Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Implementation of Section 302 ) of the Telecommunications Act ) CS Docket No. 96-46 Act of 1996 ) ) Open Video Systems ) COMMENTS OF RAINBOW PROGRAMMING HOLDINGS, INC. Howard J. Symons James J. Valentino Fernando R. Laguarda MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. 701 Pennsylvania Avenue, N.W. Suite 900 Washington, D.C. 20004 202/434-7300 Its Attorneys April 1, 1996 TABLE OF CONTENTS Page INTRODUCTION AND SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . 1 I. OPERATORS OF OPEN VIDEO SYSTEMS MUST TREAT VIDEO PROGRAMMING PROVIDERS IN AN EQUITABLE AND NONDISCRIMINATORY MANNER. . . . . . . . . . . . . . . . . . . . . . 7 A. The Commission should adopt a definition of affiliate that is sufficiently broad to prevent discrimination. . . . . . . . . . . . . . . . 7 B. Access to the video platform must be open and non-discriminatory 10 1. The enrollment and selection of video programmers must not advantage affiliated or favored programmers . . . . . . . 10 2. Channel capacity must be allocated in a manner that ensure fair competition . . . . . . . . . . . . . . . . . . . . . . . 14 3. Unaffiliated programmers should have nondiscriminatory access to necessary software and equipment. . . . . . . . 17 4. All VPPs must participate in developing channel sharing plans 20 5. OVS operators should not be permitted to use their telephone monopolies to gain marketing advantages . . . . . . . . . 23 6. The Commission should require separate subsidiaries to guard against cross-subsidization and anti-competitive conduct. 25 II. FORCING VIDEO PROVIDERS TO MAKE THEIR PROGRAMMING AVAILABLE TO RIVALS ON AN OPEN VIDEO SYSTEM WILL STIFLE COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 III. THE COMMISSION SHOULD IMPLEMENT AN EFFECTIVE DISPUTE RESOLUTION PROCESS. . . . . . . . . . . . . . . . . . . . . . . . . 30 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Implementation of Section 302 ) of the Telecommunications Act ) CS Docket No. 96-46 Act of 1996 ) ) Open Video Systems ) COMMENTS OF RAINBOW PROGRAMMING HOLDINGS, INC. Rainbow Programming Holdings, Inc. ("Rainbow"), by its attorneys, hereby submits these Comments in response to the Commission's Notice of Proposed Rulemaking in the above captioned proceeding. INTRODUCTION AND SUMMARY Rainbow, a wholly-owned subsidiary of Cablevision Systems Corporation ("Cablevision"), is the managing partner of several partnerships that provide a unique mix of national and regional video programming to millions of subscribers of cable and other multichannel video delivery systems across the country. Nearly two years ago, with a letter to Bell Atlantic, Cablevision and Rainbow initiated requests for capacity on numerous video dialtone systems. They believed then -- as they do now -- that truly "open" video platforms would offer them the rare opportunity for direct access to the consumer unimpeded by an intermediary. They took seriously the Commission's commitment to ensuring nondiscriminatory access to the video platform as the means of achieving "increased competition in the delivery of video services and greater diversity of video programming." In practice, however, video dialtone proved to be a discriminatory platform that obstructed competition rather than enhancing it. Rainbow's experiences since 1994 -- with Bell Atlantic, SNET, and US West -- have fallen far short of the video dialtone promise of nondiscriminatory competitive opportunities. In 1995, for instance, Rainbow obtained 192 channels on Bell Atlantic's Dover Township, N.J. video dialtone system, but Rainbow has been unable to put these channels to use because of Bell Atlantic's repeated anticompetitive and discriminatory conduct. Specifically, Bell Atlantic and its favored programmer, FutureVision, have used their unilateral control over essential equipment and software to effectively deny Rainbow access to Bell Atlantic's purported "open system." Even if Rainbow could somehow gain nondiscriminatory access to these essentials, however, it would still need to contend with pricing strategies that have been secured by undisclosed and unfair business affiliations between Bell Atlantic and FutureVision and overcome unreasonable tariff terms and conditions that have been structured to enable Bell Atlantic to discriminate against Rainbow. Meanwhile, Bell Atlantic's FutureVision has begun commercial service. Likewise, over Rainbow's repeated objections to the Commission, US WEST and SNET improperly denied Rainbow access to any capacity on their video dialtone systems, while according their favored video programmers the benefits of pre-allocated channels, preferential channel positions, unreasonably excessive channel capacity, and impermissible channel sharing plans. Not coincidentally, having thwarted Rainbow's efforts to obtain its own capacity on their video platforms, all three telephone companies -- through their proxy video programming providers -- have sought coerced access to Rainbow's programming. Rainbow stands ready and willing to compete in the video dialtone marketplace and use its resources and expertise to offer consumers high quality video programming, but it has found the rules of engagement to be far different from the video dialtone rules set forth by the Commission. Willful efforts by telephone companies to defeat competition and the Commission's unwillingness to make vigorous enforcement of its own rules a priority have thus far combined to defeat Rainbow's efforts to use video dialtone to increase competition in the video marketplace. At every turn, the telephone companies successfully frustrated Rainbow's considerable efforts to make video dialtone a viable and competitive business. The lesson here is straightforward: unless the Commission wishes to repeat the mistakes of video dialtone, it must craft rules for open video systems that unambiguously preclude the kind of discrimination and anti-competitive conduct that characterized the telephone companies' dealings with Rainbow. It is not enough to proscribe discrimination with a general directive; the rules must be clear and readily-enforceable. Rainbow again stands ready to take advantage of the opportunities presented by the availability of open video delivery systems, and to use those opportunities to provide a wide variety of news, sports, and entertainment programming directly to customers. Without clear, well-defined safeguards to ensure the nondiscriminatory treatment of unaffiliated programmers on open video systems, however, local exchange carriers and their proxy programmers will once again frustrate competition by using open video systems to foreclose entry and establish a marketplace advantage for their own services. To prevent the recurrence of the serious problems that characterized video dialtone, these rules must ensure that: all video programming providers ("VPPs") are treated in a nondiscriminatory fashion with respect to access to the open video system; all VPPs have nondiscriminatory access to the information and essential features (such as channel positioning, end-user data, and system hardware and software) necessary to utilize the platform; all VPPs have nondiscriminatory access to system rollout plans, activation schedules, billing services, and other information or services to enable all programming providers can market on an equal footing with the programming provider affiliated with the OVS operator; there is full public disclosure of all business relationships between OVS operators and video programming providers; there is an open, prospective, and verifiable enrollment period of reasonable duration; the enrollment process is fair to all interested parties, and the result is demonstrably fair; and any channel sharing mechanism has been agreed to by all VPPs that will actually participate on the platform, and that channel sharing will be administered in a manner that can accommodate new VPPs as existing ones drop off or channel capacity expands. Adherence to a nondiscriminatory regime also means that a VPP should not be allowed to use the program access rules to demand programming from a would-be competitor, as the favored programming providers on video dialtone platforms have done. The OVS framework contemplates that all video programmers will compete on equal terms if they choose to obtain capacity on the platform. If Rainbow is forced to provide programming to one of its potential competitors on an open video system, it will effectively be foreclosed from competing directly for subscribers. Congress specifically limited the applicability of the program access rules to OVS operators; extending it to program providers utilizing the platform would diminish the diversity of voices on open video systems. Finally, the Commission must develop effective grievance procedures. Potential programmers should not be forced into "take it or leave it" deals with OVS operators. Congress provided that all disputes under the OVS rules must be resolved within 180 days. In order to implement this mandate, the Commission must identify specifically the remedies for aggrieved parties, including an immediate right of access to capacity on an expedited basis at rates, terms, and conditions that are not discriminatory in comparison to those imposed on affiliated programmers. An immediate right of access is absolutely necessary to bring some fairness to the relationship between them and the OVS operator. Without such a provision, it will be too easy for OVS operators to evade their responsibilities under the Act. I. OPERATORS OF OPEN VIDEO SYSTEMS MUST TREAT VIDEO PROGRAMMING PROVIDERS IN AN EQUITABLE AND NONDISCRIMINATORY MANNER Congress established open video systems as an alternative to cable, offering OVS operators streamlined regulation in exchange for the nondiscriminatory provision of channel capacity. OVS is not like traditional cable service because it is based upon a video "platform" that is open to competing programmers -- not just the OVS operator's programming. Specific nondiscrimination rules are absolutely essential if OVS is to provide a real competitive alternative that enhances