NOTICE ************************************************************************* NOTICE ************************************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file pnmc5021. File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) ) DANIELS CABLEVISION, INC. d/b/a )CUID No. CA0505 NORTH COUNTY CABLEVISION, L.P. ) ) Petition for Revocation ) of the Certification of ) the City of Encinitas, California) to Regulate Basic Cable Service Rates) MEMORANDUM OPINION AND ORDER Adopted: September 19, 1996 Released: September 25, 1996 By the Chief, Cable Services Bureau: INTRODUCTION 1.On October 17, 1995, Daniels Cablevision, Inc. d/b/a North County Cablevision, L.P. ("Daniels") filed a petition for revocation challenging the certification of the City of Encinitas, California ("Encinitas" or the "City") to regulate Daniels' basic cable service and associated equipment rates. The City filed an opposition, to which Daniels filed a reply. At the request of Commission staff, Daniels submitted supplementary information clarifying certain aspects of Daniels' petition. 2.Section 623(a)(4) of the Communications Act of 1934, as amended ("Communications Act"), allows franchising authorities to become certified to regulate the basic cable service rates of cable operators which are not subject to effective competition. For purposes of the initial request for certification, a franchising authority may rely on the presumption that cable operators within its jurisdiction are not subject to effective competition, unless the franchising authority has actual knowledge to the contrary. Such certification becomes effective thirty days from the date of filing, unless the Commission finds that the franchising authority does not meet the statutory certification requirements. Cable operators may file petitions for reconsideration of the franchising authority's certification within thirty days from the date such certification becomes effective. Rate regulation is automatically stayed pending review of a timely filed petition for reconsideration alleging effective competition. After the 30-day deadline for filing petitions for reconsideration has elapsed, cable operators may challenge the franchising authority's certification by filing a petition for revocation. However, regardless of its grounds, a petition for revocation does not automatically trigger a stay of the franchising authority's power to regulate basic rates. DISCUSSION A.The Pleadings 3.Daniels bases its challenge on the competing provider test for effective competition. Daniels argues that its system serving the City of Encinitas is subject to effective competition because its franchise area is: (1) served by Cox Communications ("Cox") and several direct broadcast satellite ("DBS") providers each of which offers comparable programming to at least 50% of the households in Encinitas, and (2) the number of households subscribing to Daniels, the smaller cable operator, exceeds 15% of the households in the franchise area. 4.Daniels submits 1990 Census information demonstrating that there are 20,782 households (that is, occupied housing units) in Encinitas. Daniels provides a copy of its FCC Form 325 indicating that Daniels has 6,650 subscribers in Encinitas. Daniels also provides a copy of Cox's FCC Form 325 which indicates that Cox offers service to 14,974 housing units (that is, occupied and vacant housing units) and provides service to 9,171 subscribers in Encinitas. Daniels also submits direct mail, local newspaper advertisements, and yellow page advertisements demonstrating the availability of the DIRECTTV and USSB DBS services in the City of Encinitas. Based on Cox's FCC Form 325 and DBS promotional materials, Daniels also asserts that Cox and the DBS providers offer comparable service as defined by the Commission. Finally, Daniels invokes the automatic stay of rate regulation pursuant to Section 76.911(c)(1) of the Commission's rules. 5. In its opposition, Encinitas admits that both Daniels and Cox have franchises to serve the entire City of Encinitas. However, the City asserts that both Daniels and Cox have made affirmative decisions to redefine their franchise areas. The City argues that Daniels and Cox have been operating cable systems side-by-side for years and have failed to overbuild each other in a significant portion of the City. The City provides a map of Encinitas indicating the location of Daniels' and Cox's service areas. The City argues that Daniels' and Cox's redefined franchise areas coincide with these respective service areas. Because neither Daniels nor Cox offers service to at least 50% of the households in the other operator's redefined franchise area, the City argues that Daniels cannot establish competing provider effective competition in Encinitas. 6.The City also argues that, according to the most current figures published by the California Department of Finance, there are 21,189 households in Encinitas as of January 1, 1995. Encinitas argues that, even if it declines to accept the City's redefined franchise area argument, the Commission nevertheless must reject Daniels' effective competition claim. The City states that Daniels' FCC Form 325 submitted with its petition clearly establishes that Daniels offers service to 8,101 housing units in Encinitas -- far short of the 10,595 households an operator must pass to offer service to at least 50% of the households in the City. However, Encinitas acknowledges that Cox offers service to more than 50% of the households in the City. Finally, the City argues that application of the automatic stay of rate regulation to Daniels is inappropriate. The City asserts that the automatic stay is applicable only to petitions for reconsideration pursuant to Section 76.911 of the Commission's rules, and that Section 76.914(d) expressly prohibits application of the automatic stay to petitions for revocation. 7.In its Reply, Daniels first argues that the City's use of data other than 1990 Census data is inappropriate. Daniels asserts that the Commission has expressed a preference for the use of 1990 Census data when available in effective competition proceedings, and that the City's use of California Department of Finance household data must therefore be rejected. Daniels also refutes the City's claim that Daniels and Cox have redefined their Encinitas franchise areas. Daniels states that the map of Daniels' and Cox's service areas submitted by the City clearly indicates that Daniels' service area is not, as claimed by the City, limited to the eastern portion of Encinitas. Moreover, Daniels argues that it has not relinquished its right to serve any portion of the City. Daniels states that it received its franchise rights to serve Encinitas in 1978 and at that time its operations consisted of a master antenna system serving a single condominium complex. Since 1978, Daniels asserts that it has expanded throughout the City, including the addition of service areas separate and apart from its primary facilities. Finally, Daniels asserts that it continues to consider additional expansion opportunities throughout the City. 8.With regard to the automatic stay of rate regulation, Daniels concedes that petitions for revocation pursuant to Section 76.914 of the Commission's rules do not convey a right to an automatic stay. Nevertheless, Daniels renews its request for a stay of the Commission's review of Daniels' cost-of-service appeal, and argues that the reasons for granting a stay "are compelling." Daniels argues that "[t]he Commission must grant a stay of the contested Order if: (1) the Petitioner is likely to succeed on the merits of its appeal; (2) the Petitioner would suffer irreparable injury absent a stay; (3) a stay would not substantially injure other parties; and (4) a stay is in the public interest." Daniels asserts that it meets each of these standards, in particular arguing that it will suffer irreparable injury and has a strong likelihood of success on the merits. B.Analysis 9.With regard to the City's franchise area redefinition argument, we are unpersuaded that Daniels' franchise area for purposes of effective competition is less than the entire City of Encinitas. Generally, a franchise area is defined as the area a system operator is authorized to serve in its franchise. Thus, demonstrations of effective competition must be made using household and subscriber data for the authorized area in the franchise. The Commission has also stated that a more restricted definition of a franchise area may be appropriate under limited circumstances, such as when an operator, "through its own conduct, self-defined the areas to be served to such an extent that this redefined area accurately portrays the operator's 'franchise area.'" The franchising authority has the burden of showing that the operator has made an "affirmative decision. . . to restrict service. . . ." However, as the Commission cautioned, the fact that a franchise area had not yet been filled out entirely by system construction by the operator would not by itself be evidence that the service area had been redefined. 10.The facts alleged by the City are similar to those considered by the Commission in Valley Center Cablesystems, L.P. As in Valley Center, we find that the City's argument that Daniels has failed to expand into areas served by other cable operators is immaterial to the issue of whether Daniels has redefined its franchise area. As the Commission stated in Valley Center: The County's argument, without more, is simply an argument that a cable operator has not yet filled out its entire franchise area. This fact, if true, is insufficient to constitute evidence by which we could conclude that a cable operator has redefined its franchise area. Indeed, we note that the instant proceeding is not a case where the cable operator has engaged in no expansion. . . . In light of these facts, we find that [Valley Center Cablesystem's] alleged failure to expand into areas served by other cable operators, by itself, is not grounds upon which to reverse the Bureau's decision. We find that Daniels has not redefined its Encinitas franchise area. It is uncontested that Daniels has substantially built out its system since receiving its franchise in 1978. In addition, the map submitted by Encinitas demonstrates that Daniels has built its system in several portions of Encinitas unconnected to its primary service area, including several areas overbuilt by Daniels and Cox. The fact that Daniels has not constructed its cable plant in locations deemed most desirable by the City does not obviate the fact that Daniels has significantly expanded its Encinitas cable system since 1978. 11.In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition. The cable operator bears the burden of rebutting the presumption that effective competition does not exist with evidence that effective competition, as defined by Section 76.905 of the Commission's rules, is present within its franchise area. Daniels has met this burden. 12.The first prong of the competing provider test requires that the franchise area be served by at least two unaffiliated MVPDs, each of which offers comparable programming to at least 50% of the households in the franchise area. With regard to the correct number of households in Encinitas, Daniels relies upon 1990 Census data which states that there are 20,782 households, while the City relies upon more recent data from the California Department of Finance which states that there are approximately 21,189 households in Encinitas. We find that it is immaterial which data source is used because, using either household figure, Daniels satisfies the competing provider test. Accordingly, we will use the 1995 household data supplied by the City because it is sufficiently reliable and more current that the 1990 Census data supplied by Daniels. Daniels asserts that Cox Communications and several DBS providers serving Encinitas (notably, DIRECTTV and USSB) satisfy the first prong of the test. With regard to Cox's operations, Daniels asserts that Cox passes 14,974 housing units in Encinitas. Daniels provides the number of housing units passed by Cox, rather than the number of households as required by the competing provider test. After reducing the 14,974 housing unit figure by the Encinitas vacancy rate, we find that Cox offers service to approximately 14,067 households in Encinitas (14,974 housing units * 6.06% vacancy rate), or approximately 66% (14,067 of the total 21,189) of the households in Encinitas. With regard to DBS operations in Encinitas, the Commission concluded in the Rate Order that "service received from satellites . . . is technically available nationwide in all franchise areas that do not, by regulation, restrict the use of home satellite dishes." Daniels has provided evidence that at least two unaffiliated DBS service providers, DIRECTTV and USSB, are available to more than 50%, in fact virtually all, of the households in Encinitas. Therefore, we find that the first part of the first prong of the competing provider test is satisfied in the City of Encinitas, albeit by DBS providers and Cox, rather than Daniels and Cox as initially asserted in Daniels' petition. 13.With respect to the second part of the first prong of the competing provider test, programming comparability, we find that the programming of Cox, DIRECTTV and USSB are comparable. We note that each provider offers at least 12 channels of video programming, including at least one non-broadcast channel. This satisfies the Commission's programming comparability criterion. 14.With regard to the second prong of the competing provider effective competition test, we find that the evidence shows that more than 15% of the households in the franchise area subscribe to multichannel video programming other than from Cox, the largest MVPD. Here, Daniels has submitted sufficient evidence that it serves 6,650 of the 21,189 households, or 31% of the households in the franchise area. 15.As Daniels has submitted sufficient evidence demonstrating that its cable system serving the City of Encinitas is subject to competing provider effective competition, its petition is granted. ORDERING CLAUSES 16.Accordingly, IT IS ORDERED that the petition for revocation filed by Daniels Cablevision, Inc. d/b/a North County Cablevision, L.P. challenging the certification of the City of Encinitas, California to regulate basic cable service rates IS GRANTED. 17.IT IS FURTHER ORDERED that the certification of City of Encinitas, California to regulate the basic cable service rates of Daniels Cablevision, Inc. d/b/a North County Cablevision, L.P. IS REVOKED. 18.This action is taken pursuant to delegated authority pursuant to Section 0.321 of the Commission's Rules. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau