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: Interim and final rules.

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SUMMARY: This Order implements sections of the Telecommunications Act

of 1996 (``1996 Act''). The Order establishes rules conforming the

Commission's rules to statutory mandates that became effective upon

enactment of the 1996 Act. Although all rules promulgated pursuant to

this Order are ``final,'' the Commission recognizes that some rules,

apart from those implementing the explicit language of the 1996 Act,

should be viewed as ``interim'' rules subject to revision in the near

future based on comments and information received in an associated

Notice of Proposed Rulemaking (``NPRM'') that has been released

concurrently with this Order and published in this issue of the Federal

Register. This Order implements rules related to the 1996 Act's cable

reform provisions, including the definition of effective competition,

the cable rate complaint process, the sunset of cable programming

service tier regulation, small cable operators, uniform rate

requirements, subscriber notice of service and rate changes, technical

standards, cable system buy out restrictions, program access, the

definitions of cable system and cable

[[Page 18969]]

service, operator refusals to carry indecent programming, and prior

year losses. The intended effect of this action is to implement

provisions of the 1996 Act that revised the Cable Television Consumer

Protection and Competition Act of 1992.

DATES: The statutory requirements reflected in the final rules adopted

in this Order were effective February 8, 1996, the date of enactment of

the Telecommunications Act of 1996. The effective date for the final

rule changes (47 C.F.R. 76.5 (a) and (ff), 76.309(c)(3)(i)(B), 76.505,

76.605 Note 6, 76.701, 76.702, 76.905(b)(4), 76.933 (e) and (g)(5),

76.950, 76.951, 76.953(a), 76.956(a), 76.964, 76.984(c) as established

herein is April 30, 1996. The effective date of the interim rules (47

C.F.R. 76.1400-76.1404) is April 30, 1996. Procedures for submitting

comments can be found in the companion NPRM issued with this Order. The

companion NPRM can be found elsewhere in this issue of the Federal

Register.

FOR FURTHER INFORMATION CONTACT:

Tom Power, Paul Glenchur, Nancy Stevenson, Cable Services Bureau, (202)

416-0800.

SUPPLEMENTARY INFORMATION: This is a synopsis of a Commission Order in

CS Docket No. 96-85, FCC 96-154, 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., N.W., Washington, D.C., and also may be

purchased from the Commission's copy contractor, International

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

Suite 140, Washington, D.C. 20017.

Synopsis of Order

Table of Contents

Paragraph

I. Introduction............................................ 1

II. Order.................................................. 5

A. Effective Competition................................. 5

B. CPST Rate Complaints.................................. 16

C. Small Cable Operators................................. 20

D. Uniform Rate Requirement.............................. 30

E. Subscriber Notice..................................... 34

F. Technical Standards................................... 37

G. Buy Out Prohibitions.................................. 40

H. Program Access........................................ 43

I. Sunset of Upper Tier Rate Regulation.................. 46

J. Definition of ``Cable System''........................ 48

K. Definition of ``Cable Service''....................... 55

L. Cable Operator Refusal To Carry Certain Programming... 58

III. Regulatory Flexibility Analyses....................... 71

IV. Initial Paperwork Reduction Act of 1995 Analysis....... 75

V. Effective Date.......................................... 76

VI. Ordering Clauses....................................... 77

I. Introduction

1. In this item we amend the Commission's rules relating to cable

television to conform them to changes in the Communications Act

enacted, on February 8, 1996, in the Telecommunications Act of 1996

(the ``1996 Act''). In addition, in an associated Notice of Proposed

Rulemaking (``NPRM''), we propose further rules to the extent necessary

to implement various provisions of the 1996 Act. Finally, because many

of these statutory provisions were effective upon enactment, we

establish interim rules to govern implementation of the 1996 Act

pending adoption of final rules.

2. Our intent in this item is to conform our rules promptly to

statutory requirements that are already in effect, to bring certainty

to cable operators and local regulators, and to achieve as quickly as

possible the deregulation intended by Congress. Further, we seek to

streamline our procedural regulations and, of course, to continue to

protect consumers, consistent with congressional intent.

3. Much of the 1996 Act consists of clear, self-effectuating

revisions to prior federal statutory provisions. The Order portion of

this item conforms our rules to meet these new statutory requirements.

We are revising these rules without providing prior public notice and

an opportunity for comment because the rule modifications are mandated

by the applicable provisions of the 1996 Act. We find that notice and

comment procedures are unnecessary, and that therefore this action

falls within the ``good cause'' exception of the Administrative

Procedure Act. 5 U.S.C. Sec. 553(b)(B). The final rules adopted in this

Order do not involve discretionary action on the part of the

Commission. Rather, they simply implement provisions of the 1996 Act

according to the specific terms set forth in the legislation.

4. Other provisions of the 1996 Act are already effective, but

require further rulemaking in order to be fully and clearly

implemented. The companion NPRM addresses these issues. We find it in

the public interest to adopt interim rules immediately and find good

cause to establish them without the benefit of the traditional notice

and comment process. Of course, our final rules will be crafted to take

into account public comment to the same extent as would be the case in

a rulemaking that was not preceded by the adoption of interim policies.

However, we intend the interim rules to create a safe harbor, i.e.,

operators can be assured that if they comply with these interim rules,

their behavior will not later be subject to challenge based upon the

ultimate outcome of the rulemaking.

II. Order

A. Effective Competition

1. Final Rule Change

5. Since passage of the Cable Television Consumer Protection and

Competition Act of 1992 (the ``1992 Cable Act''), regulation of cable

television has been guided by Congress' intent to ``rely on the

marketplace, to the maximum extent feasible . . . .'' The 1992 Cable

Act required the Commission to prescribe rate regulations that protect

subscribers from having to pay unreasonable rates by ensuring that

rates for regulated services do not exceed rates that would be charged

in the presence of effective competition. Thus, regulations governing

the rates charged for cable services do not apply to cable systems that

actually face effective competition. For a system that is not subject

to effective competition, the Commission is obligated to ensure the

reasonableness of rates charged for the basic service tier (``BST'')

and for the cable programming service tier (``CPST''). The BST, which a

subscriber must purchase in order to have access to any other tier of

service, must include all of the local broadcast television stations

that the operator offers over its system, plus any public, educational,

or government access channels that the operator is required to provide

to subscribers under the terms of its franchise. A CPST is any tier of

programming, other than the basic service tier, that a cable operator

offers. Where effective competition is present, certain other

regulatory requirements also become inapplicable, including the uniform

rate requirement, the ``tier buy through'' requirement, and certain of

the ownership rules.

6. Section 76.905(b) of our rules incorporates the statutory

definition of ``effective competition'' as set forth in the 1992 Cable

Act. Pursuant to that rule, a system is subject to effective

competition in the area covered by its local franchise if any one of

the following three tests are met:

[[Page 18970]]

(1) Fewer than 30 percent of the households in its franchise

area subscribe to the cable service of a cable system.

(2) The franchise area is:

(i) Served by at least two unaffiliated multichannel video

programming distributors each of which offers comparable 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% of the households in the franchise area.

(3) 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 the

franchise area.

7. The three effective competition test categories described above

are not altered by the 1996 Act. However, Section 301(b)(3) of the 1996

Act creates a fourth test, finding that effective competition exists

when video programming is offered by, or over the facilities of, a

local exchange carrier (``LEC'') or its affiliate. Thus, effective

competition now exists if 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.

This provision was effective upon enactment. Therefore, we amend our

rules to incorporate this additional prong of the definition of

effective competition. Consistent with Section 623 of the statute, we

seek to adopt interim and permanent rules that will allow the

Commission to determine when the level of competition provided by a LEC

or its affiliate is sufficient to have a restraining effect on cable

rates.

2. Definitions of ``offer'' and ``in the franchise area''

8.-9. The Commission's pre-existing definition of ``offer'' will

apply under the new test for effective competition:

Service of a multichannel video programming distributor will be

deemed offered: (1) When the multichannel video programming

distributor is physically able to deliver service to potential

subscribers, with the addition of no or only minimal additional

investment by the distributor, in order for an individual subscriber

to receive service; and (2) When no regulatory, technical or other

impediments to households taking service exist, and potential

subscribers in the franchise area are reasonably aware that they may

purchase the services of the multichannel video programming

distributor.

10. The legislative history to the 1996 Act indicates congressional

intent to apply this definition of ``offer'' for purposes of the new

test for effective competition.

11. An operator should focus on each element of the ``offer''

definition, in the context of the new test for effective competition,

when attempting to prove that the service offered by the LEC-affiliated

multichannel video programming distributor (``MVPD'') is effective in

restraining cable rates. For example, a cable operator seeking to prove

effective competition will have to show that the competitor is

``physically able'' to offer service to subscribers ``in the franchise

area.'' Where the competitor's service area does not follow the borders

of the local cable franchise areas, a cable operator should describe

the extent of the overlap between its franchise area and the actual or

planned service area of the competitor. With respect to multichannel

multipoint distribution service (``MMDS''), for example, we previously

have determined that the potential subscribers include only those who

reside in ``areas to which the MMDS operator is capable of providing

video programming.'' We note that the zone in which our rules protect a

MMDS licensee from harmful electrical interference is a circle with a

radius of 35 miles centered on the MMDS transmitter site. Thus, in

seeking to establish effective competition from a LEC-affiliated MMDS

operator, a cable operator should provide the location of the MMDS

transmitter and the 35-mile protected zone. The cable operator also

should provide any other reasonably available technical and geographic

information, as well as information about the geographic scope of the

competitor's marketing efforts, to help establish that service is being

offered to subscribers in the franchise area. Such data, whether with

respect to a MMDS operator or some other LEC-affiliated MVPD, will also

be relevant to a showing that there are no technical or other

impediments to households taking service from the MVPD. Where

appropriate, we will request additional relevant information from the

competing MVPD.

12. In addition, the cable operator must establish that ``potential

subscribers in the franchise area are reasonably aware'' that they may

purchase the competitor's service. The marketing efforts of the LEC or

its affiliate often will be directly related to this issue. As we

previously have observed, ``potential subscribers may be made

reasonably aware of the availability of a competing service, for

example, through advertising in regional or local media, direct mail,

or any other marketing outlet.'' (Rate Order), 58 FR 29736 (May 21,

1993). Thus, cable operators may rely on marketing information to the

extent necessary to show consumer perceptions of the availability and

comparability of the competing service. Again, the Commission may seek

information directly from the competitor in appropriate circumstances.

3. Definition of ``comparable programming''

13. The legislative history reveals Congress's intent that video

programming be deemed ``comparable'' for purposes of this test if the

competing service ``includes access to at least 12 channels of

programming, at least some of which are television broadcasting

signals.'' On an interim basis we will require the broadcast

programming to include the signals of local broadcasters. Broadcast

programming delivered by satellite (e.g., ``superstations'') shall not

be deemed broadcast programming for purposes of the interim application

of the new effective competition test.

4. MMDS Provision of Local Broadcast Channels

14. The definitions of ``offer'' and ``comparable programming''

require us to address a further question that arises specifically in

the context of MMDS. An MMDS operator has two ways of ensuring that its

subscribers receive local broadcast programming. The operator can pull

in the broadcast signals itself via its own centrally located broadcast

antenna and then retransmit the entire package of broadcast and non-

broadcast signals to the microwave antenna located at the subscriber's

residence, or the operator can install a separate broadcast antenna to

complement the microwave antenna at each subscriber location. We must

determine whether the wireless cable operator should be deemed to be

``offering'' broadcast programming in the latter situation, i.e., when

the operator does not transmit the broadcast signals to the subscriber

via microwave. In that situation, the operator must join the broadcast

signals to the microwave signals at some point. One approach is to join

those signals in a single cable that runs to the back of the customer's

television set or to a settop converter box. Another approach is to run

separate cable lines from each antenna to an A/B switch from which a

single line is connected to the television set.

[[Page 18971]]

The subscriber pushes the switch back and forth between the A position

and the B position, depending upon whether the subscriber wants to see

the broadcast channels or the microwave channels.

15. On an interim basis, we will resolve this issue as follows. If

the broadcast channels are available to the subscriber without an A/B

switch or similar device, the MMDS operator will be deemed to be

offering them within the meaning of Section 301(b)(3) of the 1996 Act.

If an A/B switch or similar device is required, we will still deem the

broadcast stations offered if the MMDS operator is responsible for the

installation. However, if the customer must install his or her own A/B

switch to receive the broadcast channels, the MMDS operator will not be

deemed to be offering those channels. Inclusion of broadcast channels

on the MMDS operator's rate card, advertising, or other marketing

materials may be evidence that the MMDS operator offers the broadcast

channels in accordance with our definition of ``offer.'' We note the

significance of marketing materials because it is arguable that an MMDS

operator that markets itself as a provider of local broadcast channels

will take the steps necessary to ensure that subscribers receive those

channels. In those circumstances, the broadcast channels would seem to

be a part of the programming package that the MMDS operator is offering

and providing, regardless of the technical means employed.

5. Definition of ``affiliate''

16. Under our interim rules implementing this statute, an entity

will be considered affiliated with a LEC if it meets the definition of

``affiliate'' set forth in Section 3 of the 1996 Act:

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.

17. We note that this definition of ``affiliate,'' which has been

incorporated in Title I of the Communications Act, does not strictly

apply to matters under Title VI, since Title VI contains a separate

definition of that term that does not set a percentage threshold as to

what constitutes ownership. We believe this gives us discretion to

establish an ownership threshold other than 10% for purposes of Title

VI. However, because a determination of the precise threshold must

await the rulemaking we initiate in the accompanying NPRM, on an

interim basis we find it reasonable to use the Title I ownership

threshold that Congress has prescribed for purposes of most other

provisions of the Communications Act. Therefore, effective competition

under the new test may be established when a LEC owns an active or

passive equity interest, or the equivalent thereof, of more than 10% in

the competing MVPD. We will determine what constitutes the

``equivalent'' of an equity interest on a case-by-case basis.

Affiliation also can be shown through de facto control, regardless of

the actual ownership interest. The ownership threshold we adopt in the

interim does not in any way preclude the establishment of a permanent

rule that incorporates a different threshold.

6. Procedures

18. A cable system that meets all of the relevant criteria in the

new effective competition test is exempt from rate regulation as of

February 8, 1996, the date the 1996 Act was enacted. Such an operator

may file a petition for a determination of effective competition with

the Commission. The petition should demonstrate that all the relevant

criteria are satisfied. We note that, by necessity, we have adopted the

substantive requirements discussed above on an interim basis without

the usual notice and comment proceeding. Accordingly, petitioners

seeking a declaration of effective competition under the new test are

free to provide additional information, consistent with the statute,

that the operator believes proves the existence of effective

competition that must exist in order to exempt an operator from rate

regulation.

19. This petition may be filed with the Commission at any time,

including in response to a notice from the local franchising authority

(``LFA'') that it intends to file a CPST rate complaint. (A LFA

certified to regulate rates can simply withdraw its certification at

any time if it believes the cable operator is subject to effective

competition, or for any other reason.) The operator shall provide a

copy of the petition to the LFA. The Commission will provide public

notice of the petition's filing to enable interested parties to file

responses to the petition. Thereafter, we will determine whether

effective competition exists and may issue an order granting the

petition. As we have noted, the Commission may issue an order directing

one or more persons to produce information relevant to the operator's

petition. For example, the order may be directed to a LEC that is

asserted to hold an interest in an MVPD sufficient to reach affiliation

levels that would trigger a finding of effective competition. The

Commission will act promptly on these petitions. A Commission

determination regarding effective competition will be applicable to

both the BST and CPST.

B. CPST Rate Complaints

20. Under existing regulations, adopted pursuant to Section

623(c)(1)(B) of the Communications Act as it existed prior to the 1996

Act, subscribers were allowed to file complaints concerning CPST rates

directly with the Commission. Section 301(b)(1)(C) of the 1996 Act

alters the manner in which the Commission reviews complaints concerning

rates charged for a CPST. In particular, that Section provides:

The Commission shall review any complaint submitted by a

franchising authority after the date of enactment of the

Telecommunications Act of 1996 concerning an increase in rates for

cable programming services and issue a final order within 90 days

after it receives such a complaint, unless the parties agree to

extend the period for such review. A franchising authority may not

file a complaint under this paragraph unless, within 90 days after

such increase becomes effective, it receives subscriber complaints.

21. Accordingly, we amend our rule to incorporate the self-

effectuating language of Section 301(b)(1)(C). In addition, we have

eliminated the requirement in Section 76.964 of our rules that

operators notify subscribers of their right to file complaints with the

Commission. Also in Section 76.964, we eliminate the requirement that

operators notify subscribers of the Commission's address and phone

number for purposes of filing rate complaints. Subscriber complaints

received by the Commission after February 8, 1996 are being returned to

the subscriber with a notice of this change.

22. We also establish interim rules governing the filing of rate

complaints by LFAs. Section 301(b)(a)(C) authorizes an LFA to file a

rate complaint with the Commission if the LFA receives subscriber

complaints within 90 days after an operator's rate increase becomes

effective. Although the statute allows only LFAs to file rate

complaints directly with the Commission, subscribers now have twice as

long to complain about a rate increase as they did under our previous

rules. We provide in this interim rule that an LFA may file rate

complaints with the Commission when the LFA receives more than one

subscriber complaint concerning an operator's rate increase.

Modifications to the Commission cable rate complaint form, Form 329,

will be made accordingly. The records

[[Page 18972]]

maintained by an LFA in accordance with its regular business practice

should be sufficient to establish that the LFA received the subscriber

complaints within 90 days of a rate increase.

23. If the LFA receives more than one subscriber complaint within

the 90-day period and decides to file its own complaint with the

Commission, it must do so no more than 180 days after the rate increase

became effective. Before filing a complaint with the Commission, the

LFA shall first give the cable operator written notice of its intent to

do so and give the operator a minimum of 30 days to file with the LFA

the relevant FCC Forms used to justify a rate increase. The LFA shall

then forward its complaint and the operator's response to the

Commission within the 180 day deadline specified above. If the operator

fails to respond, the LFA should file its complaint and specify that

the operator has not filed a response. We will then decide the case

based upon the information before us. This procedure shall not apply to

LFA complaints filed on or before the 15th day following the release

date of this item. We will address those complaints filed prior to such

date on an individual basis.

C. Small Cable Operators

1. Final Rule Change

24. The 1996 Act exempts certain smaller cable systems from certain

provisions of Section 623 of the Communications Act that authorize the

Commission and LFAs to regulate cable rates. Specifically, Section

301(c) of the 1996 Act amends Section 623 of the Communications Act by

adding the following subsection:

(m) Special Rules For Small Companies.

(1) In General. Subsections (a), (b), and (c) do not apply to a

small cable operator with respect to--

(A) cable programming services, or

(B) a basic service tier that was the only service tier subject to

regulation as of December 31, 1994,

in any franchise area in which that operator services 50,000 or fewer

subscribers.

(2) Definition of Small Cable Operator. For purposes of this

subsection, the term ``small cable operator'' means a cable operator

that, directly or through an affiliate, serves in the aggregate fewer

than 1 percent of all subscribers in the United States and is not

affiliated with any entity or entities whose gross annual revenues in

the aggregate exceed $250,000,000.

25. We amend our rules, to reflect the exceptions to rate

regulation created by section 301(c) of the 1996 Act.

26. Because Section 301(c) was effective upon enactment of the

statute, we will establish in this Order interim rules to apply pending

adoption of final rules.

2. Definition of ``small cable operator''

27. With respect to the definition of a small cable operator, and

for interim purposes only, we find that there are 61,700,000 cable

subscribers in the United States. Therefore, an operator serving fewer

than 617,000 subscribers shall be deemed a small operator if its annual

revenues, when combined with the total annual revenues of all of its

affiliates, do not exceed $250 million in the aggregate. Further, to

implement the small operator provisions pending adoption of final

rules, we will use the definition of ``affiliate'' that we adopted last

year for purposes of our small system cost-of-service rules. Therefore,

an entity shall be deemed affiliated with a small cable operator if

that entity has a 20% or greater equity interest in the operator

(active or passive) or holds de jure or de facto control over the

operator. In the present context, we believe it is reasonable to apply

our definition of affiliation as it exists under our small system

rules, given that those rules and the small cable operator provisions

of the 1996 Act all have the same intent of minimizing regulation and

ensuring access to needed capital for smaller cable entities.

3. Scope of Deregulation

28. Assuming an operator is eligible for deregulation under the

statutory subscriber and revenue criteria, the scope of deregulation

will depend, at least on an interim basis, upon the number of tiers of

service that were subject to rate regulation as of December 31, 1994.

We believe it to be Congress's intent that any qualifying system that

had only a single tier of cable service subject to regulation as of

December 31, 1994 shall be exempt from rate regulation as to all of its

programming services, regardless of the number of tiers it now offers.

By contrast, a qualifying system that had more than one tier subject to

regulation as of December 31, 1994 shall remain regulated on the BST.

4. Procedures

29. A cable operator that satisfies all of the relevant criteria is

exempt from rate regulation as to the extent provided above effective

February 8, 1996, the date the 1996 Act was enacted. If such an

operator had only a single tier as of December 31, 1994, and the LFA

for the franchise area in which that operator offers service is

certified to regulate cable rates under the 1992 Cable Act, the

operator should certify in writing to such LFA that the operator meets

all of the criteria for deregulation of the BST. It may make this

certification at any time. Upon request of the LFA, the operator shall

identify in writing all of its affiliates that provide cable service,

the total cable subscriber base of itself and each affiliate, and the

aggregate gross revenues of all its cable and non-cable affiliates.

Within 90 days of the original certification, the LFA shall determine

whether the operator qualifies for deregulation and shall notify the

operator in writing of its decision, although this 90-day period shall

be tolled for so long as it takes the operator to respond to a proper

request for information by the LFA. If the LFA finds that the operator

does not qualify for deregulation, its notice shall state the grounds

for that decision. The operator may challenge that decision by filing

an appeal with the Commission within 30 days.

30. Once the operator has certified its eligibility for

deregulation on the BST, the LFA shall not prohibit the operator from

taking a rate increase and shall not order the operator to make any

refunds, unless and until the LFA has rejected the certification in a

final order that is no longer subject to appeal or that the Commission

has affirmed. Thus, the operator may take rate increases while its

certification is pending. However, the operator shall be liable for

refunds for the revenues it gains (beyond those revenues that it could

have gained under regulation) as a result of any rate increase taken

during the period in which it claimed to be deregulated, plus interest,

in the event it is later found not to be deregulated. In addition, the

running of the standard one-year limitation on refund liability will be

tolled during that period to ensure that the filing of an invalid small

operator certification does not reduce any refund liability that the

operator otherwise would incur.

31. A system that qualifies under the new small operator subscriber

and revenue requirements and that had more than one tier as of December

31, 1994 is deregulated on all its CPSTs as of February 8, 1996. Within

30 days of being served with a LFA's notice that it intends to file a

CPST rate complaint, such an operator shall certify to the LFA that it

meets the relevant small operator criteria, in accordance with the new

CPST rate complaint procedure described above. This certification shall

be in lieu of the rate justification that an operator otherwise would

submit. The LFA may either resolve the issue itself in accordance with

the procedures set

[[Page 18973]]

forth immediately above, or it may forward its notice and the

operator's response for Commission review in accordance with the new

procedures for CPST rate complaints. No certification is necessary if

the operator does not receive notice that the LFA intends to file a

CPST rate complaint. If a pending CPST rate complaint was filed with

the Commission before the effective date of these interim rules, the

operator should file its certification of small operator status

directly with the Commission within 15 days of that effective date.

32. We adopt these interim rules solely for the purpose of

implementing Section 301(c) of the 1996 Act pending our adoption of

final rules. These interim rules in no way alter or amend our small

system cost-of-service rules or any other rules applicable to small

systems or small cable companies, except to the extent such rules no

longer apply to systems deregulated under Section 301(c) of the 1996

Act.

4. Relationship With Preexisting Small System Rules

33. In the interests of eliminating confusion and uncertainty, we

will summarize the separate treatment available to small systems as

defined by our preexisting rules. Last year, the Commission adopted

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

serving fewer than 15,000 subscribers (a ``small system''), as long as

the system is owned by an operator that serves no more than 400,000

subscribers over all of its systems (a ``small cable company''). 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, even if the company later exceeds 400,000 subscribers or

if the small system is acquired by an operator with more than 400,000

subscribers. When the system exceeds 15,000 subscribers, it may

maintain its current rates but cannot seek an increase until such an

increase is permitted under our standard rate rules applicable to

systems generally. Our small system rules are unaffected by the 1996

Act or this rulemaking.

D. Uniform Rate Requirement

34. Prior to enactment of the 1996 Act, Section 623(d) of the

Communications Act provided in full: ``A cable operator shall have a

rate structure, for the provision of cable service, that is uniform

throughout the geographic area in which cable service is provided over

its cable system.'' Section 76.984 of the Commission's rules was

adopted to implement this requirement. The Commission interpreted the

rules (and the statutory requirement) as applying to systems not facing

effective competition as well as to those facing effective competition.

Upon review, the court in Time Warner Entertainment Co. v. FCC found

this interpretation to be incorrect, holding that ``[a]pplication of

the uniform rate provision to competitive systems violates 47 U.S.C.

Sec. 543(a)(2). . . .''

35. Section 301(b)(2) of the 1996 Act addresses the uniform rate

structure through a statutory amendment which, in relevant part, is

consistent with the action of the court. It amends the uniform rate

provision by adding the following at the end of Section 623(d):

This subsection does not apply to (1) a cable operator with

respect to the provision of cable service over its cable system in

any geographic area in which the video programming services offered

by the operator in that area are subject to effective competition,

or (2) any video programming offered on a per channel or per program

basis. Bulk discounts to multiple dwelling units shall not be

subject to this subsection, except that a cable operator of a cable

system that is not subject to effective competition may not charge

predatory prices to a multiple dwelling unit. Upon a prima facie

showing by a complainant that there are reasonable grounds to

believe that the discounted price is predatory, the cable system

shall have the burden of showing that its discounted price is not

predatory.

36. Accordingly, we amend Section 76.984 of our rules to conform to

the new statutory language.

37. Until final rules are adopted, the complaint process

established by Section 301(b)(2) of the 1996 Act shall be governed by

the provisions of Section 76.7 of our rules applicable to petitions for

special relief generally.

E. Subscriber Notice

38. Section 301(g) of the 1996 Act adds a new subsection to Section

632 of the Communications Act. The new subsection reads as follows:

Subscriber Notice. A cable operator may provide notice of

service and rate changes to subscribers using any reasonable written

means at its sole discretion. Notwithstanding section 623(b)(6) or

any other provision of this Act, a cable operator shall not be

required to provide prior notice of any rate change that is the

result of a regulatory fee, franchise fee, or any other fee, tax

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

State, or franchising authority on the transaction between the

operator and the subscriber.

39. Accordingly, we modify our rules pursuant to Section 301(g) of

the 1996 Act to provide that a cable operator may provide notice of

service and rate changes to subscribers using any reasonable written

means at its sole discretion, and that a cable operator shall not be

required to provide prior notice of any rate change that is the result

of a regulatory fee, franchise fee, or any other fee, tax assessment,

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

franchising authority on the transaction between the operator and the

subscriber.

40. We note that previously the Commission distinguished written

notice sent to subscribers from written announcements on the cable

system or in the newspaper. We made these distinctions in an effort to

ensure that notice was adequate depending upon the circumstances. We

now note the legislative history of the House amendment, which was

ultimately adopted by the Conference Committee, states that ``[n]otice

need not be inserted in the subscriber's bill.'' Given the cited

statutory provision and its legislative history, a change in our

current rules is justified so that notice provided through written

announcements on the cable system or in the newspaper will be presumed

sufficient. We believe this furthers Congressional intent regarding the

adequacy of any required notice. We will address any disputes that may

arise in this area on a case-by-case basis.

F. Technical Standards

41. Pursuant to Section 624(e) of the Communications Act, the

Commission has adopted technical standards that govern the picture

quality performance of cable television systems. Prior to enactment of

the 1996 Act, Section 624(e) provided, in part:

A franchising authority may require as part of a franchise

(including a modification, renewal, or transfer thereof) provisions

for the enforcement of the standards prescribed under this

subsection. A franchising authority may apply to the Commission for

a waiver to impose standards that are more stringent than the

standards prescribed by the Commission under this subsection.

42. Section 301(e) of the 1996 Act strikes the above two sentences

and adds the following:

No State or franchising authority may prohibit, condition, or

restrict a cable system's use of any type of subscriber equipment or

any transmission technology.

43. Thus, we eliminate the language in Note Six to Section 76.605

of our rules which permitted a franchising authority to apply to the

Commission for a waiver to impose cable technical standards that are

more stringent than the standards prescribed by the Commission. We

insert the new language from Section 301(e) in Note Six.

[[Page 18974]]

G. Buy Out Prohibitions

44. Section 302(a) of the 1996 Act creates a new Section 652 of the

Communications Act that provides as follows:

(a) Acquisitions By Carriers. No local exchange carrier or any

affiliate of such carrier owned by, operated by, controlled by, or

under common control with such carrier may purchase or otherwise

acquire directly or indirectly more than a 10 percent financial

interest, or any management interest, in any cable operator

providing cable service within the local exchange carrier's

telephone service area.

(b) Acquisitions By Cable Operators. No cable operator or

affiliate of a cable operator that is owned by, operated by,

controlled by, or under common ownership with such cable operator

may purchase or otherwise acquire, directly or indirectly, more than

a 10 percent financial interest, or any management interest, in any

local exchange carrier providing telephone exchange service within

such cable operator's franchise area.

(c) Joint Ventures. A local exchange carrier and a cable

operator whose telephone service area and cable franchise area,

respectively, are in the same market may not enter into any joint

venture or partnership to provide video programming directly to

subscribers or to provide telecommunications services within such

market.

(d) Exceptions.

(1) Rural Systems. Notwithstanding subsections (a), (b), and (c)

of this section, a local exchange carrier (with respect to a cable

system located in its telephone service area) and a cable operator

(with respect to the facilities of a local exchange carrier used to

provide telephone exchange service in its cable franchise area) may

obtain a controlling interest in, management interest in, or enter

into a joint venture or partnership with the operator of such system

or facilities for the use of such system or facilities to the extent

that--

(A) such system or facilities only serve incorporated or

unincorporated--

(i) places or territories that have fewer than 35,000

inhabitants; and

(ii) are outside an urbanized area, as defined by the Bureau of

the Census; and

(B) in the case of a local exchange carrier, such system, in the

aggregate with any other system in which such carrier has an

interest, serves less than 10 percent of the households in the

telephone service area of such carrier.

(2) Joint Use. Notwithstanding subsection (c), a local exchange

carrier may obtain, with the concurrence of the cable operator on

the rates, terms, and conditions, the use of that part of the

transmission facilities of a cable system extending from the last

multi-user terminal to the premises of the end user, if such use is

reasonably limited in scope and duration, as determined by the

Commission.

(3) Acquisitions in Competitive Markets. Notwithstanding

subsections (a) and (c), a local exchange carrier may obtain a

controlling interest in, or form a joint venture or other

partnership with, or provide financing to, a cable system

(hereinafter in this paragraph referred to as ``the subject cable

system'') if--

(A) the subject cable system operates in a television market

that is not in the top 25 markets, and such market has more than 1

cable system operator, and the subject cable system is not the cable

system with the most subscribers in such television market;

(B) the subject cable system and the cable system with the most

subscribers in such television market held on May 1, 1995, cable

television franchises from the largest municipality in the

television market and the boundaries of such franchises were

identical on such date;

(C) the subject cable system is not owned by or under common

ownership or control of any one of the 50 cable system operators

with the most subscribers as such operators existed on May 1, 1995;

and

(D) the system with the most subscribers in the television

market is owned by or under common ownership or control of any one

of the 10 largest cable system operators as such operators existed

on May 1, 1995.

(4) Exempt Cable Systems. Subsection (a) does not apply to any

cable system if--

(A) the cable system serves no more than 17,000 cable

subscribers, of which no less than 8,000 live within an urban area,

and no less than 6,000 live within a nonurbanized area as of June 1,

1995;

(B) the cable system is not owned by, or under common ownership

or control with, any of the 50 largest cable system operators in

existence on June 1, 1995; and

(C) the cable system operates in a television market that was

not in the top 100 television markets as of June 1, 1995.

(5) Small Cable Systems In Nonurban Areas. Notwithstanding

subsections (a) and (c), a local exchange carrier with less than

$100,000,000 in annual operating revenues (or any affiliate of such

carrier owned by, operated by, controlled by, or under common

control with such carrier) may purchase or otherwise acquire more

than a 10 percent financial interest in, or any management interest

in, or enter into a joint venture or partnership with, any cable

system within the local exchange carrier's telephone service area

that serves no more than 20,000 cable subscribers, if no more than

12,000 of those subscribers live within an urbanized area, as

defined by the Bureau of the Census.

(6) Waivers. The Commission may waive the restrictions of

subsections (a), (b), or (c) only if:

(A) the Commission determines that, because of the nature of the

market served by the affected cable system or facilities used to

provide telephone exchange service--

(i) the affected cable operator or local exchange carrier would

be subjected to undue economic distress by the enforcement of such

provisions;

(ii) the system or facilities would not be economically viable

if such provisions were enforced; or

(iii) the anticompetitive effects of the proposed transaction

are clearly outweighed in the public interest by the probable effect

of the transaction in meeting the convenience and needs of the

community to be served; and

(B) the local franchising authority approves of such waiver.

(e) Definition Of Telephone Service Area. For purposes of this

section, the term ``telephone service area'' when used in connection

with a common carrier subject in whole or in part to title II of

this Act means the area within which such carrier provided telephone

exchange service as of January 1, 1993, but if any common carrier

after such date transfers its telephone exchange service facilities

to another common carrier, the area to which such facilities provide

telephone exchange service shall be treated as part of the telephone

service area of the acquiring common carrier and not of the selling

common carrier.

45. Accordingly, we add a new section to our rules regarding the

ownership of cable systems to incorporate the provisions of Section

302(a) of the 1996 Act described above.

46. With respect to the joint use provisions of Section 302(a), the

Commission will make such determinations on a case-by-case basis using

the following procedures in accordance with Section 76.7 of our rules.

Within ten days of final execution of a contract permitting a local

exchange carrier to use that part of the transmission facilities of a

cable system extending from the last multi-user terminal to the

premises of the end user, the parties shall submit a copy of such

contract, along with an explanation of how such contract is reasonably

limited in scope and duration, to the Commission for review. The

parties shall serve a copy of this submission on the LFA, along with a

notice of the deadline by which the LFA must file comments, if any,

with the Commission. Based upon the record before it, the Commission

shall then determine whether the local exchange carrier's use of that

part of the transmission facilities of a cable system extending from

the last multi-user terminal to the premises of the end user is

reasonably limited in scope and duration. In determining whether such

use is reasonably limited in scope and duration, the Commission will

look to the underlying policy goals of the legislation: To promote

competition in both services and facilities, and to encourage long-term

investment in the infrastructure.