diversity and consumer choice in the video marketplace. It is noteworthy that, in the absence of such rules, virtually the only program providers using video dialtone are the telephone companies' proxy programmers. A. The Commission should adopt a definition of affiliate that is sufficiently broad to prevent discrimination As a threshold matter, the test of reasonable non-discrimination rules is the definition of an "affiliate." Define this term too narrowly, and a local exchange carrier will be able to favor captive or proxy programmers or video programming providers ("VPPs") without violating the statutory proscription on discrimination. To avoid this result, "affiliation" should be defined to include any financial or business relationships, by contract or otherwise, directly or indirectly, between the OVS operator and the VPP, except the carrier-user relationship. This definition would encompass the existence of any ownership or financial interest, affiliation, contingent interest, or other agreement between a OVS operator and a video provider on its platform, including, but not limited to, the right to acquire such video provider or to utilize their capacity, which could give the OVS operator the incentive to favor that video provider over others. Of course, there must be full public disclosure of all business relationships between OVS operators and video programming providers in order to enforce this rule. The proposed definition would capture not only formal relationships, such as the existence of a management agreement and equity investments, but also "informal" relationships, such as favored contracts and agreements between the OVS operator and the programmer that were commonplace in video dialtone. As Rainbow has demonstrated, local exchange carriers ("LECs") have repeatedly established relationships with certain video programmers that were the antithesis of the kind of arm's-length transaction between an independent video programmer and a platform provider envisioned under video dialtone. SNET's carriage agreement with Connecticut Choice Television ("SNET/CCT Agreement") illustrates the lengths to which the LECs will go to use proxies to chill competition on their video dialtone platforms. The SNET/CCT Agreement provided SNET with a direct financial incentive to discriminate in favor of CCT at the expense of Rainbow and other independent programmers that sought capacity on SNET's platform by giving SNET both a conditional purchase option in the bulk of CCT's capacity and a right to veto any potential third-party purchase of CCT, as well as a right to acquire CCT's business interest. In Dover Township, New Jersey, Rainbow discovered evidence of a continuing preferential arrangement between Bell Atlantic and one particular video programming provider -- FutureVision of America Corp. ("FutureVision"). Those arrangements enabled FutureVision to provide service at rates that no other competitor could possibly match, and gave it first claim to interface software that its competitors would need to provision of video programming on Bell Atlantic's platform. If OVS operators are permitted to bestow such advantages on allegedly "unaffiliated" program providers, they will use these tactics to set up proxy programmers to displace true arm's-length competitors and deprive unaffiliated entities of the nondiscriminatory access mandated by the 1996 Act. B. Access to the video platform must be open and non-discriminatory Under the Commission's video dialtone rules, which ostensibly required "access on nondiscriminatory terms to LEC video delivery capabilities," Rainbow nonetheless experienced countless problems with providers regarding channel allocation, channel assignment and positioning, pre-subscription and notice provisions, marketing, and access to system hardware and software. There is every reason to believe that these problems will recur unless the Commission adopts clear and readily-enforceable nondiscrimination standards. 1. The enrollment and selection of video programmers must not advantage affiliated or favored programmers The OVS rules must ensure that operators do not discriminate in favor of affiliated programmers in selecting programmers for carriage. All VPPs must be treated fairly and with equal consideration. Again, Rainbow's experience is instructive. In Connecticut, for example, SNET consistently discriminated against Rainbow in its attempts to secure capacity on SNET's now-defunct video dialtone trial system. From the outset, SNET made every effort to game the allocation process in order to ensure that its captive programmer, Connecticut Choice Television ("CCT") obtained the most favorable channel capacity. First, SNET and CCT initiated discussions that would permit CCT "to offer packaging of cable channels on VDT service if SNET was to offer such a service" almost three weeks before SNET filed its request for Commission authorization to conduct its 1,600-home video dialtone trial in West Hartford, Connecticut. Within weeks of receiving authority to conduct its West Hartford Trial, SNET filed for an extension and amendment to conduct a one-year trial of 150,000 additional households in the Hartford and Stamford areas and almost immediately thereafter awarded CCT 49 of the 53 channels on the extended platform. In essence, the vast bulk of SNET's broadcast service capacity was assigned to CCT before Rainbow or any other unaffiliated programmer even had notice of this capacity. Rainbow was given no opportunity to seek capacity on the platform comparable to what was given away to CCT. With respect to the limited amount of capacity remaining, SNET made sure that its affiliated programming entity, SNET Diversified Group ("SNET Diversified"), rather than Rainbow, secured those channels. On January 23, 1995, Rainbow wrote to SNET seeking to obtain capacity on the basic platform. SNET did not respond until more than three months later. By letter dated April 27, 1995, SNET forwarded to Rainbow some general information and informed Rainbow that a "formal" request was necessary to secure platform capacity, even though no other video programmer had ever before been required to make such a formal request. The very next day -- and prior to the time Rainbow received the informational letter from SNET -- SNET Diversified, an unregulated affiliate of SNET, requested all remaining platform capacity and Rainbow was subsequently told there was no more channels available. Not until nine months after allocating the bulk of its analog broadcast capacity to CCT did SNET purport to propose an "open enrollment" process -- a process that would have provided Rainbow the "opportunity" to request a maximum of two channels of programming of its own choosing on SNET's video dialtone platform. To avoid this result under OVS, it is essential that the Commission establish certain core safeguards to govern the programmer enrollment period: the enrollment must be held open for a reasonable and publicly documented time period; the OVS operator should not require unreasonable deposits from interested programmers; and the OVS operator should give all programmers access to information regarding the rates, costs, and nature of additional services available or necessary to provide programming through the OVS offering. Adoption of these safeguards would ensure adherence to the 1996 Act's fundamental command of nondiscrimination in the enrollment process. As demonstrated by certain aspects of Bell Atlantic's channel reservation process in Dover Township, such a plan is relatively easy to establish and administer and should provide all interested parties with an adequate framework from which to make informed business decisions regarding the video marketplace. 2. Channel capacity must be allocated in a manner that ensure fair competition In order to ensure that open video system operators allocate capacity on a non- discriminatory basis, the Commission must adopt regulations establishing the appropriate means for selecting video programmers and allocating of capacity. These regulations must provide open video system operators and video programming providers with easily understood guidance regarding compliance with the Act. Greater clarity at the outset would also reduce the number of disputes between OVS operators and programmers that will inevitably arise if the Commission adopts only a general prohibition against discrimination. Ensuring nondiscrimination requires that OVS operators: allocate channels to programmers in a fair manner based upon the video programmers' initial requests in the case of requests exceeding available capacity; set forth procedures that give programmers a role in deciding how channel positions will be determined; allow programmers to determine whether to use analog or digital capacity; and give programmers a role in channel positioning decisions. The Commission's suggestion that it could "adopt a regulation that simply prohibits an open video system operator from discriminating against unaffiliated programs in its allocation of capacity" should be rejected. Any such regulation would expand OVS operator opportunities to discriminate against unaffiliated video programs and unnecessarily postpones the carriage and allocation considerations which Congress has already determined to be essential to promote fair competition. Indeed, as the Commission learned in the video dialtone context, the allure of promulgating an abbreviated rule now is far outweighed by the costs of adjudicating disputes in an arena of uncertainty down the road. Experience has shown that in the absence of specific rules, OVS operators will likely deny unaffiliated or non-favored programmers full and fair access to their open video system platforms. Under video dialtone, the LEC simply handpicked a favored video programmer to utilize all, or virtually all, of the platform's available capacity through individual discussions and closed negotiations. Rather than establish a formal process to solicit capacity requests from potential video programmers, SNET, US WEST, and, initially, Bell Atlantic, acted to ensure that their affiliated or favored programming entities, rather