*Pages 1--6 from Microsoft Word - 6147.doc* Federal Communications Commission DA 01- 142 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of ARMSTRONG COMMUNICATIONS, INC. MOUNT PLEASANT TOWNSHIP, PA Petition for Special Relief ) ) ) ) ) ) ) ) ) CSR- 5516- R MEMORANDUM OPINION AND ORDER Adopted: January 18, 2001 Released: January 19, 2001 By the Deputy Chief, Cable Services Bureau: I. INTRODUCTION 1. Mount Pleasant Township, Pennsylvania (“ Township”) has filed a petition for special relief requesting that the Commission direct Armstrong Utilities, Inc. (“ Armstrong”), a franchised cable operator serving the Township, to charge uniform rates for its basic and cable programming service throughout the Township and to make whole those subscribers who have paid a higher rate for the same service. The Township cites to section 623( d) of the Communications Act of 1934, as amended, and section 76.984 of the Commission’s rules. 1 Armstrong opposes the petition, arguing that it is subject to effective competition from a local exchange carrier (“ LEC”) and, therefore, exempt from any uniform rate requirement. The Township filed reply comments disagreeing with Armstrong’s position. Citizens Cable Communications, Inc. (“ Citizens Cable”), which provides cable service to parts of the Township, filed an ex parte presentation in support of the Township’s position but outside the comment period. Armstrong opposed the Citizens Cable filing, and Citizens Cable replied. II. THE PLEADINGS 2. Section 76.984 of the Commission’s rules provides that, where a cable operator is not subject to effective competition: (a) The rates charged by cable operators for basic service, cable programming service, and associated equipment and installation shall be provided pursuant to a rate structure that is uniform throughout each franchise area in which cable service is provided. The Township alleges that Armstrong has not sought a determination of effective competition but, nonetheless, charges a lower basic service tier (“ BST”) rate in the Villages of Norvelt, Mammoth, Calumet, 1 47 U. S. C. § 543( d); 47 C. F. R. § 76.984. 1 Federal Communications Commission DA 01- 142 2 United, and Weltytown (collectively “Villages”), where a franchised LEC affiliate offers service, than it charges in the remaining parts of its Township franchise area. The Township also claims that Armstrong offers a cable programming service tier (“ CPST”) for an additional charge in the remaining parts of the Township, although Armstrong’s combined BST/ CPST line- up is the same as the channel line- up offered to subscribers in the Villages for the BST rate. 3. Armstrong does not dispute that it has cut its rates in portions of its franchise area. 2 It defends its action by arguing that the uniform rates requirement is inapplicable because it faces effective competition under the local exchange carrier or “LEC” test for effective competition in section 76.905( b)( 4) of the Commission’s rules. 3 According to Armstrong, Citizens Cable, an affiliate of local exchange carrier Citizens Telephone Company, holds a franchise to construct and operate a cable system throughout the Township, 4 offers a comparable service consisting of approximately 63 channels of service, including approximately 50 channels of nonbroadcast service, 5 is providing this service in a portion of Armstrong’s franchise area, and is continuing to expand its system. 6 Armstrong relies on information in a 1996 newspaper article describing Citizens Cable’s plans to provide cable, long distance, and internet service along with local telephone service and its capability of serving 900 subscribers at that time. 7 Armstrong also claims that an advance determination of effective competition is not required before it can respond to competition, because it is not subject to rate regulation under the statutory exemption for small systems in section 623( m) of the Communications Act 8 and the Township is not certified to regulate its rates. The Township disagrees that Armstrong can use this proceeding to assert its claim to effective competition and argues on the merits that Citizens Cable’s limited plant, service to only a limited section of Armstrong’s franchise area, and fewer than 200 subscribers, compared with Armstrong’s 3, 700 subscribers, does not satisfy the definition of effective competition from a local exchange carrier or its affiliate. 9 4. Citizens Cable supports the Township’s petition, asserting that it does not provide effective competition to Armstrong under the test for competition from a LEC, because its Mount Pleasant Township service area does not substantially overlap Armstrong’s. 10 It argues that a LEC competitor must serve close to 50% of the households in the franchise area in order to trigger an effective competition finding. While acknowledging its right to serve the entire Township, it states that it currently has constructed only 17. 34 miles of cable within the Township, is currently capable of serving only 800 potential subscribers out of a total of 4500 Township homes, and has no intention of expanding its service 2 Armstrong Opposition at 5. 3 47 C. F. R. § 76.905( b)( 4); 47 U. S. C. § 543( d); 47 C. F. R. § 76.984. 4 Armstrong Opposition, Exhibit A, Citizens Cable Franchise. 5 Id., Exhibit C, Citizens Cable Channel Line- up. 6 Id., Opposition at 2. 7 Id., Exhibit B. 8 47 U. S. C. § 543( m). 9 Township Reply at 11 & n. 15. 10 Citizens Cable Ex Parte Presentation at 3- 4. 2 Federal Communications Commission DA 01- 142 3 area until Armstrong ceases what Citizens Cable characterizes as predatory pricing practices. It points out that its franchise does not mandate a roll- out schedule, and states that it has not marketed to customers outside its limited service area, 11 or made representations either to the Township or to potential customers as to any further roll- out of its services. 12 According to Citizens Cable, Armstrong offers its lower price to approximately 1,852 of its 3,724 subscribers, 13 including some areas where Citizens Cable does not offer service. 14 Armstrong opposes this pleading as unauthorized and out of time, and argues on the merits that passage of 800 homes, equaling 18% of the market, is substantial. 15 If this is insufficient to satisfy the effective competition test in the Township, Armstrong fears that Citizens Cable will be able to concentrate its attention on the more profitable areas within the Township, and Armstrong will be unable to respond competitively. In reply, Citizens Cable again states it has suspended its plans to expand its cable service and is reluctant to expand if Armstrong can respond competitively through selective rate adjustments. 16 III. DISCUSSION 5. We will exercise our discretion to accept the Citizens Cable presentation. As a competitor of Armstrong’s, Citizens Cable is an interested person in the proceeding. 17 Although its presentation was filed outside the time frame for responding to the Township’s petition for special relief established by section 76.7 of the Commission’s rules, 18 the presentation has provided information relevant to the issues raised by the Township’s petition and has not caused delay. 6. We disagree with the Township’s and Citizens Cable’s assertions that Armstrong was required to seek an advance determination of effective competition from the Commission, and that its failure to do so precludes consideration of effective competition in this proceeding. The Commission provided in the Cable Act Reform Order that cable operators must obtain a determination of effective competition from the Commission in the context of the termination of rate regulation. 19 Cable operators could not unilaterally end regulation of their rates. In the instant case, there is no issue of terminating rate regulation. The Township has not disputed Armstrong’s claim that it falls within the definition of “a small cable operator” exempt 11 Citizens Cable Reply at 4. 12 Citizens Cable Ex Parte Presentation at 4. 13 Id. 4 n. 7. 14 Citizens Cable states that it does not now serve the Villages of Mammoth and Weltytown. Id. at 4. 15 Armstrong Opposition to Ex Parte Presentation at 3. 16 Citizens Cable Reply at 4- 5. 17 See Citizens Cable Reply at 2. 18 47 C. F. R. § 76. 7( b) (comments or oppositions are to be filed within 20 days of the petition). Reliance on the Commission’s ex parte rules, as Citizens Cable does in this proceeding, does not establish status as an interested person or obviate the need to comply with the Commission’s procedural requirements governing participation. 19 Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996, Report and Order, 14 FCC Rcd 5296, 5311- 13 paras. 28- 30 (1999) (“ Cable Act Reform Order”). 3 Federal Communications Commission DA 01- 142 4 from local rate regulation pursuant to section 632( m) of the Communications Act of 1934, as amended, 20 and has not asserted jurisdiction to regulate Armstrong’s rates. 7. As the Township points out and Armstrong acknowledges, however, even if Armstrong’s rates are not regulated, the prohibition against non- uniform rates in section 623( d) of the Act and section 76.984 of the Commission’s rules applies unless Armstrong is subject to effective competition. 21 Thus, determining whether Armstrong is subject to effective competition is a prerequisite for determining the Commission’s jurisdiction over the Township’s uniform rate complaint, 22 and Armstrong can respond to the complaint with a demonstration that it is subject to effective competition as defined in section 623( l) of the Communications Act and section 76.905 of the Commission’s rules or that a waiver is warranted. 23 8. The LEC test on which Armstrong relies provides that a cable system is subject to effective competition when: 24 A local exchange 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. Section 76.905( e) of the Commission’s rules provides that service of a multichannel video programming distributor will be deemed offered: 25 (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. 20 47 U. S. C. § 543( m). 21 47 U. S. C. § 543( d); 47 C. F. R. § 76.984( c)( 1). 22 See Beach Cable, Inc. v. Jones Spacelink, Ltd., 11 FCC Rcd 10390, 10391 (Cab. Serv. Bur. 1996). 23 The uniform rate requirement does not prohibit the establishment by cable operators of reasonable categories of service and customers with separate rates and terms and conditions of service within a franchise area. 47 C. F. R. § 76.984( b). Armstrong has not claimed that its rate structure falls within this provision. 24 47 C. F. R. § 76.905( b)( 4). 25 47 C. F. R. § 905( e). 4 Federal Communications Commission DA 01- 142 5 The Commission explained in the Cable Act Reform Order that to support a finding of effective competition under the LEC test, an incumbent cable operator must show that the LEC is technically and actually able to provide service that substantially overlaps the incumbent cable operator’s in the franchise area. 26 Planned as well as actual service can be considered when the likelihood of impending competition throughout a substantial part of the incumbent cable operator’s service area is established, the competitive service is commercially available, and potential subscribers in the franchise area served by the incumbent are reasonably aware that the service is either actually available to them or will be available within a reasonable time. 27 The incumbent cable operator must show that the LEC intends to build- out its cable system within a reasonable period of time if it has not already done so, that no regulatory, technical or other impediments to household service exist, that the LEC is marketing its services so that potential customers are aware that the LEC’s services may be purchased, that the LEC has actually begun to provide services, the extent of such services, the ease with which service may be expanded and the expected date for completion of construction in the franchise area. If the LEC has not shown its intention to offer service that substantially overlaps the incumbent cable operator’s service, the Commission will entertain a request for waiver showing that the extent of the LEC’s presence is sufficient to have a direct impact on the cable operator’s services throughout its service area, and particularly on the price. 28 9. On the basis of the record as a whole, we find that Armstrong is subject to effective competition under the LEC test in Mount Pleasant Township. The record establishes that Citizens Cable’s parent, Citizens Telephone Company of Kecksburg, is a rural telephone company with a franchise authorizing it to provide cable service throughout Mount Pleasant Township. At the time Armstrong began charging non- uniform rates, Citizens Cable had constructed plant, was selling service, and had received local newspaper publicity for its plans to continue its expansion. It provides a comparable programming service of 62 broadcast and non- broadcast video channels, including premium channels. Although the Township and Citizens Cable question whether the extent of Citizens Cable’s operation in the Township is sufficient to satisfy the requirement that a LEC competitor’s facilities substantially overlap the incumbent’s in the franchise area, and Citizens Cable expresses its reluctance to further expand if faced with price competition from Armstrong and states it does not market outside its current service area, 29 Citizens Cable has built 17.34 miles of plant in what appears to be the more densely populated part of the Township, passing 800 homes or 18% of the market, 30 and it has subscribers. 31 The impact of Citizens Cable’s presence has resulted in reduced rates to approximately 1,852 or almost 50% of Armstrong’s 3, 724 subscribers 32 and 2. 3 times the number of homes passed by Citizens Cable. The LEC test does not specify any minimum amount of service to be offered by the LEC or include any penetration standards. It does require that the offering be substantially more than de minimis. 33 The extent of the service actually 26 14 FCC Rcd at 5303 para. 10, 5305 para. 13. 27 Id. at 5303 para. 11. 28 Id. at 5305 para. 13. 29 We take note of the availability of information about Citizens Cable’s rates and service on the website for Citizens Telephone Company of Kecksburg. 30 Citizens Cable Ex Parte Presentation at 4; Reply to Opposition to Ex Parte Presentation at 3 n. 3. 31 Township Reply Comments at 11 n. 15. 32 Citizens Cable Ex Parte Presentation at 4 n. 7. 33 See Cable Act Reform Order, 14 FCC Rcd at 5302- 04 paras. 10- 11. 5 Federal Communications Commission DA 01- 142 6 available from Citizens Cable in this case, its franchise for the whole franchise area, and the extent of Armstrong’s competitive response justify a finding in this case of effective competition. 10. Section 76.984( c)( 1) provides that the uniform rate requirement is not applicable to a cable operator in any geographic area in which it is subject to effective competition. In light of our determination that effective competition is present in Mount Pleasant Township, the uniform rate requirement is not applicable there. 34 11. Accordingly, IT IS ORDERED that the Petition for Special Relief filed by the Mount Pleasant Township, Pennsylvania on February 4, 2000, IS DISMISSED. FEDERAL COMMUNICATIONS COMMISSION William H. Johnson Deputy Chief, Cable Services Bureau 34 Citizens Cable also alleges that Armstrong is engaging in predatory pricing through its non- uniform pricing and asks that the uniform rate requirement be enforced for this reason. Citizens Cable Ex Parte Presentation at 5-6. Section 623( d) of the Communications Act, 47 U. S. C. § 543( d), exempts bulk discounts to multiple dwelling units from the uniform rate requirement but provides that cable systems not subject to effective competition may not charge predatory prices to a multiple dwelling unit. It does not provide for broader Commission review of allegations of predatory pricing. Section 76.984 on which Citizens Cable relies implements this statutory provision. It does not provide for the broader antitrust review of Armstrong’s rates that Citizens Cable seeks. 6