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 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 11, 1996 TABLE OF CONTENTS Page I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. THE PURPOSE OF THE OVS RULES IS TO DEFINE A NEW COMPETITIVE OPPORTUNITY, NOT MERELY CABLE UNDER ANOTHER NAME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. LECs Can Always Be Cable Operators . . . . . . . . . . . . . . 3 B. The LECs Will Exclude Independent Programmers If the Commission Does Not Prevent Them . . . . . . . . . . . . . 5 C. The LECs' Demands for "Flexibility" Are a Plea For Regulatory Advantage . . . . . . . . . . . . . . . . . . . . . 9 D. The LECs' Demands for Pro Forma Certification Conflict With the Statutory Time Limit On Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 E. The LECs' Preference For A Cumbersome Dispute Resolution Process Without Standards Is a Plea For Regulatory Advantage . . . . . . . . . . . . . . . . . . . . . 15 1. A dispute resolution process without standards will not meet the statutory requirements. . . . . . . . . . . . . . . . . . . . . . . 15 2. The OVS operator, which alone has access to the necessary information, must carry the burden of proof.. . . . . . . . . . . . . . . . . . . . . . . . . . 19 III. AN OVS OPERATOR MUST BE SUBJECT TO STRONG NONDISCRIMINATION AND REASONABLE RATE OBLIGATIONS TO PREVENT OVS FROM BECOMING A CABLE SYSTEM IN DISGUISE . . . . . . 20 A. The Commission Must Adopt Strong Rules To Protect Independent Video Programming Providers. . . . . . . . . . . . 20 1. The LECs Systematically Confuse Markets . . . . . . . . . 21 2. Common carriage concepts must be applied to the extent necessary to achieve the objectives of the OVS provision . . . . . . . . . . . . . 22 Page B. Specific Rules Must Be Drawn to Prevent Discrimination and Ensure Open Access. . . . . . . . . . . . . 24 1. OVS carriage obligations must enable independent programmers to use capacity readily on the OVS. . . . . . . . . . . . . . . . . . . . 24 2. OVS rules must require uniform carriage rates . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3. OVS rules must require public disclosure of carriage rates and arrangements . . . . . . . . . . . . . 26 IV. OPEN VIDEO SYSTEMS MUST MEET LOCAL COMMUNITY NEEDS AND INTERESTS . . . . . . . . . . . . . . . . 27 1. OVS Operators Must Meet Locally Established PEG Requirements. . . . . . . . . . . . . . . . . . . . . 27 2. An OVS operator's PEG obligations extend to channel capacity, services, facilities, and equipment . . . . . . . . . . . . . . . . . . . . . . . . 28 3. Local PEG channels must be available to all subscribers by individual franchise area. . . . . . . . . 30 4. An OVS operator's PEG obligations must develop with those of competing cable operators . . . . . . . . . . . . . . . . . . . . . . . . 31 V. CABLE OPERATORS SHOULD NOT BE PERMITTED TO BECOME OVS OPERATORS, BUT IF THEY ARE, SEPARATE AND PRIOR LOCAL APPROVAL WILL BE NECESSARY. . . . . . . . . . . . . . . . . . . . . 31 A. A Cable Operator Cannot Be An OVS Operator . . . . . . . . . . 31 B. A Cable Operator May Provide Programming Through An OVS, But Only If Consistent With Its Cable Franchise and the Public Interest. . . . . . . . . . . . . . . 36 VI. THE OVS CERTIFICATION PROCESS MUST ENSURE THAT AN OVS COMPLIES WITH LOCAL RIGHTS REGARDING THE PUBLIC RIGHTS-OF-WAY . . . . . . . . . . . . . 36 A. The Act Neither Preempts, Nor Authorizes the Commission To Preempt, State and Local Authority Over the Public Rights-of-Way. . . . . . . . . . . . 36 Page B. The Act Does Not Expressly Preempt State and Local Right-of-Way Authority.. . . . . . . . . . . . . . . . . . . . 37 C. The Act Does Not Impliedly Preempt State and Local Right-of-Way Authority.. . . . . . . . . . . . . . . . . . . . 38 1. The OVS provision is not inconsistent with state or local law. . . . . . . . . . . . . . . . . . . . 39 2. The OVS provision does not purport to occupy an entire field of regulation.. . . . . . . . . . . . . . 40 3. The OVS provision may not be interpreted in such a way as to require a taking. . . . . . . . . . . 41 D. The LECs Present No Sound Policy Reason Favoring Preemption and the Resulting Taking. . . . . . . . . . . . . . 41 VII. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SUMMARY To some commenters, the OVS option represents a new, alternative paradigm for wireline video distribution. Attached to these reply comments are proposed rules designed to implement this new paradigm. To the LECs, however, OVS appears to represent merely an opportunity to be a cable operator while evading the requirements of the Cable Act. The Commission should reject the LECs' cynical attempts to transform OVS into a quick- and-dirty scheme in which LECs can gain the benefits of cable without its responsibilities. (1) The Commission's Rules Must Ensure That OVS Is Truly Open to Independent Video Programming Providers. The LECs consistently but erroneously suggest that OVS must be allowed to be cable-like so that they can compete with established cable operators. LECs overlook that they can always be cable operators if they wish. The true test for the Commission is: Will its rules make OVS the truly open system Congress intended it to be? LECs frankly admit that they have a powerful economic incentive to exercise as much control over all OVS capacity as they can. Thus, unless the Commission makes clear bright-line rules to prevent such influence, LECs will invariably seek to construct OVS arrangements designed to favor the video programming providers they prefer on their networks. When the LECs plead for "wide latitude" to exercise their "good faith business judgment," what that really means is the latitude to allow OVS operators to structure OVS like a cable system. LECs claim that as new entrants in the video distribution market, they will lack market power. But this claim confuses two different markets. Cable and OVS may compete for subscribers, but there is no such competitive alternative available for independent video programming providers. Moreover, in the long run, an OVS operator may well end up with a monopoly, particularly if OVS is given the preferential treatment LECs urge. Although LECs argue that the ten-day time limit for Commission action on an OVS certification means that certifications must be simple, the reverse is true. Since the Commission must act quickly, LECs must be required to do their homework before filing. LECs urge against detailed rules in favor of an ad hoc complaint process. Yet no complaint process can work effectively without pre-existing standards. And a purely complaint-driven process would place all the burden on the very independent video programming providers likely to be handicapped by OVS operator practices and to lack the necessary resources to litigate. Minimal rules necessary to solve these problems must use objective and readily verifiable standards, combined with open, public disclosure of carriage contracts and reports regarding affiliates. Rules proposed by Bell Atlantic et al., in contrast, appear to be designed to do everything possible to make dispute resolution burdensome for independent video programming providers. LECs wish to make independent video programming providers carry the burden of proof, even though only the OVS operator will have the evidence necessary to prosecute a complaint. The OVS operator should have the burden of proof. (2) The Commission Must Adopt Strong Nondiscrimination Rules. Our attached proposed rules contain the minimum requirements necessary to protect against discrimination and establish a clear, objective test to show rates are reasonable. LECs' efforts to analogize to cable fail. The nondiscrimination and reasonable rate requirements of the Act apply to video programmers, not subscribers. Thus, it is essential to make carriage contracts publicly available. Similarly, proposals allowing the OVS operator to freeze an initial channel allocation for long periods of time would defeat the purpose of OVS. Even as a new entrant, the OVS operator will enjoy market power over video programming providers, who have no distribution alternatives. The Commission therefore cannot presume OVS carriage rates are reasonable. Absent cost-of-service review, the Commission must use objective yardstick criteria based on actual carriage of independent video programming providers. (3) Open Video Systems Cannot Be Allowed to Avoid Equal PEG Obligations. The Act requires that an OVS operator's PEG obligations be "no greater or lesser" than those contained in the PEG provision of the Cable Act. NYNEX wrongly suggests that an OVS operator's PEG obligations should be limited to channel capacity alone, and not to the facilities, services, and equipment that are crucial to PEG operations. This proposal is contrary to both the statutory language and its purposes as well. Similarly misguided are Bell Atlantic's proposal for "generic PEG"; U S West's suggestion of technical problems in tailoring PEG channels to local needs; and NYNEX's attempt to freeze OVS PEG obligations even though a cable operator's PEG obligations may change. (4) Cable Operators Cannot Become OVS Operators. The statute plainly says that a LEC may become an OVS operator, but that cable operators and other persons may not. A cable operator is also contractually bound and cannot convert its cable system to an OVS without losing all right to be in the public rights-of- way and violating its contract with the local government, creating a takings claim. Congress's stated purpose for creating OVS has no application to cable operators. (5) OVS Certification Gives No Access to Local Rights-of-Way. Some LECs argue that the OVS provision somehow preempts state and local authority to manage and to receive fair compensation for the use of their public rights-of-way. Not only do these preemption arguments lack any support in the statute; in addition, their acceptance in Commission rules would trigger massive litigation, delaying the OVS experiment indefinitely for the sake of an essentially frivolous argument. Neither Title VI, nor the new OVS provision, makes any express reference to preempting any state or local requirement to obtain a franchise or similar authorization. Nor can the LECs present any argument to show implied preemption. On the contrary, the legislative history makes clear that state and local governments retain a role with respect to OVS. In any event, the OVS provision cannot constitutionally be read to preempt state or local right-of-way authority. LECs improperly ask the Commission not merely to preempt the field, but to appropriate the field of local streets and rights-of-way. Even if LECs would like a subsidy of free use of state and local rights-of-way, that property is neither Congress's nor the Commission's to give. 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 ) REPLY 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 reply comments in response to the opening comments and the Notice of Proposed Rulemaking ("NPRM") in the above-captioned proceeding, released March 11, 1996. I. INTRODUCTION To some commenters, the open video system ("OVS") option represents a new, alternative paradigm for video service. To the local exchange carriers ("LECs"), however, it appears to represent merely an opportunity to evade the requirements of the Cable Act by running a cable system under another name. The Commission must reject the LECs' brazen attempts to water down OVS into a quick-and-dirty scheme in which LECs can gain the benefits of cable without its responsibilities. Rather than repeating the arguments made in our initial comments, the following reply comments will first indicate the fallacy of the general approach taken by the LECs in the initial comments. We will then address certain specific arguments made in the initial round of comments, to the extent to which further discussion is necessary in addition to the treatment in our initial comments. Finally, a set of proposed regulations is attached in response to the Commission's request in  93 of the NPRM. II. THE PURPOSE OF THE OVS RULES IS TO DEFINE A NEW COMPETITIVE OPPORTUNITY, NOT MERELY CABLE UNDER ANOTHER NAME. A. LECs Can Always Be Cable Operators. Congress intended OVS to be a new model distinctively different from the cable model: an open transmission system, cable-like for a third of its capacity, but common carrier-like as to the other two-thirds. As commenters noted: The consequence of trying to operate an OVS system like a cable television system will be adverse rulings in complaint cases, and a prompt need to issue specific rules to deal with such a flagrant subversion of the very purpose of this scheme. If, as the LECs seem to believe, the statute had intended OVS to be simply cable in disguise, it would make no sense: the cable option would be eviscerated, since no LEC would choose that route if it could be a cable operator under OVS without all of the Title VI obligations. The structure of the four options made available to LECs under the Telecommunications Act of 1996 ("Act" or "1996 Act") makes sense only if OVS is viewed as a significantly different option from cable. The LECs consistently suggest that OVS must be allowed to be cable-like so that they can compete with established cable operators. But they ignore the obvious. If a LEC believes that it needs cable-like flexibility to compete with cable operators, then the Act specifically allows it to be a cable operator. Thus, whenever LECs demand wide discretion and special advantages for OVS systems in the name of competition, the Commission should repeat to itself: "The LEC can always be a cable operator." Because the cable option is always available, the Commission is free to define OVS independently in accordance with the statute, without in any way deterring competition. The LECs' comments systematically downplay the cable option in such a way as to obscure this central fact. For example, joint comments filed by Bell Atlantic and five other telephone companies argue: "Unless the open video system itself can be a viable competitor, there will be neither inter-system competition nor intra-system competition." But that is simply untrue. If OVS, as defined by Congress, is not a viable competitor to cable, there will still be competition it will just be among cable systems rather than cable versus OVS. The LEC can always be a cable operator. Thus, the repeated suggestion in the LECs' initial comments that the Commission's rules must be especially lax because of their "competitive importance" is wholly misplaced. The Commission's responsibility under the statute is to fill out the congressional sketch with a full-bodied alternative to cable, so that the market can decide whether such an alternative will succeed or fail in competition with cable. Bell Atlantic et al. suggest that the Commission should evaluate all proposed rules according to whether they will make OVS an "attractive alternative" to cable as if it were the Commission's job to be a cheerleader for OVS, regardless of market forces or statutory requirements. This "litmus test" is entirely wrongheaded. On the contrary, the Commission's job is to fulfill the statutory mandate for OVS, and the proper litmus test is: Will these rules make OVS the truly open system Congress intended it to be, or another closed system like cable masquerading under another name? The market will then determine whether the new LEC competition prefers to take the form of OVS or of cable. B. The LECs Will Exclude Independent Programmers If the Commission Does Not Prevent Them. The LECs' opening comments make plain that they will seek to control all OVS capacity if the Commission lets them. This is clear from the repeated assertions that the LECs prefer cable, where they control all the programming, to open access. Thus, Bell Atlantic, BellSouth, GTE, Pacific Bell, SBC, and Lincoln Telephone state: The market and the available technology are better suited to cable systems, over which operators exercise substantially greater editorial control than open video system operators will be permitted. USTA, speaking for the telephone industry as a whole, agrees: This ability to select all of the programming on the system under the cable option is preferable to the open video system alternative, in which the total number of channels that the operator may program are limited. In expressing this clear preference for editorial control of all channels, the LECs acknowledge that they have every incentive to influence all OVS capacity if they can. Thus, unless the Commission makes clear bright-line rules to prevent such influence, the LECs will construct OVS arrangements designed to favor the independent video programming providers they prefer on their networks. Congress, of course, recognized that a LEC would wish to gain both the advantages of OVS (reduced regulation) and the advantages of cable (complete control of capacity). If Congress had wished to allow that result, it could simply have repealed the Cable Act and replaced it with OVS. But Congress did not do so. Rather, it created a conscious trade-off between cable and OVS: an OVS operator cannot control all its channel capacity (two-thirds of which is always subject to non-discriminatory use by independent video programming providers at reasonable rates and terms). Congress, however, relied on the Commission to take the specific steps necessary to prevent LECs from circumventing the two-thirds rule. Thus, when the LECs plead for "wide latitude" to exercise their "good faith business judgment," what that really means is the latitude to allow OVS operators to structure the entire system offering like a cable system. This is because the LECs have already conceded, in good faith, that their business judgment is: complete channel control (the cable model) is better. The LECs may thus be relied upon to use any loophole the Commission leaves open to keep control of all programming in their own hands. In light of the blunt candor in the LECs' opening comments, it would be inexcusably naive of the Commission to suppose otherwise. Undoubtedly, the Commission should keep to a minimum the rules necessary to ensure that an OVS is truly an open system. But the Commission must make rules sufficient to ensure that an OVS is truly an open system to "prohibit" discrimination and "ensure" reasonable rates, as the statute requires. The LECs suggest that the Commission need not make such rules because market forces will suffice to keep OVS honest. But the LECS themselves have already provided the rebuttal to this claim. They believe that market forces favor cable. Thus, if left to market incentives, the LECs will certainly treat OVS as a cable system with relaxed regulatory requirements, circumventing the intent of Congress. Rather than letting the market decide whether LECs will choose OVS or cable, the LECs want the Commission to override market forces by making OVS a far more attractive option than cable. The LECs claim that as new entrants in the video distribution market, they will lack market power. To begin with, this claim confuses two different markets, as more fully discussed below in section III.A.1. There is no existing market available to independent video programming providers for video carriage, as distinct from the market in which program producers may sell their programming to resellers such as cable operators. Thus, the OVS operator will have market power in the carriage market. Assuming arguendo that competition for end- user subscribers may constrain the OVS operator's retail prices to subscribers, it will place little or no such competitive constraint on the rates or terms available to independent video programming providers for carriage on the system. Moreover, even in the subscriber market, it is far from clear that OVS will lack market power. The best the Commission can hope for from OVS-cable competition is duopoly, in which only two facilities-based competitors dominate the market completely. It is at least as likely in the long run, however, that either the OVS or cable operator will end up with a monopoly. Indeed, an OVS operator, if given all the advantages of a cable system and further regulatory advantages in addition, could well drive the cable competitor out of business. Thus, the Commission cannot assume that every OVS will in fact face competition. The Commission must therefore make rules capable of preventing OVS from degenerating into cable even where market forces do not restrain the OVS operator. C. The LECs' Demands for "Flexibility" Are a Plea For Regulatory Advantage. The LECs seek to deter the Commission from establishing the necessary rules by demanding that they "should be given every incentive to choose this option." But this plea that the Commission favor OVS above other options is misguided. Even the cause of competition does not require OVS to prevail over cable, since the LEC can always be a cable operator. In addition, however, the LECs seek to downplay the nature of the advantage they seek. LECs seek to wrap themselves in the flag of competition: thus, for example, Bell Atlantic et al. declare that "[c]ompetitive markets require regulatory forbearance." But in fact the LECs are not asking simply for forbearance. Rather, they want a specific new form of regulation that gives them new rights (including the right to provide video programming to subscribers) and frees them from the associated conditions and responsibilities (embodied in Title II and Title VI). The LECs are looking for regulatory incentives to overcome what they perceive as the market incentives that favor traditional cable. Thus, USTA revealingly speaks of the "regulatory incentives for a LEC to choose the open video system option." In effect, the LECs are asking for the benefits of industrial planning, not the free market. In contrast, the Commission's proper guide is one to which the LECs give only lip service: "The marketplace, not the government, should decide what this new service can become." The Commission must implement the unique OVS model intended by Congress, and let the chips fall where they may, confident that even if the market does not favor OVS, there will still be competition, because a LEC can always be a cable operator. USTA argues that the Commission need not add anything to the statutory requirements because the OVS provision is "an unusually detailed statutory framework." Nothing could be further from the truth. In the Act, Congress stated the binding, governing principles for OVS very concisely, and left to the Commission all the responsibility for specific rules that comport with those principles. Thus, a single section of the Communications Act lays out all the statutory requirements for OVS, while Congress devoted 28 such sections to cable. The OVS provision cannot function without sound implementing rules from the Commission. Congress recognized this by specifically instructing the Commission to make such rules. Such an instruction would be most peculiar if, as the LECs allege, Congress had really meant that the Commission should make no additional rules at all. In fact, the specific requirements of the OVS provision demand implementing rules. This is because the nondiscrimination and reasonable-rates requirements are not self-executing principles. The Commission need not look far for examples: cable leased access has failed thus far to produce a viable market for carriage of independent programmers, under essentially the same minimal conditions that the LECs wish to apply to OVS. Congress has already defined the "reduced regulatory burdens" for which an OVS operator is eligible. These regulatory benefits include exemption from rate regulation under Section 623; from the federal cable franchising obligations of Title VI, including the renewal process under Section 626 (the Act does not appear to require a renewal period for OVS certifications); from franchising authority-imposed facilities requirements under Section 624; and from cable consumer protection requirements under Section 632. The LECs cannot reasonably ask the Commission to excuse them also from the open access obligations that Congress specifically imposed, simply in order to give them a still more attractive choice than their cable option. The LECs argue in effect that the OVS option will be a dead letter unless the Commission gives them what they want. If the Commission bowed to the LECs' demands for regulatory favors, however, the cable option would be a dead letter. And the statute certainly did not intend that. Rather, Congress intended all four options to be available as ways in which LECs could compete in the free market. D. The LECs' Demands for Pro Forma Certification Conflict With the Statutory Time Limit On Approval. The LECs are curiously attached to the argument that the ten-day time limit for Commission action on an OVS certification means that it must be very simple for the LEC to put together such a certification. The reverse is true. Because the Commission must act quickly, review of the certification must be by a checklist approach, in which the validity and completeness of the certification is evidence on its face. But that means that the LEC must be required to do its homework before filing, so as to enable the Commission to do its job in the shortest possible time. As pointed out in our initial comments, the Commission cannot ease the burden of the ten-day review period by issuing merely a facial approval at the end of ten days. At least one LEC also recognizes that this approach is unacceptable. While the Commission's approval must always be subject to review if a dispute arises, that approval may in fact trigger the building of a new communications network, with the associated commitments of funds and personnel and the associated impact in terms of street cuts and other construction. Thus, Commission approval cannot be treated as a trivial or pro forma matter. Rather, the LEC applicant must be required to make a showing that is sufficiently thorough and complete to permit the Commission to verify on the face of the filing that the LEC is and will be in compliance with the Commission's rules. The "quick-and-dirty" certification advocated by the LECs would in any case present serious constitutional issues. Construction of an OVS will necessarily affect many persons' rights local governments, PEG programmers, independent video programmers, incumbent cable operators, and others. Any federal approval of that construction must therefore be subject to the constraints of due process. Thus, Congress cannot be supposed to have intended the ten-day requirement to require such a pro forma process. Indeed, even if Congress had intended to do so, due process would require more. Congress intended to promote the information highway, but due process forbids the "information railroad" that would result if a LEC could railroad through a pro forma certification on ten days' notice. E. The LECs' Preference For A Cumbersome Dispute Resolution Process Without Standards Is a Plea For Regulatory Advantage. 1. A dispute resolution process without standards will not meet the statutory requirements. The LECs urge the Commission to dispense with detailed rules in favor of a complaint process to resolve disputes. Yet no complaint process could work effectively without pre-existing standards, embodied in Commission rules, to define how disputes are to be resolved. The LECs, however, have proposed nothing whatsoever to ensure that such a process could prohibit nondiscrimination and ensure reasonable rates, as the statute requires. Instead, USTA rails against the imposition of "a priori" rules and claims that a posteriori corrections will take care of every problem, without offering a shred of evidence that such an approach will work. In fact, the cable leased access experience, coupled with the LECs' own declared preference for control of all programming, makes clear that USTA's approach will not work. A purely complaint-driven process would, of course, place all the burden of enforcement on the independent video programming providers likely to be disadvantaged by OVS operator practices. Yet it is exactly these independents who are likely to lack the necessary resources to litigate such issues, and to be critically disadvantaged by any delays in obtaining relief. As if this were not enough of an obstacle, Bell Atlantic et al. seek to raise the bar even further, placing even greater burdens on any complainant. USTA appears to suggest that the 180-day time limit on the Commission's dispute resolution may mitigate such problems. But given the evidentiary problems the LECs' proposed hurdles would impose, the time limit merely makes the complaint's proof process more difficult. Moreover, while the 180-day limit may prevent a single proceeding from languishing indefinitely, an OVS operator could readily force repeated such proceedings by responding to a Commission order with partial, inadequate, or delayed compliance, relying on the lack of specificity in the Commission's rules (as the LECs would have them) or the complaint's heavy burden of proof (as the LECs would impose it) to excuse such delaying tactics. Even if the Commission refused to let such lack of specificity stand in the way of its duty to prohibit discrimination and ensure reasonable rates, an independent video programming provider would be harmed, perhaps critically, by the associated delay. As their own comments reveal, the LECs have candidly acknowledged that they have every incentive to pursue just such tactics, as long as the Commission's rules permit them. If the OVS rules are to create an efficient market for carriage of independent video programming, they must provide more initial clarity and certainty. As Bell Atlantic et al. themselves admit, the Commission must "clearly articulate the overall approach it will take to resolving disputes" in advance. In practice, this means that there must be clear rules in advance. Unlike the LECs' approach, the approach suggested in our initial comments is designed to establish the minimal rules necessary to solve the problems. In the specific proposals made in our initial comments, and in the proposed rules attached to these reply comments, we have been as careful as the LECs to avoid unnecessary regulatory requirements. But in order to avoid making detailed specifications as to rates, cost studies, channel allocations, and the like, it has proved necessary to establish certain objective "yardstick" requirements to prevent the LECs from defeating the open access intended by Congress. We have chosen the standards outlined in our initial comments to be objective and easily verifiable. Strict enforcement of these basic requirements for an OVS, combined with open, public disclosure of carriage contracts and the necessary reports regarding affiliates, may suffice to prevent LECs from defeating the principle of open access. Of course, it may turn out that these broad general protections are not sufficient to prevent abuses. For this reason, it will also be necessary for the Commission to review the actual results of the OVS rules periodically, as suggested in the attached proposed rules. 2. The OVS operator, which alone has access to the necessary information, must carry the burden of proof. The LECs seek to place the burden of proof in any dispute on the independent video programming provider. They present, however, no reason for this assignment, other than perhaps their demand that OVS be a cable system in disguise. Once again, the strong and absolute language of the statute the Commission is required to prohibit discrimination and ensure reasonable rates militates against any requirement that would place before an independent video programming provider so formidable a barrier to entry. The cardinal difficulty faced by any independent video programming provider will be that the evidence necessary to prosecute a complaint belongs to the OVS operator, not the independent video programming provider. It follows that the OVS operator must carry the burden of proof. This requirement should streamline the dispute resolution process by making unnecessary the sort of elaborate discovery characteristic of judicial litigation. If OVS is not to be subjected to detailed, specific regulation, conditions such as the burden of proof must be chosen so that OVS operators will have the correct incentives to promote the goals of OVS, not impede them. In effect, placing the burden on the OVS operator may be viewed as a trade-off for not imposing detailed restrictions or carrying out detailed cost studies. The LECs cannot reasonably expect to have both the benefit of lenient rules and the benefit of no burden of proof. The procedures proposed by the LECs would be inconsistent with the statute, because they would not permit independent video programming providers to bring complaints with sufficient facility that the rule could be said to prohibit discrimination or ensure reasonable rates. Rather, the rules proposed by Bell Atlantic et al., in particular, appear to be designed to do everything possible to make dispute resolution burdensome for independent video programming providers, and to skew the outcome in the OVS operator's favor. It is striking that out of the seventeen pages of rules proposed by Bell Atlantic et al., ten deal with the dispute resolution process, most of these devoted to the erection of a series of hurdles a video programming provider must pass to prosecute a complaint. This extreme disproportion, in rules that are supposed to be designed to protect independent video programming providers, provides a vivid sense of the LECs' priorities (and the likely result if they are allowed to exercise untrammeled "business judgment." III. 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 Rules To Protect Independent Video Programming Providers. As noted above, the statutory language is unambiguous and absolute: the Commission's rules must protect independent video programming providers from discrimination. The attached proposed rules make the procedural requirements that protect against discrimination (such as the burden of proof) deliberately strong, and establish a clear objective yardstick to show that rates are reasonable, in order to avoid requiring the Commission to carry out a substantive analysis in each case for example, a cost-of-service analysis. 1. The LECs Systematically Confuse Markets. The objections raised by the LECs to reasonable carriage requirements reflect a systematic confusion between the cable- like third of the OVS and the common-carrier-like two-thirds. It is essential to keep in mind that the nondiscrimination and reasonable-rate requirements apply to the OVS operator's relationship with video programmers, not with end-users (subscribers). Thus, for example, Bell Atlantic et al. claim that an OVS operator must follow established cable industry practice in dealing with independent video programming providers. But there is no such cable industry practice, because a cable operator carries no independent video programming providers. Rather, Bell Atlantic et al. are really talking about the OVS operator's own contracts for the programming that it (the OVS operator) provides directly to subscribers not the OVS operator's carriage contracts with independent video programming providers. Thus, the LECs' analogy fails. The same confusion is perpetuated in the LECs' discussions of making carriage contracts publicly available and of carriage rates. In fact, two different markets are involved. There is no existing market, or any competition, in the area (carriage) to which the statutory requirements apply. In a similar way, as discussed below, certain LEC arguments confuse the market for carriage with the market for end-users (subscribers). Competing cable operators may share the OVS operator's market as to subscribers, but will provide no realistic competitive alternative for independent video programming providers in the market for access to distribution. 2. Common carriage concepts must be applied to the extent necessary to achieve the objectives of the OVS provision. In some cases, LECs seek to avoid the requirements of the statute by claiming that such "Title II concepts" cannot be applied to a system not subject to Title II. As pointed out in our initial comments, this is not accurate. OVS operators are subject to the same sorts of nondiscrimination and reasonable rate requirements, with respect to their 2/3 open capacity, as are common carriers, and there is no evidence that Congress intended these terms to have any different meaning in OVS than in Title II. What Congress wished to avoid was a "rigid common carrier regime" that would include the Commission's customer premises equipment and Computer III rules, or would apply Title II directly to OVS. As evidenced by the language used in the OVS provision, Congress not surprisingly found it necessary to invoke certain common carriage concepts in setting up an open access regime. We have thus advocated the flexible application of common carriage concepts only where and to the extent necessary to achieve the statute's objectives. Thus, for example, an OVS operator is not subject to the common carrier requirement that capacity be expanded to meet all requests for carriage. On the other hand, the carrier-user relationship may be used effectively to define what counts as an independent video programming provider for purposes of the statutory 2/3 capacity limit. If the carrier-user relationship were not used, it would be difficult or impossible to account for the myriad of devices OVS operators might use to confer preferential treatment on favored, albeit not technically affiliated, programmers. B. Specific Rules Must Be Drawn to Prevent Discrimination and Ensure Open Access. 1. OVS carriage obligations must enable independent programmers to use capacity readily on the OVS. The LECs seek to evade the crucial open access requirement of the statute's OVS model in several ways. For example, Bell Atlantic et al. state that the OVS operator is not restricted to one-third of its system capacity if demand is insufficient to fill two-thirds of that capacity. While that may be true, it ignores the obvious: the rules the Commission adopts will determine, to a large degree, how much demand will appear. If OVS operators adopt obstructive carriage policies (as the LECs themselves admit they have every reason to do), and are not restrained by Commission rules, the demand will never materialize in any measurable form, since potential independent video programming providers will quickly become aware (as have potential leased access programmers) that there is no point in pursuing a will-o'-the-wisp. Thus, the Commission's rules must make it possible and practical for demand to develop, or the LECs will become de facto cable operators on their so-called OVS. Similarly, the LECs float a variety of proposals allowing the OVS operator to freeze an initial channel allocation for long periods of time on the order of five years. But any such ability on the part of the OVS operator essentially would transform OVS into a cable system for that period of time, and create a powerful and improper incentive for the OVS operator to make sure there is little demand for the 2/3 "open" capacity in the first instance. The potential for discrimination is obvious, particularly where the operative factors are within the OVS operator's control, as with the length of the carriage contracts it enters into. We suggest that the reasonable expectations referred to by the LECs may best be met by preventing the OVS operator from rejecting new independent video programming providers until and unless the 2/3 obligation is fulfilled and by ensuring a free market in resale of channel capacity, as described in our initial comments. 2. OVS rules must require uniform carriage rates. U S West argues that the Commission need make no rate rules because the market will constrain OVS rates. Here, U S West appears to confuse the carriage market with the end-user or subscriber market. Even if a cable operator competes with the OVS operator for subscribers, it will not compete for independent video programming providers. Even as a new entrant, the OVS operator will be dominant as to independent video programming providers, because there are no incumbent alternatives. Thus, it would be absurd to adopt a rule presuming that OVS carriage rates were reasonable, when the Commission has no reason whatsoever to suppose that this would be true. In the absence of actual, robust competition, the Commission has only one alternative if it does not with to undertake a cost-of- service analysis of OVS: an objective criterion such as our proposed yardstick actual carriage of independent video programming providers provides the only plausible basis for even tentatively concluding that rates are reasonable. Such a real-world test is the Commission's only alternative to the full- scale tariff-style analysis that the Commission, and the LECs, wish to avoid. 3. OVS rules must require public disclosure of carriage rates and arrangements. In protesting against public disclosure of carriage contracts, the LECs again systematically confuse independent video programming providers' contracts with the OVS operator's contracts for the programming that the OVS operator itself selects and provides over the system. It is the latter, not the former, that could be compared with existing cable programming contracts. Some LECs argue that disclosure of carriage contracts could cause competitive harm. Again, such an objection confuses the relevant markets, since the OVS operator has no competitor for carriage contracts. Moreover, there will be no competitive disadvantage as long as all OVS operators are subject to the same requirement. IV. OPEN VIDEO SYSTEMS MUST MEET LOCAL COMMUNITY NEEDS AND INTERESTS. 1. OVS Operators Must Meet Locally Established PEG Requirements. Bell Atlantic et al. suggest that the Act gives the Commission "great latitude" to keep OVS operators from having to comply with local public, educational, and governmental ("PEG") requirements. This is nothing more than wishful thinking by the LECs. The language of the Act is specific: an OVS operator's PEG obligations shall be "no greater or lesser" than those contained in the PEG provision of the Cable Act (Section 611). NYNEX, to its credit, seems to admit as much. Thus, as indicated in our initial comments, a "match or negotiate" option should be made available to OVS operators. It must be kept in mind that PEG requirements are established by localities "to meet critical localism goals." These goals were recognized by Congress in the Cable Act. As NCTA points out, "[t]he local franchising authority is the governmental entity best positioned to appreciate community needs and most experienced in the implementation of PEG access rules." 2. An OVS operator's PEG obligations extend to channel capacity, services, facilities, and equipment. NYNEX suggests that an OVS operator could be exempted from the full PEG obligations of a competing cable operator by limiting those obligations to channel capacity alone, and not to the facilities, services, and equipment that are crucial to PEG operations. Such an exemption obviously would defeat the purposes of the statutory provision to equalize the benefits provided to communities by cable and OVS operators and the burdens such competing operators assume in partial compensation for their use of the public rights-of-way. Moreover, it would ignore the fact that the various kinds of PEG support negotiated in cable franchises, such as feeder links upstream to the headend, program production assistance, and video equipment, are essential if a community is to make effective use of PEG channel capacity. But in addition, NYNEX's contention is not supported by the language of the Act. The OVS provision requires an OVS operator to fulfill the obligations of section 611 (47 U.S.C.  531), without restriction. Those obligations include the franchise provisions regarding services, facilities, and equipment for PEG use that are incorporated by way of subsection 611(c), in addition to the channel capacity discussed in subsection 611(a). If Congress had intended the OVS operator to match only the obligations of subsection 611(a), it could have specified that subsection, as it did in the preceding subparagraph with section 623(f). Thus, Congress clearly intended to place the OVS operator on a par with the cable operator as to the entire set of PEG obligations embodied in Section 611, not merely channel capacity under 611(a). If an OVS operator were exempted from other types of PEG obligations, its obligations would be "lesser" in comparison to those of the cable operator. Such a result is forbidden by subsection (c)(2)(A) of the OVS provision. 3. Local PEG channels must be available to all subscribers by individual franchise area. Bell Atlantic et al. advance in their comments a proposal for "generic PEG" without reference to specific local needs and interests. This proposal has already been refuted in our initial comments. Similarly, NYNEX suggests that where there is no cable operator, the Commission should arbitrarily assign "a reasonable amount of capacity" for PEG purposes. As indicated in our initial comments, however, only the local community can determine what PEG requirements are reasonable for that locality. U S West alleges technical problems in connection with the delivery of PEG channels to specific franchise areas within an OVS operator's system. As pointed out in our initial comments, however, this claim is specious. But we welcome the opportunity apparently suggested by U S West to "work out solutions on a system-by-system basis in cooperation with local franchising authorities." 4. An OVS operator's PEG obligations must develop with those of competing cable operators. NYNEX seeks to avoid the obligation to update an OVS operator's PEG requirements to parallel the changing obligations of competing cable systems. NYNEX suggests no rationale, however, as to why the Commission can or should override the Act in this respect. The statutory requirement that the OVS operator's obligations be "no greater or lesser" than the cable operator's has no time limit. Congress was certainly aware that PEG requirements change over time, given the renewal provisions of the Cable Act. Had Congress wished to enact NYNEX's rule, the statute would read "initially no greater or lesser." Since it does not, the OVS operator's obligation must be a continuing one. V. 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. Both LECs and cable operators appear generally to believe that the Commission could allow cable operators to become OVS operators. When tested against the statutory, contractual, and policy-related issues raised in our initial comments, however, these arguments fail. (1) Statutory language. The OVS provision not only uses different language a LEC may "provide cable service" over an OVS, but a cable operator, like any other person, may only "provide video programming" but goes to the trouble of constructing two separate sentences to describe the respective roles of (a) the LEC and (b) everyone else. The only plausible reason for this distinction is that only a LEC, not a cable operator or any other person, may be an OVS operator. In fact, the statutory language distinction between LECs, on the one hand, and cable operators and any other person, on the other hand, dooms any suggestion that anyone other than a LEC may be an OVS operator. By stating that LECs may "provide cable service" over an OVS, while cable operators and others may provide only "video programming" over an OVS, Congress recognized that the combination of distribution facilities ownership and providing video programming was "provid[ing] cable service," while providing "video programming" on distribution facilities owned by someone else (the LEC) was not. This construction is confirmed by the fact that Congress had to specifically exempt OVS operators from certain provisions of Title VI. Such an exception would be unnecessary, of course, if owning distribution facilities and providing video programming did not transform an OVS operator into a cable operator fully subject to Title VI, but for the exceptions in the OVS provision. What this means is that only LECs can provide "cable service" i.e., own the facilities and provide video programming over an OVS. Cable operators and any other persons may not provide "cable service" over an OVS, because they may not own an OVS distribution system or be an OVS operator. (2) Contractual issues. A cable operator is contractually bound by its franchise agreement to provide cable service over a cable system. If such a cable operator sought to convert its cable system to an OVS (as distinct from offering the same programming over a competing OVS), it would lose all right to be in the public rights-of-way. It would also deprive the local government of its contractual rights under the franchise, creating a takings claim against the Commission if such an action were taken under color of Commission rules. (3) Policy rationale. As pointed out in our initial comments, Congress introduced OVS to provide an additional mode through which LECs could enter the video market to compete with established cable operators. This rationale, of course, does not apply at all to cable operators. On the contrary, the conversion of a cable system into an OVS would leave the community still with a single, monopolistic distribution facility, and no new channel capacity, yet deprived of all of the protections afforded by Title VI. Some cable operators have suggested that they must be allowed to become OVS operators under the First Amendment. Such a suggestion, however, reflects a fundamental confusion about the opposite case the LECs' earlier challenges to the former telco-cable cross-ownership ban. The telco-cable ban prohibited LECs altogether from selecting programming on their own systems, leaving them no alternative means to transmit their own programming. Cable operators, however, hardly need to be OVS operators to transmit their own programming; they are already able to select essentially all the programming on their own systems. Thus, they would gain no advantage in terms of transmitting their own speech (speech they select) if they had been allowed to become OVS operators. To the contrary, properly construed, OVS would give cable operators less capacity to transmit their own programming. Moreover, as discussed above, the governmental interest in competition provides a rationale for restraining cable operators from being OVS operators that, once again, had no exact parallel in the telco-cable cases. If the Commission were to conclude that a cable operator may become an OVS operator at all (with the consent of its contractual partner, the local franchising authority), a cable operator could only be permitted to do so in those telephone service areas where it is also a LEC. This follows from the fact that even traditional LECs may become OVS operators only in their telephone service areas. It would make no sense for a cable operator to have a wider scope for OVS than the telephone companies for which OVS was designed. B. A Cable Operator May Provide Programming Through An OVS, But Only If Consistent With Its Cable Franchise and the Public Interest. The danger of collapsing potential competition into a new consolidated monopoly is reflected in LECs' arguments that they should be able to refuse carriage to local cable operators. None of the comments appear to address the concerns raised in our initial comments. VI. THE OVS CERTIFICATION PROCESS MUST ENSURE THAT AN OVS COMPLIES WITH LOCAL RIGHTS REGARDING THE PUBLIC RIGHTS-OF-WAY. A. The Act Neither Preempts, Nor Authorizes the Commission To Preempt, State and Local Authority Over the Public Rights-of-Way. Some LECs argue that the OVS provision somehow preempts state and local authority to manage and to receive fair compensation for the use of their public rights-of-way. These arguments simply represent the high-water mark of the LECs' attempt unilaterally to expand their rights while evading the associated responsibilities. Not only do these arguments lack any support in the statute; in addition, their acceptance in Commission rules would trigger massive Fifth Amendment litigation, delaying the OVS experiment indefinitely for the sake of an essentially frivolous argument. B. The Act Does Not Expressly Preempt State and Local Right-of-Way Authority. Neither Title VI, nor the new OVS provision, makes any reference to preempting any state or local requirement to obtain a franchise or similar authorization to use local public property not belonging to the federal government. Rather, Title VI merely adds a federal law franchising requirement; it does not take any franchising requirement away. The OVS provision simply exempts OVS operators from that federal requirement. The OVS statutory provisions work within federal law alone; they contain no reference to right-of-way authority under state or local law. Section 573(c) merely exempts an OVS from parts of Title VI (itself only a federal law requirement), substituting the new federal regulations now under consideration. But exempting OVS from the federal requirement for a local cable franchise in Title VI has no effect whatsoever on any state or local requirement for right-of-way authorization. The distinction between the federal law and the parallel state or local law may be illustrated by analogy. There is no question that the Commission has plenary authority over interstate communications by wire under Title II, and over broadcasting under Title III. Yet no one could seriously claim that a Section 214 authorization granted by the Commission, or a Title III broadcast license issued by the Commission, preemptively entitles the holder to install facilities on property that does not belong to it. The OVS provisions are certainly no more preemptive than Title II or III. On the contrary, in the case of OVS, Congress has made clear that its intent is not to preempt local authority with respect to management of the rights-of-way. The legislative history of the OVS provision states: 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 the local government to manage its public rights-of- way in a nondiscriminatory and competitively neutral manner. Thus, no express preemption may be alleged. C. The Act Does Not Impliedly Preempt State and Local Right-of-Way Authority. Sensing that Congress did not expressly preempt state and local right-of-way authority over OVS, the LECs try to argue that preemption is implied. Such implied preemption could occur in only two ways: either by actual conflict between federal and state or local law, or by an expression of congressional intent to preempt an entire field of regulation. Neither is applicable here. 1. The OVS provision is not inconsistent with state or local law. The LECs present no argument suggesting that it would be impossible for them to comply with both federal and state or local requirements, and thus that an actual conflict exists. Certainly LECs would prefer not to have to comply with both requirements, but that is no basis for preemption. In fact the two levels of law here are complementary, not contradictory. Federal licensing of an entity to provide an interstate communications service is entirely consistent with state or local authorization to use and occupy the public rights-of-way. Just as federal OVS licensing does not excuse a LEC from having to obtain office space or purchase equipment for its system, so it does not excuse the LEC from having to lease the public rights- of-way it wishes to use. In order for the LECs to have a viable claim of impossibility, the FCC would have to point to a specific local requirement that makes compliance with OVS statutory requirements or Commission regulation an impossibility. They have presented no such claim. 2. The OVS provision does not purport to occupy an entire field of regulation. NYNEX argues that the OVS provision preempts the field of regulation in other words, Congress legislated in an area "comprehensively with an intent to occupy an entire field of regulation and has left no room for States to supplement federal law." NYNEX's "preempt the field" argument is misguided. As an initial matter, no such regulatory intent to exclude all state regulation is evident in Section 573. On the contrary, as noted above, the legislative history makes clear that Congress expected state and local governments to retain a role with respect to OVS. Thus, Congress cannot have intended to "occupy the field" of all OVS regulation. More fundamentally, even if Congress did intend to preempt the field of OVS with respect to service and rate regulation, that says nothing about local governments' property rights. No "preempt the field" precedent of which we are aware has construed the doctrine to sanction a Fifth Amendment taking of property. The "preempt the field" doctrine simply cannot be transformed into a power to appropriate the fields i.e., to appropriate local streets and rights-of-way that do not belong to the federal government. 3. The OVS provision may not be interpreted in such a way as to require a taking. For the reasons discussed in our opening comments, the OVS provision specifically cannot be read to preempt state or local right-of-way authority, for constitutional reasons. Since the OVS provision contains no specific intent to carry out a taking and contains no mechanism to award just compensation, it cannot be construed to sanction such a taking. D. The LECs Present No Sound Policy Reason Favoring Preemption and the Resulting Taking. The sole reason the LECs offer for preempting state and local authority is that such preemption is the only regulatory benefit an OVS operator would gain. As noted above, that is not true. If the LECs believe that Congress should have provided even more incentives, that belief does not authorize the Commission to override the statutory mandate. Even if LECs were correct in suggesting that OVS could not succeed without (in effect) a subsidy in the form of free use of state and local rights-of-way, that particular property does not belong to Congress or the Commission to give away. If the LECs are determined to seek a federal subsidy to encourage them to adopt OVS, they should seek it openly from the federal budget, not by unfunded mandate. The LECs' attempt to promote a taking of state and local property under the OVS provision, if successful, would not "forestall future disputes and litigation," as NYNEX suggests. Rather, such an attempt would provoke such disputes and litigation litigation that would unnecessarily delay the opportunity to test OVS in the market, as Congress intended. VII. CONCLUSION The comments submitted on the NPRM leave unaffected the key conclusions reached in our initial comments. In accordance with those comments, we propose the attached draft OVS rules in response to the Commission's request for proposed rules to assist it in crafting effective OVS regulations. 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 11, 1996 WAFS1\44407.1\104257-00010