*Pages 1--5 from Microsoft Word - 13180.doc* Federal Communications Commission DA 01- 2755 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of: Caribbean Communications Corporation Petition for Waiver of Section 76.630( a) Basic Tier Scrambling ) ) ) ) ) ) ) CSR 4393- Z MEMORANDUM OPINION AND ORDER Adopted: November 21, 2001 Released: November 30, 2001 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. In the above- captioned proceeding, Caribbean Communications Corporation, d/ b/ a/ St. Thomas - St. John Cable TV (“ Caribbean”), filed a petition for special relief requesting waiver of Section 76.630( a) of the Commission’s rules. Section 76.630( a) provides that "[ c] able systems shall not scramble or otherwise encrypt signals carried on the basic service tier.” 1 The instant waiver request is based upon petitioner's contentions that theft of basic tier service and costs associated with remedying signal leakage from unauthorized connections justify the requested waiver. 2 Caribbean’s petition is opposed by the Virgin Islands Public Services Commission (“ PSC”) 3 and the Government of the Virgin Islands, as represented by the Virgin Islands Attorney General’s Office (“ AG’s Office”). Caribbean filed a reply to the oppositions. For the reasons discussed below, Caribbean’s petition is denied. II. BACKGROUND 2. In the Cable Television Consumer Protection and Competition Act of 1992 (“ 1992 Cable Act”), Congress recognized that compatibility problems between cable service and consumer electronics equipment were limiting and/ or precluding the operation of premium features of consumer equipment and were affecting the ability of consumer equipment to receive cable programming. 4 Section 624A of the Communications Act of 1934, as amended (“ the Act”), was added by Section 17 of the 1992 Cable Act. 5 1 47 C. F. R. § 76.630( a). 2 Petition at 1, filed by Caribbean on October 11, 1994. 3 The opposition filed by the PSC attaches a petition objecting to the waiver request signed by 510 residents of St. Thomas and St. Johns. 4 Pub. L. No. 102- 385, 106 Stat. 1460 (1992). 5 47 U. S. C. § 624A. 1 Federal Communications Commission DA 01- 2755 2 Section 624A required the Commission to issue regulations to assure compatibility between consumer electronics equipment and cable systems. 3. In Implementation of Section 17 of the Cable Television Consumer Protection and Competition Act of 1992 – Compatibility Between Cable Systems and Consumer Electronics Equipment, the Commission implemented the requirements of Section 624A. 6 Section 76.630( a) requires that cable operators refrain from scrambling signals carried on the basic tier of service. 7 The Commission determined that this rule would significantly advance compatibility by ensuring that all subscribers are able to receive basic tier signals “in the clear” and that basic- only subscribers with cable- ready televisions will not need set- top devices. 8 Based upon the Commission’s recognition that there are some instances in which operators may need to scramble signals, the rule provides for waivers of the scrambling prohibition upon a showing of "either a substantial problem with theft of basic tier service or a strong need to scramble basic signals for other reasons." 9 III. DISCUSSION 4. Caribbean states that prior to its upgrade to a fully scrambled system, 10 the system carried all signals on a single unscrambled service tier and theft of service was a serious problem. An audit conducted prior to the system’s conversion revealed 523 unauthorized connections and 13, 754 authorized subscribers. 11 Caribbean asserts that it disconnects unauthorized connections when discovered and attempts to “convince the resident to become an authorized subscriber,” but that seven egregious cases of theft have been pursued in the legal system. Caribbean maintains that since the upgrade, theft of service has ceased. Caribbean argues that if required to unscramble its basic tier, there is a substantial likelihood that it would once again be “victimized by large numbers of cable pirates.” 12 Caribbean contends that these anticipated unauthorized connections would result in prohibited signal leakage, and would cause the operator to “expend significant resources” in locating and correcting the leaks. 13 Caribbean concludes that this additional business expense would prevent the operator from providing the lowest cost service to its subscribers. 14 5. The PSC argues that prior to the system’s conversion, unauthorized user connections 6 9 FCC Rcd 1981 (1994) (“ Compatibility Report and Order”). 7 47 C. F. R. § 76.630( a). 8 Compatibility Report and Order, 9 FCC Rcd at 1991. 9 47 C. F. R. § 76.630( a). 10 Caribbean’s system was upgraded between September 1989 and May 1990 as a result of Hurricane Hugo’s “near total destruction” of the system’s distribution plant. Petition at 2. 11 Id. 12 Id. at 5. 13 See 47 C. F. R. §§ 76.611, 76.614. 14 Petition at 6. 2 Federal Communications Commission DA 01- 2755 3 would have provided access to Caribbean’s single service tier, which now has been separated into basic and cable tier programming. The PSC contends that since the Commission requires a showing of basic tier theft, Caribbean’s waiver request is inadequate because it is not based solely on theft of its basic tier. The PSC also argues that Caribbean has represented that only 6% of its subscribers have chosen basic service since the system’s conversion, and that the incentive to create unauthorized connections to an unscrambled basic only service would be “radically different” from that which existed when the system offered only a single 33 channel tier. 15 6. The AG’s Office argues that the empirical data provided by Caribbean demonstrates a theft of service rate of 2.66%. 16 The AG’s Office contends that the industry average for theft of basic service for similar size systems is approximately 10% 17 and that Caribbean cannot appropriately characterize its theft rate as “substantial.” 18 The AG’s Office also argues that rather than use criminal sanctions to combat theft, 19 Caribbean attempts to make subscribers out of unauthorized users, and that prosecution would deter other potential offenders. The AG’s Office states that Caribbean pursued legal remedies in only 7 of the 523 incidents of unauthorized connections, and that two of the incidents involved Caribbean employees and another involved a local telephone company employee with legitimate access to cable poles. The AG’s Office argues that these are not the type of thefts for which the general public should be held accountable, nor do they represent the type of “substantial problem with theft” that would warrant waiver of a rule adopted to benefit the public. 20 Both opponents contend that Caribbean has provided no documentation to support its claim that unscrambling the basic tier will result in signal leakage. 7. In its reply, Caribbean argues that the AG’s Office understates the rate of theft Caribbean experienced before it instituted scrambling, and that its pursuit of remedies through the Attorney General’s Office were unsuccessful. Caribbean contends that its audit was limited to 12,600 households, which represents only 70% of homes passed. Extrapolating the figures to the entire cable plant, Caribbean states “there were probably closer to 747 incidences of theft.” 21 In addition, Caribbean argues that only 18, 000 homes were passed when the audit was conducted, and concludes that the “actual incidence of theft (747) to the number of homes passed . . . (18,000)” provides a theft rate of 4.15%. 22 Caribbean also argues that its 15 PSC Opposition at 5. 16 AG’S Office Opposition at 2. The AG’s Office states that Caribbean has estimated that it provides cable service to 70% of the households in St. Thomas - St. John. Extrapolating from 13,754 subscribers served by Caribbean, the AG’s Office concludes that, of the 19,649 available households in the franchise area, 523 incidents of cable theft represents a theft rate of 2.66%. 17 National Cable Television Association’s Office of Cable Signal Theft, 1990 and 1992 Theft of Service Survey Results. 18 Id. at 3. 19 The Virgin Islands Legislature enacted a law on March 13, l984, which provides for penalties of $300 to $2,000 and/ or imprisonment for up to one year for cable theft. Section 1263 of Chapter 63, Title 14, Virgin Islands Code. 20 Id. at 4. 21 Reply at 7. 22 Id. at 8. 3 Federal Communications Commission DA 01- 2755 4 current 21 channel basic tier is similar to its former 33 channel single tier, and that its previous experience with theft can be anticipated without scrambling. With respect to cable signal leakage, Caribbean states that prior to scrambling, 93 reportable leaks were found on a 5 mile section of the 250 mile cable plant, and that after scrambling, the number of reportable leaks dropped sharply. 23 Caribbean concludes that the only rational explanation for the difference is the amount of theft experienced before and after scrambling. Caribbean also contends that it will incur significant expenses if not allowed to scramble the basic tier. 24 8. Section 76.630( a) provides for waiver of the scrambling prohibition upon showing of “a substantial problem with theft of basic tier service or a strong need to scramble basic signals for other reasons.” 25 Even if we were to accept the percentage of basic cable theft most favorable to Caribbean’s request, we do not agree that petitioner has established “a substantial problem.” 26 Caribbean does not refute the average figures for cable theft provided by the AG’s Office. 27 In regard to theft of basic tier service, Caribbean’s arguments, at best, establish a rate of signal theft less than half the national average. With respect to Caribbean’s contention that it will face a significant problem with signal leakage without scrambling of the basic tier, we do not agree with petitioner’s inferences from the leakage data before and after it began scrambling the basic tier. Caribbean contends that the “only rational explanation” for the drop in signal leakage is its scrambling of the basic tier. 28 However, Caribbean’s scrambling of its system coincided with a rebuild of the system’s distribution plant. It is just as plausible that the reportable leaks discovered prior to the rebuild were due to old distribution plant, and that the new cable plant significantly reduced the system’s signal leakage. In addition, although Caribbean contends that its expenses will increase if it is not able to scramble the basic tier, petitioner has failed to demonstrate that such expenditures will create any financial hardship. V. ORDERING CLAUSES 23 Reply at 16. 24 Caribbean claims that it will incur the following costs: (1) $101,196 annually for cable drop audits; (2) $84,240 annually for four additional installers to perform disconnections and reconnections; (3) $80,000 for the purchase of 4 service vehicles and $38,400 annually to fuel and maintain the vehicles; and (4) $31,950 in lost investment for equipment purchased to scramble the basic tier. Reply at 14. 25 47 C. F. R. § 76.630( a). 26 Because Caribbean has not established a substantial problem with theft of basic tier service, it is not necessary to address PSC’s argument that petitioner has not established that the theft of service relates to the basic tier, as required by Section 76.630( a). 27 The NCTA’s Office of Cable Signal Theft estimates the average percentage of basic service tier theft at 11. 48% nationwide. See 28 Caribbean argues that potential cable thieves had less incentive to create unauthorized connections after scrambling, thereby reducing the signal leakage created by these connections. 4 Federal Communications Commission DA 01- 2755 5 9. Accordingly, IT IS ORDERED that the petition filed by Caribbean Communications Corporation requesting a waiver of the Commission’s rules prohibiting scrambling of channels on the basic service tier IS DENIED. 10. This action is taken pursuant to delegated authority by Section 0.321 of the Commission's rules. 29 FEDERAL COMMUNICATIONS COMMISSION W. Kenneth Ferree Chief, Cable Services Bureau 29 47 C. F. R. § 0.321. 5