[Federal Register Volume 60, Number 220 (Wednesday, November 15, 1995)]
[Notices]
[Pages 57424-57428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28217]
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FEDERAL COMMUNICATIONS COMMISSION
[FCC 95-455]
Rate Rules for Cable Services
AGENCY: Federal Communications Commission.
ACTION: Notice.
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SUMMARY: The Federal Communications Commission is seeking comment on
its proposal to waive, on a temporary and trial basis, certain rules
governing the rates charged for cable services in Dover Township, New
Jersey, in light of the initiation there of the first permanent
commercial video dialtone system.
DATES: Interested parties may file comments on or before December 13,
1995, and reply comments on or before December 28, 1995.
ADDRESSES: Federal Communications Commission, 1919 M Street, N.W.,
Washington, D.C., 20554.
FOR FURTHER INFORMATION CONTACT:
Rick Chessen, Cable Services Bureau (202) 416-0800.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Order Requesting
Comments adopted November 2, 1995 and released November 6, 1995. The
complete text of this Order is available for inspection and copying
during normal business hours in the FCC Cable Reference Center (room
333), 2033 M Street, N.W., Washington, D.C., 20554.
Synopsis of the Order Requesting Comments
I. Introduction
Under the Cable Television Consumer Protection and Competition Act
of 1992 (the ``1992 Cable Act''), the Commission is charged with
identifying criteria for determining whether rates for cable
programming service tiers (``CPSTs'') are unreasonable with respect to
cable operators that are subject to regulation. In carrying out this
mandate, the Commission has adopted a rate setting approach for CPSTs
that utilizes a competitive differential, benchmarks, and cost-of-
service factors. By this Order, we seek to develop a record that would
permit us to decide whether to waive, on a temporary and trial basis,
certain rules governing the rates charged for CPSTs by cable operators
serving subscribers in Dover Township, Ocean County, New Jersey, in
light of the initiation there of the first permanent commercial video
dialtone (``VDT'') system.
We tentatively conclude that the provision of video programming by
multiple independent programmers over a permanent VDT system within the
franchise areas of these cable operators, along with certain other
conditions described below, will ensure that the rates the operators
charge for cable programming services will not be unreasonable. If we
are correct as to the substantial impact that the VDT programmers will
have, then we believe that congressional intent would be furthered by a
properly conditioned waiver of our rules on the initiation of
commercial operation of the VDT system, to the extent those rules
require that rates for CPSTs be set in accordance with our benchmark or
cost-of-service methodologies. Such an approach holds the promise of
reducing the administrative burdens of rate regulation and providing
the cable operators greater flexibility in responding to competition
and developing their systems through programming and technological
innovation, while ensuring that the rates charged to subscribers for
CPSTs are not unreasonable. Providing the cable operators such
flexibility will also promote competition with unaffiliated
[[Page 57425]]
VDT programmers, who will face no regulatory restrictions in the
packaging and pricing of their video offerings. We adopt this Order to
solicit public comment on whether we should adopt such a waiver, and if
we decide to do so, the appropriate scope, duration, and conditions, of
such a waiver.
II. The Development of Video Dialtone
On December 15, 1992, the Bell Atlantic Telephone Companies (``Bell
Atlantic'') filed a Section 214 application to provide VDT service in
Dover Township, New Jersey. The VDT system includes fiber optic
transport facilities, using fiber to the curb architecture. Copper and
coaxial cable with deliver the signals from the curb to the
subscribers' premises. The VDT system is capable of delivering up to
384 channels of video capacity at 6 megabits per second per channel.
Bell Atlantic expects to add a VDT capability to its Dover Township
telephone network at an average rate of approximately 1,000 homes per
month, reaching its planned final buildout of 38,000 homes passed
within approximately three years. Bell Atlantic has predicted a
penetration rate of 35% following the completion of its buildout. Our
records indicate that at least two cable operators, Clear TV Cable and
Cablevision of Monmouth, offer cable service within Dover Township.
These operators soon will find themselves in a unique competitive
environment, given that the Bell Atlantic VDT system in Dover Township
will be the first such system to be operated on a non-trial basis.
III. Regulation of Rates for Cable Programming Services
The question of whether to waive our CPST rate rules, on the
initiation of permanent VDT service in Dover Township, must be viewed
against the backdrop of our existing rules and the statute from which
they emanate. The 1992 Cable Act was passed in large part to address
Congress's finding that cable operators enjoyed ``undue market power .
. . as compared to that of consumers and video programmers.'' (1992
Cable Act, Sec. 2(a)(2).) To protect consumers against the exercise of
this market power, the 1992 Cable Act provides for regulation of the
rates charged for certain programming and equipment by cable systems
that are not subject to ``effective competition.'' (47 U.S.C.
Sec. 543(a)(2).) The 1992 Cable Act authorizes local franchising
authorities to regulate rates for basic program service and equipment
according to criteria established by the Commission to ensure that such
rates are ``reasonable.'' (47 U.S.C. Sec. 543(a)(2)(A) & (b)(1).) The
Commission is directed to establish criteria to ensure that CPST rates
are not ``unreasonable.'' (47 U.S.C. Sec. 543(a)(2)(B) & (c)(1)(A).)
The language and structure of the 1992 Cable Act, and sound policy
considerations, suggest that we continually monitor the impact and
appropriateness of our rules as the market for multichannel video
programming evolves, and that in crafting and applying our rules we
keep pace with and encourage the development of competition. Congress
expressly declared its desire for competition as opposed to regulation,
when feasible. Of course, we must remain cognizant of our paramount
duty to ensure that CPST rates are not unreasonable. We believe that
the initiation of services by VDT programmers whose offerings and rates
will not be subject to regulation, when considered in conjunction with
other factors, may sufficiently restrain the CPST rates of the Dover
Township cable operators such that they can be presumed not
unreasonable. We believe such a conclusion is in accord with Congress'
express policy under the 1992 Cable Act to ``rely on the marketplace,
to the maximum extent feasible,'' to promote ``the availability to the
public of a diversity of views and information through cable television
and other video distribution media.''
The statutory definition of effective competition remains the
dividing line between systems that are subject to rate regulation and
those that are not. However, nothing in the 1992 Cable Act prohibits
the Commission from adopting different regulatory rules for different
categories of operators or from waiving its rules for certain operators
or categories of operators. For the reasons set forth below, we
tentatively conclude that the launch of VDT service in Dover Township
is potentially so significant and unique as to justify, on a two-year
trial basis, a separate regulatory treatment for the cable operators
providing service there. Accordingly, we tentatively conclude that for
the cable systems operating within Dover Township, a two-year
experimental waiver of our CPST rate rules, subject to certain
conditions to ensure that rates remain not unreasonable, is in the
public interest.
IV. The Significance of Video Dialtone and Other MVPDs
For a number of reasons, we believe that the availability of VDT
service in Dover Township may have a profound effect on competition
there. These reasons are grounded in what we believe to be well
established economic principles relating to competition. In particular,
we are guided by an accepted competitive analysis that seeks first to
define the relevant product market and next to examine market power
within that market.
A. The Relevant Market
We tentatively conclude that the offerings to be delivered over the
Dover VDT system will fall within the same product market as the cable
operators' CPSTs and therefore constitute a potentially competitive
alternative. We understand that seven programmers have reserved space
on Bell Atlantic's system. End user subscribers will be able to select
offerings from these programmers, individually or in combination. One
of the VDT programmers, Rainbow Holdings, a CableVision affiliate, will
offer 192 channels. Another programmer, FutureVision, has reserved 96
channels. In contrast to other alternative MVPDs currently providing
service in the Dover Township area, both programmers appear capable of
providing a full range of both broadcast and cablecast services
comparable to those offered by the two local incumbent cable operators.
By way of comparison, according to the Warren Publishing 1995 Cable TV
Factbook one of the cable operators, Clear TV Cable, currently offers
18 basic service tier channels, 17 CPST channels, and seven premium
channels, and the other, CableVision of Monmouth, currently offers 21
basic service tier channels, 15 CPST channels, and six premium
channels. In addition to being in a position to compete with respect to
these program offerings, the VDT system will be equipped to provide
interactive services and other features not currently available from
existing providers. Thus, there is evidence to suggest that the VDT
programmers will be potent competitors to cable and will greatly
enhance consumer choice, thus restraining the cable operators' ability
to raise CPST rates. To confirm our tentative conclusions, we solicit
information concerning the specific programming that will be available
to VDT subscribers in Dover Township and appropriate comparisons of the
specific VDT offerings to those of the cable operators.
By statute, the market for comparable programming also includes
multichannel multipoint distribution service (``MMDS''), direct
broadcast satellite (``DBS''), and television receive-only (``TVRO'')
satellite programming service. 47 U.S.C. Sec. 552(12). Similarly, in
the Competition Report we identified a number of multichannel video
[[Page 57426]]
programming distributors (``MVPDs''), in addition to VDT providers,
that offer services that seemed ``reasonably interchangeable'' with a
typical cable operator's services, including DBS, TVRO, MMDS, and
satellite master antenna television (``SMATV'') systems. Competition
Report, 59 Fed. Reg. 64,657, 9 FCC Rcd at 7642, 7473-7492 (1994). The
competitive significance of these providers will depend upon the
pricing and structuring of their video offerings and their market
share. Thus, in our discussion of market power below, we invite
comparisons between the offerings of these providers and the
composition and pricing of the CPSTs of the cable operators located in
Dover Township.
Although a typical analysis of competition requires identification
of a relevant geographic market, our proposed waiver effectively
defines the geographic market, for purposes of this proceeding, as
being the franchise areas of the two cable operators. However, the
degree of proposed overlap between the VDT service area and each of the
cable franchise areas is important. If, for example, Bell Atlantic
intends its VDT system to pass only 2% of the homes located in a
franchise area, the cable operator presumably will offer less of a
competitive response than if Bell Atlantic tends to pass 75% of the
homes. Thus, our inclination to relax CPST rate regulation may depend
upon the degree of overlap between the VDT and cable systems.
Interested parties should comment on the appropriate extent of the
anticipated overlap.
B. Market Power
Market power is generally defined as the ability to general excess
profits by raising and maintaining prices or by adversely affecting
product quality for a significant period of time. See United States v.
E.I. du Pont de Nemours & Co., 351 U.S. 377, 391-92 (1956). The marker
power of a cable operator can be diluted by two categories of entities:
those currently offering comparable programming and those that could
commence offering comparable programming within a relatively short
period of time. See, e.g., United States v. Marine Bancorporation,
Inc., 418 U.S. 602, 623-25 (1974). Once such entities are identified,
further analysis is necessary to ensure that they indeed impose
competitive pressure on cable operator.
With respect to market power, any waiver would be premised on the
availability in Dover Township of products that cable subscribers view
as sufficiently reasonable substitutes for cable programming service. A
standard method of determining whether a firm can exercise market power
with respect to a particular product is to answer the question: if this
firm raised the price of the product, to what degree would consumers
continue to purchase that product or turn to the products of other
firms, and what are these other products and other firms?
Our analysis of this issue is significantly affected by what we
understand to be the anticipated offerings of the VDT system. As
described above, it appears that the VDT programmers will be able to
provide programming fully comparable to that currently provided by the
Dover Township cable operators. Moreover, the cable operators can
expect aggressive competition from the VDT programmers with respect to
pricing strategies, according to press reports. We tentatively conclude
that the combination of a fully comparable product and aggressive
pricing, if and when made available to consumers via VDT, may produce
an effective restraint on cable rates, particularly given that the VDT
programmers will be able to implement packaging and pricing strategies
free of regulatory restraints. We seek comment as to the factual and
analytical validity of this tentative conclusion. We seek similar data
and comparison with respect to all other MVPDs offering programming
comparable to that of the cable operators in Dover Township.
We presume that any competitive pressure felt by the Dover Township
cable operators as a result of the initiations of VDT service will
increase over time as Bell Atlantic continues construction of its
system and as consumers become more familiar with the service and the
offerings of the VDT programmers. Although the penetration rate of VDT
programmers will not reach a mature level immediately, in the present
instance there are several reasons to suggest that the commencement of
VDT service may restrain prices and prompt other competitive responses
from the cable operators such that application of our CPST rate rules
will be unnecessary.
Initially, we note that the remaining barriers to the initiation of
service by Bell Atlantic are relatively minor. Bell Atlantic has
received the required Section 214 authorization from the Commission. In
addition, Bell Atlantic's VDT tariff has become effective, subject to
investigation. Bell Atlantic now has substantial control over the
rollout of its new service and has every incentive to expedite that
process. Once VDT service is initiated, Bell Atlantic faces a similar
lack of barriers with respect to the continued buildout of the system.
Thus, the availability of service may represent a logical point at
which to make any waiver effective. We seek comment on whether Bell
Atlantic's entry plan alone is sufficient to exert a present restraint
on cable prices and cable operator conduct in Dover Township.
We further note that a current cable subscriber apparently will be
able to switch from his or her current video provider to one or more of
the VDT programmers without sacrificing broadcast channels or channel
capacity. This distinguishes VDT from DBS service, which generally does
not include local broadcast stations, and from MMDS, which has a lower
overall channel capacity. Moreover, the DBS and MMDS require the
installation of receiving antennae and other equipment. Competition
from VDT may pose a greater competitive threat to cable operators than
competition from other providers that have more limited channel line-
ups or require significant initial expenditures by the consumer. We do
not mean to understate, and we welcome comments concerning, the
significance of DBS and other MVPDs that may be offering service in
Dover Township. We believe, however, that the addition of permanent VDT
service to the competitive mix is independently significant. We seek
comment on the validity of these comparisons, including data concerning
the initial installation costs of VDT for its end users.
Dover Township is a laboratory in which these theories can be
tested. In view of the novelty and potential consequences of this
situation, we are considering waiving our rules that require these
cable operators to establish and maintain rates for their CPSTs in
accordance with our benchmark or cost-of-service methodologies, as
adjusted for changes in inflation, external costs, and for channel
additions and deletions. (See 47 C.F.R. Sec. 76.922.) We believe that
such a waiver may well be justified in light of the rate restraining
impact that the VDT plus other competitive offerings may have on the
cable operators' CPSTs. Additionally, such a trial waiver may yield
information that will prove useful in the future as we continue to
adapt our regulations to the ever-changing MVPD marketplace.
To the extent that the particular circumstances of the Dover
Township MVPD marketplace will ensure that the cable operators refrain
from charging unreasonable rates for their CPSTs, we tentatively
conclude that a waiver would be consistent with congressional policy
favoring competition over regulation. We invite comment on this
tentative conclusion.
[[Page 57427]]
V. Waiver Analysis
The Commission may waive rules only for ``good cause shown.'' (47
C.F.R. Sec. 1.3.) Waiver orders must show that special circumstances
warrant a deviation from the general rule and that the deviation will
serve the public interest. See, e.g., WAIT Radio v. FCC, 418 F.2d 1153,
1159 (D.C. Cir. 1969); Northeast Cellular Telephone Co. v. FCC, 897
F.2d 1164, 1166 (D.C. Cir. 1990). In this Order, we indicate why we
believe there may be good cause to waive our CPST rate rules for the
Dover Township cable operators upon the initiation of VDT service, and
we seek comment thereon. In particular, we believe that the
availability to cable subscribers of video services offered by multiple
VDT programmers may exert competitive pressure on CPST rates, and thus
may constitute special circumstances justifying waiver of our CPST
benchmark rules. Such waiver may serve the public interest by
encouraging operator innovation and programming diversity, establishing
some measure of regulatory parity between the cable operators and the
VDT programmers, and reducing the regulatory burdens faced by the cable
operators, while still satisfying the underlying goal of ensuring that
CPST rates are not unreasonable.
We note that in establishing our rate regulation rules, we
considered the six statutory factors identified by Congress as
potentially relevant. (See 47 U.S.C. Sec. 543(c)(2).) In the context of
waiving those rules, we believe it is appropriate to consider as many
of those factors as are relevant. For example, the 1992 Cable Act
directs us to consider ``the rates for cable systems, if any, that are
subject to effective competition . . . .'' Consideration of this factor
is consistent with Congress' direction that the marketplace be the sole
arbiter of the reasonableness of an operator's rates once the operator
is subject to effective competition. Equally consistent with the
reasoning underlying this statutory factor is the notion that as a
cable operator nears the effective competition standard, the market
should play more of a role, and our regulations less of a role, in
setting rates. We seek comment on our tentative conclusion that
consideration of this factor weighs in favor of waiving CPST rate rules
upon the initiation of VDT service.
Other relevant factors set forth in the 1992 Cable Act include the
capital and operating costs of the cable system and the system's
advertising revenues. The presence of competition from programmers on
the VDT platform suggests that a cable operator's costs may increase
due to, for example, the need to finance marketing efforts to compete
with the VDT programmers' offerings. Meanwhile, VDT programmers may
draw advertising revenues away from the cable operators. Therefore,
under certain circumstances, both of these statutory factors might
support a waiver of our CPST rules that generally are applicable to
operators that do not face such increases in operating costs on the one
hand and decreases in advertising revenues on the other. While the
result of these conditions might be higher CPST rates, we cannot
conclude automatically that such higher rates are unreasonable,
particularly if they are the product of a competitive environment.
As the D.C. Circuit recently held, it may be appropriate to
consider a particular factor, but ultimately attach little weight to it
in devising a regulatory scheme. See Time Warner Entertainment Co. v.
FCC, 56 F.3d 151, 175 (D.C. Cir. 1995). Commenters should respond to
this consideration as well. We note in particular that all of the
statutory factors specifically identified by Congress in the 1992 Cable
Act relate either to the rates, costs, and revenues of the regulated
cable operator itself or to the rates of other cable operators that can
be used for purposes of comparison. None of the statutory factors calls
for specific consideration of the presence of a competing MVPD in the
cable operator's franchise area. This suggests that Congress may have
intended the specific statutory factors to be of particular relevance
when no such competition existed, as was more likely to be the case
when Congress enacted the legislation, but that as the marketplace
changed, the Commission was given the discretion to place more reliance
on the ``other factors,'' not specifically identified in the statute,
that the Commission is permitted to identify and take into account in
ensuring that CPST rates are not unreasonable. (See 47 U.S.C.
543(c)(2).) We already have identified one such factor--the provision
of video services over a VDT platform by programmers who will face no
regulatory restraints on their ability to design and price their
programming packages. We request comment on the potential relevance of
the statutory factors to our waiver analysis and our tentative views
that the statutory factors may support a waiver.
VI. Scope and Conditions of Waiver
Because our proposed waiver assumes the absence of effective
competition as defined by the 1992 Cable Act, we are statutorily
obligated to ensure that the cable operators' CPST rates will not be
unreasonable. (47 U.S.C. Sec. 543(c)(1); no waiver would be required if
effective competition existed, because rates are not subject to
regulation in such circumstances. 47 U.S.C. Sec. 543(a)(2).)
Accordingly, complaints against unreasonable rates may continue to be
filed under 47 U.S.C. Sec. 543(c). But rather than being adjudicated
against the benchmark, any complaints would be resolved on a case-by-
case basis, subject to a presumption of the reasonableness of the
rates.
We stress that we intend the proposed waiver to apply only to
Section 76.922 to the extent it prescribes rates for CPSTs and Section
76.956 to the extent it places the burden upon the operator to justify
a CPST rate that is the subject of a complaint. We do not propose to
extend the waiver to include the other rules applicable to regulated
cable operators such as, but not limited to, those concerning a uniform
rate structure, negative option billing, subscriber notices, and tier
buy-throughs, to the extent they apply. While recognizing the possible
need to give the Dover Township cable operators some additional
flexibility in light of the unique competitive circumstances in which
they soon may find themselves, we deem it prudent to move cautiously in
experimenting with waivers of our generally applicable rules.
For the same reasons we propose to waive our CPST rate regulations,
we believe it may be appropriate to give the relevant local franchising
authorities in Dover Township the option of waiving rate regulation
rules applicable to BSTs and associated equipment. Ordinarily, if a
local franchising authority has been certified to regulate basic rates
and seeks to retain that certification, it cannot forbear from
regulating in accordance with the Commission's rules. With the advent
of VDT, however, we tentatively conclude that the Dover Township
franchising authorities should have greater discretion to determine how
to regulate basic service. Therefore we seek comment on whether local
authorities should have the option of waiving the BST rate rules on the
same basis and to the same extent that we propose to waive the CPST
rate rules.
Finally, our tentative view is that the waiver will take effect as
of the date VDT service is actually available in the relevant franchise
areas. Thus, if initially VDT service is available in only one of Dover
Township's two franchise areas, the proposed waiver would apply only to
the cable operator serving the franchise area in which consumers have
access to VDT service. The second
[[Page 57428]]
operator would become subject to the waiver upon providing notice to
this Commission and its local franchising authority that VDT service
has been initiated in its franchise area. We propose to re-examine any
waiver of CPST regulation for the Dover Township two years from the
date the waiver goes into effect. We are concerned that a shorter
period would not give the operators sufficient incentive or flexibility
to respond freely to the changes in the competitive landscape. In fact,
that landscape will continue to evolve throughout the entirety of that
two year period, according to Bell Atlantic's projections with respect
to passings and penetration. In two years, we will revisit the issue
and take steps consistent with the market environment that exists and
is developing at that time.
VII. Conclusion
In analyzing these issues, the Commission is guided by the goal of
reducing unnecessary burdens on cable operators and providing the cable
operators incentives to innovate and promote program diversity in
response to competition. At the same time, we must confident that a
waiver will not lead to unreasonable rates for the CPSTs offered by the
Dover Township operators. We will look to the record in this proceeding
to provide us the necessary assurance that the proposed approach will
satisfy this statutory mandate. We consequently urge commenters to
support their positions with empirical and other data, and to frame
their arguments in terms of the economic concepts outlined above or
other relevant economic analysis. As noted, comments also should take
into account the factors that the Commission is required by statute to
consider in establishing criteria for determining when CPS rates are
unreasonable and other factors that commenters believe to be relevant.
VIII. Procedural Provisions
Pursuant to its discretion under 47 C.F.R. Sec. 1.1200, the
Commission is treating this as a non-restricted proceeding. Ex parte
presentations are permitted, except during the Sunshine Agenda period,
provided that they are disclosed as provided in the Commission's rules.
See generally, 47 C.F.R. Secs. 1.1202, 1.1203 and 1.1206.
Pursuant to applicable procedures set forth in Sections 1.415 and
1.419 of the Commission's Rules, 47 C.F.R. Secs. 1.415 and 1.419,
interested parties may file comments on or before December 13, 1995,
and reply comments on or before December 28, 1995. To file formally in
this proceeding, you must file an original plus four copies of all
comments, reply comments, and supporting comments. If you want each
Commissioner to receive a personal copy of your comments and reply
comments, you must file an original plus nine copies. You should send
comments and reply comments to Office of the Secretary, Federal
Communications Commission, 1919 M Street, N.W., Washington, D.C. 20554.
Comments and reply comments will be available for public inspection
during regular business hours in the FCC Reference Center, Room 239,
Federal Communications Commission, 1919 M Street, N.W., Washington,
D.C. 20554.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-28217 Filed 11-14-95; 8:45 am]
BILLING CODE 6712-01-M
