FCC 94-350 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of the Application of ) ) U S WEST COMMUNICATIONS, INC. ) File No. W-P-C-6868 ) For Authority under Section 214 of the ) Communications Act of 1934, as amended, ) to construct, operate, own and maintain ) facilities and equipment to provide video ) dialtone service in portions of the Omaha, ) Nebraska service area. ) ORDER AND AUTHORIZATION Adopted: December 23, 1994 Released: January 6, 1995 By the Commission: I. INTRODUCTION 1. On December 22, 1993, U S WEST Communications, Inc. (US West) was granted authority pursuant to Section 214 of the Communications Act of 1934, as amended, to construct and operate facilities necessary to conduct a technical and market trial of video dialtone service in its Omaha, Nebraska service area. Subsequently, before commencing service, US West sought clarification of certain aspects of its authorization. 2. On August 5, 1994, US West filed an Amendment and Request for Modification (Request for Modification) of the Omaha Authorization. This request proposes a revised analog channel allocation plan to be used in US West's trial of video dialtone facilities and service in Omaha. For the reasons discussed below, we find that grant of the Request for Modification, as conditioned, is in the public interest. II. BACKGROUND 3. In the Omaha Authorization, the Commission authorized US West to offer video dialtone service within its Omaha, Nebraska service area on a trial basis. US West proposed a hybrid fiber-to-the-curb/coaxial cable network to transmit and deliver video dialtone, voice and data services. The network would have the capacity to provide 77 analog channels and 800 to 1,000 digital channels. US West noted that there might be analog channel capacity limitations in the short-run if unexpected demand develops. The Commission granted US West authority to conduct a technical trial limited to six months and a maximum of 2,500 households, as well as a market trial for a period of one year. 4. The Commission examined the US West application to determine whether the proposal met the requirements for video dialtone service, including whether the applicant will provide a basic common carrier platform capable of serving multiple video programmers. The Commission did not rule on US West's proposed channel allocation scheme, stating instead, "we expect US West will expand analog capacity if demand warrants." 5. In a letter dated April 26, 1994, US West asked the Commission to clarify the above-quoted language. On May 12, 1994, the Acting Chief of the Common Carrier Bureau responded, in part, to US West's request by a letter asking for additional information with respect to the trial to be conducted in Omaha, as well as the five pending US West applications to provide commercial video dialtone service (May 12 Letter). On May 16, 1994, US West responded to the Common Carrier Bureau with respect to the questions posed regarding its Omaha trial. The National Cable Television Association, Inc. (NCTA) and Metrovision, Inc., a cable television operator providing cable service within the proposed trial areas, commented on US West's response. US West also filed two additional documents reflecting oral ex parte discussions with Common Carrier Bureau staff. The subsequently filed Request for Modification incorporates previous ex parte filings and proposes a revised channel allocation plan. The request was put on public notice and comments were received from NCTA. 6. In support of its Request for Modification, US West asserts that the Commission's statement regarding expectation of expansion "could be construed to require USWC [U S WEST Communications, Inc.] to add analog channels, regardless of expense, practicality or feasibility, should demand for analog channels exceed system capacity." US West claims that such an interpretation would pose significant problems. It states that in order to expand analog channel capacity, the system architecture would have to be re-engineered. It claims that this would be very expensive, would result in the loss of digital capacity, and would cause substantial delay in commencing the trial. According to US West, the problems expansion would cause are so substantial, and the economic return so minimal, that it would be forced to reassess its plans to test video dialtone service in Omaha if analog expansion is required. 7. According to US West, the combined analog and digital capacity of its trial system, as allocated in its revised channel allocation plan, will support multiple video service providers. US West urges the Commission to focus on expanding participation, as opposed to expanded analog channels, in interpreting the expectation of sufficient capacity. It claims that its channel allocation plan expands the number of providers that have access to analog channels. According to the plan, 77 analog channels will be available for assignment on a first-come, first-served basis. Twelve of the 77 analog channels in the network will be designated as common channels. These will be channel numbers 2 through 13, which programmers will not be able to interdict, that is, block the delivery of programming to end users not subscribing to those channels on an individual basis. Twenty-eight interdictable analog channels will be designated shared channels. Thus, video programmers could aggregate the common and shared channels into a minimum package of 40 channels, excluding an allocation of non-shared analog channels. In its Request for Modification, US West proposes a revised plan to allocate non-shared analog channels. Under the new plan, four providers requesting blocks of non-shared channels can be accommodated. The first two providers that requested capacity would receive nine non-shared analog channels and the next two would receive eight. In addition, three providers requesting single, non-shared channels would be accommodated with one channel each. 8. US West states that all video program providers or enhanced service providers who request, and are allocated, analog and/or digital capacity will be permitted to participate in determining the programming on the 12 common analog channels. Only those program providers who request shared analog channels will determine what programming appears on the 28 shared analog channels. US West states that it will provide an unaffiliated facilitator to arrange video programmer meetings and to assist the groups in making programming decisions. US West states that the responsibilities of the facilitator will be: (1) to assist the group in establishing decision making rules; (2) to remain neutral as to the outcome; (3) to ensure that all participating programmers have a voice in and accept the outcome of the proceedings; (4) to keep participants focused on the process; (5) to identify relevant issues and ensure that they are addressed and resolved; and (6) to document the decisions for the participants and US West. US West also states that the programmers can choose another facilitator or choose to forgo the use of a facilitator altogether. If the group cannot decide on programming for one or more shared channels, the channels will be returned to the pool to be allocated in the same manner as non-shared analog channels, and thus, the number of channels that could be offered by any one video programmer will decrease. If the programmers cannot reach agreement on the programming to be carried on the common channels, these common channels will be left blank. US West states that it expects that a two-day facilitated session will be sufficient to select the programming, but will provide for a longer session if providers think it necessary. US West will assess a gateway connection charge for a video programmer delivering a video signal to the US West platform and will either hold one designated party responsible for this charge or, if agreed upon in advance, will hold all parties jointly and severally liable. 9. In a separately filed ex parte statement, US West has described how the Omaha trial was publicized and how the potential participants were identified. US West states that since it announced its plans in April 1993, the trial has received widespread media coverage. Many parties contacted US West with questions about trial participation. From these contacts, US West identified 44 parties who either expressed an interest in participating or who requested more information. US West sent these entities a "requester/provider letter," which set out the description of the trial, the eligibility requirements for participation, and deadlines within which participants were to respond. Seven video programmers/video service providers responded and requested analog channel capacity. III. COMMENTS 10. Metrovision filed comments in response to US West's description of its allocation plan. Although not opposing the allocation plan, Metrovision calls the plan "overly complicated." It also expresses concern about the manner in which first-come, first-served channels will be allocated, and requests confirmation that US West will give interested parties notice of the date that it will begin accepting requests for video dialtone capacity. Metrovision asserts that when limited capacity will not be expanded, no aspect of the allocation procedure should favor one programmer over another. 11. NCTA filed both comments opposing US West's proposal when it was first filed in April and an opposition to the Request for Modification. In its filings, NCTA states that US West's channel allocation plan violates the requirement that the video dialtone platform have the ability to provide capacity to multiple video programmers and to expand as demand increases so as not to be a bottleneck. Its opposition cites Commission statements indicating the Commission's commitment to the policy that video dialtone capacity be capable of expanding to meet demand. NCTA claims that video dialtone is essentially cable service, and thus, should be subject to Title VI cable regulation under the Communications Act. The Commission, however, has chosen a different regulatory scheme because of what NCTA calls "perceived differences." According to NCTA, if US West is allowed to limit capacity, contrary to the Commission's rules, one of the alleged distinctions between the two services will disappear. NCTA does not, however, challenge the technical analysis underlying US West's assertion that analog capacity cannot feasibly be added. 12. Further, NCTA states that US West's proposal violates the video dialtone regulations prohibiting telephone companies from determining how programming is presented for sale, including making bundling or tiering decisions. It argues that US West will be engaging in programmers' functions by proposing specific channel allocations (e.g., by assigning channels 2 to 13 as common channels), by determining categories of programming services (e.g., by using shared and non-shared designations), by determining the number of available channels in each category (e.g., by designating 28 shared channels, blocks of non- shared channels, and 3 individually available channels), and by using a mechanism to assign channels if demand exceeds supply (e.g., by lottery). 13. NCTA points out that no other programmers beyond the seven referenced in the Request for Modification will be allowed to participate in the trial. In addition, it asserts that even these customers had requested nearly double the number of channels US West proposes to give them. NCTA asserts that US West's plan raises issues of discrimination. Finally, NCTA states that US West has not provided sufficient publicly available information to allow proper evaluation of its plan. Specifically, NCTA states that the Commission should not consider making what NCTA terms "major modifications" to video dialtone policies based on conversations or negotiations. NCTA asserts that certain questions need to be answered, such as whether US West intends to use this revised plan for its commercial services, whether the programmers participating in the trial have understandings about post-trial access to capacity, and whether US West "will acknowledge its legal obligations" if the trial is transformed into a commercial authorization. IV. DISCUSSION 14. In the Second Report and Order, the Commission emphasized that local exchange company (LEC) provision of a basic common carrier platform with sufficient capacity to serve multiple programmers was "critical" to its finding that video dialtone served the public interest. To ensure that sufficient capacity exists, telephone companies were directed to describe how their proposed systems will meet this requirement. The Commission stated: Rather than set forth a specific number of unaffiliated video programmers that must be accommodated or impose minimum capacity requirements, we instead set forth the general principle that the platform must have the ability to provide capacity to multiple video programmers and to expand as demand increases so as not to become a bottleneck that will thwart realization of our public interest goals. 15. In the Reconsideration Order, the Commission clarified that video dialtone providers were required to expand capacity to the extent technically feasible and economically reasonable. Recognizing that there may be technical limits on the expandability of analog capacity, we sought comment on methods or arrangements for promoting more efficient use of analog channel capacity. We noted that four LECs have proposed "channel sharing arrangements" to maximize use of analog capacity by avoiding carriage of the same video programming on more than one analog channel. We tentatively concluded that channel sharing mechanisms, if properly structured, can offer significant benefits to consumers, video programmers, and LECs, while remaining consistent with the requirements of the cross- ownership provisions of the Communications Act. With the goal of formulating policies and rules governing channel sharing arrangements, we solicited comment on a variety of issues, including how such arrangements should be structured and administered and the proper role that LECs may play in structuring or administering channel sharing arrangements. We stated, however, that we did not intend to defer consideration of Section 214 applications proposing channel sharing mechanisms pending the development of rules and policies governing such arrangements. Finally, we stated that LECs would have their Section 214 authorizations conditioned on compliance with any subsequent rules and regulations that the Commission may adopt regarding channel sharing arrangements. 16. Two issues are raised by US West's request, namely, whether its proposed channel allocation plan comports with the video dialtone capacity requirements and whether the plan impermissibly involves US West in what are essentially video programmer functions. With respect to the first issue, the plan proposed by US West accommodates seven different video programmers requesting analog capacity. Although these video programmers will not be allocated as many non-shared channels as they requested, they will be allocated a reasonable number of non-shared channels, that when added to the common and shared channels, will enable them to offer end user subscribers almost 50 channels. Two video programmers, the first two that requested capacity, will receive a block of nine non-shared channels and the next two will receive eight non-shared channels. In addition, the three video service providers that requested single analog channels will be accommodated. No video programmer that expressed interest in participating in the Omaha trial would be excluded. US West has demonstrated that details of the Omaha trial were widely publicized, and that a significant number of video programmers expressed an interest and were afforded the opportunity to participate. Video programmers requesting non-shared channel blocks from US West have indicated that they are willing to participate in the trial under the revised channel allocation plan. 17. Under these narrow circumstances, we find that US West's plan has sufficient capacity to serve multiple video programmers, and thus satisfies our video dialtone requirements. In the SNET Initial Trial Order, we stated that when evaluating a trial application and its proposed platform capacity we would consider: (1) the initial capacity available; (2) the ability to expand this capacity; (3) the demand for capacity; and (4) the duration of the offering. US West's basic platform will initially offer 77 analog channels and approximately 1,000 digital channels. Under the revised channel allocation plan, US West's platform will accommodate the seven video service providers who requested analog capacity. Furthermore, because US West's Omaha trial is limited to only one year, we agree with US West that it would be economically unreasonable to require US West to expand the analog portion of the platform's capacity during the limited trial. We believe that the plan as presented is fair and non-discriminatory because all video programmers will have access to the platform under the same terms and conditions. Our determination is limited to US West's Omaha trial and is not to be construed as approval of this plan or any similar plan for US West's commercial applications or for other trial proposals. 18. We find unpersuasive NCTA's contention that US West's proposed allocation plan violates our video dialtone rules by allowing US West to bundle or tier video programming. Under our video dialtone rules, local telephone companies are not permitted to determine how video programming is presented for sale to subscribers, including making decisions concerning the bundling or tiering of the programming or the price, terms, or conditions on which the programming is offered to subscribers. Although US West proposes to designate capacity for certain types of use by customer-programmers, i.e., common, shared, or non- shared, we find that the designation of these channels does not constitute determining how programming is presented for sale to subscribers. Rather, the allocations US West has proposed will govern the relationships between US West and the customer-programmers providing programming through the platform. 19. Moreover, US West will not participate in the selection of video programming, but only offers to facilitate the efforts of the video programmers to choose the content to be carried on the shared and common channels -- an offer they are free to reject. The video programmers themselves will choose what is to be carried on the common and shared channels. If the facilitator is not acceptable to the group of providers, the group can choose another facilitator from among themselves or from an outside source, or can decide not to use a facilitator at all. US West indicates that it will play no role in these group meetings. Based on these representations and given the limited scope and duration of the proposed trial, we find that US West has sufficiently isolated itself from video programmer functions to meet the requirements of our video dialtone policies. 20. We also find unpersuasive NCTA's assertion that the proposed plan is discriminatory because US West or an affiliate proposes to use one analog channel to provide information about the services available on a level two enhanced gateway. US West has committed to offering capacity on the platform to all video programmers on the same terms and conditions, i.e., a first-come, first-served basis. In addition, US West states that it will not, either directly or indirectly through an affiliate, "request analog channels for programming to be accessed on its enhanced gateway." 21. Furthermore, we conclude that the use of an analog channel by US West or an affiliate does not indicate that US West is improperly involved in programming decisions. Under the terms of the Omaha Authorization, US West is not permitted to provide video programming on the platform, either directly or indirectly through an affiliate, to subscribers during the trial. In June 1994, the U.S. District Court for the Western District of Washington declared the statutory telephone company-cable television cross-ownership restriction, codified at 47 U.S.C.  533(b), unconstitutional because the restriction violates the First Amendment. US West has not asked, either in its original application or in its request for modification, to provide video programming directly to subscribers during the trial. We respond here only to US West's request for approval of its revised channel allocation plan. 22. We also reject NCTA's argument that video dialtone service is essentially cable television service. In contrast to cable service where the cable operator decides what programming is offered to subscribers, US West will have no role and will not participate in decisions regarding the video programming that is presented over the system. Moreover, we find that US West will not be improperly "limiting" channel capacity because the platform will continue to offer approximately 1,000 digital channels. 23. We also reject NCTA's contention that the information in this record is inadequate for us to process the application. NCTA's assertion that more information is necessary on the use of the plan in connection with any other service offering is misplaced because US West has only requested modification of the Omaha Authorization and approval of the allocation plan for the Omaha trial. In this order, we are approving the use of US West's plan under very narrow circumstances only for the limited trial to be offered in Omaha. Furthermore, our action on this request has been taken in full compliance with our ex parte rules. It is based on documents filed with the Commission by US West, NCTA, and Metrovision, that is, formal pleadings, written ex parte presentations, and statements made in written summaries of oral ex parte presentations. These documents are part of the public record, and are available for public inspection and photocopying. 24. Finally, so that we may judge the success of US West's plan for allocating analog channels, we will require US West to report to us within three months from the date on which video programmers' service to end user subscribers begins, and include the following details: 1) a description of the facilitated program selection sessions and the results of such meetings; and 2) the number of video programmers and video service providers participating and the number of shared, common, and dedicated analog channels to which each has access. V. ORDERING CLAUSES 25. Accordingly, IT IS ORDERED that, pursuant to Section 214 of the Communications Act of 1934, as amended, 47 U.S.C.  214, the request of U S WEST Communications, Inc. to modify its Omaha trial video dialtone authorization, 9 FCC Rcd 184, IS GRANTED and the applicant is authorized to use the revised analog channel allocation plan as described in this Order. 26. IT IS FURTHER ORDERED, that grant of this Authorization is subject to the following conditions: (a) that US West comply with any subsequent rules and regulations that the Commission may adopt with respect to channel sharing mechanisms; and (b) that US West file the report described in paragraph 24 of this Order and Authorization. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary