*Pages 1--8 from Microsoft Word - 42474* Federal Communications Commission DA 04- 3044 Before the Federal Communications Commission Washington, D. C. 20554 In the matter of DTV NORWICH, LLC Application for Multichannel Video Distribution and Data Service License, MVD001- New York Request for Waiver of Section 101.1412( g)( 4) of the Commission’s Rules ) ) ) ) ) ) ) ) File No. 0001618606- MVD001 ORDER Adopted: September 22, 2004 Released: September 23, 2004 By the Chief, Broadband Division, Wireless Telecommunications Bureau: I. INTRODUCTION 1. On June 10, 2004, DTV Norwich, LLC (DTV), the winning bidder and applicant for the captioned Multichannel Video Distribution and Data Service (MVDDS) license for the New York service area, filed a Request for Waiver and Extension of Divestiture Deadline (“ Waiver Request”). 1 DTV seeks a 270- day extension of the 90- day divestiture deadline of Section 101.1412( g)( 4) of the Commission’s MVDDS/ cable cross- ownership rule. For the reasons set forth below, we grant DTV a temporary waiver by extending by 270 days the deadline for it to complete all steps necessary to come into compliance with the MVDDS/ cable cross- ownership rule. Additionally, although DTV filed the Waiver Request under a separate caption, we grant the captioned application herein for reasons of administrative efficiency. 2 II. BACKGROUND 2. MVDDS/ cable cross- ownership rule. Section 101.1412( a) of the Commission’s rules prohibits an entity owning an attributable interest in a cable operator from having an attributable interest in an MVDDS license if the cable operator’s service area significantly overlaps the MVDDS license area. 3 The Commission adopted this MVDDS eligibility restriction after finding that: 1 See Request for Waiver and Extension of Divestiture Deadline of DTV Norwich (filed June 10, 2004) (“ Waiver Request”) at 1 citing 47 C. F. R. § 101. 1412( f)( 4) (2003). On May 28, 2004, the Commission renumbered this provision as 47 C. F. R. § 101. 1412( g)( 4). See Order, ET Docket No. 98- 206, 19 FCC Rcd 9727 (MD 2004). Accordingly, herein we refer to the 90- day divestiture provision as Section 101.1412( g)( 4). 2 DTV was the successful bidder in 46 markets offered during Auction 53, including the New York service area (“ MVD001” or “New York market”). On July 27, 2004, the Bureau partially granted FCC File No. 0001618606 as to the 45 markets outside of New York. See Wireless Telecommunications Bureau Grants Multichannel Video Distribution and Data Service Licenses, Public Notice, DA 04- 2331 (rel. July 27, 2004). For convenient reference, we refer herein to the application for the New York market, which remains pending, as File No. 0001618606-MVD001, and the “original” application for all 46 MVDs as File No. 0001618606 (“ DTV MVDDS Application”). 3 47 C. F. R. § 101. 1412( a). “Cable operator” means a company that is franchised to provide cable service, as defined in 47 C. F. R. § 76. 1000( e), in all or part of the MVDDS license area, id. § 101.1412( b). “Significant overlap” occurs when a cable operator’s subscribers in the MVDDS license area make up 35 percent or more of the households in (continued....) 1 Federal Communications Commission DA 04- 3044 2 [O] pen eligibility for in- region cable operators poses a significant likelihood of substantial competitive harm. With their large current market shares, cable operators have a strong incentive to prevent entry by new MVPD providers. [W] e have given considerable weight to the fact that MVPD markets are characterized by a limited number of current providers and a small likelihood of increased competition. Prospects for entry in the form of cable over- building or other types of MVPD service appear unlikely. Moreover, we believe a fourth provider in the MVPD marketplace would provide significant public interest benefits through lower prices, improved service quality and increased innovation. MVDDS Second R& O at ¶ 164 (notes omitted). 4 3. Conditional grant subject to divestiture within 90 days. Section 101.1412( g) provides that an entity that would otherwise be barred from acquiring an interest in an MVDDS license by the cross-ownership restrictions may be a party to an MVDDS application pursuant to the divestiture procedures specified in the rule. 5 Moreover, if the applicant is otherwise qualified, the application will be granted subject to a condition that the applicant shall come into compliance with the eligibility restrictions within 90 days of the final grant of the license. 6 However, the license in question cancels automatically if the licensee does not file a certification of divestiture (or in some cases an assignment application) with the Commission within 90 days of the license grant. 7 4. Prescribed methods of divestiture; waivers. The rule sets forth three ways in which an ineligible MVDDS applicant may eliminate a disqualifying interest. First, the rule permits an applicant holding an attributable interest in a cable operator to divest such interest in the cable company. 8 Second, applicants that would be barred from eligibility because a cable operator (or entity with an attributable interest in a cable operator) has an interest in the applicant may partition or divest the portion of the service area exceeding the overlap restriction. 9 Third, divestiture may be to an interim trustee independent of the MVDDS applicant if a buyer has not been secured within the required period of time. 10 The rule further provides that a cable operator may petition for a waiver of the cross- ownership restriction, following the initial award of an MVDDS license, based on a showing that changed circumstances or new evidence indicate that no significant likelihood of substantial competitive harm will (... continued from previous page) that MVDDS license area which subscribe to one or more Multichannel Video Program Distributors (MVPDs), as defined in 47 C. F. R. § 76. 1000( e). See 47 C. F. R. §§ 101. 1412( c) and (e). 4 Amendment of Parts 2 and 25 of the Commission’s Rules to Permit Operation of NGSO FSS Systems Co-Frequency with GSO and Terrestrial Systems in the Ku- Band Frequency Range; Amendment of the Commission's Rules to Authorize Subsidiary Terrestrial Use of the 12. 2- 12. 7 GHz Band by Direct Broadcast Satellite Licensees and Their Affiliates; and Applications of Broadwave USA, PDC Broadband Corporation, and Satellite Receivers, Ltd. to Provide a Fixed Service in the 12. 2- 12. 7 GHz Band, ET Docket No. 98- 206, Memorandum Opinion and Order and Second Report and Order, 17 FCC Rcd 9614, 9679- 80 ¶ 164 (2002) (MVDDS Second R& O). 5 47 C. F. R. § 101. 1412( g). 6 47 C. F. R. § 101. 1412( g)( 4). 7 See 47 C. F. R. § 101. 1412( g)( 6). 8 47 C. F. R. § 101. 1412( g)( 1)( i). 9 47 C. F. R. § 101.1412( g)( 1)( ii). This can be accomplished by partitioning and divesting either a portion of the MVDDS service area or a portion of the cable service area to eliminate the overlap. See 47 C. F. R. § 101. 1412( g)( 1)( ii)( A) and (B). 10 47 C. F. R. § 101. 1412( g)( 1)( iii). 2 Federal Communications Commission DA 04- 3044 3 result from the cable operator retaining an attributable interest in the MVDDS license. 11 In addition, the rule provides that the attribution rules can be waived upon an affirmative showing that “the interest holder has less than a fifty percent voting interest in the licensee and there is an unaffiliated single holder of a fifty percent or greater voting interest; that the interest holder is not likely to affect the local market in an anticompetitive manner; that the interest holder is not involved in the operations of the licensee and does not have the ability to influence the licensee on a regular basis; and that grant of a waiver is in the public interest because the benefits to the public of common ownership outweigh any potential anticompetitive harm to the market.” 12 5. Auction 53; DTV’s long- form application. On January 27, 2004, the Commission completed an auction of 214 MVDDS licenses (Auction 53). DTV was the successful bidder in 46 markets offered during the auction, including the license for the New York service area (“ MVD001” or “New York market”). On June 15, 2004, the Commission gave public notice that DTV’s long- form application was acceptable for filing and that the deadline for filing a petition to deny was June 25, 2004. 13 This public notice also noted that DTV had filed the instant Waiver Request, 14 and no petitions to deny were filed. 