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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In re: ) ) Paragon Communications and ) Time Warner Entertainment- ) CSR-4851-E Advance/Newhouse Partnership d/b/a) Time Warner Communications ) ) v. ) ) City of Lakeland, FL ) ) Petition For Change In ) Regulatory Status ) ) MEMORANDUM OPINION AND ORDER Adopted: September 15, 1997 Released: September 18, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. Paragon Communications and Time Warner Entertainment-Advance/Newhouse partnership d/b/a/ Time Warner Communications ("Time Warner") has filed with the Commission a petition for a change in regulatory status, pursuant to the Social Contract for Time Warner ("Social Contract"), alleging that a change in circumstance has occurred which supports its petition. Specifically, Time Warner alleges that its cable systems serving the Cities of Auburndale, Eagle Lake, Lakeland, Florida and the Town of Polk City, Florida (the "Communities") are now subject to effective competition, pursuant to certain provisions of the Communications Act of 1934, as amended, ("Communications Act"),  623, 47 U.S.C.  543 and the Commission's implementing rules. Time Warner bases its allegation of the presence of effective competition in the Communities on the competing service offered by American Telecasting of Central Florida, Inc., d/b/a, WANTV ("WANTV"), an unaffiliated multichannel, multipoint distribution service ("MMDS") provider. Neither WANTV nor the Communities filed a response to the Petition. II. BACKGROUND 2. Section 623(l)(1) of the Communications Act provides that a cable operator is subject to effective competition if any one of the following tests is met: (A) fewer than 30 percent of the households in the franchise area subscribe to the cable service of a cable system; (B) the franchise area is- (i) served by at least two unaffiliated multichannel video programming distributors each of which offers comparable video programming to at least 50 percent of the households in the franchise area; and (ii) the number of households subscribing to programming services offered by multichannel video programming distributors other than the largest multichannel video programming distributor exceeds 15 percent of the households in the franchise area; or (C) a multichannel video programming distributor operated by the franchising authority for that franchise area offers video programming to at least 50 percent of the households in that franchise area; or (D) a local exchange carrier or its affiliate (or any multichannel video programming distributor using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to- home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area. III. SUMMARY OF PLEADINGS 3. Time Warner alleges that its cable systems serving the Communities are subject to effective competition and, therefore, are exempt from rate regulation pursuant to the Commission's rules and certain provisions of the Social Contract. Time Warner bases its allegation that it is subject to effective competition on the availability of WANTV's wireless cable service in the Communities. Time Warner claims that both prongs of the competing provider effective competition test in Section 623(1)(1)(B) of the Communications Act are satisfied because Time Warner and WANTV each offers comparable programming to 50 percent of the households in the Communities and the number of subscribers to WANTV, which is the smallest of the two systems, exceeds 15 percent of the households in the Communities. 4. The first prong of the competing provider test requires that at least two unaffiliated multichannel video programming distributors ("MVPDs") each offer comparable programming to at least 50 percent of the households in the communities at issue. Time Warner argues that it and WANTV each offers comparable programming to at least 50 percent of households in the Communities. With regard to WANTV, Time Warner states that the Communities lie within 35 miles of WANTV's transmitter site. Time Warner further states that the Commission has determined that wireless cable is deemed to be offered anywhere within a 35-mile interference free contour zone. Time Warner submits that WANTV clearly offers service to more than 50 percent of the households in the Communities because WANTV, as a wireless cable operator, is presumed to offer programming to all residents within 35 miles of its transmitter site. 5. With regard to whether Time Warner meets the 50 percent threshold, Time Warner states that in 1990 there were 3,385 households in the City of Auburndale; 651 households in the City of Eagle Lake; 29,656 households in the City of Lakeland; and, 494 households in the Town of Polk City. Time Warner calculates that it currently offers service to 4,074 households in the City of Auburndale; 855 households in the City of Eagle Lake; 28,726 households in the City of Lakeland; and, 765 households in the Town of Polk City. Thus, even allowing for considerable growth in the Communities since 1990, Time Warner asserts that it clearly offers service to more than 50 percent of the households. Time Warner notes that, in any event, the 50 percent threshold prong of the test could be met by considering the presence of direct broadcast satellite services which the Commission has found to be available nationwide. 6. The first prong of the competing provider test also requires that the two competing providers offer comparable programming. Time Warner argues that WANTV's programming is comparable to that of its own since WANTV currently offers 36 channels of programming, including several channels of non- broadcast programming and several local television broadcast stations. Time Warner further states that it offers a channel line-up that is similar to WANTV's. Time Warner argues that, because of the similar channel line-ups offered by itself and WANTV, the Communities are being served by at least two unaffiliated MVPDs each of which offers comparable programming. 7. The second prong requires at least 15 percent of the households in the Communities to be subscribers to the smaller of the two MVPDs. Time Warner argues that WANTV, the smaller of the two MVPDs, meets that requirement. Time Warner submits data from the 1990 Census to show that WANTV serves 23 percent of the households in the City of Auburndale; 18.1 percent of the households in the City of Eagle Lake; 19.4 percent of the households in the City of Lakeland; and, 67.2 percent of the households in the Town of Polk City. As a result of satisfying the requirements of the competing provider effective competition test, Time Warner argues that its request for deregulation of rates for its basic service tier, cable programming service tier and other forms of rate regulation specified in Section 543 of the Communications Act should be granted. 8. Finally, Time Warner requests that the Commission modify application of Social Contract to its service in the Communities. The effect of Time Warner's request would be that Time Warner would: (1) no longer be subject to a price cap on either its basic service tier ("BST") or its cable programming service tier ("CPST"); (2) be permitted to add additional channels to its BST at any time; (3) be permitted to establish its equipment rates without regard to regional equipment costs or blended rates; (4) no longer be subject to price caps or a limit on the number of channels migrated to its Migrate d Product Tiers ("MPT" ); and, (5) not be required to comply with any regulations established by the Commission governing annual adjustments to BST or CPST rates; Time Warner states that, regardless of its request for modification, it will remain bound by all other applicable provisions of the Social Contract, including the infrastructure upgrade requirement. IV. DISCUSSION A. Effective Competition 9. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition, as that term is defined by Section 76.905 of the Commission's rules. The cable operator bears the burden of rebutting the presumption that effective competition does not exist with evidence that effective competition is present within the relevant franchise area. Pursuant to the competing provider effective competition test, the cable operator must show that the two competitors each offer comparable programming to 50 percent of the households in the area and that at least 15 percent of the households in the area subscribe to service from an alternative provider offering a comparable video programming service. We conclude that Time Warner is subject to effective competition in the Communities and therefore exempt in those communities from the Commission's rules governing rate regulation of cable systems. With regard to the Social Contract, we find that Time Warner is exempt from those provisions which impose rate regulation on its cable systems serving the Communities and, in all other respects, remains bound to the terms and conditions of the Social Contract. 10. With regard to the first portion of the competing provider test, Time Warner introduced evidence from the 1990 Census to show that it and WANTV each offers comparable programming to at least 50 percent of the households in the Communities. Time Warner's calculations indicate that it currently serves a greater number of households than existed in the Communities in 1990 but that that discrepancy can be attributed to housing growth in the intervening years. Thus we conclude that Time Warner offers its service to at least 50 percent of the households in the Communities. With respect to the availability of service within the franchise area from a competing provider, it appears that WANTV offers comparable service to at least 50 percent of the households in the City. Time Warner has introduced evidence showing that the Communities are within WANTV's transmission service area and that service is being provided to subscribers in the Communities. In any event, as Time Warner argues, the 50 percent threshold of the competing provider effective competition test is met, regardless of WANTV's service, because of the availability of DBS service in the City. The Commission concluded in the Rate Order that DBS providers that provide nationwide service are presumed to satisfy the 50 percent threshold. Accordingly, whether by virtue of the service WANTV provides or because of the DBS service presumed to be available, we conclude that, in addition to the MVPD service being offered by Time Warner, at least one other entity is providing MVPD service to more than 50 percent of the households in the City. 11. We also find that Time Warner and WANTV each meets the Commission's definition of "comparable programming" contained in Section 767.905(g) because each offers "at least twelve channels of programming, including at least one channel of non-broadcast programming." 12. The second part of the competing provider test requires that the number of households subscribing to WANTV, the smaller of the two MVPDs, exceeds 15 percent of the households in the Communities. Time Warner submitted a table which shows the percentage of households which subscribe to WANTV's service in various Florida communities. According to the table, WANTV serves 23 percent of households in Auburndale; 18.1 percent of households in Eagle Lake; 19.4 percent of households in Lakeland; and 67.2 percent of households in Polk City. We find that Time Warner has demonstrated that WANTV's penetration rate in the Communities satisfies the requirement of the second prong of the competing provider test. We conclude that Time Warner has established that both prongs of the competing provider effective competition test have been met and, accordingly, we grant Time Warner's petition for a change in its regulatory status. B. Social Contract 13. The Commission and Time Warner negotiated the Social Contract in order "to provide upgrade incentives for Time Warner and to provide rate stability and increased quality of service for its consumers." The Social Contract provides that Time Warner may, in the event of any relevant change in applicable laws, regulations or circumstances, petition the Commission to modify or terminate the Social Contract." Time Warner is required to serve any such petition to modify or terminate the Social Contract on the local franchising authorities for the affected systems. 14. Time Warner's petition for a change in regulatory status is based upon a change in circumstance, i.e., the presence of effective competition in the Communities. We have found that Time Warner has demonstrated that its cable systems serving the Communities face effective competition from WANTV, a competing provider of wireless cable service. Under the Commission's rules governing rate regulation, the rates of cable systems that are found to be subject to effective competition are not regulated. Time Warner has requested the Commission to waive certain rate provisions of the Social Contract, namely, Sections III.A.2 (price cap on the BST); III.A.3 (additions to the BST); III.B (equipment rates); III.D (price caps on the MPT); III.F.4 price cap on the CPST); and III.G (annual rate adjustments to the BST and CPST). Each of those provisions of the Social Contract pertain to regulation of service and equipment rates on a regulated tier of cable service. We find that Time Warner's systems serving the Communities has experienced a change in circumstance, i.e., the presence of effective competition, which has relieved Time Warner of its duty to comply with the rate regulation provisions of the Social Contract in the Communities. We further find that Time Warner has met the notice requirement contained in the Social Contract by serving its petition on each local franchise authority affected by its actions. In light of the foregoing, we grant Time Warner's request to be relieved of Sections III.A.2, III.A.3, III.B, III.D, III.F.4, and III.G of the Social Contract with regard to the Communities. All other provisions of the Social Contract remain valid and enforceable and the Commission retains oversight authority with regard to these non-rate provisions. V. ORDERING CLAUSES 15. Accordingly, IT IS ORDERED that the Petition for Change in Regulatory Status filed by Paragon Communications and Time Warner Entertainment-Advance/Newhouse Partnership d/b/a Time Warner Communications, CSR-4871-E, pursuant to Section 76.905(b)(2) of the Commission's rules, 47 C.F.R.  76.905(b)(2), IS GRANTED. 16. IT IS FURTHER ORDERED that, for purposes of the Social Contract for Time Warner, Time Warner's request to be relieved of compliance with certain provisions therein, namely, Sections III.A.2, III.A.3, III.B, III.D, III.F.4, AND III.G governing cable rates offered in the Cities of Auburndale, Eagle Lake, Lakeland, Florida and the Town of Polk City, Florida IS GRANTED. 17. This action is taken pursuant to delegated authority under Section 0.321, 47 C.F.R.  0.321, of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau