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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) CSR 5070-E ) Charter Communications ) La Canada Flintridge (CUID CA0132) Entertainment II, L.P. ) Monterey Park (CUID CA0136) and Long Beach Acquisition Corp.) Montebello (CUID CA0183) ) Los Angeles (CUID CA0259) Petition for Determination of ) Azusa (CUID CA0668) Effective Competition ) Pasadena (CUID CA0725) ) Los Angeles (CUID CA0826) ) Temple City (CUID CA0871) ) Huntington Park (CUID CA0872) ) South San Gabriel (CUID CA0873) ) Chapman Woods (CUID CA0874) ) Alhambra (CUID CA0875) ) Norwalk (CUID CA0876) ) Walnut (CUID CA0899) ) Los Angeles (CUID CA1010) ) West Covina (CUID CA1059) ) Pasadena (CUID CA1093) ) San Gabriel (CUID CA1116) ) Duarte (CUID CA1119) ) Commerce (CUID CA1136) ) Monrovia (S) (CUID CA1197) ) Rosemead (CUID CA1361) ) Los Angeles (E) (CUID CA1458) ) ) Long Beach (CUID CA0161) ) Signal Hill (CUID CA0162) ) Los Angeles (CUID CA1478) MEMORANDUM OPINION AND ORDER Adopted: April 17, 1998 Released: April 22, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. Charter Communications Entertainment II, L.P., d/b/a Charter Communications, and Long Beach Acquisition Corp., d/b/a Charter Communications, (collectively, "Charter") filed a petition asserting that it is subject to local exchange carrier ("LEC") effective competition in the above-captioned communities ("Communities") from Pacific Bell Video Services ("PBVS"), d/b/a Pacific Bell Digital TV, a digital wireless cable operator serving Los Angeles and Orange counties, California. The cities of Azusa, Duarte, and Signal Hill filed a joint opposition to Charter's petition as did the cities of Long Beach and Norwalk. Charter filed a consolidated reply to the oppositions and two supplements to its petition. The City of Norwalk filed a rebuttal to one of Charter's supplements. 2. Section 623(a)(4) of the Communications Act of 1934, as amended ("Communications Act"), allows franchising authorities to become certified to regulate basic cable service rates of cable operators which are not subject to effective competition. For purposes of the initial request for certification, local franchising authorities may rely on a presumption that cable operators within their jurisdiction are not subject to effective competition unless they have actual knowledge to the contrary. Certification becomes effective 30 days from the date of filing unless the Commission finds that the authority does not meet the statutory certification requirements. In Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996 ("Cable Act Reform Order"), the Commission instructed cable operators believing themselves subject to local exchange carrier ("LEC") effective competition under Section 623(l)(1)(D) of the Communications Act to file a petition for determination of effective competition pursuant to Section 76.7 of the Commission's rules. Section 623(l)(1)(D) of the Communications Act provides that a cable operator is subject to effective competition where: 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. II. THE PLEADINGS 3. Charter argues that it is subject to LEC effective competition in the Communities as of May 26, 1997, the date that PBVS launched commercial delivery of its wireless cable television service in Los Angeles and Orange counties. With regard to the LEC affiliation requirement, Charter contends that the corporate relationships that exist between PBVS, Pacific Telesis Group ("PTG"), and Pacific Telesis Enterprises ("PTE") demonstrate that PBVS is a LEC affiliate. Charter asserts that PBVS is an affiliate of PTG, one of the seven Regional Bell Holding Companies established after the 1984 divestiture of AT&T. Charter states that PTG owns Pacific Bell and Nevada Bell, two operating landline telephone companies and LECs which are affiliates of PBVS and also PTE. Charter further asserts that PTE is a wholly-owned subsidiary of PTG. Charter claims that PBVS's own marketing materials identify it as a Pacific Telesis Company. 4. With regard to the requirement that the LEC competitor offer video programming service in the unaffiliated cable operator's franchise area, Charter asserts that PBVS is physically able to deliver service to potential subscribers in the Communities. Charter explains that PBVS provides digital wireless cable service to Los Angeles and Orange counties through the use of two MMDS transmitters, which are located at Mt. Wilson in Los Angeles County and Modjeska Peak in Orange County. Charter provides a map showing PBVS's estimated 35-mile protected service area for each transmitter and contends that the Communities, which are all located in Los Angeles County, are within the 35-mile zones. Charter also submits a Declaration stating that Charter employees contacted PBVS and were informed that PBVS digital wireless cable service may be received within the service areas of Charter's Los Angeles and Long Beach systems. In addition, Charter contends that Los Angeles and Long Beach area subscribers are reasonably aware of PBVS's video service offering. Charter submits examples of PBVS's direct mail marketing materials which Charter alleges have been distributed "throughout Los Angeles and Orange counties." Charter further asserts that local newspapers have run stories on the launch and availability of Pacific Bell Digital TV. Charter also contends that no technical or other impediments exist to the receipt of PBVS's service in Los Angeles or Long Beach. Charter submits a PBVS subscriber bill and an installation work order which Charter claims establish that PBVS is actually providing service in Los Angeles and Orange counties. 5. Charter asserts that PBVS offers programming comparable to that offered by Charter in its Los Angeles and Long Beach service areas. Charter provides PBVS's channel line-up which demonstrates that PBVS's most basic service consists of 49 channels of video programming, 13 of which are local television broadcast signals. 6. The cities of Azusa, Duarte, and Signal Hill (collectively, "Azusa") and the cities of Long Beach and Norwalk (collectively, "Long Beach") oppose Charter's petition. The opponents do not dispute that PBVS is a LEC affiliate or that its programming is comparable to Charter's video programming. They argue that Charter has failed to demonstrate that PBVS "offers" service in their cities within the meaning of the Commission's rules. Azusa argues that the evidence presented by Charter is insufficient to demonstrate that PBVS's service is physically available in Azusa, Duarte and Signal Hill. Azusa contends that the fact that these cities are within PBVS's estimated 35-mile protected zone does not establish serviceability because topographical conditions can minimize or prevent service delivery notwithstanding proximity to transmitters. Azusa claims that all three cities have over-the-air broadcast reception problems based upon line-of-sight obstructions. Azusa argues that the same conditions that preclude the clear reception of broadcast signals in Azusa, Duarte, and Signal Hill may affect the ability of an MMDS operator to offer video programming service within those communities. Azusa further contends that the Declaration of David Barford, stating that Charter employees have been informed that PBVS's wireless cable service may be received within Charter's service areas, does not establish that PBVS is available in all of Los Angeles and Orange counties or that subscribers residing in all of Charter's Los Angeles and Long Beach system communities can actually receive, either from a technical or operational viewpoint, PBVS's service. 7. Azusa also argues that the direct mail marketing materials submitted by Charter do not demonstrate that any direct marketing actually occurred in Azusa, Duarte, or Signal Hill. Azusa points to various articles contained in Charter's petition which suggest that PBVS plans a "gradual rollout" of its video services. Azusa states, for example, that PBVS has refused to indicate how many people were being targeted for marketing or what areas would be targeted for service installation if demand exceeded supply. Azusa argues that this type of marketing does not satisfy the "offer" requirement within the Commission's rules. Azusa also notes that Charter has neither alleged nor demonstrated the existence of any PBVS subscribers within Azusa, Duarte, or Signal Hill. Citing the Bureau's decision in Charter Communications Entertainment II, L.P. ("Charter"), Azusa further argues that Charter cannot rely on generalized allegations with respect to marketing or service area coverage to establish that effective competition exists within specific franchise communities. 8. Long Beach argues that Charter has not proven that potential subscribers in Charter's Long Beach or Norwalk franchise areas are "reasonably aware" of PBVS's video service offerings. Like Azusa, Long Beach contends that the Declaration of David Barford and the marketing materials included in Charter's petition fail to establish that residents in Long Beach and Norwalk are aware that they may subscribe to PBVS's wireless cable service. Long Beach asserts that Charter has not presented evidence demonstrating that PBVS engaged in any specific marketing plans to attract Long Beach or Norwalk customers. Long Beach analogizes the instant case to our determination in Charter to deny the petition with respect to the City of Norco. Long Beach contends that our finding in that case concerning the lack of evidence of subscriber awareness is equally applicable here. Long Beach further argues that, in the instant case, Charter presents no evidence that there are actual subscribers to PBVS's cable service in Long Beach, Norwalk, or any other city. In addition, Long Beach argues that the present and future viability of PBVS's cable service is so doubtful that it cannot be considered effective competition to Charter's cable service. In support of this contention, Long Beach cites numerous articles which it claims raise questions about the commitment of SBC Communications Inc. (PBVS's new owner) to its wireless cable service. Long Beach warns that if Charter's petition is granted and PBVS's services are subsequently discontinued, residents in Long Beach and Norwalk would be left with no competitive choice in the provision of cable service and no regulatory authority to ensure reasonable rates. 9. In reply, Charter asserts that PBVS does "offer" service to the Communities within the meaning of Commission rules. Charter contends that the Commission's Order, implementing the Cable Act Reform Provisions of the Telecommunications Act of 1996, does not require petitioners to provide specific evidence of actual, current service reception in each community, but only requires a demonstration that the captioned communities are physically able to receive that service. Charter states that it provided information in its petition demonstrating that the Communities are within PBVS's 35-mile service area. Charter contends that the 35-mile protected service zone is the presumed service area for MMDS operators. Charter further notes that none of the opponents submitted specific evidence establishing that any entire community is physically unable to receive service from PBVS. In response to opponents' concerns regarding subscriber awareness of PBVS, Charter states that it has submitted to the Commission numerous examples of PBVS's direct mail marketing materials which identify PBVS's service area as Los Angeles and Orange counties, and not select communities within those counties. Charter asserts that it has also included articles from local and national press sources on the launch of PBVS. Charter contends that unlike the other effective competition tests, the LEC affiliate competition test does not include a percentage pass or penetration rate. As to Long Beach's argument concerning the viability of PBVS, Charter replies that such speculation is irrelevant to this proceeding. 10. In a supplement, Charter provides PBVS subscribership information with respect to the communities at issue. Specifically, Charter submits a letter from PBVS to Charter responding to a request for subscriber count information. The PBVS letter includes a chart showing that PBVS has some subscribers in all of the Communities and 50 or more subscribers in 19 communities. The exact number of subscribers in the 19 communities is not provided. In a second supplement, Charter includes an article stating that PBVS has over 16,000 subscribers. Charter reiterates that it is not required to submit such specific subscriber information but is only doing so in the interest of expediting review of its petition. III. ANALYSIS 11. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition. The cable operator bears the burden of rebutting the presumption that effective competition does not exist with evidence that effective competition, as defined by Section 76.905 of the Commission's rules, is present within the franchise area. Charter has failed to meet this burden. While Charter partially satisfies the LEC test for effective competition by demonstrating that PBVS is a LEC affiliate that provides comparable programming, Charter fails to establish that PBVS "offers" service as contemplated by the statute and our rules. 12. With regard to the first part of the LEC test, which requires that the alleged competitive service be provided by a LEC or its affiliate (or any multi-channel video programming distributor using the facilities of such LEC or its affiliate), Charter has provided sufficient evidence demonstrating that PBVS is LEC- affiliated under the Commission's interim rules. The corporate relationships that exist between PBVS, PTG and PTE establish PBVS's LEC affiliation. We note too that PTG merged with SBC Communications Inc. in April of 1997. Additionally, we find that Charter is unaffiliated with PBVS, PTG, PTE or SBC. 13. We also find that Charter has submitted sufficient evidence demonstrating that PBVS provides programming comparable to Charter's channel line-up in the Communities. PBVS's most basic service consists of 49 channels of video programming, including 13 local television broadcast channels, which satisfies the programming comparability criteria. 14. As to the requirement that the LEC competitor "offer" service, Charter has not met its burden. Charter has failed to establish that PBVS "offers" service because Charter has not presented sufficient evidence that subscribers in the Communities are reasonably aware that they may take service from PBVS. Cable operators seeking to prove that they are subject to effective competition from a LEC or its affiliate must not only show that the competitor is physically able to deliver service free of any regulatory, technical or other impediments but that subscribers are "reasonably aware" that they may purchase the competitor's service. Consumer awareness of a competing service is an essential element of the offer requirement of the LEC effective competition test. 15. We have stated that potential subscribers may be made reasonably aware of the availability of a competing service through, for example, advertising in the media or direct mail. We have also stated that cable operators seeking to prove that they face effective competition may rely on marketing information to demonstrate consumer awareness of the competing service. In this instance, Charter submits examples of PBVS's direct mail marketing materials. Charter does not present evidence that PBVS has engaged in any type of mass media marketing. 16. The direct mail materials submitted by Charter are not sufficient to demonstrate that potential subscribers in all of the Communities are aware of PBVS's service. Although Charter claims that the marketing materials were distributed "throughout Los Angeles and Orange counties," there is no evidence in the record defining the scope of the direct mail campaign. Specifically, there is no proof that the mailings were made to subscribers in all of the Communities and there is no information concerning how many subscribers in the Communities were actually sent mailings. It appears that some subscribers were targeted for the mailings while many other potential subscribers were not solicited. Former PBVS Vice President and General Manager Jeff Carlson has said that the company is purposely controlling the number of subscribers to "contain demand." According to Carlson, the company will add new customers gradually to ensure high-quality service. Carlson has also stated that "[a]s for the advertising, we are doing a very controlled rollout; it is conservative by design. We have limited our marketing to very specific demographics." Charter points to articles on the launch of PBVS as evidence that subscribers are reasonably aware of PBVS's service. These articles, for the most part, simply corroborate the statements made by Carlson and describe the launch of PBVS's video service as a "gradual roll-out" and as "low key." We also note that several thousand PBVS employees were used to test market the service. That certain specific subscribers are aware of PBVS because they are employees of the company or were specifically targeted does not mean that subscribers in the Communities generally are informed that there is an alternative video service provider to the cable operator. The cable operator must submit evidence demonstrating that potential subscribers in the Communities, not only segments of the population that may have been specifically targeted or handpicked for solicitation, are reasonably aware that they may purchase services from a video provider other than the cable operator. Because evidence of a broad awareness of the existence and availability of PBVS's service is lacking, we find that Charter has failed to prove that PBVS "offers" service in the Communities. 17. As a general matter, we note that evidence presented by cable operators regarding the number and location of subscribers to the competing service shows that the competitor is physically able to deliver service. Such evidence, in most cases, can also reflect the degree subscribers are reasonably aware of the competing service since they are, in fact, receiving it. However, in this instance, the PBVS subscriber figures submitted by Charter do not persuade us that consumers in the Communities generally are knowledgeable about PBVS's service. If totalled, the number of subscribers in the Communities who Charter claims are definitively aware of PBVS's service because they receive it is 1,061 subscribers. This figure represents a minuscule percent of the total number of subscribers served by Charter through its Los Angeles and Long Beach systems (1,061ö195,500) = .54%). While Charter submits an article stating that PBVS has over 16,000 subscribers, Charter does not identify in which communities these subscribers are located. Given the lack of information concerning the scope of PBVS's direct mail campaign as well as what appears to be PBVS's incremental marketing strategy, that PBVS has some subscribers in the Communities does not convince us that subscribers throughout the Communities are reasonably aware of the availability of PBVS's service. 18. We find that Charter has failed to submit sufficient evidence demonstrating that its cable system serving communities in Los Angeles and Long Beach counties is subject to LEC effective competition from PBVS. Charter's petition is denied. IV. ORDERING CLAUSES 19. Accordingly, IT IS ORDERED that the Petition for Determination of Effective Competition filed by Charter Communications Entertainment II, L.P., d/b/a Charter Communications, and Long Beach Acquisition Corp., d/b/a Charter Communications, challenging the certification of local franchising authorities in the above-referenced communities IS DENIED. 20. This action is taken pursuant to the interim rules adopted in Implementation of Cable Reform Provisions of the Telecommunications Act of 1996, 11 FCC Rcd 5937 (1996), and is without prejudice to any further action taken by the Commission in adopting final rules pursuant to the Notice of Proposed Rulemaking contained therein. 21. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules, as amended. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau