NEWSReport No. CC 95-49 COMMON CARRIER ACTION August 30, 1995 COMMON CARRIER BUREAU ALLOWS US WEST VIDEO DIALTONE MARKET TRIAL TO BEGIN APPROVES TARIFF, PART 69 WAIVER FOR ONE YEAR TRIAL The Common Carrier Bureau has authorized US West to begin offering service to customer programmers of its video dialtone market trial in Omaha, Nebraska. This service will pass 50,000 homes and US West will make available to programmers 77 analog and as many as 800 digital channels. This service would provide video programmers with a delivery mechanism to access end-users subscribers. The video dialtone system will be capable of supporting both traditional broadcast and cable television programming as well as pay-per-view, video-on-demand, and interactive services through the use of both analog and digital technology. On December 22, 1993, the Commission granted US West Section 214 authorization to conduct a technical and market trial of video dialtone service in Omaha, Nebraska. Pursuant to this authorization, US West is permitted to conduct a market trial for up to a period of one year following completion of its technical trial. In order to guard against potential unfair competitive impact on incumbent cable operators and to protect consumers, US West will require its programmer customers to notify their subscribers that this offering is being provided only on a trial basis and that it will end on August 30, 1996 and it will also require programmer customers to get an affirmative authorization from end users before US West provides any potential commercial video dialtone service on the Omaha video dialtone system. US West's proposed tariff would cover the provision of service for the duration of the market trial. In its review, the Bureau found that US West's proposed rates would not only cover direct costs but would also cover a portion of overhead costs, as required in the Commission's Video Dialtone Reconsideration Order. In granting US West Section 214 authorization for this market trial, the Commission explicitly stated that no costs associated with the construction, operation or use of the video dialtone trial shall appear in any US West rate base or as a regulated expense without prior authorization from the Commission. Therefore, all costs not recovered through the rates in this tariff or through future video dialtone service offerings will have to be borne by US West shareholders rather than telephony ratepayers. (over) The Bureau found that, given the limited duration and scope of the Omaha market trial, this tariff offering should not have any long-term unfair consequences on competitors. In addition, any competitor which can demonstrate such adverse consequences can pursue a legal remedy under Sections 207 and 208 of the Communications Act. The Bureau also noted that opponents to this authorization have provided no evidence that US West's proposed market trial rates would have a greater impact on the incumbent cable operator than would result from the normal introduction of competition in the video services marketplace in Omaha. In the VDT Reconsideration Order, the Commission found that video dialtone does not fit within the access charge rate structure established in Part 69. The Commission, noting that video dialtone is a nascent service, concluded that prescribing a rate structure at this early stage in the development of video dialtone would create a significant risk that the rate structure would fail to produce rate elements that logically match each carrier's video dialtone offering. Instead, the Commission decided, consistent with its prior treatment of other new services, that requiring local exchange carriers (LECs) to seek Part 69 waivers for rate elements would best serve the public interest, at least on an interim basis. The Bureau found that the rate structure proposed by US West appears to be reasonable in the context of a limited market trial of video dialtone service. The Bureau emphasized that the rate structure is approved only for the limited duration of this video dialtone market trial. The Bureau also today granted special permission to waive Section 61.49 of the Commission's cost support rules. Cost support for the digital portion of US West's tariff was based not on the Omaha system but rather on costs that US West would incur today if it were to deploy a state-of-the-art switched digital video broadband architecture. The Bureau found that a waiver of the cost support requirements of the Commission's rules for the digital portion of the tariff is in the public interest because any video dialtone networks that US West would deploy in the future would use the newer technology. The Bureau noted that the tariff filing by US West does include cost-based rates for the 77 analog channels it will provide. Action by the Chief, Common Carrier Bureau, August 30, 1995 by Orders and letter (DA 95-1891 and 1892). -FCC- News media contact: Susan Lewis Sallet at (202) 418-1500. Common Carrier Bureau contacts: David Nall and Kalpak Gude at (202) 418-1530.