*Pages 1--10 from Microsoft Word - 54041.doc* Federal Communications Commission DA 05- 3328 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of: Comcast Cable Communications, LLC Six Petitions for Determination of Effective Competition in Forty- Two Local Franchise Areas in Texas ) ) ) ) ) ) ) ) CSR 6396- E, 6397- E, 6398- E, 6399- E, 6400- E, 6401- E MEMORANDUM OPINION AND ORDER Adopted: December 27, 2005 Released: December 28, 2005 By the Deputy Chief, Policy Division, Media Bureau: I. INTRODUCTION 1. This Order considers six petitions which the cable operator Comcast Cable Communications, LLC (“ Comcast”), filed with the Commission pursuant to Sections 76.7 and 76.905 of the Commission’s rules 1 for a determination that, in 42 communities in Texas (the “Communities”), it is subject to effective competition pursuant to Section 623( a)( 2) of the Communications Act of 1934, as amended (“ Communications Act”), 2 and is therefore exempt from cable rate regulation. 3 Franchise authorities have filed objections to Comcast’s petitions concerning two of the Communities. We find that those objections are without merit and that Comcast is subject to effective competition in all 42 Communities. 4 Accordingly, we grant Comcast’s petitions. 2. In the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition, 5 as that term is defined by Section 623( l)( 1) of the Communications Act 6 and Section 76.905 of the Commission's rules. 7 A cable operator bears the burden of rebutting the 1 47 C. F. R. §§ 76.7, 76.905. Comcast’s petitions do not invoke 47 C. F. R. § 76. 907 (“ Petition for a determination of effective competition”), but we will treat the petitions as if they do. 2 47 U. S. C. § 543( a)( 2). 3 Comcast filed one document, titled “Petition for Special Relief,” on September 3, 2004. Because it concerns six different cable systems, each with its unique physical system identification number, we treated it as six petitions. Comcast appears to believe that its filing also addresses a seventh system, “PSID# 003697 Palestine (East).” Letter from Brian M. Joseph, Esquire, Cole, Raywid & Braverman, L. L. P., counsel for Comcast, to the Commission’s Media Bureau, dated Oct. 1, 2004, at 1. Comcast’s filing contains nothing about that system, although Comcast has paid the appropriate filing fee. We will entertain a filing about PSID# 003697 by Comcast at its convenience. 4 The 42 Communities and data concerning them are listed in Attachment A. 5 47 C. F. R. § 76. 906. 6 47 U. S. C. § 543( l)( 1). 7 47 C. F. R. § 76. 905. 1 Federal Communications Commission DA 05- 3328 2 presumption that effective competition does not exist with evidence that it does exist in its franchise area. 8 II. DISCUSSION A. Competing Provider Effective Competition in 40 Communities 3. Section 623( l)( 1)( B) of the Communications Act provides that a cable operator is subject to effective competition if its franchise area is (a) served by at least two unaffiliated multi- channel video programming distributors (" MVPDs") each of which offers comparable video programming to at least 50 percent of the households in the franchise area; and (b) the number of households subscribing to programming services offered by MVPDs other than the largest MVPD exceeds fifteen percent of the households in the franchise area. 9 Turning to the first prong of this test, the direct broadcast satellite (“ DBS”) service of DirecTV, Inc. (“ DirecTV”), and DISH Network (“ DISH”) is presumed to be technically available due to its nationwide satellite footprint, and presumed to be actually available if households in a franchise area are made reasonably aware that the service is available. 10 The two DBS providers’ subscriber growth reached approximately 23.16 million as of June 30, 2004, comprising approximately 23 percent of all MVPD subscribers nationwide; DirecTV has become the second largest, and DISH the fourth largest, MVPD provider. 11 The two DBS providers are physically able to offer MVPD service to subscribers in the 40 Communities listed in Attachment A. I (the “40 Communities”). There exist no regulatory, technical, or other impediments to households within the 40 Communities taking the services of the DBS providers, and potential subscribers in the 40 Communities have been made reasonably aware of the DBS services of DirecTV and DISH. Based on these conclusions and the data discussed below showing that more than 15 percent of the households in the 40 Communities are DBS subscribers, 12 we conclude that the population of the 40 Communities may be deemed reasonably aware of the availability of DBS services for purposes of the first prong of the competing provider test. 4. One franchising authority -- the City of Mesquite, Texas (“ Mesquite”) -- questions whether the programming of the DBS providers is comparable to Comcast’s. 13 Section 76.905( g) of our rules provides that “[ i] n order to offer comparable programming as that term is used in this section, a competing [MVPD] must offer at least 12 channels of video programming, including at least one channel of nonbroadcast service programming.” 14 Mesquite notes that it regulates only Comcast’s basic service tier (“ BST”), “which essentially consists of the network channels and public, educational and government access channels.” 15 Mesquite appears to argue that the sparest form of DBS service offers many more channels and therefore does not offer programming that is truly comparable to Comcast’s BST. 5. Section 76.905( g) of our rules sets forth a precise standard of comparable programming, 8 See 47 C. F. R. §§ 76. 906- 07( b). 9 47 U. S. C. § 543( 1)( 1)( B); see also 47 C. F. R. § 76. 905( b)( 2). 10 See Bright House Networks, LLC, DA- 05- 2511 at ¶ 3 (rel. Sept. 27, 2005). 11 Eleventh Annual Assessment of the Status of Competition in the Market for Delivery of Video Programming, 20 FCC Rcd 2755, 2792- 93 (2005) ¶¶ 54- 55. 12 In the remaining 2 Communities (Cockrell Hill and Hebron), Comcast eschews competing provider effective competition and instead establishes low penetration effective competition. See infra ¶ 14. 13 Letter from Mark Hindman, Assistant City Manager, City of Mesquite, Texas, to Marlene H. Dortch, Commission Secretary (“ Mesquite Letter”), dated Nov. 5, 2004. 14 See 47 C. F. R. § 76. 905( g). 15 Mesquite Letter, supra n. 13. 2 Federal Communications Commission DA 05- 3328 3 and we decline to modify it here. We may not substantively modify rules in adjudicatory proceedings such as this one. The appropriate vehicle for such a modification is a petition for rulemaking, not an opposition filed in a proceeding initiated pursuant to Section 76.7 of the rules. 16 Nor should we waive our rule for Mesquite, which appears to question the wisdom of our rule rather than claim that special circumstances make the rule unjust in application to Mesquite in particular. 17 Furthermore, on the merits, when the Commission adopted the present rule it decided to measure competing provider competition by a minimum number of channels rather than engage in detailed comparisons of various MVPDs’ offerings. 18 We are bound by that decision. Accordingly, we respectfully disagree with Mesquite. 6. No other franchising authority questioned that the programming of the DBS providers is comparable to Comcast’s. We find that the programming of the DBS providers satisfies the Commission's program comparability criterion because they offer substantially more than 12 channels of video programming, including at least one non- broadcast channel. 19 In sum, we conclude that the 40 Communities are served by at least two unaffiliated MVPDs, namely the two DBS providers, each of which offers comparable video programming to at least 50 percent of the households in the franchise area. Therefore, the first prong of the competing provider test is satisfied. 7. The second prong of the competing provider test requires that the number of households subscribing to MVPDs, other than the largest MVPD, exceed 15 percent of the households in a franchise area. 20 Comcast asserts that it is the largest MVPD in the 40 Communities. 