commission) give the affected programmer an individual contractual right to the best terms that are legitimately available -- providing a check and balance against illegal discrimination by making the OVS operator liable for damages should it violate the prohibition against discrimination or unjust and unreasonable rates. This last point is particularly important by removing some of the incentive for an OVS provider on a challenge to its rates to engage in regulatory delay in hopes that (a) the cost and duration of the complaint process before this Commission will effectively prevent an independent programmer from pursuing its claim, and (b) at worst, it will simply cost the operator the attorneys fees involved in a proceeding at this Commission while it gets to discriminate in the meantime. OVS providers must accept the quid of exposure to damage claims for improper actions as the quo for relaxed regulation. This will move towards allowing market type forces to operate while preventing the abuses that can occur if OVS operators can simply use this Commission s procedures as a shield against damage claims to which they would otherwise be exposed. E. Digital Allocation Problems: MIT Communities respond to the comments of the National League of Cities on the allocation of capacity between analog and digital channels (see National League of Cities comments at 14) as follows: The Commission has to tailor its regulations to recognize three key points which made digital transmission unavailable to many, if not most, cable subscribers for the foreseeable future and which in some respects may make digital channels a less desirable mode of transmitting video signals. 1. Home Wiring: Most existing home cable wiring simply will not work with digitally compressed signals. Wiring defects (such as a crimp or nick or damage from rodents or the house shifting) will only slightly degrade a standard 6 MHz NTSC signal but simply will not work with a digital signal. The cable television companies and telephone companies have confirmed the preceding point repeatedly to several MIT Communities and have stated affirmatively that most homes will have to be rewired in order to receive digital signals. MIT Communities have specifically inquired on this point because it is important that they and their residents know that the burden and expense of all new home wiring will have to occur before the promise of digital signals being receivable in the home can be realized. The cable and phone company engineers have also indicated that it is not a situation where the current home wiring will simply degrade digital signals and make them appear a little fuzzy -- instead, for technical reasons, problems with home wiring that make a conventional analog signal a little weaker or fuzzy, with digital signals make the screen go blank. 2. Converters Needed: Second, as the Commission is well aware, special digital converter boxes will be required before the digital signals can be received and used in the home. It will be several years before such digital converter boxes appear, at least in significant numbers, and converter boxes will be very expensive -- probably between $500 and $1,000 (roughly the cost of a DBS satellite dish). This will significantly deter consumers from using digital signals, especially if they have to buy such boxes. In this regard, several MIT Communities which have negotiated new or renewed franchises with fiber rebuilds have been generally rebuffed in their attempts to get a firm commitment as to when digitally compressed signals will be available, in part due to the lack of converters (and lack of any firm date as to when they will be available), as well as due to the home wiring problem set forth above. 3. Fuzzy Signal: Third, digital signals will not be, in many cases, of as good quality as analog signals. Again, the cable and telephone companies have told communities that although digitizing signals allows compression, compression (providing 2, 4 or 6 signals over the 6 MHz channel currently used for one analog signal) leads to progressively greater deterioration and degradation of signal quality. Thus digital signals may lead to 500 channels, but they are likely to be 500 fuzzy channels. 4. Rules Needed: For the preceding reasons, the Commission has to treat any digital portion of bandwidth on channels offered by an OVS provider totally separately from the analog portion. Otherwise the Commission runs the great risk that programmers can be forced onto the digital portion of OVS spectrum against their will and thus be consigned to a multi-channel oblivion where few, if any, subscribers will be able to receive their signal. This would be an obvious subversion of the open intent of OVS systems. Therefore, MIT Communities strongly support the position set forth by the National League of Cities and others that the two-thirds channel allocation has to be computed separately for analog and digital. In addition, to ensure that independent programmers can actually reach the subscribers and not be discriminated against, no entity should be forced by the OVS operator to be placed on a digital channel against their will. Indeed, the Commission should create a presumption that all independent programmers requesting a channel allocation from an OVS operator shall be on an analog channel. F. Channel Increments: MIT Communities support the point made by several commentators that channels should be available in small increments. The Commission s new commercial leased access rules provide for channels to be made available in increments as short as 30 minutes. 47 C.F.R.  76.971(g). In the public access area, time slots of relatively short duration have made available to programmers for years. Last year, this Commission questioned why telephone companies cannot make channels available to part-time users. 10 FCC Rcd. 4104, 4118 (1995). The National Cable Television Association supports making channels available in relatively short increments. Comments and Petition for Reconsideration of National Cable Television Association, at 14-15. MIT Communities therefore respectfully suggest that channel space be made available to programmers in increments as short as 15 minutes. This will ensure that both programmers who operate on a part-time basis have access to the OVS as well as those who are able to operate on a full-time basis. G. Rates: Rates are a key factor (along with terms, conditions and procedures) to ensuring the success of OVS by attracting large numbers of independent programmers. For this reason and because of the infant nature of the independent programming industry the Commission must resolve all doubts in favor of OVS rates that are as low as possible. In this regard, MIT Communities support (and will not repeat at length) proposals already made in this docket by the Alliance for Community Media and others that: 1. Require that any OVS operator be a separate, stand-alone entity from its affiliated entities in order to help ensure that improper rates can be detected if that becomes necessary. 2. As suggested by NCTA, the Commission promptly take appropriate steps to ensure that the costs of an OVS system are appropriately allocated between telephone (or other non-OVS) functions and OVS to prevent cross-subsidization of OVS by telephone subscribers (or others). 