H. Program Access

47. Section 628 of the Communications Act governs access to

programming. These program access provisions are intended to eliminate

unfair competitive practices and facilitate competition by providing

competitive access to certain defined categories of programming.

Generally speaking, the restrictions in Section 628 are applicable to

cable operators, satellite cable programming vendors in which a cable

operator has an attributable interest, and satellite broadcast

programming vendors. The

[[Page 18975]]

Commission rules implementing Section 628 appear at Section 76.1000 et

seq.

48. Section 301(j) of the 1996 Act amends section 628 by adding

the following: (j) Common Carriers.--Any provision that applies to a

cable operator under this section shall apply to a common carrier or

its affiliate that provides video programming by any means directly

to subscribers. Any such provision that applies to a satellite cable

programming vendor in which a cable operator has an attributable

interest shall apply to any satellite cable programming vendor in

which such common carrier has an attributable interest. For the

purposes of this subsection, two or fewer common officers or

directors shall not by itself establish an attributable interest by

a common carrier in a satellite cable programming vendor (or its

parent company).

49. Accordingly, we add a new section to the program access rules

to broaden their scope as described above. We also note that the

meaning of the term ``attributable interest'' as defined in our program

access rules shall also apply to common carriers, subject to the last

sentence of Section 301(j) of the 1996 Act, for purposes of program

access.

I. Sunset of Upper Tier Rate Regulation

50. Consistent with the 1992 Cable Act, the Commission established

rules to ensure that rates for cable programming services are not

unreasonable. The 1996 Act adds a provision to the Communications Act

that provides a sunset date for regulation of CPST rates. Specifically,

rate regulation ``shall not apply to cable programming services

provided after March 31, 1999.''

51. Accordingly, to implement this mandate, we are amending our

rules to include the statutory sunset provision.

J. Definition of ``Cable System''

52. Prior to enactment of the 1996 Act, and subject to four

specific exceptions, Section 602(7) of the Communications Act defined

the term ``cable system'' to include:

A set of closed transmission paths and associated signal

generation, reception, and control equipment that is designed to

provide cable service which includes video programming and which is

provided to multiple subscribers within a community. . . .

53. The four exceptions to this definition included

. . . (B) a facility that serves only 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; [and] (C) a facility of a common carrier which is subject,

in whole or in part, to the provisions of Title II of this Act,

except that such facility shall be considered a cable system (other

than for purposes of section 621(c)) to the extent such facility is

used in the transmission of video programming directly to

subscribers. . . .

54. This statutory definition and the four exceptions were

incorporated into Section 76.5(a) of the Commission's rules.

55. The 1996 Act revises the definition of a cable system by

amending the two exceptions cited above and by adding a third

exception. Section 301 of the 1996 Act amends the first exception cited

above, subsection (B), by striking the quoted language and inserting

the following: ``(B) a facility that serves subscribers without using

any public right-of-way.'' Section 302 of the 1996 Act amends the

second exception quoted above, subsection (C), by adding the following

clause at the end of that subsection: ``, unless the extent of such use

is solely to provide interactive on-demand services.'' In addition,

Section 302 creates a new exception to the cable systems definition as

follows: ``(D) an open video system that complies with section 653 of

this title.'' Finally, Section 302 of the 1996 Act moves what had been

the fourth exception, subsection (D), to new subsection (E) of section

602(7) of the Communications Act.

56. In order to conform Section 76.5(a) to the new statutory

definition, we amend our rules accordingly.

57. Section 302 of the 1996 Act also adds the following definition

corresponding to one of the exceptions to the cable system definition:

The term ``interactive on-demand services'' means a service

providing video programming to subscribers over switched networks on

an on-demand, point-to-point basis, but does not include services

providing video programming prescheduled by the programming

provider;

58. Section 76.5 of our rules is amended to add this definition.

K. Definition of ``Cable Service''

59. Section 602(6) of the Communications Act defines the term

``cable service.'' Cable service is also defined in Section 76.5(ff) of

the rules. The 1996 Act amends that statutory definition by adding the

bracketed words:

(ff) Cable service. The one-way transmission to subscribers of

video programming, or other programming service; and, subscriber

interaction, if any, which is required for the selection [or use] of

such video programming or other programming service. For the

purposes of this definition, ``video programming'' is programming

provided by, or generally considered comparable to programming

provided by, a television broadcast station; and, ``other

programming service'' is information that a cable operator makes

available to all subscribers generally.

60. According to the legislative history of this provision, it

reflects the evolution of cable to include interactive services such as

game channels, information services made available to subscribers by

the cable operator, and enhanced services. This amendment is not

intended to affect Federal or State regulations of telecommunications

service offered through cable system facilities, or to cause dial-up

access to information services over telephone lines to be classified as

a cable service.

61. Accordingly, we amend our rules to conform Section 76.5(ff) to

the new statutory definition.

L. Cable Operator Refusal To Carry Certain Programming

62. Sec. 506(a) of the 1996 Act amends Sec. 611(e) of the

Communications Act, which governs public, educational, and governmental

access channels, by providing that ``a cable operator may refuse to

transmit any public access program or portion of a public access

program which contains obscenity, indecency, or nudity.''

63. Therefore, we amend the first sentence of Section 76.702 of the

Commission's rules by adding the bracketed language:

Any cable operator may prohibit the use on its system of any

channel capacity of any public, educational, or governmental access

facility for any programming which contains obscene material,

indecent material as defined in Sec. 76.701(g), [nudity], or

material soliciting or promoting unlawful conduct.

64. The 1996 Act contains a similar provision concerning

programming provided over leased access channels. Specifically, Section

506(b) of the 1996 Act amends Section 612(c)(2) of the Communications

Act, which restricts a cable operator's exercise of editorial control

over leased access programming, to provide that ``a cable operator may

refuse to transmit any leased access program or portion of a leased

access program which contains obscenity, indecency, or nudity . . . .''

65. However, the 1996 Act does not alter Section 612(h) of the

Communications Act which permits a cable operator

to enforce prospectively a written and published policy of

prohibiting programming that the cable operator reasonably believes

describes or depicts sexual or excretory activities of organs in a

patently offensive manner as measured by contemporary community

standards.

[[Page 18976]]

66. Section 76.701(a) of the Commission's rules parallels Section

612(h) of the 1996 Act. The remaining subsections of Section 76.701

contain related provisions. Under sections 76.701(b) and (c), an

operator that chooses to carry leased access programming falling within

the description contained in Section 76.701(a) must place all such

programming on channels made available only to subscribers who have

made a written request for the program and have certified to being at

least 18 years old. Subsections (d) and (e) require a person providing

leased access programming to identify, upon request of the cable

operator, any indecent programming or to certify that the programming

is not indecent or obscene. Subsection (f) permits the cable operator

to withhold access from a program provider that does not comply with an

operator request made under this rule. Subsection (g) defines

``indecent programming'' and subsection (h) requires operators to

maintain records verifying their compliance with these rules.

67. Reading the amended version of Section 612(c)(2) of the

Communications Act together with the pre-existing provisions of Section

612(h), we amend Section 76.701 such that its various subsections now

apply to ``any leased access program or portion of a leased access

program which the cable operator reasonably believes contains

obscenity, indecency, or nudity.''

68. The underlying Commission rules being amended here (Sections

76.701 and 76.702, 47 CFR Secs. 76.701 and 76.702) were adopted to

implement Section 10 of the 1992 Cable Act. These provisions are the

subject of the litigation in Alliance for Community Media v. FCC. In

that case, a panel of the D.C. Circuit Court of Appeals reversed and

remanded the rules to the Commission on the grounds that Section 10 of

the 1992 Act violated the First Amendment or raised serious

constitutional questions that warranted Commission reconsideration. The

full court vacated the panel's judgment and found the requirements

constitutional. The rules were stayed after the initial decision

finding them unconstitutional and that stay has been continued in force

pending Supreme Court review. Oral argument before the Supreme Court

took place on February 24, 1996. Nothing herein is intended to affect

the status of that stay. Accordingly, these amendments are stayed for

as long as the Alliance stay remains effective.

III. Regulatory Flexibility Analysis

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

Secs. 601-612, the Commission's Flexibility Analysis with respect to

the Report and Order is as follows:

70. Need and purpose of this action: The Commission issues this

Report and Order to enact or revise rules in response to the 1996 Act.

71. Significant Alternatives considered: Not applicable because

action is taken pursuant to statutory directive.

72. Federal rules that overlap, duplicate or conflict with these

rules: None.

IV. Inital Paperwork Reduction Act of 1995 Analysis

73. This Order contains modified information collection

requirements. As part of our continuing effort to reduce paperwork

burdens, we invite the general public and the Office of Management and

Budget (``OMB'') to take this opportunity to comment on the information

collections contained in this Order, as required by the Paperwork

Reduction Act of 1995, Pub. L. No. 104-13. Public and agency comments

are due at the same time as other comments on the NPRM; OMB comments

are due 60 days from the date of publication of this Order in the

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

of information is 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.

V. Effective Date

74. The statutory requirements reflected in the final rules adopted

in the Order were effective February 8, 1996, the date of enactment of

the 1996 Act. The interim rules adopted in the Order are effective upon

publication of the Order in the Federal Register. We find good cause

for making these rule changes effective upon publication in the Federal

Register because the rules merely either implement statutory language

from the 1996 Act, or establish interim procedures (pending the

adoption of final rules) in response to immediately effective statutory

provisions in the 1996 Act. We also find notice and comment is not

necessary or in the public interest in this limited context.

Accordingly, the Commission will forego notice and comment pursuant to

the ``good cause'' exception of the Administrative Procedure Act. See 5

U.S.C. Sec. 553(d).

VI. Ordering Clauses

79. It is Ordered that pursuant to sections 4(i), 4(j) of the

Communications Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 154(j),

303(r), and Telecommunications Act of 1996, Sec. 301, the Commission's

Rules are amended as set forth below, effective April 30, 1996.

80. It is further ordered that we are revising these rules without

providing prior public notice and an opportunity for comment because

the rule modifications are mandated by the applicable provisions of the

1996 Act. We find that notice and comment procedures are unnecessary,

and that therefore this action falls within the ``good cause''

exception of the Administrative Procedure Act. 5 U.S.C. Sec. 553(b)(B).

The final rules adopted in this Order do not involve discretionary

action on the part of the Commission. Rather, they simply implement

provisions of the 1996 Act according to the specific terms set forth in

the legislation, or establish interim procedures (pending the adoption

of final rules) in response to immediately effective statutory

provisions in the 1996 Act. For the same reasons, we find good cause to

make the rules effective April 30, 1996.

81. It is further ordered that the Secretary shall send a copy of

this Order, including the IRFA, to the Chief Counsel for Advocacy of

the Small Business Administration in accordance with paragraph 603(a)

of the Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164, 5

U.S.C. Secs. 601, et seq. (1981).

82. For additional information regarding this proceeding, contact

Tom Power, Paul Glenchur, or Nancy Stevenson, Policy and Rules

Division, Cable Services Bureau (202) 416-0800.

List of Subjects in 47 CFR Part 76

Cable television.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Part 76 of Title 47 of the Code of Federal Regulations is amended

as follows:

[[Page 18977]]

PART 76--CABLE TELEVISION SERVICE

1. The authority citation for Part 76 continues to read as follows:

Authority: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat., as

amended, 1064, 1065, 1066, 1081, 1082, 1083, 1084, 1085, 1101; 47

U.S.C. Sec. 152, 153, 154, 301, 303, 307, 308, 309; Secs. 612, 614-

615, 623, 632 as amended, 106 Stat. 1460, 47 U.S.C. 532; Sec. 623,

as amended, 106 Stat. 1460; 47 U.S.C. 532, 533, 535, 543, 552.

2. Section 76.5 is amended by revising paragraphs (a) and (ff) to

read as follows:

Sec. 76.5 Definitions.

(a) Cable system or cable television system. A facility consisting

of a set of closed transmission paths and associated signal generation,

reception, and control equipment that is designed to provide cable

service which includes video programming and which is provided to

multiple subscribers within a community, but such term does not

include:

(1) A facility that services only to retransmit the television

signals of one or more television broadcast stations;

(2) A facility that serves subscribers without using any public

right-of-way;

(3) A facility of a common carrier which is subject, in whole or in

part, to the provisions of Title II of the Communications Act of 1934,

as amended, except that such facility shall be considered a cable

system to the extent such facility is used in the transmission of video

programming directly to subscribers, unless the extent of such use is

solely to provide interactive on-demand services;

(4) An open video system that complies with Section 653 of the

Communications Act; or

(5) Any facilities of any electric utility used solely for

operating its electric utility systems.

Note to paragraph (a): The provisions of Subparts D and F of this

part shall also apply to all facilities defined previously as cable

systems on or before April 28, 1985, except those that serve

subscribers without using any public right-of-way.

* * * * *

(ff) Cable service. The one-way transmission to subscribers of

video programming, or other programming service; and, subscriber

interaction, if any, which is required for the selection or use of such

video programming or other programming service. For the purposes of

this definition, ``video programming'' is programming provided by, or

generally considered comparable to programming provided by, a

television broadcast station; and, ``other programming service'' is

information that a cable operator makes available to all subscribers

generally.

* * * * *

3. Section 76.309 is amended by revising paragraph (c)(3)(i)(B) to

read as follows:

Sec. 76.309 Customer service obligations.

* * * * *

(c) * * *

(3) * * *

(i) * * *

(B) Customers will be notified of any changes in rates, programming

services or channel positions as soon as possible in writing. Notice

must be given to subscribers a minimum of thirty (30) days in advance

of such changes if the change is within the control of the cable

operator. In addition, the cable operator shall notify subscribers

thirty (30) days in advance of any significant changes in the other

information required by paragraph (c)(3)(i)(A) of this section.

Notwithstanding any other provision of Part 76, a cable operator shall

not be required to provide prior notice of any rate change that is the

result of a regulatory fee, franchise fee, or any other fee, tax,

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

or franchising authority on the transaction between the operator and

the subscriber.

* * * * *

4.-5. A new Sec. 76.505 is added to read as follows:

Sec. 76.505 Prohibition on buy outs.

(a) No local exchange carrier or any affiliate of such carrier

owned by, operated by, controlled by, or under common control with such

carrier may purchase or otherwise acquire directly or indirectly more

than a 10 percent financial interest, or any management interest, in

any cable operator providing cable service within the local exchange

carrier's telephone service area.

(b) No cable operator or affiliate of a cable operator that is

owned by, operated by, controlled by, or under common ownership with

such cable operator may purchase or otherwise acquire, directly or

indirectly, more than a 10 percent financial interest, or any

management interest, in any local exchange carrier providing telephone

exchange service within such cable operator's franchise area.

(c) A local exchange carrier and a cable operator whose telephone

service area and cable franchise area, respectively, are in the same

market may not enter into any joint venture or partnership to provide

video programming directly to subscribers or to provide

telecommunications services within such market.

(d) Exceptions:

(1) Notwithstanding paragraphs (a), (b), and (c) of this section, a

local exchange carrier (with respect to a cable system located in its

telephone service area) and a cable operator (with respect to the

facilities of a local exchange carrier used to provide telephone

exchange service in its cable franchise area) may obtain a controlling

interest in, management interest in, or enter into a joint venture or

partnership with the operator of such system or facilities for the use

of such system or facilities to the extent that:

(i) Such system or facilities only serve incorporated or

unincorporated :

(A) Places or territories that have fewer than 35,000 inhabitants;

and

(B) Are outside an urbanized area, as defined by the Bureau of the

Census; and

(ii) In the case of a local exchange carrier, such system, in the

aggregate with any other system in which such carrier has an interest,

serves less than 10 percent of the households in the telephone service

area of such carrier.

(2) Notwithstanding paragraph (c) of this section, a local exchange

carrier may obtain, with the concurrence of the cable operator on the

rates, terms, and conditions, the use of that part of the transmission

facilities of a cable system extending from the last multi-user

terminal to the premises of the end user, if such use is reasonably

limited in scope and duration, as determined by the Commission.

(3) Notwithstanding paragraphs (a) and (c) of this section, a local

exchange carrier may obtain a controlling interest in, or form a joint

venture or other partnership with, or provide financing to, a cable

system (hereinafter in this paragraph referred to as ``the subject

cable system'') if:

(i) The subject cable system operates in a television market that

is not in the top 25 markets, and such market has more than 1 cable

system operator, and the subject cable system is not the cable system

with the most subscribers in such television market;

(ii) The subject cable system and the cable system with the most

subscribers in such television market held on May 1, 1995, cable

television franchises from the largest municipality in the television

market and the boundaries of such franchises were identical on such

date;

(iii) The subject cable system is not owned by or under common

ownership or control of any one of the 50 cable system operators with

the most subscribers as such operators existed on May 1, 1995; and

[[Page 18978]]

(iv) The system with the most subscribers in the television market

is owned by or under common ownership or control of any one of the 10

largest cable system operators as such operators existed on May 1,

1995.

(4) Paragraph (a) of this section does not apply to any cable

system if:

(i) The cable system serves no more than 17,000 cable subscribers,

of which no less than 8,000 live within an urban area, and no less than

6,000 live within a nonurbanized area as of June 1, 1995;

(ii) The cable system is not owned by, or under common ownership or

control with, any of the 50 largest cable system operators in existence

on June 1, 1995; and

(iii) The cable system operates in a television market that was not

in the top 100 television markets as of June 1, 1995.