than truly independent video programmers, would secure the lion's share of capacity on their video dialtone platforms under preferential terms and conditions that were not available to unaffiliated providers. While SNET's and Bell Atlantic's attempts to secure capacity for their favored programmers were fairly blunt, Rainbow experienced a more creative, but no less anti- competitive, form of discrimination with regard to its attempt to secure channel capacity on US WEST's video dialtone trial system in Omaha, Nebraska. In Omaha, US WEST notified only selected VPPs about its trial through a "requester/provider letter." Rainbow was not one of those who received such a notification. Not only was Rainbow thereby foreclosed from the initial channel allocation, but even when non-shared channels on the platform became available, Rainbow was informed that it could not have access to that capacity. Rather than allocating these surrendered channels to new video providers, US West gave most of them to Interface Communications Group, Inc. ("Interface") -- US WEST's favored programmer. The upshot of this process was to enable Interface, which initially was to receive only nine channels on the Omaha system, to ultimately control all 77 analog channels -- including the 37 designated for third-party programmers. Rainbow has been denied any capacity in Omaha. If it is going to prevent these abuses in the future, the Commission must not only adopt specific rules to govern channel allocation, it must ensure a meaningful opportunity to enforce those rules. In this regard, Rainbow agrees that agreements should between OVS operators and the programmers utilizing OVS should be available for public review. Full and open disclosure will help to ensure parity between OVS operators and competing MVPDs in accordance with the intent of Congress and the provisions of the Act. The Commission's rules provide adequate protection for proprietary information. 3. Unaffiliated programmers should have nondiscriminatory access to necessary software and equipment The 1996 Act directs the Commission to adopt regulation to assure the competitive availability of converter boxes, interactive communications devices, and other customer premises equipment. These regulations, and the 1996 Act's requirement to "ensure that the rates, terms, and conditions" for video programming on an OVS platform are "just and reasonable," clearly give the Commission the authority to require an OVS operator to make available all equipment necessary to access the OVS platform and provide service to customers on the same rates, terms and conditions provided to its affiliated programmers. Indeed, the prospects for fair competition will never be realized unless the Commission insists upon the core obligations for nondiscriminatory access to all essential equipment required to deliver video programming to subscribers over an OVS platform. Likewise, the Act's nondiscrimination requirement must be read to apply to the availability of the software necessary for unaffiliated VPPs to gain access to the platform to provide service. Rainbow's experience with Bell Atlantic's video dialtone system in Dover Township demonstrates that, absent sufficient regulation, a local exchange carrier will use its control over equipment and software to effectively deny unaffiliated video programmers access to an ostensible "open" system. As Rainbow explained in its Opposition to Bell Atlantic's Video Dialtone Service Tariff, despite requesting capacity for 192 channels on the Bell Atlantic platform, Rainbow did not have an equal opportunity to secure access to components critical to the provision of video dialtone service such as digital set-top boxes. This equipment was not available from other sources at commercially reasonable prices. Likewise, Rainbow found that without timely access to interface software, it could not access potential customers over the Dover Township platform. That software is under the control of FutureVision, Bell Atlantic's favored programmer, which threatened to withhold it until Rainbow licensed FutureVision to carry Rainbow's programming. FutureVision's blatant attempt to leverage its control over this essential software underscores the need for Commission regulation to ensure that access to critical OVS equipment and capabilities are provided on the same rates, terms and conditions provided to OVS operators and their affiliates. Because OVS systems are likely to involve complicated and expensive equipment for which there is no competitive alternative, Commission intervention is overwhelmingly just and necessary. By mandating that essential components be offered on a nondiscriminatory basis until such time as it is competitively available, the Commission will help ensure fair competition under OVS. OVS operators should not be permitted to discriminate in the provision of essential equipment and functionalities. 