21 No party has raised any doubt about this assertion, and we accept it. 8. To prove that the penetration of the other MVPDs (the DBS service providers, DirecTV and DISH) exceeds 15 percent of the households in each of the 40 Communities, Comcast obtained reports of the number of households and subscribers to DBS service in each five- digit zip code. 22 To account for “partial” or “overlapping” zip codes -- ones that include some territory that is in one of the 40 Communities and some territory that is outside it -- a reasonable method by which to allocate some of the DBS subscribers in each partial zip code to a Community was needed. For this purpose, Comcast used the “geocoding” process of Media Business Corp. (“ MBC”), formerly known as SkyTrends. MBC’s geocoding makes measurements by the “block group level households” used by the Census Bureau, which are far smaller than zip codes. 23 This yielded an estimated numerical DBS penetration in each of the 40 Communities. Comcast then compared that penetration data to the 2000 Census population data 16 Falcon Cable Systems Co. II, 17 F. C. C. R. 4648, 4651- 52 (2002) ¶ 9. 17 WAIT Radio v. FCC, 418 F. 2d 1153, 1158 (D. C. Cir. 1969) (“ The very essence of waiver is the assumed validity of the general rule”). 18 Implementation of Section of the Cable Television Consumer Protection & Competition Act of 1992: Rate Regulation, 8 FCC Rcd 5631, 5665- 57 (1993) ¶¶ 37- 38, review granted in part on other grounds, Time Warner Entertainment Co., L. P. v. FCC, 56 F. 3d 151 (D. C. Cir. 1995), cert. denied, 516 U. S. 1112 (1996). 19 See 47 C. F. R. § 76. 905( g). 20 See supra n. 9. 21 Comcast Petitions CSR 6396- E to 6401- E, attached Declaration of Peter H. Feinberg, Associate General Counsel for Comcast at ¶ 2 (“ Comcast is the largest multichannel video program provider in each of the 40 Franchise Areas that satisfy the Competing Provider Test”). 22 Comcast Petitions CSR 6396- E to 6401- E at 6- 8 & Exhibits 4 (“ September 2, 2004 Media Business Corp. Letter”) 5 (“ Competitive Penetration Calculation & Supporting SBCA Data”). We have found five- digit zip code data to be a reliable basis for determining the presence of competing provider effective competition. Bright House Networks, LLC, Memorandum Opinion & Order DA 05- 2850 at ¶ 6 (rel. Oct. 28, 2005); Time Warner Entertainment, Memorandum Opinion & Order DA 05- 2642 at ¶¶ 8- 10 (rel. Oct. 4, 2005). 23 Comcast Petitions CSR 6396- E to 6401- E at 7- 8. 3 Federal Communications Commission DA 05- 3328 4 for each of the 40 Communities. 24 This produced a percentage estimate of DBS penetration that, in each of the 40 Communities, was above the 15 percent required by the second prong of our competing provider test. 9. One franchising authority -- the City of McKinney, Texas (“ McKinney”) -- challenges Comcast’s evidence of DBS penetration. 25 Comcast claims that McKinney has 9, 757 DBS subscribers among 18,186 households, for a DBS penetration of 53.65% percent. 26 McKinney disputes this claim on several grounds. McKinney asserts that when MBC and Comcast allocate households in partial zip codes, they assume that the households are spread evenly throughout it. This assumption is inaccurate, McKinney states, if the part of a partial zip code that is in the City consists of a park or a commercial area that contains few residences and, therefore, has relatively few DBS subscribers. 27 10. McKinney’s hypothetical argument has not discredited Comcast’s showing of DBS penetration. McKinney does not claim or show that any such partial zip code actually exists in McKinney, although we presume the City is familiar with its environs. 28 Moreover, we note that McKinney is a city of substantial population in suburban Dallas. We expect that McKinney has several partial zip codes, and that for every one in which the Comcast over- estimates DBS penetration in McKinney, there is another partial zip code in which Comcast under- estimates it. Thus, this flaw in Comcast’s estimates, if it be a flaw, will likely not over- estimate DBS penetration in McKinney on the whole. In addition, Comcast’s estimates are derived using not only relatively large five- digit zip codes, but also smaller block group level households. 29 Finally, we have repeatedly accepted five- digit zip codes as sufficiently reliable for showings of competing provider effective competition. 30 11. Second, McKinney criticizes Comcast’s use of 2000 Census data, noting that according to reputable sources, McKinney’s population has grown by approximately 52 percent since 2000. 31 Comcast correctly responds that the Commission has allowed the use of decennial Census data years after its issuance 32 and that, even assuming that the number of households in McKinney is 52 percent higher than Comcast’s estimate, DBS penetration in McKinney is still approximately 35 percent, 33 more than 24 Id. at 8. 25 City of McKinney, Texas Responsive Pleading to Comcast Cable Communications, LLC, Petition for Special Relief (“ Opposition”), filed Nov. 3, 2004. 26 Comcast Petition CSR 6400- E, Exhibit 5, supra n. 22, at 5. 27 Opposition at 2. 28 We have rejected franchising authorities’ similar claims about the distribution of penetration in their own communities when they rest on generalities and offer no specific evidence. Charter Communications, Inc. (“ Charter”), 19 FCC Rcd 6878, 6880- 81 (2004) ¶¶ 8- 10; Texas Cable Partners, L. P. (“ Texas Cable”), 19 FCC Rcd 6213, 6215- 16 (2004) ¶¶ 7- 9; Amzak Cable Midwest, Inc., 19 FCC Rcd 6208, 6211- 12 (2004) ¶¶ 11- 12. 29 See supra n. 23; see also Comcast’s Reply to Responsive Pleading to Petition for Special Relief (“ Reply”) at 2, filed on Nov. 15, 2004. 30 Charter, 19 FCC Rcd at 6681 ¶¶ 10- 11; Texas Cable, 19 FCC Rcd at 6215 ¶ 8. 31 Opposition at 3 (comparing 2000 Census data to an estimate by the North Central Texas Council of Governments that in early 2004 McKinney’s population was 82, 800; similar estimate of households by McKinney’s City Planning Department). 32 See, e. g., Comcast of Dallas, L. P. (“ Dallas”), DA- 05- 2950 at ¶ 9 & n. 31 (rel. Nov. 14, 2005); Mediacom Minnesota LLC, 18 FCC Rcd 12768, 12770- 71 (2003) ¶ 8. 33 18,186 Census 2000 McKinney households times 1.52 equals 27, 643 estimated 2005 McKinney households. 9,757 McKinney DBS subscribers divided by 27, 643 estimated McKinney households equals 35. 3%. 4 Federal Communications Commission DA 05- 3328 5 twice the statutory minimum for competing provider effective competition. 34 12. Third, McKinney faults Comcast’s claim of DBS penetration because it includes courtesy or complimentary accounts. 35 We do not believe the inclusion of complimentary accounts in the DBS subscriber report precludes a determination of effective competition. In the first place we presume that the number of complimentary accounts is de minimis in number. Additionally, the fact that this de minimis number of DBS subscribers receives complimentary service enhances, rather than reduces, the cable operator’s need to compete for these subscribers. A subscriber receiving free DBS service arguably would have to perceive significant choice and service advantages available through the local cable operator to abandon DBS service in favor of cable service 13. Based upon the aggregate DBS subscriber penetration levels and 2000 Census household data reflected in Attachment A. I, we find that Comcast has demonstrated that the number of households subscribing to programming services offered by MVPDs, other than the largest MVPD, exceeds 15 percent of the households in the 40 Communities. Therefore, the second prong of the competing provider test is satisfied. Based on the foregoing, we conclude that Comcast has submitted sufficient evidence demonstrating that its cable systems serving the 40 Communities set forth in Attachment A. I are subject to competing provider effective competition. B. Low Penetration Effective Competition in Two Communities 14. Section 623( l)( 1)( A) of the Communications Act provides that a cable operator is subject to effective competition, and therefore exempt from cable rate regulation, if "fewer than 30 percent of the households in the franchise area subscribe to the cable service of a cable system." 36 Comcast has provided data showing that less than 30 percent of the households in two of the Communities -- Cockrell Hill and Hebron, Texas -- subscribe to its cable services. 37 No filing has been made opposing these showings. Accordingly, we conclude that Comcast has demonstrated the existence of low penetration effective competition under our rules for Cockrell Hill and Hebron, Texas. Data underlying our conclusions under the low penetration test is set forth in Attachment A. II. III. ORDERING CLAUSES 15. Accordingly, IT IS ORDERED that the petitions filed by Comcast Cable Communications, LLC, for a determination of effective competition in the Communities listed on Attachment A ARE GRANTED. 16. IT IS FURTHER ORDERED that the certifications to regulate basic cable service rates granted to any of the local franchising authorities overseeing Comcast in the Communities listed on Attachment A ARE REVOKED. 34 47 U. S. C. § 543( l)( 1)( b)( ii); see also Reply at 2. 35 Opposition at 4. 36 47 U. S. C. § 543( l)( 1)( A). 37 Comcast Petition CSR 6398- E at 9- 10 (16. 26% cable penetration in Cockrell Hill); Comcast Petition CSR 6401- E at 9- 10 (1. 11% cable penetration in Hebron). 5 Federal Communications Commission DA 05- 3328 6 17. This action is taken pursuant to delegated authority pursuant to Section 0.283 of the Commission’s rules. 38 FEDERAL COMMUNICATIONS COMMISSION Steven A. Broeckaert Deputy Chief, Policy Division, Media Bureau 38 47 C. F. R. § 0.283. 6 Federal Communications Commission DA 05- 3328 7 Attachment A I. Competing Provider Effective Competition Comcast Cable Communications, LLC: CSR 6396- E 2000 Census DBS Communities CUID CPR* Households+ Subscribers+ Commerce TX0157 30.34%** 2881 874 Greenville TX0068 21.69% 9156 1986 Comcast Cable Communications, LLC: CSR 6397- E 2000 Census DBS Communities CUID CPR* Households+ Subscribers+ Coppell TX0604 39.07% 12211 4771 Double Oak TX1276 41.06%** 682 280 Flower Mound TX0840 40.46% 16179 6546 Grapevine TX0775 34.88% 15712 5481 Highland Village TX0658 41.25%** 3874 1598 Irving TX0783 21.19% 76241 16159 Lewisville TX1010 28.22 30043 8477 Comcast Cable Communications, LLC: CSR 6398- E 2000 Census DBS Communities CUIDS CPR* Households+ Subscribers+ Arlington TX0826 23.74% 124686 29599 Bedford TX 0648 20.77% 20251 4207 Colleyville TX0712 40.00% 6406 2563 Dalworthington Gardens TX0825 29.59% 747 221 Euless TX0649 26.27% 19218 5049 7 Federal Communications Commission DA 05- 3328 8 Comcast Cable Communications, LLC: CSR 6398- E (continued) 2000 Census DBS Communities CUID CPR* Households+ Subscribers+ Grand Prairie TX0553 25.27% 43791 11068 Pantego TX0824 16.74%** 154 920 Comcast Cable Communications, LLC: CSR 6399- E 200 Census DBS Community CUID CPR* Households+ Subscribers+ Graham TX0243 33.12%** 3391 1123 Comcast Cable Communications, LLC: CSR 6400- E 2000 Census DBS Communities CUIDS CPR* Households+ Subscribers+ Allen TX0642 59.09% 14205 8394 Farmersville TX0643 50.13%** 1115 559 Frisco TX0657 84.59% 12065 10206 McKinney TX0641 53.65% 18186 9757 TX1468 Parker TX1483 58.97% 485 286 Plano TX 1255 33.44% 80875 27047 Princeton TX0644 47.74%** 1238 591 Richardson TX1228 26.23% 35191 9230 Sachse TX0645 81.05% 3224 2613 St. Paul TX1605 72.20% 223 161 The Colony TX0774 51.26% 8462 4338 Wylie TX0640 75.30% 5085 3829 8 Federal Communications Commission DA 05- 3328 9 Comcast Cable Communications, LLC: CSR 6401- E 2000 Census DBS Community CUID CPR* Households+ Subscribers+ Addison TX0543 21.06% 7621 1605 Carrollton TX0006 26.63% 39136 10424 Cedar Hill TX0651 41.45% 10748 4455 DeSoto TX0652 30.72%** 13709 4212 Farmers Branch TX0624 19.02% 9766 1858 Garland TX0554 18.84% 73241 13802 Hutchins TX0663 29.34% 927 272 Lancaster TX0590 26.95%** 9182 2475 Mesquite TX0682 22.96% 43926 10087 Rowlett TX0653 39.81% 14266 5679 Sunnyvale TX0720 39.39%* 891 351 II. Low Penetration Effective Competition Comcast Cable Communications, LLC: CSR 6398- E Cable 2000 Census Cable Community CUID Subscribership Households+ Subscribers+ Cockrell Hill TX0715 16.26%** 1150 187 Comcast Cable Communications, LLC: CSR 6401- E Cable 2000 Census Cable Community CUID Subscribership Households+ Subscribers+ Hebron TX0839 1.11%** 271 3 9 Federal Communications Commission DA 05- 3328 10 * CPR = Percent DBS penetration **= mathematical errors by Petitioner corrected + = See Cable Operator Petitions 10