(5) Notwithstanding paragraphs (a) and (c) of this section, a local

exchange carrier with less than $100,000,000 in annual operating

revenues (or any affiliate of such carrier owned by, operated by,

controlled by, or under common control with such carrier) may purchase

or otherwise acquire more than a 10 percent financial interest in, or

any management interest in, or enter into a joint venture or

partnership with, any cable system within the local exchange carrier's

telephone service area that serves no more than 20,000 cable

subscribers, if no more than 12,000 of those subscribers live within an

urbanized area, as defined by the Bureau of the Census.

(6) The Commission may waive the restrictions of paragraphs (a),

(b), or (c) of this section only if:

(i) The Commission determines that, because of the nature of the

market served by the affected cable system or facilities used to

provide telephone exchange service:

(A) The affected cable operator or local exchange carrier would be

subjected to undue economic distress by the enforcement of such

provisions;

(B) The system or facilities would not be economically viable if

such provisions were enforced; or

(C) The anticompetitive effects of the proposed transaction are

clearly outweighed in the public interest by the probable effect of the

transaction in meeting the convenience and needs of the community to be

served; and

(ii) The local franchising authority approves of such waiver.

(e) For purposes of this section, the term ``telephone service

area'' when used in connection with a common carrier subject in whole

or in part to title II of the Communications Act means the area within

which such carrier provided telephone exchange service as of January 1,

1993, but if any common carrier after such date transfers its telephone

exchange service facilities to another common carrier, the area to

which such facilities provide telephone exchange service shall be

treated as part of the telephone service area of the acquiring common

carrier and not of the selling common carrier.

6. Section 76.605 is amended by revising paragraph (b) Note 6 to

read as follows:

Sec. 76.605 Technical standards.

* * * * *

Note 6: No State or franchising authority may prohibit, condition,

or restrict a cable system's use of any type of subscriber equipment or

any transmission technology.

7. Section 76.701 is amended by adding new paragraph (i) to read as

set forth below. Effective April 30, 1996, paragraph (i) is stayed.

Sec. 76.701 Leased access channels.

* * * * *

(i) Paragraphs (a) through (h) of this section apply to any leased

access program or portion of a leased access program which the cable

operator reasonably believes contains obscenity, indecency, or nudity.

8. Section 76.702 is revised to read as set forth below. Effective

April 30, 1996, Sec. 76.702 is stayed.

Sec. 76.702 Public, educational and governmental access.

Any cable operator may prohibit the use on its system of any

channel capacity of any public, educational, or governmental access

facility for any programming which contains nudity, obscene material or

indecent material as defined in Sec. 76.701(g), or material soliciting

or promoting unlawful conduct. For purposes of this section, ``material

soliciting or promoting unlawful conduct'' shall mean material that is

otherwise proscribed by law. A cable operator may require any access

user, or access manager or administrator agreeing to assume the

responsibility of certifying, to certify that its programming does not

contain any of the materials described in this section and that

reasonable efforts will be used to ensure that live programming does

not contain such material.

9. Section 76.905 is amended by adding new paragraph (b)(4) to read

as follows:

Sec. 76.905 Standards for identification of cable systems subject to

effective competition.

* * * * *

(b) * * *

(4) 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.

* * * * *

10. Section 76.933 is amended by revising paragraphs (e) and (g)(5)

to read as follows:

Sec. 76.933 Franchising authority review of basic cable rates and

equipment costs.

* * * * *

(e) Notwithstanding paragraphs (a) through (d) of this section,

when the franchising authority is regulating basic service tier rates,

a cable operator that sets its rates pursuant to the quarterly rate

adjustment system pursuant to Sec. 76.922(d) may increase its rates for

basic service to reflect the imposition of, or increase in, franchise

fees or Commission cable television system regulatory fees imposed

pursuant to 47 U.S.C. 159. For the purposes of paragraphs (a) through

(c) of this section, the increased rate attributable to Commission

regulatory fees or franchise fees shall be treated as an ``existing

rate'', subject to subsequent review and refund if the franchising

authority determines that the increase in basic tier rates exceeds the

increase in regulatory fees or in franchise fees allocable to the basic

tier. This determination shall be appealable to the Commission pursuant

to Sec. 76.944. When the Commission is regulating basic service tier

rates pursuant to Sec. 76.945 or cable programming service rates

pursuant to Sec. 76.960, an increase in those rates resulting from

franchise fees or Commission regulatory fees shall be reviewed by the

Commission pursuant to the mechanisms set forth in Sec. 76.945. A cable

operator must adjust its rates to reflect decreases in franchise fees

or Commission regulatory fees within the periods set forth in

Sec. 76.922(d)(3)(i),(iii).

* * * * *

(g) * * *

(5) Notwithstanding paragraphs (a) through (f) of this section,

when the franchising authority is regulating basic service tier rates,

a cable operator may increase its rates for basic service to reflect

the imposition of, or increase in, franchise fees. The increased rate

attributable to Commission regulatory

[[Page 18979]]

fees or franchise fees shall be subject to subsequent review and refund

if the franchising authority determines that the increase in basic tier

rates exceeds the increase in regulatory fees or in franchise fees

allocable to the basic tier. This determination shall be appealable to

the Commission pursuant to Sec. 76.944. When the Commission is

regulating basic service tier rates pursuant to Sec. 76.945 or cable

programming service rates pursuant to Sec. 76.960, an increase in those

rates resulting from franchise fees or Commission regulatory fees shall

be reviewed by the Commission pursuant to the mechanisms set forth in

Sec. 76.945.

* * * * *

11. Section 76.950 is revised to read as follows:

Sec. 76.950 Complaints regarding cable programming service rates.

(a) A franchising authority may file with the Commission a

complaint challenging the reasonableness of its cable operator's rate

for cable programming service, or the reasonableness of the cable

operator's charges for installation or rental of equipment used for the

receipt of cable programming service. The franchise authority may file

a complaint with the Commission only upon receipt of more than one

subscriber complaint made to the franchise authority within 90 days

after the effective date of the challenged rate increase.

(b) The Commission shall not review any complaint with respect to

cable programming services filed after March 31, 1999.

12. Section 76.951 is revised to read as follows:

Sec. 76.951 Standard complaint form; other filing requirements.

(a) Any complaint regarding a cable operator's rate for cable

programming service or associated equipment must be filed using

standard complaint form, FCC 329.

(b) The following information must be provided on the standard

complaint form:

(1) The name, mailing address and phone number of the franchising

authority that is filing the complaint;

(2) The name, mailing address, and FCC community unit identifier of

the relevant cable operator;

(3) A description of the cable programming service or associated

equipment involved and, if applicable, how the service or associated

equipment has changed;

(4) The current rate for the cable programming service or

associated equipment at issue and, if the complainant is challenging

the reasonableness of a rate increase, the most recent rate for the

service or associated equipment immediately prior to the rate increase;

(5) If the complainant is filing a corrected complaint, an

indication of the date the complainant filed the prior complaint and

the date the complainant received notification from the Commission that

the prior complaint was defective;

(6) A certification that a copy of the complaint, including all

attachments, is being served contemporaneously via certified mail on

the cable operator;

(7) An indication that the complainant franchising authority

received more than one subscriber complaint within 90 days of the

operator's imposition of the rate in question; and

(8) A certification that, to the best of the complainant's

knowledge, the information provided on the form is true and correct.

13. Section 76.953 is amended by revising paragraph (a) to read as

follows:

Sec. 76.953 Limitation on filing a complaint.

(a) Complaint regarding a rate change. A complaint alleging an

unreasonable rate for cable programming service or associated equipment

may be filed against a cable operator only in the event of a rate

change, including an increase or decrease in rates, or a change in

rates that results from a change in a system's service tiers. A rate

change may involve an implicit rate increase (such as deleting channels

from a tier without a corresponding lowering of the rate for that

tier). A complaint regarding a rate change for cable programming

service or associated equipment may be filed against a cable operator

only in the event of a rate change.

* * * * *

14. Section 76.956 is amended by revising paragraph (a) to read as

follows:

Sec. 76.956 Cable operator response.

(a) Unless the Commission notifies a cable operator to the

contrary, the cable operator must file with the Commission a response

to the complaint filed on the applicable form, within 30 days of the

date of service of the complaint. The response shall indicate when

service occurred. Service by mail is complete upon mailing. See

Sec. 1.47(f) of this chapter. The response shall include the

information required by the appropriate FCC Form, including rate cards,

channel line-ups, and an explanation of any discrepancy in the figures

provided in these documents and the rate filing. The cable operator

must serve its response on the complainant via first class mail.

* * * * *

15. Section 76.964 is revised to read as follows:

Sec. 76.964 Written notification of changes in rates and services.

(a) In addition to the requirement of Sec. 76.309(c)(3)(i)(B)

regarding advance notification to customers of any changes in rates,

programming services or channel positions, cable systems shall give 30

days written notice to both subscribers and local franchising

authorities before implementing any rate or service change. Such notice

shall state the precise amount of any rate change and briefly explain

in readily understandable fashion the cause of the rate change (e.g.,

inflation, changes in external costs or the addition/deletion of

channels). When the change involves the addition or deletion of

channels, each channel added or deleted must be separately identified.

Notices to subscribers shall inform them of their right to file

complaints about changes in cable programming service tier rates and

services, shall state that the subscriber may file the complaint within

90 days of the effective date of the rate change, and shall provide the

address and phone number of the local franchising authority.

(b) To the extent the operator is required to provide notice of

service and rate changes to subscribers, the operator may provide such

notice using any reasonable means at its sole discretion.

(c) Notwithstanding any other provision of Part 76, a cable

operator shall not be required to provide prior notice of any rate

change that is the result of a regulatory fee, franchise fee, or any

other fee, tax, assessment, or charge of any kind imposed by any

Federal agency, State, or franchising authority on the transaction

between the operator and the subscriber.

16. Section 76.984 is amended by revising paragraph (c) to read as

follows:

Sec. 76.984 Geographically uniform rate structure.

* * * * *

(c) This section does not apply to:

(1) A cable operator with respect to the provision of cable service

over its cable system in any geographic area in which the video

programming services offered by the operator in that area are subject

to effective competition, or

(2) Any video programming offered on a per channel or per program

basis. Bulk discounts to multiple dwelling units shall not be subject

to this section, except that a cable operator of a cable system that is

not subject to effective

[[Page 18980]]

competition may not charge predatory prices to a multiple dwelling

unit. Upon a prima facie showing by a complainant that there are

reasonable grounds to believe that the discounted price is predatory,

the cable system shall have the burden of showing that its discounted

price is not predatory.

17. A new Sec. 76.1004 is added to subpart O to read as follows:

Sec. 76.1004 Applicability of program access rules to common carriers

and affiliates.

Any provision that applies to a cable operator under Secs. 76.1000

through 76.1003 shall also apply to a common carrier or its affiliate

that provides video programming by any means directly to subscribers.

Any such provision that applies to a satellite cable programming vendor

in which a cable operator has an attributable interest shall apply to

any satellite cable programming vendor in which such common carrier has

an attributable interest. For the purposes of this section, two or

fewer common officers or directors shall not by itself establish an

attributable interest by a common carrier in a satellite cable

programming vendor (or its parent company).

18. A new subpart R is added to read as follows:

Subpart R--Telecommunications Act implementation

Sec. 76.1400 Purpose.

Sec. 76.1401 Effective competition and local exchange carriers.

Sec. 76.1402 CPST rate complaints.

Sec. 76.1403 Small cable operators.

Sec. 76.1404 Use of cable facilities by local exchange carriers.

Subpart R--Telecommunications Act implementation

Sec. 76.1400 Purpose.

The rules and regulations set forth in this subpart provide

procedures for administering certain aspects of cable regulation. These

rules and regulations provide guidance for operators, subscribers and

franchise authorities with respect to matters that are subject to

immediate implementation under governing statutes but require specific

regulatory procedures or definitions.

Sec. 76.1401 Effective competition and local exchange carriers.

(a) As used in Sec. 76.905(b)(4), the term ``comparable''

programming means access to at least 12 channels of programming, at

least some of which are local television broadcasting signals.

(b) As used in Sec. 76.905(b)(4), 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 the section, the term ``own'' means to own an

equity interest (or the equivalent thereof) of more than 10 percent.

(c) An operator meeting the relevant criteria under

Sec. 76.905(b)(4), may, at any time, file a petition for a

determination of effective competition with the Commission. The

petition should set forth information supporting a determination that

effective competition exists as defined in Sec. 76.905(d)(4).

(d) Upon filing of a petition described in paragraph (c) of this

section with the Commission, the operator filing the petition shall

provide a copy of the petition to the local franchise authority. The

Commission will issue a public notice of the petition's filing to allow

interested parties to respond. The Commission may then issue an order

granting or denying the petition. The Commission may issue an order

directing one or more persons to produce information relevant to the

petition's disposition.

Sec. 76.1402 CPST rate complaints.

(a) A local franchise authority may file rate complaints with the

Commission within 180 days of the effective date of a rate increase on

the cable operator's cable programming services tier if within 90 days

of that increase the local franchise authority receives more than one

subscriber complaint concerning the increase.

(b) Before filing a rate complaint with the Commission, the local

franchise authority must first give the cable operator written notice,

including a draft FCC Form 329, of the local franchise authority's

intent to file the complaint. The local franchise authority must give

an operator a minimum of 30 days to file with the local franchise

authority the relevant FCC forms that must be filed to justify a rate

increase or, where appropriate, certification that the operator is not

subject to rate regulation. The operator must file a complete response

with the local franchise authority within the time period specified by

the local franchise authority. The local franchise authority shall file

with the Commission the complaint and the operator's response to the

Complaint. If the operator's response to the complaint asserts that the

operator is exempt from rate regulation, the operator's response can be

filed with the local franchise authority without filing specific FCC

Forms.

Sec. 76.1403 Small cable operators.

(a) Effective February 8, 1996, a small cable operator is exempt

from rate regulation on its cable programming services tier, or on its

basic service tier if that tier was the only service tier subject to

rate regulation as of December 31, 1994, in any franchise area in which

that operator services 50,000 or fewer subscribers.

(b) A small cable operator is an operator who, directly or through

an affiliate, serves in the aggregate fewer than 617,000 subscribers in

the United States and whose annual revenues, when combined with the

total annual revenues of all of its affiliates, do not exceed $250

million in the aggregate.

(c) As used in this section, an operator shall be deemed affiliated

with another entity if that entity holds a 20 percent or greater equity

interest, passive or active, in the operator or exercises de jure or de

facto control over the operator.

(d) Procedures. (1) If a small cable operator has only a single

tier that is subject to regulation, the operator, at any time, may

certify in writing to its local franchise authority that it meets all

criteria necessary to qualify as a small operator. Upon request of the

local franchising authority, the operator shall identify in writing all

of its affiliates that provide cable service, the total subscriber base

of itself and each affiliate, and the aggregate gross revenues of its

cable and non-cable affiliates. Within 90 days of receiving the

original certification, the local franchising authority shall determine

whether the operator qualifies for deregulation and shall notify the

operator in writing of its decision, although this 90-day period shall

be tolled for so long as it takes the operator to respond to a proper

request for information by the local franchising authority. If the

local franchising authority finds that the operator does not qualify

for deregulation, its notice shall state the grounds for that decision.

The operator may appeal the local franchising authority's decision to

the Commission within 30 days.

(2) Once the operator has certified its eligibility for

deregulation on the basic service tier, the local franchising authority

shall not prohibit the operator from taking a rate increase and shall

not order the operator to make any refunds unless and until the local

franchising authority has rejected the certification in a final order

that is no longer subject to appeal or that the Commission has

affirmed. The operator shall be liable for refunds for revenues gained

(beyond revenues that could be gained under regulation) as a result of

any rate increase taken during the period in which it claimed to be

deregulated, plus interest, in the event the operator is later

[[Page 18981]]

found not to be deregulated. The one-year limitation on refund

liability will not be applicable during that period to ensure that the

filing of an invalid small operator certification does not reduce any

refund liability that the operator would otherwise incur.

(3) Within 30 days of being served with a local franchising

authority's notice that the local franchising authority intends to file

a cable programming services tier rate complaint, an operator may

certify to the local franchising authority that it meets the criteria

for qualification as a small cable operator. This certification shall

be filed in accordance with the cable programming services rate

complaint procedure set forth in Sec. 76.1402. Absent a cable

programming services rate complaint, the operator need not file for

small cable operator certification in order to treat its cable

programming services tier as deregulated.

(4) If a pending CPST rate complaint was filed with the Commission

before April 30, 1996 the operator should file its certification of

small cable operator status directly with the Commission within 15 days

of that date.

Sec. 76.1404 Use of cable facilities by local exchange carriers.

For purposes of Sec. 76.505(d)(2), the Commission will determine

whether use of a cable operator's facilities by a local exchange

carrier is reasonably limited in scope and duration according to the

following procedures:

(a) Within 10 days of final execution of a contract permitting a

local exchange carrier to use that part of the transmission facilities

of a cable system extending from the last multi-user terminal to the

premises of the end use, the parties shall submit a copy of such

contract, along with an explanation of how such contract is reasonably

limited in scope and duration, to the Commission for review. The

parties shall serve a copy of this submission on the local franchising

authority, along with a notice of the local franchising authority's

right to file comments with the Commission consistent with Sec. 76.7.

(b) Based on the record before it, the Commission shall determine

whether the local exchange carrier's use of that part of the

transmission facilities of a cable system extending from the last

multi-use terminal to the premises of the end user is reasonably

limited in scope and duration. In making this determination, the

Commission will evaluate whether the proposed joint use of cable

facilities promotes competition in both services and facilities, and

encourages long-term investment in telecommunications infrastructure.

[FR Doc. 96-10173 Filed 4-26-96; 8:45 am]

BILLING CODE 6712-01-P