3. There be a presumption (rebuttable by only clear and convincing evidence) that an access rate more than 10% higher than the incremental cost of providing service is unreasonable, and 4. There be an outcomes based presumption (again rebuttable only by clear and convincing evidence) that unless 25% of the system capacity is occupied by non- affiliated programmers that the OVS provider s rates are presumptively unreasonable. This combination of approaches helps the Commission achieve (a) the statutorily defined purposes of preventing discrimination, unjust or unreasonable rates, while (b) minimizing telephone company-type regulation and (c) preserving the necessary financial records to examine rates in detail should that become necessary. III. THE 1996 TELECOMMUNICATIONS ACT PROHIBITS NON-LECS FROM BEING OVS OPERATORS The plain language and intent of Section 653(a)(1) of the 1996 Telecommunications Act prohibits cable operators and other non-LECS from becoming OVS operators. Accordingly, the MIT Communities strongly support the comments of the National League of Cities, and the State of New Jersey Board of Public Utilities Office of Cable Television ( New Jersey BPU ) especially on this point. The comments provided by the cable operator interests fail to cite any persuasive statutory language, legislative history, or policy reasons which squarely supports the conclusion that cable operators should be allowed to operate an OVS. Indeed, the cable industry comments did not list any significant benefits the public actually would receive after permitting cable operators and others to become OVS operators. This section briefly reviews the statutory language and intent which prevents cable operators from becoming OVS operators, and supports the conclusions reached in the comments of the New Jersey BPU. The conclusions refute the only benefit cable operators attempt to raise in this regard (i.e., increased competition). If cable operators could provide open video systems, then competition actually would be lessened, if not eliminated, in the service area. A. Statutory Provisions: The NOPR asks whether the distinction in Section 653 between a local exchange carrier who may provide cable service through an open video system, and cable operators and others who may provide video programming through an open video system, is significant. NOPR, at  64. The comments of the cable industry fail to minimize this crucial distinction. In fact, the comments of Cox Cablevision and Adelphia Cablevision et. al., concede that these terms are defined differently under the Act. Cox Comments, at 2; Adelphia Comments, at 4. The Commission must respect and implement the different meanings Congress attached to these terms. Section 602(7) of the 1996 Act defines cable system and clearly states, such term does not include . . . an open video system that complies with Section 653 [of Title IV]. Communications Act  602(7). Moreover, in Section 651(a)(4) Congress continually references a common carrier or carrier in operating as an open video system, no reference is made to a cable operator or operator. Communications Act  651(a)(4). Part V itself is titled, Video Programming Services Provided by Telephone Companies which shows Congressional intent to limit OVS operators to telephone companies and to exclude cable operators. The legislative history further bolsters the position that cable operators cannot provide OVS services. In pertinent part, the Conference Report to the 1996 Cable Act states as follows: First, the conferees hope that this [OVS] approach will encourage common carriers to deploy open video systems and introduce vigorous competition in entertainment and information markets. Second, the conferees recognize that common carriers that deploy open systems will be 'new' entrants in established markets and deserve lighter regulatory burdens to level the playing field. . . . Conf. Rep. No. 104-458, 104th Cong. 2d. Sess., 178 (January 31, 1996) [emphasis added]. Congress specifically intended that common carriers (i.e., local exchange carriers), not cable operators, should offer OVS services in established markets to introduce vigorous competition. Id. The language, intent, and reasoning of the 1996 Act in introducing the OVS option to local exchange carriers would be subverted if cable operators could become OVS operators. The significant benefits of competition between cable operators and OVS providers would be eliminated. The cable operator comments futilely attempt to argue that by allowing cable operators to become OVS providers competition will flourish. As the comments of the New Jersey BPU conclude, the result would be lessened competition. New Jersey Comments at 4-6. Thus, no significant benefits accrue to the public. Instead, cable operators would receive significant benefits from strengthening a monopoly position and avoiding competition from new entrants. Such a result would be contrary to the principal thrust of the 1996 Telecommunications Act which is to benefit subscribers by increasing the number of providers. Allowing telephone companies to become OVS providers in competition with the local cable incumbent squarely meets this goal. This goal is not met -- and is actually subverted -- if cable operators are allowed to become OVS operators in their service territory and thus claim that they are not subject to customer service standards, technical standards, rate regulation or local franchise obligations. B. Local Obligations: If the Commission were to contravene the language of the 1996 Act and Congressional intent and allow cable operators to become OVS providers, then cable operators would claim they are not subject to their franchise obligations. As the National League of Cities points out, such a result is constitutionally suspect. Moreover, cable operators will contend such a result would remove the critical local considerations of universal service; public, educational, and governmental access; nondiscrimination; and compensation for use of the rights-of-way, among others. Congress certainly did not intend this result, and any benefits would be outweighed by such dramatic costs and risks. Public interest considerations certainly militate against allowing cable operators and other persons to become open video system operators. The Commission should carefully examine these public interest factors before it facilely contravenes statutory plain language and intent and public policy needs. IV. THE OVS CERTIFICATION PROCESS MUST REQUIRE RECEIPT OF LOCAL APPROVAL A. Local Consents Required before Certification: The MIT Communities support the proposal of National League of Cities that prior to certification, the prospective OVS operator must obtain all necessary local consents to use the rights-of-way. National League of Cities Comments, at 52. This requirement ensures that public needs, interests, safety concerns, welfare, and access are protected. The 1996 Act does not prohibit this Commission from adopting such a requirement. In fact, the comments of The Texas Cities, The National League of Cities, et. al., and the named Political Subdivisions of the State of Minnesota, point out that the legislative history of Section 653 reflects an express intention to preserve local management over the rights-of-way and compensation therefor. See also Conf. Rep. No. 104-458, 104th Cong. 2d Sess., 178 (January 31, 1996). Major public policies underlie the need for a role of state and local governments in both cable television and OVS. Congress recognized these policies in the 1984 Cable Act and the 1996 Telecommunications Act. This section describes typical major issues that state and local governments are uniquely situated to address and which must be incorporated in the Commission s certification requirements for OVS operators. These policies simply cannot be handled effectively at the federal level. MIT Communities also respectfully note that although the 1996 Act precludes OVS providers from Title VI franchises, nothing in the Act precludes a franchising authority or other local government from requiring a franchise, permit, license, consent, or agreement for an OVS provider to use public rights of way. And in fact, the Conference Report affirmatively includes such a requirement. Id. B. Right-of-Way Issues: This is a critical issue for MIT Communities which the various telephone company comments ignore. To rectify this error, this section and the following sections describe some of the issues and problems associated with use of the rights-of- way; the need for appropriate compensation for private use; the impact of serious congestion of poles and underground conduits; the disruption that the massive construction in the public right- of-way for open video service will cause; and issues regarding the legal authority of telephone companies to use the rights-of-way for open video service. In each instance, local approval is the key to satisfactory resolution of the right-of-way issues. C. Right-of-Way Summary: Local governments must retain control in the public interest over the use of the highways and public rights-of-way. Such control is essential to protect the public and ensure safe and efficient use of this scarce resource for several reasons. First, in some areas, localities must address the issue of congestion or scarcity. Second, local governments deal with the significant problems created by new construction in the rights-of-way. As an example, this may include mandating joint use of certain poles and trenches to minimize disruption and assure that space on overhead poles or underground conduits is most efficiently used. Third, cities frequently deal with not only physical placement and local code requirements for construction, but also specify significant requirements for insurance, bonds, letters of credit, and the like. Collectively, these provisions tend to help ensure that construction is done safely and properly and if not, that there are responsible parties present to pay damages. Work in the rights-of-way can lead to accidents and major claims. This is illustrated by a situation in Maryland where a cable company hit a gas main, causing an explosion that damaged 88 homes (Rod Granger, Cable Dig Explosion Damages 88 Homes, Multichannel News, January 30, 1995, p. 12, attached in Exhibit B) and by the explosion a TCI subcontractor caused (Joe Estrella, TCI Subcontractor Blamed for Colorado Explosion, Multichannel News, March 20, 1995, p. 10 and Gas Leak Blows Up 2 Homes, Damages 10, The Denver Post, March 14, 1995, p. 1, attached in Exhibit C). Risks such as these make it necessary to have substantial insurance requirements in franchises so that the service provider, municipality, and residents are all protected with adequate types and amounts of coverage and ensuring that the insurance carrier is a responsible party (such as by requiring a specified rating from a company that rates the financial strength of insurers). Franchises also typically require indemnities from the utility or cable company to the municipality so that the municipality and its residents are not unnecessarily exposed to liability. Such indemnities and insurance are critical for municipalities to ensure that its general fund and ability to provide vital local services (police, fire, streets) are not affected by major claims created by cable or telephone company constructions and accidents in the rights of way. D. Congestion of the Public Rights-of-Way. 1. Introduction: In many municipalities there is extreme congestion on utility poles and in underground conduits. Space for additional communications lines is limited, and in some cases nonexistent, or very expensive to add. These are matters of unique local concern which the telephone company comments ignored and which can only be addressed at the local level, such as through the pre-certification process. 2. Discussion: The space on existing utility poles or underground conduits for additional utility infrastructure is extremely limited in many MIT Communities. This is especially true in the larger central cities, such as Detroit, Grand Rapids, and in older portions of other cities where the utility infrastructure must accommodate electric companies, separate street lighting systems, telephone companies, cable companies, one or more competitive access providers, fire alarm and communications systems, lines for traffic signals, lines for police communication systems, distance learning lines for educational institutions, plus private lines for individual businesses. Many utility poles are 30 to 40 years old and simply were not designed with the current intensive uses in mind. Most utility poles in Michigan are owned by the electric utility. Several of the MIT Communities (including Detroit and Grand Rapids) own and operate their own electric utility, street lighting system or both, and thus own the poles on which some or all utility lines are placed. These communities and the state's major private electric utilities all confirm the serious congestion of the poles and conduits. As an example, in the City of Detroit it is not possible to add a communications line on most streets without replacing some of the utility poles. This is because the space on the poles is used up (the bottom-most wire is already at the minimum height clearance allowed by law). This situation is particularly acute at street corners and intersections where two sets of utility lines meet and cross, thus roughly doubling the need for space on the poles. The problem is so acute that in order to build the present cable system serving Detroit, state law had to be changed to lower the clearance height for utility wires! It can cost up to $20,000 per pole to replace existing poles with taller poles, depending on the number of lines, cross-arms, and appliances (such as transformers, switches, circuit breakers and capacitors) on the pole. The problem is equally acute with underground lines in central cities and other highly developed areas. Often in such areas all utility lines are required to be underground. However, there are only a limited number of existing underground conduits in which such lines can be placed. It is extremely expensive and disruptive to excavate the streets to install new underground conduit. The local franchising and approval process can and does address these issues. For example, many local governments expressly resolve the problem of priorities in congested areas by providing in franchises that a franchise does not establish any priority for the use of the public rights-of-way by the franchisee or by any present or future franchisees or other permit holders. Such franchises often go on to provide that in the event of any dispute as to the priority of use of the public rights-of-way, the first priority shall be to the public generally, the second priority to municipality, county, the State and its political subdivisions in the performance of their various functions, and thereafter, as between franchisees and other permit holders, as determined by the municipality. (emphasis supplied). One purpose of this kind of language is to help prevent claims by incumbent franchisees that they have vested rights that take precedence over later (competing) franchisees who need to place lines in the right-of-way. Such provisions reflect the fact that the rights-of-way are publicly owned and managed by the municipalities for the public benefit. Thus, no private entity should acquire a vested right to exclude or place high barriers to entry on subsequent providers. For example, this would help prevent an existing user from claiming that the full incremental cost of higher new poles or additional underground conduit must be borne by a new, competing provider. All the preceding issues depend on unique local facts and circumstances as to the existing uses, future plans, and existing laws and agreements with respect to the rights-of-way. Because of the peculiarly local nature of these concerns, they are best addressed at the local level through the pre-certification process. E. Disruption Caused by Construction of the New Open Video System: The construction by telephone companies of open video delivery systems will disrupt both public and private property. Because of their uniquely local nature, there is no way the public can be adequately protected on these issues by this Commission. Again, the telephone companies comment more on this issue, and to correct this omission MIT Communities note the following. 1. Construction Generally: Many local exchange carriers will construct a wholly independent open video system which will be in addition to existing telephone and cable systems. Those telephone companies that construct a combined video/telephone system will have to completely reconstruct and add to their existing telephone infrastructure. The former approach involves the addition of an entirely new layer of utility infrastructure to that currently in place. The latter approach will entail a complete rebuilding of the existing telephone company infrastructure. In addition, facilities-based competition for telephone service will result in the construction of an additional telephone system (such as by Teleport or Metropolitan Fiber Systems) and/or an extensive rebuild by the cable companies of existing cable systems so that they can provide telephone service as well. This construction or reconstruction literally may involve essentially every street and highway in the MIT Communities as well as many tens of thousands of miles of easements on private property. There will be major disruptions with large numbers of utility construction vehicles present over a period of years to relocate existing utility lines to make space for new construction, to add new poles where necessary for new aerial lines, and to dig and trench the public streets for underground lines (as is required in many areas). Similar construction is required on private utility easements causing the additional serious disruptions of trimming or removal of trees to make way for additional lines; disruptions by line trucks entering back yards to add poles and string lines; and the serious disruption that occurs in residential areas where utility lines have to be placed underground. In this regard, most subdivisions constructed since the 1960's require all utility lines to be underground. Adding or rebuilding lines in these subdivisions entails major work, including opening the public streets, digging trenches across people's lawns and the removal or destruction of yard buildings, garages, shrubs, plantings and trees, and interference with walkways and driveways. One of the principal issues to be dealt with is the coordinating of such construction. For example, if the cable company is proposing to rebuild its system (e.g., so as to provide telephone service) in much the same time frame as the telephone company is proposing to build an open video system, a municipality may require coordination of the two projects so that the construction can all be done at once and there is a minimum disruption to the public. A similar concern arises in the rebuilding of streets in which major utility construction is located. If streets are going to be rebuilt, municipalities may want all underground (or even aerial) construction done at the same time so that a highway rebuilt at substantial cost is not torn up by the cable company or telephone company a short time later to install or rebuild a video or telephone system. This often is addressed by franchise provisions which require coordination or prevent the reopening of streets that have been newly resurfaced for a period of time. It cannot be addressed effectively at the federal level. 2. Construction on Private Property: Only local governments can establish standards and procedures for the construction or reconstruction of utility lines across private properties. For example, a significant issue for home owners is tree trimming, which occurs when lines are strung or rebuilt. Utility tree cutting can -- and has -- lead to massive complaints by citizens to local community officials. For this reason, many municipal franchises have specific requirements with respect to tree trimming, such as requiring notice to or consent of property owners. The importance of this issue and the specifics of it vary substantially from community to community and thus can only be addressed effectively at the local level. 3. Insurance and Indemnity: Insurance and indemnity issues are of major importance for municipalities. This Commission has focused on the benefits that might occur from OVS. Municipalities have, in addition, a different and unique concern: Making sure that construction and operation of massive facilities in their rights-of-way do not expose them and their residents to significant liability. Municipalities have to ensure to the maximum extent possible that the risks and liabilities that might occur to them and their residents from construction placement and operation of facilities in the rights-of-way are minimized. This is important for municipalities because they cannot afford to let their general fund and ability to provide police, fire and other vital services to be affected by liabilities (of potentially large proportions) that can occur from errors, accidents or omissions in the rights-of-way. Municipalities have major reasons to be concerned in this regard. Not only are major accidents and injuries possible in the rights-of-way, but the municipality is often the deep pocket to whom plaintiffs look for damages, especially if a cable company or telephone company is thinly capitalized or has structured its operations so that it is effectively insulated from liability. In this regard, MIT Communities point out that the 1996 Telecommunications Act may entice fly-by-night, shoestring or other impecunious entities to erect OVS systems. The cities must take all measures necessary to make sure that if a major liability claim occurs, they and their residents are not exposed to liability if such a new thinly capitalized entity has no assets or should otherwise disappear. For these types of reasons, municipalities typically have major insurance and indemnity provisions in their franchises. Typical provisions include not only large amounts of insurance (e.g. $10 million) but (a) provisions specifying the maximum deductible (so that the $10 million policy cannot be subverted by having a $9 million deductible); (b) quality standards such that only policies from financially sound insurance companies receiving a high rating by the major insurance rating agencies are acceptable; (c) specifications of the types of insurance coverage that are required (for example, mandating coverage for underground construction claims and broadcasters liability coverage (suits) which are typically excluded from conventional policies unless added by rider); (d) requiring the municipality and its agents to be additional named insureds; (e) requiring copies of policies to be kept on file with the municipality; (f) requiring 60 days notice of cancellation or significant modification of the policy; (g) allowing independent counsel to represent the municipality, especially in the event of cross-claims between the municipality and the provider. These provisions are, and have been, provided for by municipalities in their franchises for years. They are essential for municipalities and their residents to be protected. They affirmatively show one of the major reasons why Congress expressly stated that municipalities maintain control of their rights-of-way for OVS and why local franchises are required. 4. Home Wiring: Home wiring raises major concerns which, again, can be addressed only at the local level. These include compliance with applicable building and electric codes and modifications of them where necessary. Often inspections have shown lack of compliance on significant safety issues, such as the grounding of the home wiring. Related issues, such as service technicians entering most homes in the community to make the installations, raise significant issues of safety and public concern. Preventative measures include franchise provisions making sure that the installation personnel have undergone security checks, are bonded, and have appropriate identification to weed out installers who might engage in thefts, assaults, or other inappropriate activity. This also helps prevent unauthorized people from gaining entry to residences by claiming that they are the phone company cable installer. And there may be provision for notifying the municipality and police department of the construction program so that apprehensive residents can call and determine the bonafides of an installer. 5. Regulations Suggested: These construction and street-related issues frequently are addressed in cable and telecommunications franchises. They both show why local approval for the new telephone open video delivery systems is required as a matter of sound policy. The Commission should adopt regulations similar to those attached in Appendix 1 which provide for prospective OVS providers to obtain consent(s) from local authorities to utilize the public rights-of-way prior to the Commission granting certification approval. Such pre-certification can include the compensation component for the use of the rights-of-way consistent with the 1996 Act. In this regard, the MIT Communities support the comments of National League of Cities, Texas Cities, and the Below-Named Political Subdivisions of the State of Minnesota regarding fees paid by OVS operators to use the local rights-of-way. MIT Communities strongly believe that local approval will not delay the provision of open video services by telephone companies. The communities want competition in the delivery of such services provided there are adequate protections for them and their residents. They have no reason to delay the certification process. MIT Communities want competition in the provision of video services for the same reasons Congress and this Commission do--to obtain the benefits it brings in services provided, rates and customer service, among other things. One of the larger disappointments for many municipalities has been the quick evolution of cable into a monopoly. Many of MIT Communities have been disappointed to find out that they could not even get a second cable company to bid on providing service in competition with the incumbent provider. For similar reasons, the residents of MIT Communities generally look favorably on telephone company provision of video services where this will create a true choice in wire-based video providers. The MIT Communities desire to partner with the Commission in allowing subscribers to benefit from OVS service and not bear undue risks and burdens. V. PEG OBLIGATIONS OF OVS OPERATORS A. Match or Negotiate: The Act requires the Commission to impose PEG obligations that to the extent possible are no greater or lesser than those of the incumbent cable operator. As some of the other municipal commentators (e.g., National League of Cities) note, an OVS operator should have the option to either match the requirement of the existing cable operator or to negotiate different requirements which are equivalent (and thus satisfy the no greater or lesser requirement). Allowing the cable operator to simply duplicate the requirements of the existing cable operator assures that the obligations are identical. It is administratively easy and can quickly and efficiently be done by the OVS operator (thus fulfilling the 1996 Act s preference for minimal regulation). At the same time the ability to negotiate differing (but overall equivalent) requirements with the local franchising authority (and if necessary with the local cable operator) provides needed flexibility. For example, the MIT Communities believe that in many situations both the OVS operator and the municipality will find it mutually advantageous to negotiate different requirements. For example, a community might find it desirable to consolidate two PEG channels due to the savings in operating costs that may result but lacks the funds for the studio expansion and additional studio equipment for such a required change. In these circumstances it is easy to contemplate a win-win situation where the OVS operator contributes the funds necessary for the studio expansion and equipment and in return gains an additional channel. B. Certification Process: As a part of the initial certification process, an OVS operator must submit an unequivocal commitment to match the PEG requirements of the existing cable operator. The Commission s rules should specify that this certification has to be served on each local franchising authority on or before its submission to the Commission and that the certification should be deemed, in effect, a unilateral offer by the OVS operator which may be accepted in any fashion by the local franchising authority. As such, it will form a contract between the local franchising authority and the OVS operator such that it may be enforced locally in the same fashion as any other contract and thus with a minimum of regulatory entanglements. In addition, by viewing the document as a contract, it will allow the parties (OVS operator and individual franchising authority) to modify it via the negotiate option at any time should they deem this appropriate without involving the Commission. C. Regional PEG Requirements Not Allowed: The Commission questioned whether OVS systems serving multiple franchise areas should have some form of lessened PEG requirements, for example, if technical and cost constraints make it difficult or burdensome to deliver PEG channels only to certain areas within the open video system service territory. NOPR, at  58. There is an easy answer to this question on which almost all the comments agree -- there are no such constraints. The MIT Communities agree with these commentators and emphasize that the Act places a high burden (which the telephone companies have not met) of showing that it is not possible for them to meet local PEG requirements. To put it most simply, the cable companies have met local PEG requirements without difficulty for several decades. The cable companies started as mom and pop operations and overall still are only a fraction of the size of the telephone companies. As is set forth below, if these much smaller entities using old technology have met PEG requirements for decades it is clearly possible for the telephone companies using new and better technology to do so. Such slight inconvenience as it may cause them simply does not rise to the level of impossibility set forth in the Act. D. Technical Feasibility: Cable operators have easily and successfully tailored their systems to carry different PEG channels in different franchise areas for years. They are able to do this readily using the older, coaxial analog systems. Cable, video dial tone, or other multi-channel video systems being built today use some form of hybrid fiber-coax system. With these systems, each node serves a few hundred homes (from 250 to 500 typically). With nodes of this size it is much easier than with older technology to narrow cast PEG channels to specific areas simply by proper adjustment of the nodes and the homes they serve. An excellent example of this point is the cable system being built by Ameritech to serve the Detroit metropolitan area (comprised of approximately 70 separate communities). Ameritech has stressed to each of the communities it has approached its enhanced ability -- assured by the hybrid fiber-coax node architecture it uses -- to ensure that each subscriber receives the PEG channels corresponding to its local jurisdiction. As a result, for example, Ameritech s April 1, 1996 cable franchise with the City of Garden City, Michigan expressly provides that The nodes shall be so arranged, or if necessary rearranged, so that the subscribers served by each correspond with both the corporate boundaries of counties, cities, villages and townships (including those of City) and school district boundaries such that each individual subscriber receives only the PEG or other local channels corresponding to the county, city, township, village and school district in which that subscriber is located. The key to the preceding is the arrangement or rearrangement of nodes so that the homes served are all within the same municipality and school district. In fact, MIT Communities point out that hybrid fiber-coax node architecture reduces, in some instances, the PEG channels that must be carried. This occurs where (as in Michigan and many other states) a city, village or township is served by multiple school systems, each of which has its own educational channel. Because of the high capacity of the fiber backbone that connects the various nodes and video distribution centers, a given channel (say Channel 7) can be the educational channel throughout a city. A given school system s programming is then delivered on Channel 7 solely to the homes physically located in that school district. Homes located in an adjacent school district (even if within the same city) will receive on Channel 7 the educational programming from their school system because the nodes and homes they serve have been appropriately arranged, and so on. This channel reuse by allowing multiple school systems to geographically share a given educational channel -- with each cablecasting only to homes in its district -- thus frees up channel capacity compared to the current situation where with older, traditional cable systems, each separate school system may have its own channel (for example, Channels 7, 8 and 9 if a community is served by three different school systems) in order to ensure each subscriber receives the educational channel from the school district in which they reside. E. No Evidence Supporting Impossibility: No evidence was submitted in the initial comments in this docket showing that it was not possible (the statutory test) to deliver PEG or other local channels to specific franchising authorities (or subunits within them) as cable operators are doing at the present time. Indeed, the evidence is entirely on one side: The comments of the Alliance for Community Media (together with the attached declarations from Time-Warner employees and former FCC staffers) show that it is technologically simple to provide such signals on a franchise authority by franchise authority basis. Alliance for Community Media comments at 30-34 and Appendices B and C. The National League of Cities agrees -- see their comments at pages 39-41. The cable operators also agree. As TCI points out, its cable systems -- like most of those in the country -- serve multiple franchise areas. And TCI complies with the local PEG requirements for each of the franchise authorities it serves. Comments of TCI, at 18. The preceding comments supplemented by the information submitted by MIT Communities above shows without question that an OVS operator can easily adjust its system to meet the PEG requirements of individual communities. By contrast, the telephone companies, although expressing a desire for the least PEG requirements possible, have made no showing that it is not possible to meet the individual PEG requirements of local communities. See e.g., Comments of Bell Atlantic et. al., at 26- 28. The comments of U.S. West suffer from the same deficiency. Comments of U.S. West, at 18. To put it bluntly, the evidence is all on one side -- there has been no showing that there are any significant technological or cost constraints to prevent OVS operators from continuing to meet the individual PEG requirements of each local franchising authority where they serve. And there has been no showing that it is not possible to do so, which is the statutory test which must be met. F. Policy Objectives: The preceding analysis is reinforced by the differing objectives at play here. OVS operators have a simple objective -- to maximize their profits. This is not the same as meeting community needs, which is the statutory test for PEG channels. Congress deliberately struck a balance between the two in affirmatively requiring OVS operators to comply with PEG requirements. Congress recognized that there is a legitimate purpose in meeting community needs by carrying such things as City Council meetings, school board meetings and other public meetings live on PEG channels. This affords broad access to the organs of local government for the elderly, the homebound or others who are unable to attend such meetings in person. Similarly, local educational needs are met by residents receiving information from their school system. By contrast, residents in one city receive little or no benefit from being able to watch the City Council proceedings of another city which may be 40 or 50 miles away or receiving information from school systems which they cannot attend. G. Franchise Fee Base: MIT Communities support the position set forth by National the League of Cities, the Alliance of Community Media and other commentators that the definition of gross revenues of the operator for the provision of cable service in the Act must be interpreted very broadly to assure, among other things, fair compensation and parity with the existing cable operator. H. Grandfathered Franchise Fees: MIT Communities reply to the comments of the National League of Cities, City and County of Denver and others on franchise fee payments by supporting their position and noting the following elaboration. The 1984 Cable Act in general limits the franchise fees to 5% but expressly grandfathered preexisting franchises with rates higher than 5%. See Cable Act  622(g)(2)(B); 47 U.S.C.  542(g)(2)(B). Such grandfathering is also addressed in Section 637 of the Cable Act which expressly grandfathers all franchise provisions in effect, on the effective date of the 1984 Act (October 30, 1984) which relate to the designation use, or support for the use of channel capacity for public, educational, or governmental use Communication Act  637(a)(1); 47 U.S.C.  557(a)(1). The Commission should be aware that many pre-1984 franchises are still in effect, will be in effect for many years, and have franchise fee (or PEG support provisions) that are grandfathered under either or both of the preceding provisions. These include fees over and above the 5% amount and payments for PEG support that are not simply limited to the provision of capital equipment. Other provisions require the cable operator to affirmatively provide equipment, facilities, equipment operation, equipment, maintenance and training. In some cases, such pre-1984 franchises have a decade or more to run before they are up for renewal. The Commission should make clear in its regulations that for such grandfathered franchises the OVS operator is subject to the same obligations for PEG support as the incumbent cable operator (unless such obligations are modified by mutual consent under the negotiate options of the match or negotiate choice outlined above). In particular the Commission should expressly recognize that Congress intent was regulatory parity and a level playing field when it specified that the fee in lieu of franchise fees shall not exceed the rate at which franchise fees are imposed on the incumbent cable operator. Communications Act  653(c)(2)(B). Although generally limiting such fees to a 5% maximum, Congress was understandably careful in 1984 to grandfather franchise fees and PEG support fees in excess of this amount, as just described. The Commission should thus specify that the rate imposed on the incumbent cable operator is the effective rate actually paid by the cable operator, inclusive of the types of payments described above. And to aid in this computation, the cable operator must provide detailed information on the cost and value of the non-cash goods and services it provides (MIT Communities suggested rules in Appendix 1 address this point). MIT Communities submit that the preceding construction of the statute is the only one that makes sense in light of Congress clear intent to both grandfather franchise fees in excess of 5%, yet have parity between the cable and OVS operators on franchise fee type payments. I. Compatible Equipment: MIT Communities support comments from the Alliance for Community Media and others that the OVS operator must be responsible for taking the signal from the various PEG operators, converting it to a format appropriate for the OVS operator s system and transporting it to the OVS operator s head-end or other appropriate signal insertion point. Such conversion and transport is essential for PEG signals to be provided on an OVS system. These functions are currently performed by cable systems without any charge. Their performance by an OVS operator imposes minimal or no cost obligations given the extensive two-way capability designed into most OVS systems. As a practical matter, if OVS operators use a non-standard format they must convert much of their programming (not just PEG programming) into a format or media acceptable to their system. In this regard, MIT Communities point out to this Commission that typically a PEG operator need only provide a 6 MHz NTSC signal to a signal input point (meaning a jack on the wall) at the operator s studio (or similar location, such as City Council chambers for televising City Council meetings). It is then the cable operator s responsibility with modulators, demodulators, lines or other equipment as may be necessary to transport the signal to the appropriate location and insert it for distribution to appropriate places on the cable system. Cable operators have performed these functions for PEG channels for decades without any problem. It is essential that OVS operators have the same obligations. And The Commission should clearly specify that the OVS obligation should extend to the several signal input points which may be present for a given channel. For example, on a government channel, programming may originate much of the time from a studio in one city building, but City Council proceedings may be televised live from a different signal input point in the City Council chambers. Similarly, educational channels may generally originate programming from a school system s studio, yet athletic events may be broadcast live directly from signal input points located at the football field, baseball field, swimming pool or other venue where the event is occurring. Again, the OVS operator should duplicate any existing such signal input points. J. PEG Equipment: As indicated in the comments of the Political Subdivisions of the State of Minnesota (at 7 and 8), the comments of the National League of Cities (at 34) and those of other commentators, the Commission s regulations implementing Section 611 of the Act must include requiring the OVS operator to provide PEG facilities and equipment (under the match options) or their equivalent (under the negotiate option). MIT Communities support the comments of the National League of Cities in this regard (at 34) and that of the Minnesota Political Subdivision s (at 7 and 8) and note the following. The 1996 Act expressly specifies that Section 611 of the Cable Act (47 U.S.C.  531) shall apply in accordance with Commission regulations. Section 611 not only addresses the cable channels to be provided for PEG but also addresses enforcement of provisions for services, facilities or equipment which relate to the PEG channels. As is obvious, PEG channels cannot function without equipment and thus such equipment and facilities for PEG are commonly required in cable franchises. The House Committee Report expressly recognized this when it directed the Commission to impose regulations for PEG on OVS that are equivalent to the obligations imposed on cable operators and in the next sentence, the House Report expressly said: In considering how to implement the capacity services, facilities and equipment requirements for PEG use pursuant to paragraph (b)(1), the Committee intends that the Commission give substantial weight to the input of local governments. . . . H.R. Rep. No. 104-204, 104th Cong. 2d Sess., 105 (July 24, 1995) [emphasis added]. Congress has made clear through the preceding statements that the PEG related obligations of the existing cable operator for facilities and equipment have to be met by the OVS operator as well. This makes sense because having a channel and having the facilities and equipment to program it go hand in hand. K. Institutional Networks: MIT Communities support the comments of the National League of Cities (at 34) and others that the obligation of OVS operator to provide PEG channels and support includes the obligation to provide so-called institutional networks, or I-NET s. See in this regard Section 611 of the 1996 Act, subsections (b) and (c) which treat I-NET s as a part of PEG channels. Institutional networks are increasingly important for units of government to interconnect government buildings with modern high-speed communications services. Providing such I-NET communications capability should pose no problem for common carriers which are in the business of providing that type of service. VI. CONCLUSION Accordingly, the MIT Communities respectfully ask this Commission to consider the foregoing as it develops open video system rules. Respectfully submitted, VARNUM, RIDDERING, SCHMIDT & HOWLETTLLP Attorneys for MIT Communities April 10, 1996 John W. Pestle Patrick A. Miles, Jr. BUSINESS ADDRESS & TELEPHONE: Bridgewater Place 333 Bridge Street, N.W. Post Office Box 352 Grand Rapids, Michigan 49501-0352 (616) 336-6000 APPENDIX I SUGGESTED RULES The following Rules correspond to matters suggested by MIT Communities Matters where MIT Communities generally adopt or support the positions of other parties are not included. Open Video System Certification. (a) A local exchange carrier may provide cable service to its cable service subscribers in its telephone area through an open video system. A local exchange carrier proposing to operate an open video system shall certify to the Commission that it will operate such open video system in compliance with this part. Only telephone companies can offer open video system services, no cable operator may be certified as an open video system provider. (b) The Commission shall publish notice of the receipt of any such Certificate of Compliance and shall act to approve or disapprove any such certification within ten (10) days after receipt of such certification. In the absence of any action by the Commission approving or disapproving a Certificate of Compliance, such Certificate shall be deemed to be approved on the eleventh (11th) calendar day after receipt by the Commission. (c) A Certificate of Compliance for an open video system shall include the following information: (1) The legal name of the proposed open video system operator, entity identification or social security number, and whether the operator is an individual, private association, partnership, limited liability company, partnership, or a corporation. (2) The name and respective percentage of ownership of all persons or entities which own, directly or indirectly, more than a ten percent (10%) financial interest, or any management interest, in the proposed open video system operator. (3) The proposed open video system operator shall certify that it is a local exchange carrier and shall designate the telephone service area(s) within which such carrier provides telephone exchange service in which it proposes to provide cable service over the open video system. (4) The mailing address, telephone number, and name of an individual responsible for communications with the Commission of the proposed open video system operator to which all communications are to be directed. (5) The authorization in the form of a franchise, certificate, permit, license, ordinance, or agreement from each appropriate state and local government agencies or bodies in the proposed telephone service area in which the local exchange carrier proposes to operate an open video system. (6) The channel capacity of the proposed open video system, and the portion of the activated channel capacity on which the local exchange carrier and its affiliates plan to provide video programming services to subscribers. (7) The number of channels reserved for public, educational, or governmental access, and the support the proposed open video system operator will provide for such channels. (8) The rate of the fees on the gross revenues of the proposed open video system operator for the provision of cable service imposed by a local franchising authority or other governmental entity, in lieu of the franchise fees. (9) The date the local exchange carrier plans to commence providing open video system service to one or more subscribers. (10) Certification that the proposed open video system will be operated in compliance with this part. (11) A certificate of service showing that the Certificate of Compliance has been served on each local franchising authority or other governmental entity in the local telephone service area, service on all local broadcast television stations in the ADI in the telephone service area, and service on all cable operators providing cable service in the telephone service area. (d) The proposed open video system operator shall receive the approval of the local franchising authority or other governmental entity no more than one hundred eighty (180) days prior to the Commission s receipt of the Certificate of Compliance. Rates and Contracts. (a) Open video system providers shall include with their certification their entire rate structure, including rates, terms and conditions, for entities other than the open video system provider to provide programming on the open video system, and shall include complete copies of all contracts already signed with third parties whereby the open video system provider or such third parties carry or otherwise provide the third parties programming on the open video system. (1) The rates shall include charges in fifteen-minute increments up to and including continuous, full-time carriage. (2) The open video system provider shall file with the Commission all changes or additions to the preceding rates, terms conditions and contracts immediately upon their being signed or effective. (b) The open video system provider shall at no charge provide all the preceding items in subsection (a) to any third party requesting same within seven (7) days of receipt of a written or verbal request for same. (c) All rates and contracts shall contain a most favored nations clause as follows: Programmer shall be entitled at any time to the rates, terms and conditions on which any other person is provided access to or the carriage of programming by the open video system provider. (d) Rate differences may only be based on objective, verifiable criteria such as volume discounts, special rates for non-profit entities or other categories with advance approval of the Commission. (e) All persons requesting access to or carriage on the open video system shall be provided carriage in 6 MHz NTSC analog format on the analog portion of the open video system provider. No person shall be provided carriage on any digital or in -6 MHz NTSC format unless they expressly request same in writing. Unaffiliated Entities. To be counted towards the two-third unaffiliated entity requirement, a person may have no relation with the open video system provider, directly or indirectly, other than a carrier-user relationship. Such person may not be owned by, operated by, controlled by, or under common control with the open video system provider. (a) As used above, the terms control and affiliate bar any financial or business relationship whatsoever by contract or otherwise, directly or indirectly between the open video system provider and such person, except only the carrier-user relationship. (b) Examples of situations in which an open video system provider and such person will be deemed to be controlled or having a relationship include the following among others: Where one is the debtor or creditor of the other (except with respect to charges for communication services); where they have a common officer, director, or other employee at the management level; where there is any element of ownership or other financial interest by one in the other; and where any party has a financial interest in both. Franchise Fees. (a) An open video system provider shall pay a fee in lieu of a franchise fee at the same effective rate as is paid the local franchising authority by its cable operator. Such effective rate may be in excess of 5% for cable franchises entered into prior to October 30, 1984, and for such franchises the open video system provider shall include the monetary value of all goods and services provided by the incumbent cable operator, less the fair market value of any such goods and services which the open video system provider duplicates and similarly provides. (b) Upon request by either the local franchising authority or an actual or prospective open video system provider, the cable operator serving the local franchise authority shall provide within seven (7) days of a verbal or written request for same a statement of the fair market value of all goods and services which it provides such local franchising authority or others in support of PEG channels and a detailed description of how such value was computed. In addition, such cable operator shall provide the local franchising authority and actual of prospective open video system provider complete access to all books and records necessary or helpful in the ascertainment, computation of such fair market value. CERTIFICATE OF SERVICE I, Nikki L. Klungle, hereby certify that on this 10th day of April, 1996, I caused copies of the foregoing Comments of Michigan, Illinois, Texas Communities to be sent by first-class mail, postage prepaid to the following: John Nakahata, Special Assistant Richard Welch, Legal Advisor Chairman Hundt s Office Office of Commissioner Chong Federal Communications Commission Federal Communications Commission Room 814 Room 844 1919 M Street, NW 1919 M. Street, NW Washington, DC 20554 Washington, DC 20554 James Casserly, Senior Legal Advisor Blair Levin, Chief of Staff Office of Commissioner Ness Office of the Chairman Federal Communications Commission Federal Communications Commission Room 832 Room 814 1919 M Street, NW 1919 M. Street, NW Washington, DC 20554 Washington, DC 20554 Lauren Belvin, Senior Legal AdvisorMeredith Jones, Chief Office of Commissioner Quello Cable Services Bureau Federal Communications Commission Federal Communications Commission Room 802 Room 918 1919 M Street, NW 2033 M Street, NW Washington, DC 20554 Washington, DC 20554 Gary Laden, Chief Kathleen Levitz, Deputy Bureau Chief Policy and Rules DivisionCommon Carrier Bureau Cable Services Bureau Federal Communications Commission Federal Communications Commission Room 500 Room 918 1919 M. Street, NW 2033 M Street, NW Washington, DC 20554 Washington, DC 20554 Lawrence A. Walke, Attorney Meryl S. Icove, Legal Advisor Cable Services Bureau Office of the Bureau Chief Federal Communications Commission Cable Services Bureau Room 900 Federal Communications Commission 2033 M Street, NW Room 918 Washington, DC 20554 2033 M Street, NW Washington, DC 20554 Rick Chessen, Attorney JoAnn Lucanik Policy and Rules DivisionDivision Chief Cable Services Bureau Financial Analysis and Compliance Division Federal Communications Commission Cable Services Bureau Room 918 Room 804 2033 M Street, NW 2033 M. Street, NW Washington, DC 20554 Washington, DC 20554 William H. Johnson Gary Laden, Division Chief Deputy Chief for Policy Cable Services Bureau Cable Services Bureau Policy and Rules Division Federal Communications Commission Federal Communications Commission Room 918 Room 406 2033 M Street, NW 2033 M. Street, NW Washington, DC 20554 Washington, DC 20554 Regina Keeney, ChiefMargo Domon, Deputy Chief Common Carrier Bureau Consumer Protection and Federal Communications Commission Competition Division Room 500 Cable Services Bureau 2033 M Street, NW Federal Communications Commission Washington, DC 20554 Room 406 1919 M. Street, NW Washington, DC 20554 Brian Foucart, Special Assistant International Transcription Services to the Bureau Chief 2100 M Street, NW Cable Services Bureau Room 140 Federal Communications Commission Washington, DC 20037 Room 814 1919 M Street, NW Washington, DC 20554 Nikki L. Klungle