4. All VPPs must participate in developing channel sharing plans The Commission must ensure that channel sharing is not used to advantage favored programmers or provide traditional cable service under the guise of OVS. Channel sharing allows the platform provider to require different programmers -- that seek to offer the same video service -- to share the channel on which that service is offered. Proponents of channel sharing believe it provides efficiencies and increases programming diversity. Contrary to the Commission's tentative conclusion, however, the Act does not permit an OVS operator to choose "how and which programming will be selected for shared channels." Such a conclusion would open up myriad possibilities for an OVS operator to extend its reach over channel capacity beyond the one-third limitation established by the 1996 Act. Rather, the statute merely permits the OVS operator to determine whether to implement a channel sharing arrangement. Channel sharing remains subject to the general statutory prohibition on discrimination. The Commission itself has recognized that channel-sharing arrangements raise significant legal and policy issues, including the possibility of unreasonable discrimination. Any channel sharing mechanism must conform to, and not supplant, the principles of nondiscrimination. To that end, channel sharing arrangements be structured and administered in a nondiscriminatory fashion by an independent third party agreed to by all video programmers on the platform. For example, under the SNET channel-sharing proposal, only one programmer on the platform, CCT, had an ostensible role in selecting the shared channel programming services. The proposal denied Rainbow and other programmers the opportunity to participate in the selection of shared channel programming services; anointed CCT as the entity designated to administer the programming for the shared channels; excluded programming services that failed to satisfy content criteria established by SNET and CCT; and contained a cost-sharing formula designed principally to force unaffiliated programmers to bear a wholly disproportionate share of CCT's costs. SNET's channel-sharing plan amounted to nothing more than an effort to preserve and strengthen unlawful discriminatory advantages SNET had secured with its favored programmer, CCT, almost two years earlier. To prevent these abuses under OVS, channel-sharing must comply with the following principles: all video programmers on the platform should be involved in the process of selecting the programming for the shared channels; no programming services should be excluded from consideration for the shared channel package on the basis of content; unaffiliated programmers should not be required to bear a disproportionate share of the costs of the shared channels; programmers must retain the right to decline to participate in channel- sharing; and OVS operators cannot be allowed to enter into arrangements that could disproportionately favor the OVS operator or its affiliated programmer with respect to the distribution of advertisement availabilities ("ad avails") and related revenue. 5. OVS operators should not be permitted to use their telephone monopolies to gain marketing advantages Congress directed that OVS operators should be prevented from using their marketing activities to discriminate against competitors. To avoid giving its affiliated programming provider marketing advantages, the OVS operator should be required to provide unaffiliated programming providers with timely access to construction plans and activation schedules. That information is critical to knowing where and when to engage in marketing. Without access to that information, unaffiliated providers will always lag behind the marketing efforts of the OVS operator's affiliate. To counter another possible advantage that an OVS operator could confer on its affiliate, unaffiliated program providers should also be able to utilize the billing services of an OVS operator on the same terms and conditions as those services are provided to the affiliate. The Commission must also establish clear rules with respect to the joint marketing of OVS and voice telephony services by LECs. Because of the dangers of discrimination inherent in telephone company marketing of regulated and unregulated services together, the Commission should prohibit such activities by an incumbent LEC unless certain safeguards are in place. In particular, an OVS operator should not be permitted to conduct any inbound telemarketing or referrals of its video services unless it provides the same marketing on the same terms, conditions, and prices to all VPPs. The Commission should limit the inbound telemarketing or referral services provided by the OVS operator to a listing, on a rotating basis, of all video programming providers, including the OVS operator's programming affiliate, that request such a listing service. To prevent the OVS operator from using its inbound telemarketing in a manner that disadvantages a video programmer or cable operator, the OVS operator should not be permitted to include any information about the price, terms, or conditions of service offered by any video programmer or cable operator, and should be prohibited from comparing among video programmers and cable operators, or among competing program offerings on its own OVS. To avoid the possibility that a LEC would use its monopoly-derived customer lists to gain an unfair advantage in the outbound telemarketing of unregulated services, moreover, the Commission should bar such telemarketing at least until the LEC can show that a competing multichannel video programming distributor is engaged in the outbound joint marketing of local telephony and video services. The Commission must also ensure that all video programmers on the OVS platform obtain access to the same customer information on a real time basis. Information regarding deployment should also be provided on a nondiscriminatory basis. Equal access to information about potential and actual subscribers is critical in promoting fairness on open video systems. Not only is such information necessary for billing, it is invaluable for marketing purposes. Information about potential end-user subscribers, as well as deployment plans and schedules, will allow programmers to assess the market and to advertise to those customers. OVS operators will certainly have access to that information. Finally, under no condition should the OVS operator be allowed to market any programming package offered on its service. The Commission correctly recognized that programming providers should not be forced to relinquish control over their own products. Permitting OVS operators to market the services offered by unaffiliated programmers would present countless opportunities for price discrimination, among other things, and discourage independent offering of competing program packages on the OVS system. 6. The Commission should require separate subsidiaries to guard against cross-subsidization and anti-competitive conduct In order to deter cross-subsidization and anti-competitive conduct by local exchange carriers, the Commission should require LECs to operate their open video systems, and provide programming to subscribers, through an affiliate that is structurally separated from the LEC's regulated telephone operations. The separate affiliate would act independently of the telephone operating company; maintain separate books, records, and accounts; have separate officers, directors; and employees; obtain credit separately from the telephone operating company; and conducts all of its transactions with the operating company on an arm's-length basis, with any such transactions reduced to writing and available for public inspection. While structural separation does not by itself prevent unlawful activity, it has proven useful as a means of deterring such activity by highlighting the transactions between a regulated entity and its unregulated affiliate. The Commission has long employed this tool to ensure that the entry of monopoly local exchange carriers into competitive markets does not impede competition. In the case of OVS, arm's-length separation between the LEC's telephone operating company and its OVS affiliate and between the "wholesale" and "retail" OVS offerings of the LEC is essential in order to provide a meaningful opportunity to detect and police the many and varied anti-competitive activities that could arise. With respect to Bell operating companies ("BOCs"), a structural separation requirement for OVS is also compelled by the 1996 Act. Section 272(a)(2)(C) of the 1996 Act requires a BOC to establish a separate affiliate for interLATA information services. "Information service" means "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications." The provision of video services to subscribers, whether over a cable system or otherwise, is an information service, and the Commission has long held that the last-mile distribution of video programming is an interstate service. II. FORCING VIDEO PROVIDERS TO MAKE THEIR PROGRAMMING AVAILABLE TO RIVALS ON AN OPEN VIDEO SYSTEM WILL STIFLE COMPETITION The Commission rightly recognized that programmers have a right to exercise control over their own product. This point extends beyond channel sharing arrangements and applies with equal force to the applicability of the program access rules. Congress itself limited the applicability of the program access rules to operators of open video systems; nothing in the 1996 Act suggests that programmers must provide their services to competing users of an open video system. The Commission should make clear the limited reach of program access in the context of OVS. In this context, Rainbow's experiences are again instructive. It can be no coincidence that, having thwarted Rainbow's efforts to obtain its own capacity on their video platforms, SNET, US West, and Bell Atlantic -- through their respective proxies CCT, Interface, and FutureVision -- have all sought to use the program access rules to demand Rainbow's programming for their own use. If they succeed and Rainbow is forced to provide programming to one of its potential competitors on an open video system, Rainbow will effectively be foreclosed from competing directly for subscribers. The OVS framework contemplates that all video programmers will compete on equal terms if they choose to obtain capacity on the platform. Enabling Interface or FutureVision to forcibly obtain the Rainbow's programming would fundamentally undermine the very competition OVS is intended to promote. The OVS platform is designed to enable multiple program providers to bring their offerings directly to consumers in competition with each other and the system operator. Market forces are given full play under such a scheme. Applying program access to the relationships between programmers on the platform is directly contrary to the OVS model. If one VPP can demand gain access to another's programming, there would be little or nothing left to the second VPP's "right" to gain capacity for itself; its programming would already be available on the platform, with its access to the platform effectively usurped. Inter-programmer competition would become a nullity under such a scenario. On an OVS, each programmer is the equal of every other with respect to access to the platform. Applying program access rules in a manner that makes some programmers more equal than other can only hamstring competition as VPPs attempt to use the program access rules to obtain for themselves the rights to program services that would otherwise compete against them. The Commission cannot countenance such a result. To allow VPPs to use the program access rules to acquire the programming of their competitors would reduce the number and diversity of voices available through open video systems, dampen competition, and harm consumers. Potential new programmers would have dramatically reduced incentives to roll out new offerings on OVS, since they would be forced to relinquish their programs to their competitors. It would be easy, moreover, for a dominant VPP -- probably an affiliate of the OVS operator -- to thwart competition by demanding access to channels owned or controlled by non-affiliated, competing VPPs that have fewer channels. With fewer channels, and a reduced ability to distinguish themselves from the dominant VPP, there would soon be nothing to keep any competing programmer on the platform. III. THE COMMISSION SHOULD IMPLEMENT AN EFFECTIVE DISPUTE RESOLUTION PROCESS If OVS is to succeed as Congress intended, it is absolutely essential for the Commission to establish an effective dispute resolution process. An effective process demands clear rules, speedy resolution of grievances, and delivery of effective relief to injured parties. Congress ensured speedy resolution of grievances by requiring all complaints to be addressed within 180 days. The Commission must provide clear rules and ensure that relief is available. An effective dispute resolution process must guarantee aggrieved programmers with an immediate right of access to the OVS platform at issue for programmers who have been denied such access. Without this right, the process will be devoid of value, since time is absolutely of the essence in establishing a viable programming service on a shared platform. Once an OVS operator denies access to a VPP, the damage is done. No remedy will compensate the VPP for its delayed entry into the market. Customers cannot be required to changes their minds about the programming packages they have selected. Furthermore, the Commission must require an expedited process for resolving allocation, capacity, and service information disputes. These issues all affect the critical start-up period, when each VPP is developing its marketing and rollout strategy. Discrimination poses a significant threat to business viability at this nascent stage. If a programmer is allocated fewer channels than necessary to offer a marketable package, or if customers are not provided with important marketing materials, that programmer will inevitably be handicapped in the market. Consumers will suffer because of the resulting decline in program choice and diversity. A meaningful dispute resolution process is also essential to stimulate and encourage the development of new programs for open video systems. If the Commission fails to provide a process that can address the needs of aggrieved programmers, there will be a significant chilling effect on programmers' incentive to participate in open video systems. No programmer can be expected to invest the time and money necessary to expand its offerings into open video systems if it cannot protect itself from potential anti-competitive behavior. CONCLUSION For the reasons set forth herein, the Commission should adopt rules that ensure equitable and nondiscriminatory treatment for unaffiliated programmers seeking access to an open video system. Absent such rules, as Rainbow can attest, OVS will frustrate rather than promote the robust competition envisioned by Congress. Respectfully Submitted, RAINBOW PROGRAMMING HOLDINGS, INC. Howard J. Symons James J. Valentino Fernando R. Laguarda MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. 701 Pennsylvania Avenue, N.W. Suite 900 Washington, D.C. 20004 202/434-7300 Its Attorneys April 1, 1996 F1/50750.4