Telecommunications Act of 1996

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[CS Docket No. 96-85, FCC 96-154]

Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission has adopted an Order and Notice of Proposed

Rulemaking regarding implementation of the Cable Act reform provisions

of the Telecommunications Act of 1996 (``1996 Act''). The Order segment

of this action may be found elsewhere in this issue of the Federal

Register. This Notice of Proposed Rulemaking (``NPRM'') solicits

comment on several issues arising from the enactment of the 1996 Act.

This NPRM solicits comment regarding possible revisions to the interim

final rules established in the companion Order and requests comment on

other issues critical to the 1996 Act's implementation. The intended

effect of this action is to develop rules that fully implement the

mandates of the 1996 Act with regard to cable television.

DATES: Comments filed in response to this NPRM must be filed by May 28,

1996. Reply Comments are due June 28, 1996. Written comments by the

public on the proposed and/or modified information collections are due

on or before May 28, 1996. Written comments must be submitted by the

Office of Management and Budget (OMB) on the proposed and/or modified

information collections on or before July 1, 1996.

ADDRESSES: An original and six copies of comments and reply comments

should be sent to Office of the Secretary, Federal Communications

Commission, 1919 M Street, NW., Room 222, Washington, DC 20554, with a

copy to Nancy Stevenson of the Cable Services Bureau, 2033 M Street,

NW., Room 408A, Washington, DC 20554. Parties should also file one copy

of any documents filed in this docket with the Commission's copy

contractor, International Transcription Services, Inc., 2100 M Street,

NW., Suite 140, Washington, DC 20037. Comments and reply comments will

be available for public inspection during regular business hours in the

FCC Reference Center, 1919 M Street, NW., Room 239, Washington, DC

20554.

In addition to filing comments with the Secretary, a copy of any

comments on the information collections contained herein should be

submitted to Dorothy Conway, Federal Communications Commission, Room

234, 1919 M Street, NW., Washington, DC 20054, or via the Internet to

[email protected], and to Timothy Fain, OMB Desk Officer, 10236 NEOB,

725-17th Street, NW., Washington, DC 20503 or via the Internet to

[email protected].

FOR FURTHER INFORMATION CONTACT: Tom Power, Paul Glenchur, or Nancy

Stevenson, Cable Services Bureau, (202) 416-0800. For additional

information concerning the information collections contained in this

NPRM contact Dorothy Conway at 202-418-0217, or via the Internet at

[email protected].

[[Page 19014]]

SUPPLEMENTARY INFORMATION: This is a synopsis of a Commission Notice of

Proposed Rulemaking in CS Docket No. 96-85, FCC-154, adopted April 5,

1996 and released April 9, 1996. The complete text of this document is

available for inspection and copying during normal business hours in

the FCC Reference Center, 1919 M St., NW., Washington, DC, and also may

be purchased from the Commission's copy contractor, International

Transcription Services, Inc. at (202) 857-3800, 2100 M Street, NW.,

Suite 140, Washington, DC 20017.

This NPRM contains either proposed or modified information

collections. The Commission has obtained Office of Management and

Budget (``OMB'') approval, under the emergency processing provisions of

the Paperwork Reduction Act of 1995 (5 CFR 1320.13), of the information

collections contained herein. OMB approval is effective no later than

the date that the summary for the NPRM appears in the Federal Register.

The OMB control number for information collections contained in this

rulemaking is 3060-0706. Emergency OMB approval for the information

collections expires July 31, 1996. The Commission, as part of its

continuing effort to reduce paperwork burdens and to obtain regular OMB

approval of the information collections, invites the general public and

OMB to comment on the information collections contained herein, as

required by the Paperwork Reduction Act of 1995. Public and agency

comments are due at the same time as other comments on this Order and

NPRM; OMB notification of action is due 60 days after publication of

the NPRM in the Federal Register. Comments should address: (a) Whether

the proposed collections of information are necessary for the proper

performance of the functions of the Commission, including whether the

information shall have practical utility; (b) the accuracy of the

Commission's burden estimates; (c) ways to enhance the quality,

utility, and clarity of the information collected; and (d) ways to

minimize the burden of the collection of information on the

respondents, including the use of automated collection techniques or

other forms of information technology.

OMB Approval Number: 3060-0549.

Title: FCC Form 329 Cable Programming Service Rate Complaint Form,

76.950 Complaints regarding cable programming service rates and 76.1402

CPST rate complaints.

Form No.: FCC Form 329.

Type of Review: Revision of existing collection.

Respondents: State, local and tribal governments; individuals.

Number of Respondents: 1,600.

Estimated Time Per Response: 45 minutes.

Total Annual Burden: 1,200 hours.

Estimated costs per respondent: $1,600. $1 per response for postage

and stationery costs.

Needs and Uses: FCC Form 329 will be used by local franchise

authorities to file cable programming service tier rate complaints,

upon receipt of more than one subscriber complaint about such rates.

OMB Approval Number: 3060-0652.

Title: 76.309 Customer service obligations and 76.964 Notice to

subscribers.

Type of Review: Revision of existing collection.

Respondents: Businesses and other for profit entities.

Number of Respondents: 12,000.

Estimated Time Per Response: 2.91 hours.

Total Annual Burden: 34,917 hours.

Estimated costs per respondent: None.

Needs and Uses: This information collection accounts for the

notifications requirements found in 76.309 and 76.964. Cable operators

are no longer required to provide prior notice to subscribers of any

rate change that is the result of a regulatory fee, franchise fee, tax

assessment, or charge of any kind imposed by any Federal agency, State,

or franchise authority. Eliminating this requirement reduces annual

notification burdens imposed on operators by 30 minutes per operator,

for an aggregate reduction of 6,000 hours. 12,000 systems x .30

minutes=6,000.

OMB Approval Number: 3060-0551.

Title: 76.1002 Specific unfair practices prohibited.

Type of Review: Revision of existing collection.

Respondents: Businesses and other for profit entities.

Number of Respondents: 52 (26 proceedings x 2 parties).

Estimated Time Per Response: Each proceeding has an average burden

of 25 hours. 50% of respondents undergo a burden of 1 hour to instead

coordinate information with outside legal assistance.

Total Annual Burden: 676 hours. (26 x 25 hours) + (26 x 1 hour).

Estimated costs for respondents: 50% of respondents will use

outside legal assistance paid at $150 per hour. 26 x 25 hours per

proceeding x $150 per hour=$97,500.

Needs and Uses: The information is used by the Commission to

determine on a case-by-case basis whether particular exclusive

contracts for cable television programming are in compliance with the

statutory public interest standard of Section 628(c)(2)(D) of the

Communications Act of 1934.

OMB Approval Number: 3060-0552.

Title: 76.1003 Adjudicatory proceedings.

Type of Review: Revision of existing collection.

Respondents: Businesses and other for profit.

Number of Respondents: 24 (12 proceedings x 2 parties).

Estimated Time Per Response: Each proceeding has an average burden

of 20 hours. 50% of respondents undergo a burden of 1 hour to instead

coordinate information with outside legal assistance.

Total Annual Burden: 252 hours. (12 x 20)+(12 x 1).

Estimated costs per respondent: 50% of respondents will use outside

legal assistance paid at $150 hour. 12 x 20 hours per proceeding x $150

per hour=$36,000.

Needs and Uses: Information contained in the proceedings is used by

the Commission to resolve disputes alleging unfair methods of

competition and deceptive practices where the purpose or effect of

which is to hinder significantly or to prevent any multichannel video

programming distributor from providing satellite cable programming or

satellite broadcast programming to consumers.

OMB Approval Number: 3060-0706.

Title: 76.1401 Effective competition and local exchange carriers,

76.1403 Small cable operators, and 76.1404 Use of cable facilities by

local exchange carriers.

Type of Review: New collection.

Respondents: Businesses and other for profit entities; state, local

and tribal governments.

Number of Respondents: 300 petitions for determination of effective

competition; 400 requests for certification of small cable operator

status; 50 contract submissions.

Estimated Time Per Response: Petitions for determination of

effective competition have an average burden of 20 hours. However, 75%

of respondents (225) will undergo a burden of 1 hour instead to

coordinate information with outside legal assistance. Requests for

certification of small cable operator status have an average burden of

2 hours. However, 25% of respondents (100) will undergo a burden of 1

hour instead to coordinate information with outside legal assistance.

LFAs will then undergo an average burden of 3 hours to review each

request. Sending copies of contracts pertaining to use of cable

facilities by local exchange carriers

[[Page 19015]]

along with explanations of how such contract is reasonably limited in

scope and duration has an average burden of 1 hour.

Total Annual Burden: 3,675 hours. (75 x 20 hours)+(225 x 1

hour)+(300 x 2 hours)+(400 x 3 hours)+(100 x 1 hour)+(50 x 1 hour).

Estimated costs for respondents: $705,750. Outside legal assistance

used to file petitions for determination of effective competition and

requests for certification of small operator status will be paid at

$150 per hour. 225 petitions x 20 hours x $150 per hour=$675,000. 300

petitions x $1 for postage and stationery=$300. 100 requests for

certification x 2 hours x $150 per hour=$30,000. 400 requests for

certification x $1 for postage and stationery=$400. 50 contract

submissions x $1 for postage and stationery=$50.

Needs and Uses: Information collected in petitions for

determination of effective competition will be used by the Commission

to make such determinations for operators. Information collected in

requests for certification of small operator status will be used by

franchise authorities to make such determinations of small operator

status. Information collected in contract submissions will be used by

the Commission to determine whether the local exchange carrier's use of

the transmission facilities is limited in scope and duration.

Notice of Proposed Rulemaking

1. In this NPRM, we propose final rules implementing certain

provisions of the 1996 Act. We seek to adopt clear rules streamlining

our processes, establishing certainty for cable operators, Local

Franchise Authorities (``LFAs'') and subscribers, and effectuating the

intent of Congress. A number of the issues discussed below are also the

subject of a related Order. In commenting on such issues, parties

should consider the discussion and treatment of them in the Order.

A. Effective Competition

1. Generally

2. The new test for effective competition requires that the LEC-

delivered programming be ``comparable'' to that of the cable operator.

The Conference Report to the 1996 Act, H.R. Rept. 104-458, states that

video programming services are comparable if they ``include access to

at least 12 channels of programming, at least some of which are

television broadcasting signals.'' We tentatively conclude that this

definition of comparable programming should be adopted. We note that

after defining ``comparable'' in this manner, the Conference Report

cites Section 76.905(g) of our rules which in fact has a slightly

different definition of comparable. The rule defines ``comparable'' as

meaning a minimum of 12 channels of programming, ``including at least

one channel of nonbroadcast service programming.'' Commenters should

consider this factor in addressing the meaning of ``comparable''

programming for purposes of the new test for effective competition.

3. In light of our tentative conclusion that ``comparable

programming'' requires access to broadcast channels, commenters should

address whether this could include satellite-delivered broadcast

channels (e.g., ``superstations''). In the same context, commenters

should address whether a multichannel multipoint distribution service

(``MMDS'') subscriber should be deemed a recipient of ``comparable

programming'' if the broadcast stations are received by way of an over-

the-air antenna located at the subscriber's residence, rather than as

part of the MMDS operator's microwave signals. Would it matter if the

antenna was provided by the subscriber as opposed to the MMDS operator?

We believe that a single definition of ``comparable programming''

should apply to both prongs of the effective competition test in which

that term is used. Commenters who disagree with this conclusion should

provide a justification for having a different definition of comparable

programming in different prongs of the effective competition test.

4. We tentatively conclude that the new test for effective

competition applies with equal force regardless of whether the LEC or

its affiliate is merely the video service provider, as opposed to the

licensee or owner of the facilities. We seek comment on this tentative

conclusion. Further, we seek comment as to whether the type of service

provided by, or over the facilities of, the LEC or its affiliate should

be relevant. For example, we seek comment as to whether satellite

master antenna television (``SMATV'') systems constitute direct-to-home

satellite services and hence do not fall within the class of video

providers that can be a source of effective competition under the new

test.

5. We seek comment on whether we should follow the standards

adopted in the companion Order for purposes of the permanent rule by

which cable operators may show that the competing MVPD is offering

service in the franchise area. We note that the new definition of

effective competition, unlike the other three effective competition

tests, does not include a percentage of homes passed or a specific

penetration rate. We seek comment as to whether Congress intended

effective competition to be found if a LEC's, or its affiliate's,

service was offered to subscribers in any portion of the franchise

area, or whether the competitor's service must be offered to some

larger portion of the franchise area to constitute effective

competition. In addressing this issue, commenters should consider what

level of competition provided by a LEC or its affiliate is sufficient

to have a restraining effect on cable rates. Commenters also should

address the likelihood that an incumbent cable operator's response to

the presence of a competitor may depend not just upon the current pass

rate of the competitor, but also on its potential pass rate. That is, a

LEC that offers service to 5% of the residents in a franchise area and

that, due to technical constraints, will never exceed this reach would

seem to pose less of a competitive threat than a LEC with a 5% pass

rate that eventually will be able to offer service throughout the

franchise area. We seek comment as to whether to take account of this

factor in implementing the new test for effective competition.

6. In the companion Order, we have adopted interim filing

procedures by which regulated operators may seek to establish the

presence of effective competition under the new statutory test. We

tentatively conclude that we should adopt these procedures as a final

rule and conform our existing procedures accordingly, such that all

tests for effective competition would be determined in a uniform

manner. We seek comment on this tentative conclusion.

2. Definition of ``Affiliate''

7. With respect to the definition of ``affiliate'' for purposes of

the new prong of the effective competition test, we note that the 1996

Act does not specifically alter the following definition of

``affiliate'' which remains applicable for purposes of cable regulation

under Title VI of the Communications Act, Sec. 602(2):

The term ``affiliate,'' when used in relation to any person, means

another person who owns or controls, is owned or controlled by, or is

under common ownership or control with, such person;

8. Although this definition remains unchanged, the following

definition of ``affiliate'' is now found in Title I as a result of the

enactment of the 1996 Act:

[[Page 19016]]

The term ``affiliate'' means a person that (directly or indirectly)

owns or controls, is owned or controlled by, or is under common

ownership or control with, another person. For purposes of this

paragraph, the term ``own'' means to own an equity interest (or the

equivalent thereof) of more than 10 percent.

9. As engrafted into Sec. 3 of the Communications Act, this

definition of ``affiliate'' now applies ``[f]or purposes of this

[Communications] Act, unless the context otherwise requires * * * .''

Commenters should address whether, for purposes of the new effective

competition test, ``the context * * * require[s]'' a definition of

``affiliate'' other than the one now contained in Title I.

10. We tentatively conclude that the Title I definition of

``affiliate'' should be adopted for purposes of the new effective

competition test. While we do not believe that Congress mandated the

use of this definition for purposes of Title VI, incorporating the

Title I definition for purposes of Title VI is not inconsistent with

Congressional intent and would create some uniformity throughout the

Commission's rules. We also tentatively conclude that both passive and

active ownership interests are attributable and seek comment

accordingly. We also seek comment on whether a beneficial interest in a

cable operator would be ``equivalent'' to an equity interest under this

proposed definition of ``affiliate'' and, if so, how ``beneficial

interest'' should be defined. Commenters should address whether the

affiliation standard has to be met by a single LEC or whether the

interests of more than one LEC can be aggregated.

B. CPST Rate Complaints

11. Here we propose to adopt the interim rules regarding the filing

of rate complaints by LFAs, adopted in the Companion Order, as final

rules and solicit comment accordingly.

12. In addition to addressing the interim procedures, parties

should comment on whether we should establish a deadline by which LFA

complaints must be filed. Although Section 301(b)(1)(C) permits the LFA

to file a CPST rate complaint with the Commission only if the LFA has

received subscriber complaints within 90 days of a CPST rate increase,

it specifies no deadline for the LFA complaint. Commenters should

propose possible deadlines, taking into account the steps that a LFA

may be required to undertake following the close of the 90-day window

on subscriber complaints in order to file its own complaint with the

Commission. Finally, because Section 301(b)(1)(C) alters the rate

complaint process, we propose eliminating the requirement contained in

Section 76.952 of our rules that operators must include the name,

mailing address, and telephone number of the Cable Services Bureau of

the Commission on monthly subscriber bills.

C. Small Cable Operators

1. National Subscriber Count

13. Here we propose specific rules to clarify implementation of

Section 301(c) which provides for greater deregulation of small cable

operators. We first must determine the method by which we will

establish the total number of cable subscribers in the United States,

since only operators serving fewer than 1% of all subscribers qualify

as small cable operators. We propose to establish such a number on an

annual basis and to have that number serve as the applicable threshold

until a new number is calculated the following year. While the number

of subscribers varies daily, we tentatively conclude that fixing a

number on an annual basis will produce certainty and reduce

administrative burdens for operators, LFAs, and the Commission.

Commenters should address these tentative conclusions and propose any

reasonable alternatives.

14. As noted, the method we select to count the total number of

subscribers should minimize administrative burdens as well as ensure a

subscriber count that is as accurate and reliable as is reasonably

possible. We are aware that industry groups, trade journals, and other

private concerns already attempt to track subscriber figures. We

tentatively conclude that using the most reliable of these figures, or

perhaps some average of these figures, would best further our goals. We

solicit comment on this tentative conclusion and on what data would be

the most reliable for this purpose.

2. Definition of ``Affiliate''

15. In addition, we seek comment on the proper definition of

``affiliate'' for purposes of the small operator provisions. We already

have discussed the separate definitions of ``affiliate'' contained in

Title I and Title VI. We note that the Title I definition of

``affiliate'' does not strictly apply to matters under Title VI, since

Title VI contains a separate definition of that term that, unlike the

Title I definition, does not set a percentage threshold as to what

constitutes ownership. We believe this gives us discretion to establish

a percentage ownership threshold other than 10% for purposes of Title

VI.

16. As for the precise threshold we should establish here, we note

that last year in applying the Title VI definition in the context of

our small system rules, we concluded that a 20% ownership interest,

active or passive, would be deemed affiliation. There we observed:

``Relaxing regulatory burdens should free up resources that affected

operators currently devote to complying with existing regulations and

should enhance those operators' ability to attract capital, thus

enabling them to achieve the goals of Congress * * *.'' We believe that

Congress had a similar intent when it crafted the small cable operator

provisions of the 1996 Act and, therefore, we tentatively conclude that

the affiliation standard applicable under our small system cost-of-

service rules also should be applied for present purposes. Under this

approach, an entity would be affiliated with a cable operator if the

entity held an ownership interest of 20% or more, either active or

passive, in the cable operator. De facto control also would constitute

affiliation. We seek comment on this proposed definition.

3. Definition of ``Gross Revenues''

17. Once a cable operator identifies its affiliates under whatever

rule we adopt, it will have to calculate the gross annual revenues of

those affiliates. We have defined ``gross revenues'' in other contexts,

such as determining eligibility for certain licenses for frequencies

devoted to personal communications services:

Gross revenues shall mean all income received by an entity, whether

earned or passive, before any deductions are made for costs of doing

business (e.g., cost of goods sold), as evidenced by audited quarterly

financial statements for the relevant period.

18. We tentatively conclude that this definition should be applied

under the small cable operator provisions of the 1996 Act, although we

do not intend to require that all entities produce audited financial

statements. If an entity maintains such statements as a matter of

course, they would seem to be the best record of its gross revenues.

However, we realize that some smaller business may not go to the

expense of having their financial statements audited; certainly they

should not be required to do so on the basis of legislation intended to

minimize burdens for smaller businesses. Therefore, we propose to adopt

the definition of ``gross revenues'' quoted above, as modified to

eliminate any requirement that the operator or its affiliates produce

audited

[[Page 19017]]

financial statements. Commenters should address the propriety of this

definition for establishing operator eligibility for small cable

operator treatment. We also seek comment as to how the revenues of

natural persons should be measured and verified under this rule.

19. The plain language of the statute appears to require an

operator with multiple affiliates to aggregate the gross annual

revenues of all of the affiliates and to compare this aggregate figure

to the $250 million threshold. We tentatively conclude that if the

gross revenues of all affiliates, when aggregated in this manner,

exceed $250 million, the operator does not qualify as small, even if no

single affiliate has revenues in excess of that amount. We also solicit

comment as to whether the statute should be read to exclude the

revenues of the operator itself for purposes of applying the $250

million threshold. Finally, we solicit comment on whether only

affiliates of the cable operator that are also cable operators should

be included when aggregating gross annual revenues with respect to the

$250 million threshold.

4. System and Franchise Area Subscribers

20. Rate regulation is reduced or eliminated for a small cable

operator ``in any franchise area in which that operator services 50,000

or fewer subscribers.'' Although a single cable system can serve more

than one franchise area, deregulation under this provision of the 1996

Act appears to be determined on a franchise area-by-franchise area

basis, without regard to the total number of system subscribers. Under

this analysis, a system serving well over 50,000 subscribers spread

over multiple franchise areas could qualify for deregulation throughout

the entire system as long as no individual franchise area contained

more than 50,000 subscribers. Likewise, a single system could be

subject to regulation in one franchise area but not in another because

its subscriber counts are over and under the 50,000 mark in the two

areas, respectively. We seek comment on our tentative conclusion that

system size is irrelevant for purposes of this provision.

21. In other contexts in which subscriber counts are important,

such as determining whether effective competition exists in a franchise

area, we have directed operators how to measure subscribership to take

account of various circumstances, such as in vacation areas that

experience seasonal shifts in population. However, in limited

circumstances we have allowed operators to count subscribers residing

in multiple dwelling units (``MDUs'') based on the equivalent billing

unit methodology. We seek comment on the proper methodology to be used

for purposes of the 50,000 subscriber limit under Section 301(c).

5. BST and CPST deregulation

22. The 1996 Act plainly eliminates CPST rate regulation for

systems that qualify under the revenue and subscriber criteria. For

qualifying systems that do not offer a CPST, the statute eliminates BST

regulation if that tier ``was the only service tier subject to

regulation as of December 31, 1994 * * *.'' With respect to qualifying

systems that had only a single tier subject to regulation as of that

date, we seek comment as to whether Congress intended the BST to be

deregulated even if the operator has created a CPST since then or

creates a CPST hereafter. In other words, can a qualifying system with

both a BST and a CPST be exempt from rate regulation on both tiers, as

long as it had only a single tier as of December 31, 1994? Assume, for

example, that as of December 31, 1994 an operator had only a single

regulated tier, consisting of all of the channels that an operator is

required to carry on its BST plus a large number of additional

channels. Thereafter, the operator creates a CPST and migrates from the

BST to the new CPST some or all of the channels that are not mandatory

BST channels, including all of the most popular satellite-delivered

cable networks. Arguably, the system's resulting BST would be exempt

from regulation on the grounds that the BST ``was the only service tier

subject to regulation as of December 31, 1994 * * *.'' It is also

arguable, however, that the resulting BST should be subject to

regulation because the fundamental nature of the original BST was

significantly altered after December 31, 1994.

23. We tentatively conclude that the scope of deregulation depends

solely upon the number of tiers that were subject to regulation as of

December 31, 1994. Under this construction of the statute, a system

currently offering two or more tiers would be deregulated on all tiers

if the BST was the only tier subject to regulation as of December 31,

1994, but would be deregulated only on its CPST(s) if it had more than

one tier subject to regulation as of December 31, 1994. We seek comment

on this construction of the statute.

6. Procedures

24. As for procedures, we seek to design a mechanism by which an

operator can obtain a prompt determination of small operator status

with a minimum of paperwork, while still giving LFAs and the Commission

the ability to verify, when necessary, the subscriber and revenue data

relied on by the operator in seeking such status. We understand that a

large number of operators entitled to deregulation under the 1996 Act

have subscriber and revenue figures that fall far below the statutory

thresholds. We tentatively conclude that the procedures we adopt in

this regard should be such that these systems can obtain a prompt

declaration of their deregulatory status without having to comply with

the rules that may be necessary for systems whose eligibility is not so

certain. Accordingly, we propose to adopt on a permanent basis the

interim procedures described above.

25. While designed to simplify the process in the case of operators

who clearly meet the statutory criteria, this process could be applied

to all operators, even though further scrutiny may be required for

operators that come closer to those statutory criteria. We seek comment

on this approach and invite commenters to propose other mechanisms that

would minimize the administrative burdens on operators and franchising

authorities, particularly in cases where there will be no dispute as to

the operator's eligibility for deregulation. We further seek comment as

to the procedures to be followed where a determination of the

operator's status will require further examination.

26. We also must determine the treatment of systems that qualify

for deregulation now, but later exceed the subscriber or revenue

thresholds. We tentatively conclude that the plain language of the

statute indicates that a deregulated system would become subject to

regulation upon exceeding the statutory thresholds. Under this

approach, would a system that qualifies for deregulation instantly lose

that status the moment its subscriber base exceeds 50,000 in the

franchise area, or at the moment its operator starts to serve more than

1% of subscribers nationwide? Is deregulated status lost immediately

upon the accumulation of annual revenues above $250 million? We

tentatively conclude that an instantaneous shift from complete

deregulation to full regulation may not be in the public interest

because it could be disruptive to consumers and operators. The addition

of subscribers by a system or operator would seem to indicate that the

company is responding to consumer demand. We would not want to

discourage such responsiveness on the part of cable operators.

[[Page 19018]]

Nevertheless, we tentatively conclude that the language of the 1996 Act

requires the transition into regulation to begin as soon as the system

no longer qualifies under the subscriber or revenue criteria. We seek

comment on these issues.

27. We note that last year the Commission adopted rules

streamlining cost-of-service rate regulation for any system serving

fewer than 15,000 subscribers, as long as the system is not owned by an

operator serving more than 400,000 subscribers. Once a system qualifies

under these criteria, it remains subject to the relaxed rules for so

long as the system serves fewer than 15,000 subscribers. When the

system exceeds 15,000 subscribers, it may maintain its current rates,

but it is then subject to our standard rate rules applicable to systems

generally, and therefore cannot seek an increase until such an increase

is permitted under our standard rate rules. We seek comment as to

whether this transition mechanism could be applied to systems when they

exceed the statutory criteria, or whether some other approach would be

more appropriate.

D. Definition of ``Affiliate'' in the Context of Open Video Systems and

Cable-Telco Buy Outs

28. We recently initiated a rulemaking to implement the provisions

of Section 302(a) of the 1996 Act establishing open video systems [61

FR 10496 (March 14, 1996)]. Open video systems represent a new medium

for the provision of video programming to subscribers. The 1996 Act

specifically authorizes a LEC to provide cable service over an open

video system within its own telephone service area. The 1996 Act also

provides that, to the extent permitted by Commission regulation, a

cable operator or any other person may provide video programming

through an open video system. As with other portions of the 1996 Act,

Section 302(a) requires that we define the term ``affiliate'' in order

to implement its provisions. Although Section 3 of the 1996 Act defines

``affiliate,'' Congress did not alter the separate definition of

``affiliate'' set forth in Title VI. Thus, we solicit comment regarding

the definition of ``affiliate'' in the context of the new statutory

provisions governing open video systems.

29. The cable-telco buy out provisions of Section 302 of 1996 Act

also refer to the ``affiliates'' of such entities. We request comment

regarding the definition of ``affiliate'' in this context as well.

E. Uniform Rate Requirement

30. As discussed above, Section 301(b)(2) of the 1996 Act amends

the pre-existing requirement that a cable operator maintain a uniform

rate structure throughout its franchise area by, among other things,

exempting from that requirement bulk discounts offered to multiple

dwelling units. We have amended the rule to comform with the exact

statutory language. Here we solicit comment on the meaning of several

terms in the statutory language.

31. We tentatively conclude that the bulk rate exception does not

permit a cable operator to offer discounted rates on an individual

basis to subscribers simply because they are residents of a multiple

dwelling unit, but rather requires a ``bulk discount[ ],'' to use the

language of the statute, that is negotiated by the property owner or

manager on behalf of all of the tenants. We seek comment on this

tentative conclusion. We also seek comment as to whether the bulk

discounts permitted under Section 301(b)(2) include discounts offered

to MDU residents who are billed individually, or should only be

permitted where the discount is deducted from a bulk payment paid to

the cable operator by the property owner or manager on behalf of all of

its tenants.

32. We further seek comment as to the meaning of the term

``multiple dwelling units'' as used in Section 301(b)(2). The

Commission has a long-standing definition of ``multiple unit

dwellings'' that historically has been significant in determining

whether certain cable facilities fell within the private cable

exemption to the definition of a cable system. As noted above, prior to

the passage of the 1996 Act the definition of a cable system excluded

facilities serving subscribers ``in 1 or more multiple unit dwellings

under common ownership, control, or management, unless such facility or

facilities uses any public right of way * * *.'' In that context, we

defined a multiple unit dwelling to include a single building that

contains multiple residences, and to exclude developments consisting of

detached single-family residences, such as mobile home parks, planned

and resort communities, and military installations. Congress now has

expanded the private cable exemption to include all facilities located

wholly on private property, without regard to the nature or common

ownership of the property served. Thus, operators of private cable

systems (e.g., SMATV systems) now may serve mobile home parks and

planned developments without being subject to regulations applicable to

cable systems. Since Section 301(b)(2) clearly authorizes a cable

operator to deviate from its standard rate structure in order to

respond to competition at multiple dwelling units, commenters should

address whether we should interpret ``multiple dwelling units'' to

correspond to the expanded private cable exemption to the cable system

definition.

33. Substantively, we believe that allegations of predation should

be made and reviewed under principles of federal antitrust law as

applied and interpreted by the federal courts. Commenters should

address what standards should be applied to determine whether a

complainant has made out a prima facie case ``that there are reasonable

grounds to believe that the discounted price is predatory * * *.''

Because complaints in this connection are likely to involve some

measure of discovery, we propose the adoption of procedures set forth

in our rules for the adjudication of program access complaints.

Commenters should address whether that section, or some modified

version of procedures set forth in that section, should apply on a

permanent basis.

F. Technical Standards

34. The Commission has adopted technical standards that govern the

picture quality performance of cable television systems. The rules

generally have preemptive force in situations where there is any

conflict between the Commission's requirements and those that might be

imposed by state or local governments. Section 624(e) of the

Communications Act, as adopted in the 1992 Cable Act, provided that the

Commission should prescribe minimum technical standards.

35. Current Commission rules dictate specific technical standards

and provide for enforcement by LFAs. For example, the Commission's

rules provide that, upon request by a LFA, an operator must be prepared

to demonstrate compliance with the Commission's technical standards. In

addition, the rules provide that, in some instances, an operator may

negotiate with its LFA for standards less stringent than otherwise

prescribed by the Commission's rules. Section 76.607 of the

Commission's rules require an operator to establish a process for

receiving signal quality complaints, and subscriber complaints must be

referred to the franchising authority and the operator before being

referred to the Commission.

36. Here, we seek comment on the overall scope and meaning of new

Section 624(e) of the Communications

[[Page 19019]]

Act, as amended by Section 301(e) of the 1996 Act. For example, how

does this provision affect the Commission rules cited above? How does

the 1996 Act's amendments to Section 624(e) affect the scope of the

cable franchising, renewal or transfer process in the area of the

technical considerations allowed in those situations? Commenters should

bear in mind that the 1996 Act did not amend the franchising or the

renewal provisions of the Communications Act. Specifically, Section 626

of the Communications Act provides that, ``subject to Section 624'' an

operator's proposal for franchise renewal ``shall contain such material

as the franchising authority may require, including proposals for

upgrade of the cable system.'' In addition, Section 626 provides for

franchising authority consideration of the ``quality of the operator's

service, including signal quality'' during the course of a renewal

under Section 626. Section 621 provides, in part, that a franchising

authority awarding a franchise ``may require adequate assurance that

the cable operator has the * * * technical * * * qualifications to

provide cable service.''

G. Prior Year Losses

37. Section 301(k)(1) of the 1996 Act amends Section 623 of the

Communications Act by adding the following provision:

(n) Treatment of Prior Year Losses.--Notwithstanding any other

provision of this section or of section 612, losses associated with a

cable system (including losses associated with the grant or award of a

franchise) that were incurred prior to September 4, 1992, with respect

to a cable system that is owned and operated by the original franchisee

of such system shall not be disallowed, in whole or in part, in the

determination of whether the rates for any tier of service or any type

of equipment that is subject to regulation under this section are

lawful.

38. This amendment was effective upon enactment and ``shall be

applicable to any rate proposal filed on or after September 4, 1993,

upon which no final action has been taken by December 1, 1995.''

39. We note that this provision is similar to a rule change we

recently made in the Second Report and Order, First Order on

Reconsideration, and Further Notice of Proposed Rulemaking (``Final

Cost Order''), found at 61 FR 9361 (March 8, 1996) and 61 FR 9411

(March 8, 1996). The Final Cost Order established final rules

applicable to operators that establish regulated rates in accordance

with our cost of service rules, one of the two general approaches we

have implemented with respect to rate regulation. The other, and

primary, method of rate regulation is the benchmark approach. The cost

of service rules, intended as a safety valve for operators unable to

generate reasonable revenues under the benchmark mechanism, involve a

detailed analysis of an operators investment, expenses, and revenues.

One of the issues in such an analysis is the extent to which an

operator should be permitted to recover ``start up losses'' incurred by

the system. Start up losses occur in the early years of operation when

rates are set more to attract customers than to fully cover the

significant capital and operating costs that an operator incurs before

and in the first years after initiating service. Prior to adoption of

the Final Cost Order, we presumptively limited the recovery of start up

losses to those losses incurred in the first two years of operation. We

eliminated this presumption in the Final Cost Order and now permit

operators to recover start up loses over whatever period of time such

losses were actually incurred.

40. We tentatively conclude that the statutory requirement of

Section 301 (k)(1) is applicable to an operator's cost-of-service

justification, but differs somewhat from the rule adopted in the Final

Cost Order. First, our rule permitting the recovery of start up losses

applies to all cable operators, while the recovery of prior year losses

under Section 301(k)(1) is limited to ``a cable system that is owned

and operated by the original franchisee of the system.'' Second, under

our existing rule, reasonable start up losses may be recovered

regardless of when they were incurred, while Section 301(k)(1) permits

the recovery only of losses incurred prior to September 4, 1992. Third,

while start up losses are those incurred in the early years of a

system's operation, Section 301(k)(1) contains no such limitation. We

seek comment on these tentative conclusions. Further, we seek comment

as to whether Congress intended to permit the recovery of prior year

losses attributable to imprudent or unreasonable expenditures.

H. Advanced Telecommunications Incentives

41. Subsection 706(a) of the 1996 Act requires the Commission to

``encourage the deployment on a reasonable and timely basis of advanced

telecommunications capability to all Americans (including, in

particular, elementary and secondary schools and classrooms) by

utilizing, in a manner consistent with the public interest, convenience

and necessity, price cap regulation, regulatory forbearance, measures

that promote competition in the local telecommunications market, or

other regulating methods that remove barriers to infrastructure

investment.'' We seek comment on how we can advance Congress' goal

within the context of our cable services regulation. The Commission has

solicited such information in other proceedings and reserves its right

to address the implementation of Subsection 706(a) in a consolidated

action.

I. Cable Operator Refusal To Carry Certain Programming

42. Here we solicit comment on the proper interpretation of the

term ``nudity'' as used in Sections 506 (a) and (b) of the 1996 Act. We

tentatively conclude that the term ``nudity'' should be interpreted in

accordance with the decision of the Supreme Court in Erznoznik v. City

of Jacksonville. In that decision, the Supreme Court found invalid a

city ordinance that prohibited showing films containing nudity at

drive-in theaters visible from public places. The Court found the

restriction overly broad because it was not directed against sexually

explicit nudity or otherwise limited. Accordingly, we tentatively

conclude that the term ``nudity'' as used in Sections 506 (a) and (b)

of the 1996 Act should be interpreted to mean nudity that is obscene or

indecent. We seek comment on this tentative conclusion.

J. Other Matters

43. We recognize that the cable reform subsections of the 1996 Act

that we address in this NPRM are broad in scope, and that there may be

additional issues regarding those subsections that we have not

specifically addressed in the NPRM. Commenters may submit proposals or

concerns regarding the implementation of these cable reform

subsections, including their impact on other parts of the 1996 Act that

are to be addressed in separate proceedings. We also seek proposals to

ease the burdens of regulation for interested parties.

Regulatory Flexibility Analyses

44. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.

601-612, the Commission's Initial Regulatory Flexibility Analysis with

respect to the NPRM is as follows:

45. Reason for action: The Commission is issuing this NPRM to seek

comment on various issues concerning implementation of the 1996 Act.

[[Page 19020]]

46. Objectives: To provide an opportunity for public comment and to

provide a record for a Commission decision on the issues discussed in

the NPRM.

47. Legal Basis: The NPRM is adopted pursuant to Section 301 of the

1996 Act; and sections 4(i), 602, 614, 617, 623, 624, 628, 632, of the

Communications Act of 1934, as amended, 47 U.S.C. 154, 522, 534, 537,

543, 544, 548, 552, and 548.

48. Description, potential impact, and number of small entities

affected: Amending our rules will directly affect entities which are

small business entities, as defined in Section 601(3) of the Regulatory

Flexibility Act. The 1996 Act reduces or eliminates rate regulation for

many such entities.

49. Reporting, recordkeeping, and other compliance requirements:

None.

50. Federal rules which overlap, duplicate, or conflict with the

Commission's proposal: None.

51. Any significant alternatives minimizing the impact on small

entities and consistent with state objectives: The NPRM seeks to

minimize burdens on small entities in conformance with the 1996 Act.

52. Comments are solicited: Written comments are requested on this

Initial Regulatory Flexibility Analysis. These comments must be filed

in accordance with the same filing deadlines set for comments on the

other issues in this NPRM, but they must have a separate and distinct

heading designating them as responses to the Regulatory Flexibility

Analysis. The Secretary shall send a copy of the NPRM to the Chief

Counsel for Advocacy of the Small Business Administration in accordance

with Section 603(a) of the Regulatory Flexibility Act, 5 U.S.C. 601, et

seq.

Procedural Provisions

53. Pursuant to applicable procedures set forth in Sections 1.415

and Secs. 1.419 of the Commission's rules, 47 CFR 1.415, 1.419,

interested parties may file comments on or before May 28, 1996 and

reply comments on or before June 28, 1996. To file formally in this

proceeding, you must file an original and six copies of all comments,

reply comments, and supporting comments. Parties are also asked to

submit, if possible, draft rules that reflect their positions. If you

want each Commissioner to receive a personal copy of your comments, you

must file an original and eleven copies. Comments and reply comments

should be sent to Office of the Secretary, Federal Communications

Commission, 1919 M Street, N.W., Room 222, Washington, D.C. 20554, with

a copy to Nancy Stevenson of the Cable Services Bureau, 2033 M Street,

N.W., Room 408A, Washington, D.C. 20554. Parties should also file one

copy of any documents filed in this docket with the Commission's copy

contractor, International Transcription Services, Inc., 2100 M Street,

N.W., Suite 140, Washington, D.C. 20037. Comments and reply comments

will be available for public inspection during regular business hours

in the FCC Reference Center, 1919 M Street, N.W., Room 239, Washington,

D.C. 20554.

54. Parties are also asked to submit comments and reply comments on

diskette, where possible. Such diskette submissions would be in

addition to and not a substitute for the formal filing requirements

addressed above. Parties submitting diskettes should submit them to

Nancy Stevenson of the Cable Services Bureau, 2033 M Street, N.W., Room

408A, Washington, D.C. 20554. Such a submission should be on a 3.5 inch

diskette formatted in an IBM compatible form using MS DOS 5.0 and

WordPerfect 5.1 software. The diskette should be submitted in ``read

only'' mode. The diskette should be clearly labelled with the party's

name, proceeding, type of pleading (comment or reply comments) and date

of submission. The diskette should be accompanied by a cover letter.

55. Written comments by the public must be submitted by the Office

of Management and Budget (OMB) on the proposed and/or modified

information collections on or before 60 days after publication of the

Order and NPRM in the Federal Register. In addition to filing comments

with the Secretary, a copy of any comments on the information

collections contained herein should be submitted to Dorothy Conway,

Federal Communications Commission, Room 234, 1919 M Street, N.W.,

Washington, D.C. 20054, or via the Internet to [email protected], and to

Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-17th Street, N.W.,

Washington, D.C. 20503 or via the Internet to [email protected].

List of Subjects in 47 CFR Part 76

Cable television.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 96-10172 Filed 4-26-96; 8:45 am]

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