6. The New York market. According to DTV’s disclosures in its application, George S. Blumenthal & Company LLC (“ Blumenthal”) holds a 51- percent interest in DTV and Rainbow holds the remaining 49 percent. 15 Cablevision Systems Corporation (“ Cablevision”), a cable operator in the New York market, holds a 49 percent indirect interest in DTV. 16 DTV also reports that Charles Dolan owns 41% of Cablevision. 17 As a result, DTV acknowledges that “the applicant has an attributable interest in a cable operator in the New York [MVD001] market.” In this connection, DTV certifies that Cablevision’s board has approved a spin off of certain, relevant assets and that DTV “will take such additional measures as may be necessary to satisfy the provision of the Commission’s cross- ownership requirements relating to its interest in the New York cable operator.” 18 Accordingly, under Section 101.1412( g), any grant of DTV’s captioned application for the New York market will be subject to the condition that DTV “shall come into compliance with the [MVDDS/ cable cross- ownership limits] within ninety (90) days of final grant of such MVDDS license.” 19 11 See 47 C. F. R. § 101.1412( d). 12 See 47 C. F. R. § 101.1412( f) (Definition of attributable interest) and Note to § 101. 1412. See also Fourth Erratum (to MVDDS Second R& O), ET Docket No. 98- 206, DA 04- 3007 (rel. Sept. 17, 2004). Accord, 47 C. F. R. § 101. 1412 (2003). 13 See Wireless Telecommunications Bureau Announces that Applications for Multichannel Video Distribution and Data Service are Accepted for Filing, Public Notice, DA 04- 1718 (rel. June 15, 2004). 14 Id., Attachment A at 5 (noted that DTV filed the Waiver Request relative to MVD001, that the Bureau made the Waiver Request available to the public online for informational purposes, via ULS, but that the Waiver Request was not filed as an amendment to application File No. 0001618606). 15 See, e. g., DTV MVDDS Application, Form 601 Exhib. A at 1. 16 See Waiver Request at 1- 2 citing 47 C. F. R. § 101.1412( a). See also DTV Norwich, LLC, FCC Form 602, Schedule A, FCC Ownership Disclosure Information for the Wireless Telecommunications Services, filed Feb. 17, 2004. “Cablevision Systems Corp. holds a 100% ownership interest in CSC Holdings, Inc., which holds a 100% ownership interest in Rainbow Media Holdings, LLC, which holds a 100% ownership interest in Rainbow DBS Holdings, Inc., which holds a 100% ownership interest in Rainbow DBS Co. LLC, which holds a 100% ownership interest in Rainbow MVDDS Co. LLC, which holds a 49% ownership interest in the Applicant.” See, e. g., DTV MVDDS Application, Exhib. A at 2- 3. 17 See, e. g., DTV MVDDS Application, Exhib. A at 4. 18 DTV MVDDS Application, Exhib. G. 19 47 C. F. R. § 101. 1412( g)( 4). 3 Federal Communications Commission DA 04- 3044 4 7. Waiver Request. On June 10, 2004, DTV filed with the Commission a request for waiver and extension of the divestiture- certification deadline by 270 days, in addition to the 90 days permitted by the rule, for a total of 360 days. DTV states that the additional time is needed for Cablevision to complete the spinoff of certain assets, including its interest in DTV, to its shareholders. DTV states that the additional 270 days requested will also enable the new entity to address the cross- ownership limit. 20 8. DTV reports that Cablevision intends to effectuate the spinoff by initially transferring its direct broadcast satellite (DBS) assets along with three national entertainment services into a newly-formed, wholly- owned subsidiary of Cablevision, Rainbow Media Enterprises, Inc. (“ RME”). DTV states that Cablevision will then distribute the stock of RME pro rata to the current holders of Cablevision stock. Among the assets to be transferred to RME is Rainbow DBS Holdings, Inc., which currently holds a 100- percent ownership interest in Rainbow DBS Company LLC (“ Rainbow DBS”,) 21 which holds a 100- percent ownership interest in Rainbow MVDDS Co., LLC (Rainbow MVDDS), which, in turn, owns 49 percent of DTV. As such, DTV states that following the spinoff, which will be completed by approximately the end of the third quarter of 2004, 22 the current shareholders of Cablevision will control RME, and thus indirectly own 49 percent of DTV. DTV explains that it plans to take additional measures as may be appropriate to address the MVDDS/ cable cross- ownership limits upon completion of the spinoff but that additional time is needed “for Cablevision to complete the spin-off, to refinance, and to obtain approvals from the Securities and Exchange Commission (“ SEC”) as well as from the FCC” and to “take additional measures as may be appropriate to address the MVDDS- cable cross- ownership limits.” 23 III. DISCUSSION 9. As an initial matter, upon review and examination, we find the captioned application to be complete and in conformance with the Commission’s rules. Furthermore, the Commission has received full and timely payment, as required by Section 1.2109( a) of the Commission’s rules, 47 C. F. R. 20 Waiver Request at 1- 3. 21 Rainbow DBS Holdings, Inc., currently is a wholly owned subsidiary of Rainbow Media Holdings LLC. Rainbow Media Holdings LLC is a wholly owned subsidiary of CSC Holdings, Inc., which is a subsidiary of Cablevision. 22 Counsel for the holders of the 49 percent interest in DTV (counsel) informally advised the Commission’s staff that the spinoff is expected to be completed by approximately the end of the third quarter 2004. 23 See Waiver Request at 1- 3. We observe that after the spinoff, Mr. Dolan's interests in RME, both individually and as a member of The Dolan Family Group and a beneficiary of various Dolan Family Group trusts, will constitute attributable interests in a cable operator under the Commission's MVDDS/ cable- cross ownership rule See Rainbow Media Enterprises, Inc., SEC Form 10, General Form for Registration of Securities Pursuant to Section 12( b) or (g) of the Securities Act of 1933, File No. 001- 32178 (filed May 11, 2004), Amendment No. 1 (filed July 29, 2004), and Amendment No. 2 (filed Aug. 6, 2004) (“ SEC Form 10”), Preliminary Information Statement at 40- 41 (Charles F. Dolan will remain the holder of more than 20 percent of the classes of stock with voting power in Cablevision and will acquire the same percentage of shares in RME). Other interests in RME to be held directly or indirectly by or for members of the Dolan family, see, e. g., FCC File No. SES- T/ C- 20040630- 00901, FCC Form 312, Exhibit on Question 40 (for approval of pro forma transfer of control of Rainbow DBS Company LLC, licensee of earth station authorizations, from Cablevision Systems Corporation to Rainbow Media Enterprises, Inc. (“ Transfer Application”) also may constitute attributable interests in a cable operator. See 47 C. F. R. § 101.1412( f)( 5)-( 6) (“ an entity shall be considered to have an attributable interest in a cable operator or MVDDS licensee pursuant to the following criteria: (5) Any voting or non- voting stock interest, amounting to 20 percent or more of the total outstanding stock of an entity; (6) Stock interests held in trust that exceed the limit . . . shall constitute an attributable interest of any person who holds or shares the power to vote such stock, of any person who has the sole power to sell such stock, and, in the case of stock held in trust, of any person who has the right to revoke the trust at will or to replace the trustee at will. If the trustee has a familial, personal, or extra- trust business relationship to the grantor or the beneficiary, the stock interests held in trust shall constitute an attributable interest of such grantor or beneficiary, as appropriate”). 4 Federal Communications Commission DA 04- 3044 5 § 1.2109( a), for the license in question. Accordingly, we hereby grant DTV’s captioned application for the license for the New York market (MVD001), effective upon release of the instant Order. 24 This grant is conditioned on DTV meeting the cross- ownership limits. 25 10. Turning to the Waiver Request, Section 1.3 of the Commission’s rules authorizes us to grant waivers “if good cause therefor is shown.” 26 More specifically for the Wireless Radio Services, Section 1.925 permits us to grant a request for waiver if it is shown that: (1) the underlying purpose of the rule would not be served or would be frustrated by application to the instant case, and that a grant of the requested waiver would be in the public interest; or (2) in view of unique or unusual factual circumstances of the instant case, application of the rule would be inequitable, unduly burdensome, or contrary to the public interest, or the application has no reasonable alternative. 27 11. Focusing on the first test, i. e., Section 1.925( b)( 3)( i), DTV asserts that the underlying purpose of the rule— to promote competition by not allowing concentration of media ownership in a market 28 — would not be undermined by granting an additional 270 days for RME to satisfy the cross- ownership limits. 29 DTV notes that MVDDS equipment is still under development and thus there is little chance that extending the divestiture deadline by 270 days will result in common ownership of functioning cable and MVDDS systems within the next year. 30 Conversely, DTV argues that the purpose of the rule and the public interest would be best served by giving RME time to address the cross- ownership limit while gaining financial, operational and managerial experience and structures necessary to operate as a public company. 31 DTV also notes that as an affiliate of RME, an enterprise with expertise in program production and distribution, it will be well positioned to fully utilize its licenses and that granting the Waiver Request would allow DTV to gain expertise in its other 45 licensed markets and apply it to providing service in New York after it addresses the cross- ownership limit. 32 12. Based on the record before us, and specifically, DTV’s representations that the new entity “will take such additional measures as may be necessary to satisfy the provision of the Commission’s cross- ownership requirements relating to [the] interest [of] the New York cable operator,” we are persuaded that the underlying purpose of the rule would not be served by denying the Waiver Request and requiring strict adherence to the rule. Rather, allowing additional time for Cablevision to conclude the spin off of its 49 percent indirect interest in DTV, and for the newly formed entity, RME, to satisfy the cross- ownership rule, will promote competition by facilitating the introduction of a new MVPD service in the New York market, i. e., an MVDDS licensee that is not owned or controlled by a cable operator. As a 24 We grant the captioned application pursuant to 47 U. S. C. § 309( a) and 47 C. F. R. §§ 0. 331, 1. 2108, because it will service the public interest, convenience and necessity. The Bureau previously granted DTV the licenses for 45 MVDs. See note 2, supra. 25 See paragraphs 3 and 6, supra. 26 47 C. F. R. § 1.3. The Commission may exercise its discretion to waive a rule where particular facts would make strict compliance inconsistent with the public interest. See Northeast Cellular Telephone Co. v. FCC, 897 F. 2d 1164, 1166 (D. C. Cir. 1990). Also, waivers must be founded upon an "appropriate general standard" by which to determine the policy underlying the waiver. WAIT Radio v. FCC, 418 F. 2d 1153, 1159 (D. C. Cir. 1969), cert. denied, 409 U. S. 1027 (1972). 27 47 C. F. R. § 1. 925( b)( 3). 28 See Waiver Request at 3 citing MVDDS Second R& O, 17 FCC Rcd at 9679- 80 ¶ 164. 29 Waiver Request at 3. 30 Id. 31 Id. 32 Id. at 3- 4. 5 Federal Communications Commission DA 04- 3044 6 result, we find that granting an additional 270 days, to complete the spin off and bring the new entity into compliance with the cross- ownership limits will not undermine the competitive goals of the rule. 13. We note that, in addition to the goal of avoiding market concentration noted by DTV, the Commission adopted cross- ownership restrictions where there is significant overlap between the MVDDS and cable service areas to prevent cable operators with large market shares from precluding entry by new MVPD providers. 33 In this connection, we make the inescapable observation relative to the New York market that Cablevision’s attributable interest in DTV directly implicates the concern that the Commission intended the cross- ownership limit to address. Nonetheless, at this juncture we are reserving judgment on this issue because the Waiver Request seeks temporary relief from the deadline to meet the cross- ownership rule, which permits ineligible cable operators to apply for and hold MVDDS licenses temporarily. Using this approach, we are persuaded— based on DTV’s representations in the captioned application and Waiver Request— that granting the Waiver Request will not preclude the entry of a new MVPD provider in the New York market. To the contrary, the record of the proceeding now before us reflects that Cablevision is in the process of spinning off its MVDDS interest to a new entity that will provide MVPD services— albeit one that will be owned by Cablevision’s shareholders. 34 Regarding this common ownership issue, however, we take DTV at its word that the spin- off entity will take such additional measures as may be necessary to satisfy the provision of the Commission’s cross- ownership rule. We also consider DTV’s assertion that granting the 270- day extension will provide RME the time needed both to address the cross- ownership rule and transition to a public company from its current reliance on Cablevision for various financial, operational, and managerial expertise in conducting its businesses. 35 On the whole, we are persuaded that the underlying purpose of the rule will not be undermined by extending DTV’s deadline for addressing the cross- ownership limit. 14. Section 1.925( b)( 3)( i) also requires us to determine whether a grant of the requested waiver would be in the public interest. Even though the spinoff of RME and DTV is nearly complete, the record reflects that DTV would be unable to address the cross- ownership issue and bring itself into compliance with Section 101.1412( a) within the 90- day window provided by the rule. If the 90- day divestiture requirement is applied in this case, DTV would be forced to divest its MVDDS license within a short time frame, potentially at a price below market value. It has long been Commission policy to avoid “fire sales”— any forced sale of assets that could unnecessarily restrict the value of the assets to be divested and could artificially limit the range of potential buyers. 36 As a result, the Commission has granted temporary waivers in similar circumstances to enable licensees to come into compliance with ownership restrictions where it has determined that the transaction would be in the public interest by enhancing competition. 37 In this connection, we note that the additional time period requested herein is reasonably 33 See para. 2, supra (summarizing Commission’s finding that open eligibility for in- region cable operators poses a likelihood that the cable operators would attempt to prevent entry by new MPVD providers). 34 See Waiver Request at 1- 3; Transfer Application, note 23, supra (granted, Public Notice, Report No. SES- 00621 (rel. Jul 7, 2004)). 35 Waiver Request at 3. (Following the spinoff, the new entity will have to maintain its own credit and banking relationships and perform its own financial and operational functions. It will also have to put in place the operational and managerial structures necessary to operate as a public company.” Id. 36 See Multimedia, Inc., 11 FCC Rcd 4883, 4885 (1995) (Multimedia) (citing Midwest Communications, Inc., 7 FCC Rcd 159, 160 (1991)). In Multimedia, Inc., the Commission granted a 12- month waiver of multiple ownership rules to facilitate a merger determined to be in the public interest. Id., 11 FCC Rcd at 4885. 37 See In re Applications of Voicestream Wireless Corp., for Consent to Transfer Control and Assignment of Licenses and Authorizations, 15 FCC Rcd 341 (2000) (Voicestream); Request of Wirelessco, LP, et al., for Limited Waiver of Section 24. 204 of the Commission’s Rules, 10 FCC Rcd 11111 (WTB 1995) (Wirelessco); Cincinnati Bell Telephone Co., 9 FCC Rcd 7658 (1994) (Cincinnati Bell); In The Matter Of Shareholders Of The Ackerley Group, Inc., 17 FCC Rcd 10828 (2002) (Ackerley Group). 6 Federal Communications Commission DA 04- 3044 8 19. IT IS FURTHER ORDERED that a copy of this Order shall be sent by regular or electronic mail to counsel for DTV Norwich LLC., Howard J. Symons, Esq., Mintz Levin Cohn Ferris Glovsky and Popeo PC, 701 Pennsylvania Avenue, N. W., Washington, D. C. 20004; David H. Pawlik, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New York Avenue, N. W., Washington, D. C. 20005. 20. This action is taken under delegated authority pursuant to Sections 0.131 and 0.331of the Commission’s Rules, 47 C. F. R. §§ 0.131, 0.331. FEDERAL COMMUNICATIONS COMMISSION Joel Taubenblatt Chief, Broadband Division Wireless Telecommunications Bureau 8