Report No. CC-580 COMMON CARRIER ACTION July 6, 1994 FIRST COMMERCIAL OFFERING OF VIDEO DIALTONE AUTHORIZED FOR DOVER TOWNSHIP, NJ The Commission has granted the application of New Jersey Bell Telephone Company (NJB) to construct and operate a video dialtone system to serve approximately 38,000 homes in Dover Township, NJ. The Commission found that NJB's proposal would promote the public interest in Dover Township by stimulating investment in advanced telecommunications infrastructure, providing additional competition in the provision of video services, and broadening consumer choice by diversifying available video services. FutureVision, NJB's first programmer-customer, has stated in a recent FCC filing that it intends to offer basic cable service to consumers at a rate 20% below the competition. This is the first application for commercial video dialtone service the Commission has granted. NJB filed the original application in late December 1992, but substantially amended it in September 1993 in response to a letter adopted by the Commission. The Commission has also authorized five video dialtone trials. In the Video Dialtone Order, released in August 1992, the Commission established the video dialtone regulatory framework. The Commission defined video dialtone as the provision of a basic common carrier platform to multiple video programmers on a non- discriminatory basis. A "basic platform" is a common carriage transmission service that enables customers to gain access to video programming carried on that platform. If a local telephone company provides such a basic platform, it may also provide enhanced and unregulated services related to the provision of video programming. The Commission granted the application subject to conditions that will help protect against improper cross-subsidization and discrimination by NJB, and help ensure that sufficient video dialtone capacity is available for video programmer-customers. (over) - 2 - NJB plans an initial capacity of 64 digital channels, to be expanded through software compression techniques to 384 digital channels by the end of the year. The 384 channels would offer capacity greater than existing standard commercial cable systems and are expected to accommodate foreseeable demand. The Commission's grant is conditioned on the requirement that any video dialtone service offered after January 3, 1995, have available 384 channels of capacity and that all video programmer- customers pay the tariffed rates filed with and approved by the FCC. The Commission also required NJB to establish subsidiary accounting records to capture the revenues, investments, and expenses associated with the provision of its video dialtone service. These records must be reported to the FCC on a quarterly basis. NJB has indicated that, if it receives volume equipment discounts from suppliers, the project could break-even in four years. If NJB does not receive volume discounts, it expects to break even in six years. NJB estimates that eventually it will sign up 35% of the 38,000 homes-passed for its video dialtone service. NJB will compete with the two existing cable providers in the service area. While the Commission did not endorse either NJB's penetration figures or projected break-even estimates, the Commission concluded that the company had presented a prima facie economic justification for the project. NJB expects video programming to include both conventional entertainment and interactive video information services. NJB states that the system eventually will be able to transmit video programming to all subscribers, to a small geographic set of subscribers, or to individual households for on-demand services. NJB states that the video signal will travel over fiber optic cable to the curb and over coaxial cable from the curb to the home. The video dialtone service will be delivered through existing television sets, but will require set-top converter boxes to convert the video signal from digital to analog. The fiber cabling also will carry voice and data transmissions, which then will be transmitted over copper wires from the curb to the home. - 3 - In response to a complaint by the National Cable Television Association, the Commission found that NJB had not engaged in unauthorized construction of its video dialtone facilities. Action by the Commission July 5, 1994, by Order and Authorization (FCC 94-180). Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong with Commissioners Barrett and Ness issuing separate statements. - FCC - News Media contact: Rosemary Kimball at (202) 418-0500. Common Carrier Bureau contacts: Greg Lipscomb at (202) 418- 1583 and Adam Kupetsky at (202) 418-1578.