Federal Communications Commission FCC 96-334
Before the
Federal Communications Commission 
Washington, D.C. 20554
In the Matter of )
)
Implementation of Section 302 of ) CS Docket No. 96-46 
the Telecommunications Act of 1996 )
) 
Open Video Systems )
THIRD REPORT AND ORDER AND 
SECOND ORDER ON RECONSIDERATION
Adopted: August 7, 1996 Released: August 8, 1996
By the Commission: Commissioner Quello issuing a separate statement.
Table of Contents
Paragraph
I. Introduction .................................................. 1
II. Third Report and Order -- Definition of "Affiliate" ....................... 4
III. Second Order on Reconsideration .................................. 17
A. Qualifications to be an Open Video System Operator ................ 17
B. Certification Process ...................................... 29
C. Carriage of Video Programming Providers ....................... 36
D Rates. Terms, and Conditions of Carriage ....................... 75
E. Gross Revenues Fee ..................................... 115
F. Applicability of Title VI Provisions ........................... 123
1. Public, Educational and Governmental Access Channels ........ 123
2. Must-Carry and Retransmission Consent .................. 148
3. Program Access ................................... 160
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______Federal Communications Commission_______FCC 96-334
4. Sports Exclusivity, Network Non-Duplication and Syndicated
Exclusivity ...................................... 175
5. Local Franchising Requirements ........................ 185
G. Information Provided to Subscribers .......................... 198
H. Dispute Resolution ...................................... 207
I. Joint Marketing, Bundling and Structural Separation ............... 212
IV. Regulatory Flexibility Act Analysis ................................ 223
V. Paperwork Reduction Act of 1995 Analysis .......................... 242
VI. Ordering Clauses ............................................ 244
Appendix A: List of Parties Filing Petitions for Reconsideration and Oppositions to Petitions
for Reconsideration 
Appendix B: Rule Changes 
Appendix C: FCC Form 1275 ~ Open Video System Certification of Compliance
I. INTRODUCTION
1. The Telecommunications Act of 19961 added Section 653 to the Communications 
Act, establishing open video systems as a new framework for entry into the video programming 
marketplace.2 Section 653 required that the Commission, within six months after the date of 
enactment of the 1996 Act, "complete all actions necessary (including any reconsideration) to 
prescribe regulations" to govern the operation of open video systems.3 Accordingly, on March
II, 1996, the Commission issued a Notice of Proposed Rulemaking regarding open video 
systems.4 Based on the extensive record submitted in response to the Notice, on May 31, 1996, 
the Commission adopted a Second Report and Order in which we prescribed rules and policies
'Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, approved February 8, 1996 (the "1996 
Act").
Communications Act of 1934, as amended, § 653, 47 U.S.C. § 573 ("Communications Act"). 
347 U.S.C. § 573(b), (c).
"Report and Order and Notice of Proposed Rulemaking in CS Docket No. 96-46 and CC Docket No. 87-266 
(terminated), 61 FR 10496 (3/14/96), FCC 96-99, released March 11, 1996 ("Notice").
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Federal Communications Commission FCC 96-334
for governing the establishment and operation of open video systems.5
2. As designed by Congress and implemented by the Commission, open video systems 
provide an option, particularly to local exchange carriers ("LECs"), for the distribution of video 
programming to consumers other than as a traditional cable television system regulated under 
Title VI.6 In the Second Report and Order, the Commission sought to fulfill Congress' intent 
by establishing streamlined regulations that provide telephone companies with the flexibility to 
establish and operate open video systems. We determined that such flexibility would encourage 
these and other entities to enter the video programming distribution market by deploying open 
video systems, thereby fostering competition to incumbent cable operators. We further ensured 
that, as required under Section 653, open video system operators provide unaffiliated video 
programming providers with non-discriminatory access to their systems.7
3. We received 19 petitions for reconsideration of the Second Report and Order.9 
In this Second Order on Reconsideration, we address issues raised in these filings, and modify 
or clarify our regulations accordingly. In addition, in the Order and Notice of Proposed 
Rulemaking in CS Docket No. 96-85 ("Cable Reform Proceeding"), we sought comment on the 
definition of "affiliate" in the context of open video systems.9 In light of the six-month deadline 
set by Congress for the Commission to establish final open video system regulations, we address 
the affiliate issue in this Third Report and Order.
^Second Report and Order in CS Docket No. 96-46, 61 FR 28698 (6/5/96), FCC 96-249, released June 3, 1996 
("Second Report and Order").
Communications Act § 653(a)(3), 47 U.S.C. § 573(a)(3). 
'See, e.g., Second Report and Order at para. 2.
8 A listing of the parties' filing petitions for reconsideration and oppositions or comments, and the abbreviations 
used to refer to such parties, is attached as Appendix A. We note that on July 12, 1996, the Cable Services Bureau 
issued an Order declining to grant the motion of the National League of Cities, et al. to accept their late-filed petition 
for reconsideration, but granting their motion, in the alternative, to accept the petition as a filing in opposition to 
and/or in support of the petitions for reconsideration that were timely filed. See Order, CS Docket No. 96-46, DA 
96-1127 (released July 12, 1996).
9 Order and Notice of Proposed Rulemaking in CS Docket No. 96-85 (Implementation of the Cable Act Reform 
Provisions of the Telecommunications Act of 1996) ("Cable Reform Proceeding"), 11 FCC Red 5937 (1996).
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H. THIRD REPORT AND ORDER - DEFINITION OF "AFFILIATE" 
A. Background
4. In the Cable Reform Proceeding, we amended certain of our rules to conform with 
the clear, self-effectuating provisions of the 1996 Act and sought comment on proposed rules to 
the extent necessary to implement various provisions of the 1996 Act. 10 We specifically sought 
comment regarding the definition of "affiliate" in the context of the new statutory provisions 
governing open video systems. 11 We noted that Congress added a new definition of "affiliate" 
in Section 3 of Title I of the Communications Act. This new provision defined "affiliate" for 
purposes of the Act, unless the context otherwise requires, as:
a person that (directly or indirectly) owns or controls, is owned or controlled by, or is 
under common ownership or control with, another person. For purposes of this 
paragraph, the term "own" means to "own an equity interest (or the equivalent thereof) 
of more than 10 percent. 12
We noted also, however, that Congress did not alter the separate definition of "affiliate" set forth 
under Title VI. Under Title VI, the term "affiliate" is defined, when used in relation to any 
person, to mean "another person who owns or controls, is owned or controlled by, or is under 
common ownership or control with, such person." 13 We sought comment regarding the definition 
of the term "affiliate" in the context of the new statutory provisions for open video systems. 14
5. BellSouth maintains that the existing affiliate definition under Title VI should 
continue to apply in open video systems. 15 BellSouth contends that the Commission should 
assume that Congress was satisfied with the existing definition in Title VI since had it believed 
the existing definition inadequate, it could have amended the definition in Title VI as easily as
10'Id.
11 Id. at 5970. We subsequently received comments in the Cable Reform Proceeding, CS Docket 96-85, 
addressing this issue. For purposes of our decision in this Third Report and Order, we incorporate those comments 
to the extent they specifically address the definition of affiliation in the context of the statutory provisions for open 
video systems.
''Communications Act § 3(1), 47 U.S.C. § 153(1). 
"Communications Act § 602(2), 47 U.S.C. § 522(2).
uCable Reform Proceeding, 11 FCC Red at 5970. We also sought comment on the definition of affiliate in the 
context of other provisions of the 1996 Act. Id. at 5963-65, 5970. We will address the affiliation definition for 
these provisions in the Cable Reform Proceeding.
15BellSouth Comments in the Cable Reform Proceeding at 3-4.
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Federal Communications Commission FCC 96-334
it added the definition of affiliate in Title I. 16 Further, BellSouth cites to 47 C.F.R. § 76.5(z) 
(definition of "affiliate") as already containing a definition of affiliate that follows the Title VI 
definition exactly. 17 RCN also concludes that Congress did not intend the Commission to apply 
a different definition of "affiliate" to LEG systems under Title VI than that applicable to Title VI 
generally and maintains that the existing Title VI definition of affiliate should be applicable to 
all provisions of the Title. 18
6. Some commenters contend that the definition of "affiliate" should focus on 
common ownership or control between the subject entities. 19 These parties assert that the Title 
VI definition of affiliate based on control is consistent with Congressional intent because it will 
lessen the regulatory burden on open video system providers and not duplicate the overly 
intrusive and burdensome regulatory structure of video dialtone.20 USTA states that Congress 
provided for reduced regulatory burdens for an open video system operator and a definition of 
affiliation premised upon control will further this end.21 According to USTA, such limited 
regulation will permit the proper functioning of market forces and competition making an 
arbitrary percentage determination of ownership unnecessary.22 Bell Atlantic contends that 
finding common ownership or control at low levels of equity ownership or non-equity interests 
could impede the ability of telephone companies and cable operators to construct pro-competitive 
business arrangements.23 For example, Bell Atlantic suggests that where a single person owns 
a majority interest in a particular entity, the other owner(s) should not be deemed to have 
"control" over the entity, even if their interests exceed a specific threshold.24
7. In its comments, Time Warner acknowledges that the 1996 Act's addition of a 
general definition of "affiliate" under Title I, while retaining the preexisting affiliate definition 
contained in Title VI, provides the Commission discretion to fashion different affiliation tests to
"/</. at 4.
"id. at n.9. Section 76.5(z) provides for the definition of affiliate as, "[w]hen used in relation to any person, 
another person who owns or controls, is owned or controlled by, or is under common ownership or control with, such 
person." 47 C.F.R. § 76.5(z). This is the same definition as provided in Title VI.
l*See RCN Comments in the Cable Reform Proceeding at 6.
"See Bell Atlantic Comments in the Cable Reform Proceeding at 2; USTA Comments in the Cable Reform 
Proceeding at 10-11.
2IUSTA Comments in the Cable Reform Proceeding at 11.
22Id.
23See Bell Atlantic Comments in the Cable Reform Proceeding at 2.
2tld.
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effectuate the varying policy goals in each specific context.25 Time Warner urges the 
Commission to apply the Title VI definition in the context of the statutory provisions for open 
video systems, as embodied in the notes accompanying Section 76.501 (cross-ownership) of the 
Commission's rules.26 Section 76.501 reflects the broadcast attribution rules contained in the 
notes to Section 73.3555 of our rules.27 Time Warner contends that two provisions of the statute 
  the statutory prohibition on open video system operators not to discriminate against video 
programming providers with respect to carriage and the channel occupancy restrictions in the 
Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act")28 - 
are based on the same policy of ensuring that facilities operators affiliated with video 
programmers do not favor such programmers in determining carriage on their facilities.29 
Because the Commission adopted an attribution standard for the 1992 Cable Act's channel 
occupancy restrictions based on the notes to Section 73.3555, Time Warner argues that the same 
definition should be used to accomplish the non-discriminatory requirements that are at the heart 
of open video systems.30
8. City and County of Denver, Colorado states in its comments that the Title VI 
definition of "affiliate" should be used to determine interest because Congress did not intend for 
more than one definition of "affiliate" to be used as it regards the provision of cable services and 
the new Title I definition of "affiliate" would not recognize Congressional intent.31 In applying 
Title VI, however, the City and County of Denver asserts that the Commission does not have the 
discretion to add a percentage of ownership interest to the federally-developed Title VI affiliation 
standard, and submits that in this regard, any ownership interest constitutes an affiliation between
"Time Warner Comments in the Cable Reform Proceeding at 31. 
*Id
2747 C.F.R. § 73.3555. Generally, under the broadcast attribution rules, all voting stock interests of 5% or more 
are considered attributable. All non-voting stock interests (including most "preferred" stock classes) are generally 
not attributable. There are several exceptions to the 5% voting stock benchmark. For example, there is a "single 
majority shareholder" exception, which provides that minority voting stock interests will not be attributed where there 
is a single holder of more than 50% of the outstanding voting stock. In addition, the interests of sufficiently 
"insulated" limited partners are not attributable, upon a certification that the limited partner is not materially involved, 
directly or indirectly, in the management or operations of the licensee's media-related activities. Id. at note 2. The 
broadcast attribution rules are currently the subject of Commission review. See Notice of Proposed Rulemaking, MM 
Docket Nos. 94-150, 92-251, 87-154, 10 FCC Red 3606 (1995).
28Pub. L. No. 102-385, 106 Stat. 1460 (1992), 47 U.S.C. § 521, el seq. (1992). The 1992 Cable Act amends 
Title 6 of the Communications Act of 1934, 47 U.S.C. § 151 et seq.
29Time Warner Comments in the Cable Reform Proceeding at 31-32 (citing Sections 573(b)(l)(A) and 
533(f)(l)(B)ofthe 1996 Act).
3 Id. at 31-32.
"City and County of Denver, Colorado Comments in the Cable Reform Proceeding at 5-6.
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Federal Communications Commission FCC 96-334
32the cable service provider and another entity.
9. According to some commenters, the Commission must define any relationship 
exceeding the carrier-user relationship as "affiliation" for open video system purposes.33 The 
National League of Cities, et al. propose that the Commission define "affiliate" broadly in a way 
that encompasses the variety of equity and non-equity relationships through which an open video 
system operator might seek effectively to control program selection.34 The National League of 
Cities, et al. argue that any relationship between an open video system operator and an ostensibly 
non-equity related programmer other than that of carrier and user inherently poses a substantial 
risk that the open video system operator will exercise control over programming, or will have an 
incentive for discrimination in rates, terms, or conditions.35 The National League of Cities, et al. 
contend that all relationships between the open video system operator and a video programmer 
that exceed a carrier-user relationship must be considered to involve "control" and be counted as 
"affiliation" for purposes of the open video system capacity limitations.36 To truly limit 
"unaffiliated" programmers to a carrier-user relationship, the National League of Cities, et al. 
propose that the ownership criterion be limited to 1%.37
10. Alliance for Community Media, et al. state that the definition of "affiliate" should 
be broad enough to prevent an open video system operator from exercising editorial and financial 
control over entities that are formally "unaffiliated" for purposes of this provision.38 Alliance for 
Community Media, et al. urge the Commission to adopt regulations which recognize that 
contractual arrangements through unaffiliated companies may hide affiliations which are not 
revealed by an "equity" ownership test.39 Alliance for Community Media, et al. do not believe 
the "affiliate" definition found in Section 3 of the 1996 Act, which defines ownership as an equity
"See National League of Cities, et al. Comments in the Cable Reform Proceeding at 7; Alliance for Community 
Media, et al. Comments in the Cable Reform Proceeding at 3; Rainbow Comments (in CS Docket No. 96-46) at 7-8. 
See also Michigan Cities, et al. Reply Comments (in CS Docket No. 96-46) at 6 (stating that they support the 
comments of National League of Cities, et al. and others that independent programmers must be truly "independent" 
to be counted towards the two-thirds requirement of the Act).
*'See National League of Cities, et al. Comments in the Cable Reform Proceeding at 3.
"Id. at 12.
36Id.
31Id. at 14. However, the National League of Cities, et al. note that a standard based solely on ownership 
percentage or managerial control would ignore the other types of relationships that can give an open video system 
operator effective programming control.
"Alliance for Community Media, et al. Comments in the Cable Reform Proceeding at 2. 
"Id. at 3.
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interest of 10%, sufficiently protects would be unaffiliated programmers from manipulation of 
the system by open video system providers, claiming that there is a significant danger of abuse 
because the open video system operator may still be able to favor some "unaffiliated" 
programmers over others for editorial and/or marketing purposes.40 In order to prevent such 
potential abuse, Alliance for Community Media, et al. recommend that in every circumstance 
where an open video system operator has contracted with an entity it certifies as unaffiliated, the 
Commission should examine that contract and any additional contracts between the operator and 
the provider.41
11. Similarly, TCI and Rainbow have urged the Commission to define the term 
"affiliate" to include all entities who have any financial or business relationship with the open 
video system operator, whether by contract or otherwise, directly or indirectly other than the 
carrier-user relationship.42 In comments to the Notice, these parties submit that this definition 
would capture all relevant relationships between the LEG and users of its open video system 
facilities and would encompass the existence of any ownership or financial interest, affiliation, 
contingent interest, or other agreement.43 These parties claim that such a definition is necessary 
because otherwise a LEG would be able to favor video programming providers with whom it has 
a close relationship without violating the statutory proscription on discrimination.44 TCI notes 
that the 1996 Act did not change the special definition of affiliate applicable to Title VI, which 
does not reference any particular ownership interest but speaks in terms of "ownership or 
control." TCI contends that the Commission remains free to fashion various applications of this 
term appropriate to the particular policy goals at issue in a particular context.45 In response, U 
S West argues that the Commission should reject TCI and Rainbow's expanded definition of the 
term "affiliate" because it would make practically every video programming provider over an 
open video system an affiliate of the open video system operator.46
B. Discussion
12. As an initial matter, we agree with those commenters that argue that the new 
definition of "affiliate" in Title I does not apply to matters under Title VI since Title VI contains 
a separate definition of that term that does not set a percentage threshold as to what constitutes
"Id.
"Id.
nSee TCI Comments (in CS Docket No. 96-46) at 8; Rainbow Comments (in CS Docket No. 96-46) at 7-8.
"Id.
"Id.
"See TCI Comments (in CS Docket No. 96-46) at n.25.
46'See U S West Reply Comments (in CS Docket No. 96-46) at 10.
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Federal Communications Commission FCC 96-334
ownership.47 For our purposes, therefore, we must determine the point at which an open video 
system operator's ownership or control of another entity, or another entity's ownership or control 
of the open video system operator, makes that entity an affiliate for purposes of Section 653. 
This determination is an important element of Congress' open video system framework. For 
instance, where demand for carriage exceeds system capacity, Section 653(b)(l)(B) prohibits an 
open video system operator "and its affiliates" from selecting the video programming services for 
carriage on more than one-third of the activated channel capacity.48 Thus, if we set the threshold 
too high, and fail to designate as "affiliates" those entities that are in fact controlled by the open 
video system operator, it could conflict with Congress' intent that open video system operators 
be permitted to control the programming selection on no more than one-third of the activated 
channel capacity. On the other hand, if we set the threshold too low, we run the risk of unduly 
restricting the flow of capital and other beneficial arrangements at levels that pose no threat of 
actual or effective control by the open video system operator.
13. In defining "affiliate" for purposes of Section 653, we will adopt the attribution 
standard that we use in the program access context.49 Thus, as we do in the program access 
context, we will apply the definitions contained in the notes to 47 C.F.R. § 76.501 (which reflect 
the broadcast attribution rules contained in the notes to 47 C.F.R. § 73.3555), with certain 
modifications. For instance, in contrast to the broadcast attribution rules: (a) we will consider 
an entity to be an open video system operator's "affiliate" if the open video system operator holds 
5% or more of the entity's stock, whether voting or non-voting; (b) we will not adopt a single 
majority shareholder exception;50 and (c) all limited partnership interests of 5% or greater will 
qualify, regardless of insulation.51 In addition, as with both the program access standard and the 
broadcast attribution rules, actual working control, in whatever manner exercised, will also be 
deemed a cognizable interest.52
"See Communications Act § 602(2), 47 U.S.C. § 522(2). 
""Communications Act § 653(b)(l)(B), 47 U.S.C. § 573(b)(l)(B).
49See 47 C.F.R. § 76.1000(b). See also Implementation of Sections 12 and 19 of the Cable Television Consumer 
Protection and Competition Act of 1992 (Development of Competition and Diversity in Video Programming 
Distribution and Carriage), First Report and Order, 8 FCC Red 3359, 3370-71 (1993).
50Under the single majority shareholder exception, where there is a single holder of more than 50% of a 
corporation's outstanding voting stock, minority voting stock interests in the corporation are not attributable to 
shareholders irrespective of whether they exceed the 5% benchmark. See 47 C.F.R. § 73.3555 note 2.
5lSee41 C.F.R. § 76.1000(b).
i2See 47 C.F.R. §§ 73.3555 note 1, 76.501 note 1. There is substantial case law interpreting the meaning of 
"control" under the broadcast attribution rules that we will apply here. See, e.g., Benjamin L. Dubb, 16 FCC 274, 
289 (1951); WWIZ, Inc., 36 FCC 562, recon. denied, 37 FCC 685 (1964), ajfdsub nom. Lorain Journal Co. v. FCC, 
351 F.2d 824, 828-29 (D.C. Cir. 1965), cert, denied, 383 US 967 (1966); Stereo Broadcasters, Inc., 55 FCC 2d 819, 
821 (1975), modified, 59 FCC 2d 1002 (1976); Southwest Texas Public Broadcasting Council, 85 FCC 2d 713, 715 
(1981); Metromedia, Inc., 98 FCC 2d 300, 306 (1984), recon. denied, 56 RR2d 1198 (1985), appeal dismissed sub
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Federal Communications Commission FCC 96-334
14. We decline Time Warner's suggestion that we adopt an affiliation standard 
identical to the attribution standard applied to the mass media multiple ownership rules, as set 
forth in the notes to 47 C.F.R. § 76.501. The mass media multiple ownership rules are intended 
primarily to ensure diversity of information sources to the American public.53 Section 653, in 
addition to promoting diversity of video programming sources, also is designed to reduce the 
likelihood mat open video system operators will discriminate against or otherwise disfavor 
unaffiliated programming providers.54 This anti-discrimination objective is analogous to the 
purpose of the program access rules. These dual objectives warrant adoption of a definition of 
"affiliate" that is similar to the program access attribution standard. Moreover, by adopting our 
program access attribution standard, we avoid the possibility that a video programming provider 
will be considered an affiliate of the open video system operator for one purpose but not for the 
other.
15. We believe that the certainty provided by the definition we adopt above is 
preferable to the ad hoc inquiries into ownership or control suggested by some of the 
commenters. In addition, to the extent these commenters are proposing a majority ownership 
standard, we believe, as noted above, that interests well below 50% ownership are sufficient to 
provide open video system operators with the incentive to favor an affiliated programming 
provider over a competing provider with which the operator has no affiliation. Similarly, we 
decline to adopt the Title I definition of "affiliate." As described above, we believe that our 
program access standard is the appropriate standard for identifying the interests at issue here. No 
commenter has proposed that we adopt the Title I standard, or provided any record evidence that 
would support such a standard. We have no basis to find that the Title I standard would identify 
the interests at issue as well as our program access standard.
16. We also decline to define "affiliate" as a 1% ownership interest or as any 
relationship exceeding a carrier-user relationship, as suggested by certain commenters. In 
essence, many of these commenters argue that a strict standard is necessary because of the 
inherent risk that an open video system operator would favor a programming provider with which 
it has any relationship beyond carrier-user. We decline to depart from the focus in Section 
602(2) on ownership or control, and believe that the definition we adopt today will permit us to 
make such determinations.55 In addition to being inconsistent with Title VI, we believe that these
nom., California Association of the Physically Handicapped v. FCC, 778 F.2d 823 (D.C. Cir. 1985).
"See Reexamination of the Commission's Rules and Policies Regarding the Attribution of Ownership Interests 
in Broadcast, Cable Television and Broadcast Entities, 97 FCC 2d 997, 1004 (1984), recon. granted in part, 58 RR 
2d 604 (1985), further recon. 1 FCC Red 802 (1986).
"See, e.g.. Communications Act §§ 653(b)(l)(A), 653(b)(l)(E), 47 U.S.C. §§ 573(b)(l)(A), 573(b)(l)(E).
"See Communications Act § 602(2), 47 U.S.C. § 522(2). We therefore do not believe it is necessary, as the 
Alliance for Community Media, et al. suggest, to examine all contracts between open video system operators and 
unaffiliated programming providers.
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Federal Communications Commission FCC 96-334
restrictive definitions could unnecessarily restrict the flow of capital to unaffiliated programming 
providers, and could unduly hamper the effective functioning of the platform. For-instance, a 
carrier-user relationship standard could prevent an open video system operator from providing 
billing and collection services to programming providers, or from entering into co-packaging 
arrangements. We decline to impose a standard that implicates such relationships.
III. SECOND ORDER ON RECONSIDERATION
A. Qualifications to be an Open Video System Operator 
1. Background
17. New Section 653(a)(l) of the Communications Act provides:
A local exchange carrier may provide cable service to its cable service subscribers 
in its telephone service area through an open video system that complies with this 
section. To the extent permitted by.such regulations as the Commission may 
prescribe consistent with the public interest, convenience, and necessity, an 
operator of a cable system or any other person may provide video programming 
through an open video system that complies with this section.56
In the Second Report and Order, we concluded that the second sentence of Section 653(a)(l) 
authorizes the Commission to allow non-LECs to operate open video systems and to allow LECs 
to operate open video systems outside of their telephone service areas when the public interest, 
convenience, and necessity are served.57 We found that it would serve the public interest, 
convenience and necessity to permit other entities, besides LECs, to become open video system 
operators.58 With respect to cable operators within their cable franchise areas, we concluded that 
it would serve the public interest, convenience, and necessity to allow a cable operator to operate 
an open video system in its cable franchise area if it is subject to "effective competition" under 
Section 623(1)(1) in the franchise area.59 This condition applies even if a cable operator also 
provides local exchange service within the franchise area.60 In addition, we provided an 
exception for cable operators that are not subject to effective competition within their cable 
franchise areas if they can demonstrate that the entry of a facilities-based competitor into the
"Communications Act § 653(a)(l), 47 U.S.C. § 573(a)(l).
^Second Report and Order at para. 12.
"Id.
"Id.
"Id.
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Federal Communications Commission FCC 96-334
cable franchise area would likely be infeasible.61 We also stated that our decision to allow cable 
operators to become open video system operators under the above circumstances shall not be 
construed to affect the terms of any existing franchise agreements or other contractual 
agreements.62
18. Several petitioners contend that a cable operator should not be allowed to convert 
its cable system into an open video system, regardless of the circumstances. Metropolitan Dade 
County asserts that effective competition is not an adequate precondition to ensure consumers are 
offered a real choice and that the open video system alternative was created to stimulate 
competition in the video marketplace, not to enable cable operators to escape the cable 
franchising process.63 Michigan Cities, et al. argue that permitting non-LEC entry into the open 
video system marketplace will discourage competition because LECs will have less incentive to 
enter the market if all competitors receive the same regulatory benefits.64 Michigan Cities, et al. 
also oppose the exception provided for certain cable systems not subject to effective competition, 
arguing that the exception is overly broad because there are a variety of reasons why facilities- 
based competition may be unlikely to develop in a particular cable franchise area.65
19. Michigan Cities, et al. claim that various references to "common carriers," "local 
exchange carriers." and "telephone companies" in the statute and its legislative history 
demonstrate Congress' intent to limit the open video system option to LECs.66 According to 
Michigan Cities, et al., allowing non-LECs to become open video system operators is inconsistent 
with the plain language of the 1996 Act, and thus the Commission incorrectly concluded that it 
had the authority under Section 4(i) to permit such a result.67 The National League of Cities, et 
al. assert that Congress could not have intended cable operators to become open video system 
operators because it would defeat the purposes of certain provisions of the Communications Act.68 
For example, they argue that conversion to an open video system would enable a cable operator: 
(a) to avoid a franchise renewal agreement with updated public, educational, and governmental
61Id at para. 24. 
62Id. at para. 12.
"Dade County Petition at 3. But see U S West Opposition at 3-4 (the Commission's decision to allow cable 
operators to convert to open video if they are subject to effective competition serves the public interest).
"Michigan Cities, et al. Petition at 7.
6ild. at 8-9 (citing Annual Assessment of the Status of Competition in the Market for the Delivery of Video 
Programming, First Report in CS Docket No. 94-48, 9 FCC Red 7442, 7550-54 (1994)).
S6Michigan Cities, et al. Petition at 3-4.
"Id. at 6-7.
"National League of Cities, et al. Petition at 17-19.
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Federal Communications Commission FCC 96-334
("PEG") requirements; (b) to evade the cable-telco buyout restrictions; and (c) to circumvent a 
local franchising authority's decision to deny the renewal of the cable operator's franchise.69 The 
National League of Cities, et al. also argues that the Commission's decision is inconsistent with 
the statute's use of cable operators' PEG and franchise fee obligations as a yardstick for open 
video system operators.70
20. U S West urges the Commission to clarify that cable operators may become open 
video system operators upon the termination of their franchise agreements, even in the absence 
of effective competition.71 U S West argues that the Commission's contractual concerns would 
not apply once a franchise agreement has terminated.72 The National League of Cities, et al., on 
the other hand, is concerned that cable operators will simply declare themselves open video 
system operators upon the expiration of their franchise agreements, rather than seek renewal.73
21. Other petitioners claim that all cable operators, without limitation, should be 
allowed to convert their cable systems to open video systems. NCTA and Cox petition the 
Commission to eliminate its general restriction that cable operators may not become open video 
system operators within their cable franchise areas until they are subject to effective 
competition.74 NCTA asserts that the inherent design of an open video system, allowing multiple 
programming providers to compete for subscribers, obviates the need for an effective competition 
requirement.75 NCTA argues that Congress would have limited the open video system option to 
areas already served by franchised cable operators if it had intended open video systems to exist 
only in areas served by more than one provider.76 Cox argues that it is inconsistent to preclude 
cable operators that may eventually become subject to effective competition from converting to 
an open video system, while allowing an exception for cable operators that can demonstrate that 
facilities-based competition is infeasible in their franchise areas.77 Cox reasons that, by allowing
69Id
™Id at 17.
71U S West Petition at 3-4.
"Id
"National League of Cities, et al. Petition at 17. See also Michigan Cities, et al. Opposition at 11-12 (allowing 
cable operators to conven to open video upon the termination of their franchise agreements would not stimulate
competition).
74NCTA Petition at 7-8; Cox Petition at 8-10. But see Michigan Cities, et al. Opposition at 9 (the Commission's 
"effective competition" restriction is a necessary limitation on the ability of cable operators to switch to open video).
75NCTA Petition at 7-8.
16Id at 7.
"Cox Petition at 9-10.
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Federal Communications Commission FCC 96-334
this exception, the Commission implicitly recognizes that the primary reason for reduced 
regulatory burdens for open video systems is not to foster facilities-based competition, but to 
foster competition among competing programmers on an open platform.78 Cox further contends 
that there are no countervailing public policy reasons for imposing an artificial disadvantage upon 
incumbent cable operators in contradiction of the Commission's acknowledgement that the same 
options generally should be available to all entities.79
22. Comcast argues that the Commission's decision to permit cable operators that are 
subject to effective competition to convert to open video systems is rendered meaningless by the 
qualification that the terms of an existing local franchise agreement remain enforceable until the 
termination of the agreement.80 Comcast claims that this restriction eliminates the primary 
incentive for operating an open video system, i.e., relief from many of the Title VI obligations 
and regulations.81 Comcast reasons that, when a cable operator converts its cable system to an 
open video system, local franchising authorities lose their authority under Section 624 to enforce 
certain franchise requirements, since that provision is inapplicable to open video systems.82 In 
response, Alliance for Community Media, et al. assert that there is "no legal principle which 
permits unilateral abrogation of existing contractual commitments to permit an entity to take 
advantage of an elective deregulatory option.1'83 Alliance for Community Media, et al. further 
argue that, because Title VI has not been rescinded, the enforcement powers of local franchising 
authorities under Section 624 remain intact.84 NATO A claims that exempting cable operators 
from their franchise obligations would constitute a taking of local government property.85
23. Cox and NCTA assert that the Commission incorrectly concluded that Section 
653(a)(l) authorizes it to restrict the ability of cable operators that also provide local exchange 
service within their cable franchise areas to convert to open video.86 Cox asserts that this 
conclusion contradicts the Commission's determination that the first sentence of Section 653(a)(l)
79Id at 8 (citing Second Report and Order at para. 18). 
80Comcast Petition at 5. 
81W. 
*2ld. at 6.
"Alliance for Community Media, et al. Opposition at 3 (emphasis in original). See also Michigan Cities, et al. 
Opposition at 10-11 (nothing in the 1996 Act indicates that Congress intended to abrogate existing franchise 
agreements).
'"Alliance for Community Media, et al. Opposition at 3.
"NATOA Opposition at 8.
86Cox Petition at 4; NCTA Petition at 6-7.
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Federal Communications Commission FCC 96-334
permits LECs to operate open video systems in their telephone service areas "without 
qualification."87 Cox argues that the Commission's interpretation of the second sentence of 
Section 653(a)(l) would lead to the false conclusion that the Commission could also determine 
when "any other person" that is providing local exchange service could become an open video 
system operator.88 Cox claims that the Commission wrongly views the second sentence as 
providing an exception limiting which LECs can operate open video systems without 
qualification, while the more reasonable construction is that the second sentence permits other 
entities, in addition to LECs, to operate open video systems when deemed by the Commission 
to serve the public interest, convenience, and necessity.89 In response, Sprint asserts that Cox and 
NCTA's argument is based on the incorrect premise that a cable operator that becomes a LEC 
somehow loses its identity as a cable operator, even though it continues to provide cable 
services.90
2. Discussion
24. We decline to modify our decision in the Second Report and Order to allow non- 
LECs to operate open video systems, and to allow cable operators that are subject to effective 
competition in their cable franchise areas to convert their cable systems to open video systems. 
As discussed at length in the Second Report and Order, we disagree with Michigan Cities, et al. 
that our decision allowing non-LECs to operate open video systems is inconsistent with the plain 
language of the 1996 Act or the Act's legislative history.91 As we explained in the Second Report 
and Order, permitting non-LECs to become open video system operators is not only a permissible 
reading of the statute, but is most consistent with Congress' goal of opening all 
telecommunications markets to competition. Because our decision is consistent with the statute, 
we also disagree that the Commission does not have the authority under Section 4(i) to permit 
non-LECs to become open video system operators. In addition, we disagree with the argument 
of the National League of Cities, et al. that our decision to permit cable operators to convert to 
open video may defeat the purposes of other Title VI requirements that apply to cable operators. 
Congress established cable and open video systems as two distinct video delivery models, each 
offering a particular combination of regulatory benefits and burdens. That an entity, by assuming 
the regulatory responsibilities of an open video system, may be relieved of regulatory 
responsibilities relating to cable is neither novel nor improper.
87Cox Petition at 4. 
nld
*9Id. at 5. See also NCTA Petition at 6-7 (arguing that the language of Section 653(a)(l) plainly allows any 
entity that qualifies as a LEC to operate open video systems, regardless of whether the entity also fits into other legal 
categories).
90Sprint Opposition at 3-4.
^Second Report and Order at paras. 14-17. We also described therein the availability of Section 4(i) as an 
alternative basis for our authority to permit cable operators to operate open video systems. Id. at paras. 20-22.
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Federal Communications Commission FCC 96-334
25. While we believe that cable operators should be allowed to operate open video 
systems, we also decline to alter our decision that cable operators may do so in their existing 
cable franchise areas only if they are subject to "effective competition." As we stated in the 
Second Report and Order, the underlying premise of Section 653 is that open video system 
operators would be new entrants in established markets, competing directly with an incumbent 
cable operator.92 We believe that Congress exempted open video system operators from much 
of Title VI regulation because, in the vast majority of cases, they will be competing with 
incumbent cable operators for subscribers.93 Our effective competition restriction implements 
Congress' intent by ensuring that, where it is the incumbent cable operator itself that seeks to 
enter the marketplace as an open video system operator, there is at least one other multichannel 
video programming provider competing in the market (or, if the cable operator enters under the 
"low penetration" test for effective competition,94 that it does not possess a level of market power 
that Congress believed requires regulation).
26. We are not convinced, as NCTA argues, that the potential presence of multiple 
video programming providers on open video systems obviates the need for an effective 
competition requirement. There is no assurance that any particular system will generate sufficient 
competition between providers of "comparable" video programming services to qualify as a 
meaningful stand-in for effective facilities-based competition.95 Nor do we find significant the 
fact that Congress did not specify that open video systems may operate only in areas currently 
served by cable. Given that cable passes approximately 96% of all television households 
nationwide, we do not believe that any purposeful intent can be inferred from the fact that 
Congress did not limit open video systems to only those areas already served by franchised cable 
operators.96
27. Moreover, the underlying competitive premise of Section 653 is not dependent on 
the contractual nature of the cable operator's franchise agreement. While we agree with U S 
West that the expiration of a franchise agreement may remove a contractual impediment to a 
cable operator's conversion to an open video system, the public interest rationale that gave rise 
to the effective competition restriction remains. So long as a cable operator has the ability to 
exercise market power ~ i.e., is not subject to effective competition   it has not met the 
necessary pre-condition for operating an open video system. Thus, in response to U S West, we 
find that it would not serve the public interest to allow incumbent cable operators, in the absence
92Second Report and Order at para. 24. 
"Id.
"See Communications Act § 623(1)(1)(A), 47 U.S.C. § 543(I)(1)(A). 
"See Communications Act § 623(1)(1)(D), 47 U.S.C. § 543(1)(1)(D).
96See Annual Assessment of the Status of Competition in the Market for Delivery of Video Programming, Second 
Annual Report in CS Docket No. 95-61, 11 FCC Red 2060, 2063 (1996) ("Second Competition Report").
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Federal Communications Commission FCC 96-334
of effective competition, to become open video system operators upon the termination of their 
franchise agreements.
28. We also continue to disagree with Cox's argument that the Commission has no 
authority to determine whether cable operators that are also LECs may operate open video 
systems. As explained in the Second Report and Order, the second sentence of Section 653(a)( 1) 
authorizes the Commission to determine whether any cable operator may convert to open video, 
regardless of other services it may also provide, including local exchange service.97 The 
Commission retains its authority over cable operators that also become LECs because, as Sprint 
notes, a cable operator does not lose its identity as a cable operator simply by offering additional 
types of services.98 Finally, we disagree with Comcast that, since Title VI franchise agreements 
are unenforceable against open video system operators, conversion to open video should preempt 
the terms of a valid franchise agreement.99 Comcast cites no basis for its belief that Congress 
intended to give cable operators the discretion to revoke their franchise agreements at will, or that 
requiring cable operators to abide by their valid agreements would be contrary to Congress' open 
video system framework. To the contrary, cable operators may operate open video systems only 
to the extent the Commission finds it serves the public interest, convenience and necessity. We 
do not believe that it would be in the public interest to permit cable operators to abrogate their 
otherwise valid and enforceable franchise agreements in order to become open video system 
operators.
B. Certification Process 
/. Background
29. Section 653(a)(l) requires open video system operators to certify compliance with 
the Commission's regulations under Section 653(b). 100 The Commission must publish notice of 
receipt of a certification filing and must approve or disapprove the certification within ten days 
of receipt. 101 In the Second Report and Order, the Commission found that Congress intended the 
certification process to be streamlined and declined to impose extensive pre-certification 
requirements. 102 For example, open video system operators are not required to revise their cost
"Second Report and Order at para. 25. 
™See Sprint Opposition at 3-4.
"Franchise agreements are binding contracts. See Denver Area Educational Telecommunications Consortium, 
Inc. v. FCC, _U.S._, 116 S. Ct. 2374, 2410 (1996) (Kennedy, J., concurring in part, concurring in the judgment 
in pan, and dissenting in part).
'""Communications Act § 653(a)(l), 47 U.S.C. § 573(a)(l).
mld.
™2Second Report and Order at paras. 28-30.
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Federal Communications Commission FCC 96-334
allocation manuals prior to certification, but must certify that they will file changes to their 
manuals at least 60 days before the commencement of service. 103 Comments or oppositions to 
a certification filing must be filed within five days of the Commission's receipt of the 
certification. 104 Any certification filings that the Commission does not disapprove within ten days 
of receipt will be deemed approved. 105
30. Several petitioners reiterate previous arguments that the Commission should require 
an open video system operator, as a precondition to certification: (a) to obtain the consent of 
local governments for use of public rights-of-way;106 (b) to obtain approval from local franchising 
authorities regarding the manner in which PEG obligations will be fulfilled;107 (c) to file a revised 
cost allocation manual; 108 and (d) to create a separate subsidiary to operate its open video 
systems. 109 Alliance for Community Media, etal. are concerned that using the dispute resolution 
process to resolve conflicts involving these issues will be unnecessarily cumbersome and 
difficult. 110 NCTA asserts that open video system operators must demonstrate compliance with 
specific rules governing channel allocation and carriage rates, and the Commission must make 
"affirmative findings compliance" within the ten-day review period. 111 In response to these 
petitions, several parties expressed their opposition to pre-certification requirements. 112
103 Id. at para. 33. 
wld. at para. 35.
l06Dade County Petition at 4; Village of Schaumburg Petition at 1 ; Alliance for Community Media, et al. Petition 
at 17-18.
108NCTA Petition at 3-4; Alliance for Community Media, et al. Petition at 17-18. 
""Alliance for Community Media, et al. Petition at 2-4.
110W. at 17. See also NCTA Petition at 4 (urging the Commission to enforce compliance with its revised cost 
allocation rules prior to the certification process, rather than engage in post facto proceedings and remedies). But 
see USTA Opposition at 4-5 (extensive pre-certification requirements are unnecessary since "the Commission 
developed an appropriate mechanism for dispute resolution should LEG compliance be in doubt").
"'NCTA Petition at 3-6. But see USTA Opposition at 3-4 (requiring detailed filings incorporating non- 
discrimination requirements would turn the certification process into a "back door" Section 214 requirement); MFS 
Communications Opposition at 4 (Congress required certification of compliance, not documentary proof of 
compliance).
I12U S West Opposition at 4-5 (adopting burdensome pre-certification requirements would deter LECs from 
electing the open video system option, in contravention of Congress' intent); Residential Communications Opposition 
at 10-1 1 (adopting stringent pre-certification requirements would contradict the language of the statute and would 
violate the 1996 Act's pro-competitive underpinnings); NYNEX Opposition at 3-5 (proponents of pre-certification
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Federal Communications Commission FCC 96-334
31. The Telephone Joint Petitioners ask the Commission to reconsider its decision to 
require open video system operators to obtain Commission approval of their certifications prior 
to the commencement of construction, when new physical plant is required. 113 These petitioners 
argue that it is not the Commission's responsibility to "ensure that the public rights-of-way are 
disrupted only by those who are authorized to operate open video systems." 114 They contend that 
permission to use rights-of-way is a matter for local governments and the owners of any private 
property that may be involved, and that cable operators are not required to obtain federal 
certification before constructing in public rights-of-way. 115
32. Several petitioners claim that the Commission did not establish adequate procedures 
for providing notice of certification filings. The National League of Cities, et al. seek a 
requirement that certifications specify which local governments are affected and are served on 
those local governments. 116 Failure to require adequate notice, they allege, violates due process 
and hinders the ability of local authorities to apply the necessary management conditions over 
public rights-of-way. 117 Municipal Services, et al. argue that, in order to provide municipalities 
a meaningful opportunity to respond within the five-day period for comments and oppositions, 
an open video system operator must simultaneously notify a municipality that it is requesting a 
certification within the municipality's jurisdiction. 118 In response, MFS Communications claims 
that these notice proposals are unnecessary because local governments will learn of any proposed 
open video system well in advance of its operation when the operator negotiates its PEG 
obligations and obtains any necessary rights-of-way permits. 119
2. Discussion
33. The Second Report and Order fully explains our reasons for not imposing pre- 
certification requirements regarding public rights-of-way, PEG obligations, revisions to cost
requirements are merely seeking a competitive or negotiating advantage); MFS Communications Opposition at 3-5 
(the Commission already considered and properly rejected the imposition of pre-certification requirements).
11'Telephone Joint Petitioners Petition at 10.
"4W. (quoting Second Report and Order at para. 34).
"'Id
"'National League of Cities, et al. Petition at 12 n.32.
"7M at 12-13 n.32.
""Municipal Services, et al. Petition at 6-7. See also Alliance for Community Media, et al. Petition at 15-16 
(requesting that open video system operators be required to provide local public notice in advance of filing for 
certification and to include proof of notice in their certification filings).
1I9MFS Communications Opposition at 5.
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Federal Communications Commission FCC 96-334
allocation manuals, or separate subsidiaries. 120 Petitioners have presented no new evidence or 
arguments that would cause us to change our earlier conclusion.
34. In addition, we will maintain our rule that certification filings will be deemed 
approved unless disapproved by the Commission within ten days. Petitioners have not 
demonstrated that affirmative approval is necessary to provide notice to outside parties or to 
assure adequate Commission review. Also, because certification precedes the operator's actual 
implementation of the Commission's rules, we disagree with NCTA that the Commission is 
required, at this stage of the process, to do more than obtain adequate representations that the 
applicant will comply with the Commission's requirements. Further, we believe that any conflicts 
that arise regarding the operator's conduct can be addressed more fully in the 180-day dispute 
resolution process than in the ten-day certification process. Finally, we will not modify our rule 
that, if new physical plant is required, open, video system operators must obtain Commission 
approval of their certification prior to the commencement of construction. 121 This requirement 
poses no significant additional burden on operators and will inform local authorities which entities 
have been granted enforceable rights to use the public rights-of-way.
35. We do believe, however, that it is appropriate for a local government to have a 
reasonable opportunity to respond to a certification filing that implicates its community. We 
therefore will revise FCC Form 1275, our proposed certification form, to require applicants to 
list the names of the local communities in which they intend to operate, rather than describe them 
generally. 122 This modification will reduce the potential for confusion or ambiguity by providing 
more useful and precise information to local communities. Because some local communities may 
not have ready access to the Internet or to the Commission's public notices, we will also require 
applicants for certification to serve a copy of their FCC Form 1275 filing on the clerk or other 
designated official of all affected local communities on or before the date on which it is filed 
with the Commission. Service by mail is complete upon mailing, but if mailed, the served 
documents must be postmarked at least three days prior to the filing of the FCC Form 1275 with 
the Commission. Applicants also must inform the local communities that any oppositions and 
comments must be filed with the Commission within five days of an applicant's filing and must 
be served on the applicant.
n°Second Report and Order at paras. 28-30. 
n]See Id. at para. 34.
J22A revised FCC Form 1275 and instructions, reflecting the changes herein, is attached at Appendix C. This 
revised FCC Form 1275 is subject to approval by the Office of Management and Budget.
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Federal Communications Commission FCC 96-334
C. Carriage of Video Programming Providers
1. Notification and Enrollment of Video Programming Providers
a. Background
36. In the Second Report and Order, we stated that the Commission will: (a) issue a 
Public Notice to announce receipt of an open video system operator's "Notice of Intent" to 
establish an open video system; (b) list the Public Notice in the Commission's Daily Digest; 
(c) place the Notice of Intent on the Commission's Internet site; (d) make the Notice of Intent 
available for inspection in the Cable Services Bureau's Reference Room; and (e) require that the 
Notice of Intent be served on all local cable television franchising authorities located in the 
anticipated service area of the open video system. In so doing, we specifically rejected 
suggestions that an open video system operator's notice be disseminated directly to community 
information providers, local newspapers, trade publications and the local media, among others. 
We found that any benefits of additional distribution would be outweighed by the costs and that 
the Commission's Public Notice process will disseminate the information. 123
37. On reconsideration, the Alliance for Community Media, et al. urge the Commission 
to require an open video system operator to provide local notice of its intent to establish an open 
video system by placing the Notice of Intent in local newspapers and in telephone bill inserts, if 
the system operator is also a telephone company. They argue that the current requirements are 
insufficient for local and non-profit program services because many people still do not have 
access to the Internet and those with access may not check the Commission's Internet site on a 
regular basis. Contrary to the Commission's finding, these parties assert that the additional cost 
imposed on an open video system operator of disseminating notice as they urge will not outweigh 
the public interest benefits resulting from the increased diversity of programming provided by 
these services. 124
b. Discussion
38. In the Second Report and Order we fully considered the costs and benefits of 
requiring an open video system operator to provide local notice of its intent to establish an open 
video system. 125 The Alliance for Community Media, et al. do not provide additional evidence 
concerning these costs or benefits. We reiterate our finding that dissemination of the Notice of 
Intent as required under the Second Report and Order will be a sufficient means for an entity to 
notify the public of its intention to establish an open video system.
123Id. at paras. 45-46.
'"Alliance for Community Media, et al. Petition at 16.
niSecond Report and Order at paras. 45-46.
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Federal Communications Commission FCC 96-334
2. Open Video System Operator Discretion Regarding Video Programming 
Providers
a. Background
39. In the Second Report and Order, we found that it would serve the public interest, 
convenience and necessity to permit an open video system operator to limit the ability of a 
competing, in-region cable operator, or a video programming provider affiliated with such a cable 
operator, to obtain capacity on the open video system. 126 We stated, however, that we will 
consider petitions from competing, in-region cable operators showing that facilities-based 
competition will not be significantly impeded in their particular circumstances, such that the cable 
operator should be granted access to the open video system. In this regard, we provided a 
specific exception for the situation where: (a) the competing, in-region cable operator and 
affiliated systems offer service to less than 20% of the households passed by the open video 
system; and (b) the competing, in-region cable operator and affiliated systems provide cable 
service to a total of less than 17,000 subscribers within the open video system's service area. 127
40. On reconsideration, NCTA states that Section 653(b)(l)(a) directs the Commission 
to promulgate rules that "prohibit an operator of an open video system from discriminating among 
video programming providers with regard to carriage on its open video system." 128 NCTA argues 
that this provision requires the unqualified non-discriminatory treatment of video programming 
providers by open video system operators, and that the Commission therefore erred in allowing 
an open video system operator to discriminate against one particular class of entities seeking 
access, namely, cable operators. 129
41. In addition, NCTA and Cox dispute the Commission's reliance on Section 
653(a)(l) in distinguishing between cable operators and other potential video programming 
providers. 130 Cox asserts that Section 653 only addresses who may operate an open video system 
and, that contrary to the Commission's findings, "has nothing to do with who may obtain capacity 
on an [open video] system." Cox argues that, if Congress had intended the provision to address 
the access rights of video programming providers, it would have placed it with the other 
exceptions to the general prohibition against discrimination among video programming providers 
(e.g., PEG and must-carry obligations), rather than in the section regarding the certification
126A/. at para. 52. 
mld. at para. 56.
128NCTA Petition at 8 (citing Communications Act § 653(b)(l)(A)).
130NCTA Petition at 9-10; Cox Petition at 7-8.
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Federal Communications Commission FCC 96-334
process. 131
42. Third, NCTA and Cox dispute the Commission's finding that an open video system 
operator may limit the access of a cable operator but not other potential video programming 
providers. Cox states that the Commission's finding in the Second Report and Order that, given 
Section 653(a)(l)'s reference to "any other person," the Commission erred in not permitting an 
open video system operator to also deny access to other multichannel video programming 
distributors, such as direct broadcast satellite ("DBS") services and wireless cable service 
providers. 132 NCTA states that the Commission's reasoning that allowing an open video system 
operator to limit access by cable operators would foster facilities-based competition compels the 
Commission to allow system operators to also limit access by DBS and wireless providers.13"
43. Finally, NCTA argues that, having 'found in Section 653(a)(l) the discretion to 
decide when cable operators may obtain open video system capacity, the Commission erred in 
delegating this decision to the open video system operator. NCTA contends that it violates basic 
administrative law for a government agency to delegate its statutory authority to private parties 
absent express authority to do so. 134
44. In its opposition to these cable operators' petitions, MFS argues that Congress, in 
enacting Section 653(a)(l), specifically authorized the Commission to limit cable operators' use 
of open video systems to instances that are "consistent with the public interest, convenience and 
necessity." 135 MFS states that, until open video system operators can establish meaningful 
competition for cable operators, it would not be in the public interest to force these start-up 
entities to provide access to their competitors because: (a) it would allow cable operators to tie 
up capacity on an open video system without any reciprocal ability of the open video system 
operator to use the cable operator's facilities; (b) it would allow the cable operator to avoid its 
own construction costs; and (c) it would give cable operators access to confidential business plans 
or information. 136
45. Tele-TV disputes the cable operators' arguments that the 1996 Act gives incumbent 
cable operators an "unqualified" right to use open video systems. Tele-TV argues that Section 
653(b)(l)(A) must be read in conjunction with Section 653(a)(l), such that the discrimination
mld. at 6-7.
'"NCTA Petition at 9-10.
]34Id at 8-9 (citing, among others, Carter v. Carter Coal Co., 298 U.S. 238, 310 (1936)).
I35MFS Communications Opposition at 6-7 (citing Communications Act § 653(a)(l)).
136W. at 7-8. See also NYNEX Opposition at 6.
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Federal Communications Commission FCC 96-334
"among video programming providers" forbidden under Section 653(b)(l)(A) must be 
discrimination among only those entities eligible to "provide video programming" under Section 
653(a)(l). 137 Second, Tele-TV rejects NCTA's assertion that the Commission erred in 
"delegating" its authority under Section 653(a)(l) to open video system operators. Tele-TV states 
that the Commission has not delegated any statutory authority; rather, it has merely established 
a specific exception to the general rule concerning cable operators' access to open video systems, 
which Tele-TV contends is within the Commission's rulemaking authority. 138
46. The Staff of the FTC and DOJ Antitrust Division also dispute cable operators' 
assertions, stating that the Commission's approach is consistent with well established legal and 
economic principles. For example, the FTC and DOJ Antitrust Division state the Supreme Court 
has held that a restraint on competition, such as the Commission's rule permitting open video 
system operators to preclude access by cable operators, is reasonable if it enhances consumer 
welfare. 139 They assert that the Commission's approach will enhance consumer welfare by 
fostering competition among cable and telephone companies, which likely will reduce* prices arid 
increase quality of service. The FTC and DOJ Antitrust Division also reject NCTA's argument 
that the Commission should have extended an open video system operator's ability to preclude 
access by cable operators to cover DBS and wireless service providers. The FTC and DOJ 
Antitrust Division explain that only cable operators possess market power in multichannel video 
programming distribution, and therefore may have different incentives than DBS and wireless 
providers, such as using open video mainly as a means to protect the market power of cable 
systems rather than as a means of expanding their penetration. 140 The FTC and DOJ Antitrust 
Division emphasize that only an open video system, independent from competitors with market 
power, will provide consumers with the benefits of competition. 141
47. The petitions of the Telephone Joint Petitioners generally support our rules 
concerning cable operators' access to open video systems. They seek clarification of the second 
prong of the exception to this general rule, where a competing, in-region cable system and its 
affiliated systems provide cable service to a total of less than 17,000 subscribers within the open 
video system's service area. Specifically, the Telephone Joint Petitioners urge the Commission 
to clarify that this exception coincides with an exception to the cable-telephone buy-out restriction 
in the 1996 Act, which applies only to small, rural cable systems that have no more than 17,000 
subscribers in total and that are not owned by one of the 50 largest multiple cable system
l37Tele-TV Opposition at 8-9. 
lMId at 10.
139FTC and DOJ Antitrust Division Opposition at 5 (citing, among others, NCAA v. Board of Regents, 468 U.S. 
85 (1984)).
mld. at 6-8. 
Ulld. at 8.
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Federal Communications Commission FCC 96-334
operators ("MSOs"). These parties assert that our present rules may require an open video system 
operator whose system overlaps with a small portion of a cable system to allow a cable operator 
to gain access to the open video system even though the cable operator is owned by large MSO, 
and even though the large MSO in question also owns the incumbent cable system that might 
overlap a majority of the open video system's service area. The Joint Telephone Petitioners 
believe that this approach will ensure that an open video system operator must lease capacity only 
to truly small, rural cable systems. 142
b. Discussion
48. We find that the Second Report and Order fully considered most of the arguments 
and evidence raised on reconsideration by NCTA and Cox, as described above. We explained 
in the Second Report and Order that Section 653(a)(l) specifically permits the Commission, 
"consistent with the public interest, convenience and necessity" to determine when a cable 
operator may provide programming through an open video system. 143 We also fully explained 
our construction of Section 653(b)(l)(A), which gives the Commission the discretion to determine 
when it is in the public interest, convenience and necessity -for a cable operator either to become 
an open video system operator144 or to provide video programming over another entity's open 
video system. 145 In the latter context, we determined that, because Section 653(a)(l) specifically 
addresses a cable operator's provision of video programming, the provision allows the 
Commission to determine when to permit a cable operator to provide such programming, 
notwithstanding the 1996 Act's general non-discrimination requirements contained in Section 
653(b)(l)(A). 146 We therefore deny the petitions of NCTA and Cox to the extent they raise these 
particular contentions.
49. We also reject the cable operators' argument concerning access to open video 
systems by DBS and wireless service providers. As explained in the Second Report and Order, 
and expanded upon by the Staff of the FTC and DOJ Antitrust Division, the 1996 Act expressed 
a clear preference for facilities-based competition between cable operators and telephone 
companies, and allowing an open video system operator generally to limit the ability of a 
competing, in-region cable operator to obtain capacity on its system would encourage cable 
operators to develop and upgrade their own wireline systems.147 In addition, as the Staff of the
""Telephone Joint Petitioners Petition at 11-12. 
wSecond Report and Order at para. 51. 
"*Id. at paras. 13-22. 
wld. at paras. 51-56. 
I46W. at para. 51. 
wld. at para. 52.
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Federal Communications Commission FCC 96-334
FTC and DOJ Antitrust Division argue, cable operators possess substantial market power, and 
because these markets have been protected by high entry barriers, cable operators have been able 
to maintain prices above the level that would prevail if the market were competitive. 148 Because 
of this market power, cable operators may have different incentives for seeking open video 
system capacity than would MVPDs that do not have such market power, such as DBS and 
wireless cable providers. For instance, a cable operator may have an incentive to see that the 
open video system is not successful, and thus may seek to obtain capacity merely to protect and 
continue to exploit its market power.
50. As the Staff of the FTC and DOJ Antitrust Division also point out, enabling a 
cable operator to obtain open video system capacity means that less capacity will be available for 
use by the system operator and for other entities.149 The open video system therefore could 
become a less attractive alternative for consumers, which would help preserve the cable operator's 
market power. We believe that these rationales currently do not apply to DBS or wireless cable 
providers because these MVPDs do not enjoy substantial market power. We therefore reaffirm 
our conclusion in the Second Report and Order. However, at such time that DBS or wireless 
cable providers possess sufficient market power to raise concerns similar to those associated with 
existing in-region, competing cable operators, we will reexamine this conclusion.
51. We also disagree with NCTA's argument that the Commission impermissibly 
delegated to open video system operators the discretion to preclude cable operators from 
obtaining capacity on the system. In determining that Section 653(a)(l) allows the Commission 
to determine when a cable operator may access an open video system, we merely interpreted the 
statute to allow the Commission to prescribe regulations to govern this situation. As aptly 
characterized by Tele-TV, we adopted regulations that set forth the parameters for where a 
competing, in-region cable operator's access to an open video system may be limited, and for 
where access may not be limited. In any case, we will modify our regulations to emphasize our 
decision that, pursuant to the second sentence of Section 653(a)(l), the public interest, 
convenience and necessity is served by generally prohibiting a competing, in-region cable 
operator from obtaining capacity on an open video system. As described in the Second Report 
and Order, we believe that this approach will foster facilities-based competition and encourage 
competing, in-region cable operators to develop its own system rather than occupy open video 
system capacity that could be used by another entity.
52. We clarify that there are two exceptions to this general rule. First, a competing, 
in-region cable operator may access an open video system when the open video system operator 
determines that it is in its interests to grant access. For example, as the Staff of the FTC and
H8FTC and DOJ Antitrust Division Opposition at 5 (citing First Report and Order in the Matter of Annual 
Assessment of the Status of Competition in Video Programming, 9 FCC Red 7442, 7545 (1994)).
149W. at 8.
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Federal Communications Commission FCC 96-334
Antitrust Division state, an open video system operator may have less incentive to exclude a cable 
operator that is the most efficient provider of programming in part of the open video system's 
service area. 150 Moreover, an open video system operator may determine that the viability of its 
system is enhanced by carriage of video programming that is offered by the competing, in-region 
cable operator. We believe that it is not appropriate for the Commission to deny an open video 
system operator the independent business discretion to decide that a cable operator's presence on 
its system may be beneficial. This business discretion may prove critical to the success of the 
open video-system, and we believe that because such success will foster competition in the video 
delivery marketplace, this exception will serve the public interest. Second, a competing, in-region 
cable operator will be granted access to an open video system when such access will not 
significantly impede facilities-based competition. As previously determined, one situation in 
which facilities-based competition will be deemed not to be significantly impeded is where: (a) 
the competing, in-region cable operator and affiliated systems offer service to less than 20% of 
the households passed by the open video system; and (b) the competing, in-region cable operator 
and affiliated systems provide cable service to a total of less than 17,000 subscribers within the 
open video system's service area. We believe that this slightly modified approach continues to 
provide broad flexibility to administer the open video system and to allow market forces to 
emerge as determinatives, thereby encouraging entities to deploy open video systems.
53. Finally, in response to the Telephone Joint Petitioners' petition, we clarify the 
specific exception under which a competing, in-region cable operator may access an open video 
system. These parties argue that the exception may require an open video system operator 
whose system overlaps with a small portion of a cable system to allow that cable system to obtain 
capacity on the open video system even though the cable system might be owned by a large MSO 
that also operates the cable system covering a majority of the open video system's service area. 
We believe that the Telephone Joint Petitioners misunderstand when the exception will apply. 
We reiterate that, in order for a competing, in-region cable operator to fit within the exception, 
such a cable operator and its affiliated systems must serve a total of less than 17,000 subscribers 
within the open video system's service area, regardless of whether the systems are owned by or 
affiliated with one of the 50 largest MSOs. Under the scenario posited by the Telephone Joint 
Petitioners, the cable system that overlaps the open video system service area only to a small 
degree would not have to be granted carriage on the open video system because that cable 
operator's subscribership, when combined with the subscribership of the affiliated cable system 
serving a majority of the open video system's service area, presumably would exceed 17,000.
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Federal Communications Commission FCC 96-334
3. Allocation of Open Video System Channel Capacity to Unqffiliated Video 
Programming Providers
a. General Approach 
(1) Background
54. In the Second Report and Order, we permitted an open video system operator to 
implement its own method for allocating channel capacity to unaffiliated video programming 
providers, so long as capacity is allocated in an open, fair, non-discriminatory manner. We stated 
that the process must be verifiable and insulated from any bias by the system operator. 151
55. On reconsideration, NCTA reiterates arguments contained in its earlier comments 
that the Commission should adopt uniform rules for the allocation of open video system capacity 
because this approach will allow video programming providers to avoid an increase in their costs 
of doing business by having to learn the allocation procedures in each jurisdiction where they 
seek access. 152 NCTA adds that uniform rules also will relieve aggrieved programmers of the 
"dual burdens" of initiating the complaint process and suffering any competitive imbalance while 
such a complaint is pending. 153
56. NYNEX rejects NCTA's approach as unsupported by any evidence that it would 
benefit any party. NYNEX states that, even under NCTA's approach, parties still would have 
many issues to discuss, and that a "real and substantial loss" would result from the delay required 
for the Commission to determine national standards. NYNEX believes that NCTA would have 
the Commission stifle creativity among new entrants. 154
57. The Telephone Joint Petitioners also refute NCTA's argument that uniform 
allocation rules will decrease video programming providers' costs of doing business. They argue 
that the existing primary outlet for video programming are cable systems, all of which have 
varying practices for obtaining programming! The Telephone Joint Petitioners thus assert that 
programming vendors already incur the costs of accommodating multiplicity in pursuing access 
to multichannel video programming distribution systems, and that there is no reason to believe 
that dealing with open video system operators will be any more costly than dealing with cable
wld. at para. 72.
152NCTA Petition at 17 (citing NCTA Comments (filed April 1, 1996) at 13-14).
153Id at 18.
154NYNŁX Opposition at 5.
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Federal Communications Commission FCC 96-334
operators. 155
(2) Discussion
58. NCTA's arguments were fully considered and addressed in the Second Report and 
Order. NCTA offers no additional facts or arguments to support their position. Accordingly, 
we decline to reconsider our previous conclusion.
b. Reallocation of Channel Capacity
(1) Background
59. In the Second Report and Order, we required open video system operators to 
allocate open capacity, if any is available, at least once every three years. 156 On reconsideration, 
the Joint Telephone Petitioners urge the Commission to increase this period to at least once every 
five years. They state that it typically takes at least five years for a new programming service 
to become viable, and that such new services thus have sought carriage arrangements on cable 
systems of between five and ten years in duration. The Joint Telephone Petitioners state that, if 
an open video system operator knows it may have to reduce the number of channels it controls 
on its system in three years in order to accommodate additional demand for carriage from other 
video programming providers, it will be unlikely to offer these new, independent channels a 
carriage agreement of longer than three years. 157
(2) Discussion
60. Other parties urged the Commission to adopt a five-year period in the record for 
the Second Report and Order. 1™ In requiring that an open video system operator reallocate open 
capacity at least every three years, we stated that requiring reallocation every three years will 
permit an open video system operator to sufficiently accommodate subsequent requests for 
carriage by video programming providers, while not causing unreasonable disruption to the
'"Telephone Joint Petitioners Opposition at 2-3. On July 16, 1996, the Telephone Joint Petitioners filed a 
Motion to Accept Late-Filed Opposition, stating that despite a good faith effort, they were unable to file their 
opposition to petitions for reconsideration filed in response to the Second Report and Order by the July 15, 1996 
deadline. Pursuant to 47 C.F.R. §§ 1.3 and 1.45, we hereby grant the Telephone Joint Petitioners' motion and will 
consider their opposition herein. We find good cause for accepting the pleading and that the public interest is served 
because accepting the pleading will allow the Commission to consider the issues raised on reconsideration on a more 
complete record.
^Second Report and Order at para. 92. 
'"Joint Telephone Petitioners Petition at 12.
158''See HBO Comments (in CS Docket No. 96-46) at 7-8; NYNEX Comments (same) at 8-9.
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Federal Communications Commission FCC 96-334
system.159 The Telephone Joint Petitioners do not provide evidence that would compel the 
Commission to reconsider that conclusion. We note in this regard that no new programming 
service, which the Telephone Joint Petitioners assert would favor a longer reallocation period, 
have filed for reconsideration in this proceeding.
c. Channel Positioning
(1) Background
61. In the Second Report and Order, we permitted an open video system operator to 
assign channel positions, subject to Section 653's non-discrimination requirements. 160 On 
reconsideration, the Alliance for Community Media, et al. state that an open video system 
operator still may discriminate against an unaffiliated video programming provider by offering 
a provider an unattractive channel or block of channels. They urge the Commission to reconsider 
its decision to allow an open video system operator to assign channel positions and require the 
involvement of an independent office or board to impartially assign channel positions. 161
(2) Discussion
62. In the Second Report and Order we determined that the statute and our 
implementing regulations will prevent discrimination against unaffiliated video programming 
providers, notwithstanding an open video system operator's participation in the channel allocation 
process. We specifically rejected the assertions of commenters that an open video system 
operator should be required to delegate responsibility for channel capacity allocation to an 
independent entity. 162 The Alliance for Community Media, et al. do not present new facts or 
arguments to support the mandatory involvement of an independent entity. Accordingly, we 
decline the Alliance for Community Media's request for reconsideration.
4, Channel Sharing
a. Background
63. In the Second Report and Order, we found that the statute permits an open video 
system operator to administer channel sharing on its system, and to determine whether to create 
shared channels for some or all of the duplicative programming on the system. We further 
clarified that each video programming provider offering a programming service that is placed on
^Second Report and Order at paras. 96-97.
I60ld at para. 99.
'"Alliance for Community Media, et al. Petition at 20.
l62Second Report and Order at para. 41.
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Federal Communications Commission FCC 96-334
a shared channel must reach its own agreement with the programming service to offer that service 
to subscribers. We stated that, once the programming service has reached agreements with all 
of the relevant providers, additional consent of the programming service is not necessary for the 
open video system operator to place the programming service on a shared channel. 163
64. On reconsideration, Alliance for Community Media, et al. argue that our channel 
sharing rules, taken in combination with our regulations governing carriage rates charged by an 
open video system operator, will allow an open video system operator to exercise unreasonable 
control over the programming on the platform. They assert that our rules will permit a system 
operator to refuse to place a programming service carried by an unaffiliated video programming 
provider on a shared channel, thereby requiring that provider to lease a full channel instead of 
only a pro-rata share of a channel if the programming was placed on a shared channel. The 
Alliance for Community Media, et al. believe that this could make it impossible for unaffiliated 
video programming providers to compete, and urges the Commission to modify its rules to ensure 
that an unaffiliated provider can avail itself of the benefits of channel sharing at its own request. 164
65. ESPN argues on reconsideration that the Commission erred in not conditioning the 
placement of a programming service on a shared channel upon the consent of the programming 
service. ESPN believes that all video programming providers must have the explicit permission 
of a programming service in order to participate in a channel sharing arrangement with an open 
video system operator. If each provider has obtained such consent from the programming service, 
ESPN states that it would be unnecessary for the system operator to obtain additional consent 
from the programming service in order to place the service on a shared channel. 165
66. NCTA urges the Commission to state that any advertising availabilities ("ad 
avails") be shared on a proportional basis among all video programming providers carrying that 
programming service. 166 NCTA states that the revenue from the sale of these time slots is an 
increasingly important source of income for cable operators, and that if an open video system 
operator or its affiliates are able to receive all such revenues they will have a significant financial 
advantage over other video programming providers offering that programming service. 167
67. Both USTA and the Telephone Joint Petitioners reject ESPN's argument that
163Id. at paras. 102-104.
l64Alliance for Community Media, et al. Petition at 19.
165ESPN Petition at 2-3.
I66NCTA Petition at 19-20. By "ad avails," we mean the time slots to be made available by a programming 
service carried on a shared channel to video programming providers offering that service for local advertising.
167'Id.
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Federal Communications Commission FCC 96-334
programming services should be allowed to approve channel sharing arrangements. While USTA 
believes that a video programming vendor should have the protections provided for in law, USTA 
believes that an open video system operator would not be the appropriate party "to become 
enmeshed in any potential dispute" between a programming vendor and a video programming 
provider. USTA states, that in practice, an open video system operator will need to be able to 
rely on the representations of a video programming provider that it may enter into channel 
sharing arrangements. 168 The Telephone Joint Petitioners state that ESPN's approach would give 
programming services veto power over an open video system operator's decision to use shared 
channels, which would contravene the plain language of Section 653(b)(l)(C). 169
b. Discussion
68. In response to the Alliance for Community Media, et al.'s petition, we first clarify 
that there is no requirement that a system operator charge a video programming provider a pro- 
rata fee because a programming service carried by that provider is placed on a shared channel. 170 
Thus, even if a video programming provider's programming service is placed on a shared 
channel, the video programming provider may be required to pay the same rate as if the 
programming service was placed on a non-shared channel. We think this clarification addresses 
the Alliance for Community Media, et al.'s concern that an open video system operator will 
engage in rate discrimination by placing favored video programming providers' programming 
services on shared channels. We decline the Alliance for Community Media's request for 
reconsideration on this issue.
69. Second, ESPN argued that channel sharing should be conditioned on the approval 
of programming services in its reply comments to the Notice. We fully considered those views 
in the Second Report and Order, where we stated that so long as each video programming 
provider has the contractual right to offer a particular program service to subscribers, it is 
unnecessary for the open video system operator to obtain the consent of the programming service 
in order to place that service on a shared channel. 171 In addition, we note that a programming 
service will be placed on a shared channel only if more than one video programming provider 
secures the rights to offer the particular programming service to subscribers as part of their 
package of programming. We reiterate that channel sharing is merely a technical method by 
which an open video system operator may enhance the efficiency of its system by using only one 
channel to carry programming offered by multiple video programming providers, and again 
decline to adopt ESPN's proposal.
I68USTA Opposition at 12-13.
169Telephone Joint Petitioners Opposition at 14.
™See Section III.D., below.
™ Second Report and Order at para. 103.
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Federal Communications Commission FCC 96-334
70. We agree with NCTA that ad avails associated with a programming service carried 
by both the open video system operator or its affiliated video programming provider and an 
unaffiliated provider must be shared in an equitable manner. Examples of acceptable methods 
of sharing ad avails include apportioning the revenues from such ad avails on a per subscriber 
basis or apportioning the rights to sell the avails themselves. We will clarify that arrangements 
with regard to ad avails will be considered a term or condition of carriage, and an open video 
system operator must comply with Section 653(b)(l)(A) in negotiating their apportionment. 172
5. Open Video System Operator Co-Packaging of Video Programming 
Selected by Unaffiliated Video Programming Providers
a. Background
71. In the Second Report and Order we concluded that Section 653(b)(l)(B), which 
states that nothing in that section should be construed to limit "the number of channels that the 
carrier and its affiliates may offer to provide directly to subscribers," permits an open video 
system operator to enter into agreements to co-package the video programming selected by 
unaffiliated video programming providers with the operator's selected programming, and market 
the combined offerings as one package to subscribers. 173 In addition, we determined that an 
unaffiliated video programming provider may enter into such agreements with other unaffiliated 
providers. 174 We also noted that Congress applied Section 616 of the Communications Act 
governing the regulation of carriage agreements to open video system operators, and that under 
this section, an open video system operator may not generally engage in anti-competitive behavior 
with respect to unaffiliated video programming providers and programming services. 175
72. ESPN argues on reconsideration that the Commission should require that co- 
packaging arrangements be conditioned on the consent of any programming services involved. 
ESPN states that program license agreements frequently contain negotiated terms related to the 
marketing of a programming service, including packaging parameters and trademark use 
guidelines. In addition, programming services themselves often are under contractual restraints 
as to the use of program vendor trademarks and the names or likenesses of persons appearing in 
programs. ESPN therefore argues that programming services must be able to approve co- 
packaging arrangements in order to comply with their license agreements. 176
'^Communications Act § 653(b)(l)(A). 
mSecond Report and Order at para. 108.
™Id. at para. 109. 
176ESPN Petition at 3-4.
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Federal Communications Commission FCC 96-334
73. The Joint Telephone Petitioners respond that the Commission's rules do not, and 
could not, alter the copyright laws. They argue merely that any programmer wishing to enter into 
a co-packaging arrangement will have an obligation to ensure that any copyright or trademark 
restrictions to which it is subject are not violated, regardless of whether the Commission takes 
action as ESPN requests.177
b. Discussion
74. We decline to adopt ESPN's proposal to require the consent of any programming 
services involved before a video programming provider may enter into a co-packaging agreement. 
We recognize ESPN's legitimate concerns that its program license agreements frequently contain 
negotiated terms related to the marketing of a programming service, including packaging 
parameters and trademark use guidelines. However, these are contractual matters that we believe 
are best left to the individual negotiations between the parties involved. If a video programming 
provider enters into a co-packaging arrangement that breaches its contractual obligations, we 
believe that ESPN and other such programming services already possess adequate remedies at 
law. Nothing in our rules should be construed to infringe upon the rights of programming 
services with respect to their program license obligations.
D. Rates, Terms, and Conditions of Carriage 
1. Just and Reasonable Carriage Rates
a. Background
75. Section 653 (b)(l )(A) requires that rates for carriage on open video systems be just 
and reasonable and not unjustly or unreasonably discriminatory. In the Second Report and Order 
we noted that this provision reflects the goal of affording unaffiliated video programming 
providers access to, and fair treatment on, open video systems, while at the same time preserving 
for open video system operators the ability to realize a return on the economic value of their 
investment. 178 Our rules in this area are intended to preserve the incentive of open video system 
operators to enter and compete with existing video programming distributors. Consistent with 
this goal, we eschewed traditional common carrier-style rate regulation approaches in favor of 
a two-step approach intended to balance the public interest in promoting competition for the 
provision of video programming services against the statutory requirement that we ensure just and 
reasonable open video system carriage rates. In general, the approach provides that rates are 
presumed reasonable where specified conditions are met; and, upon the filing of a complaint 
where the presumption conditions are not present, the burden is on the open video system 
operator to demonstrate that the contested carriage rate is no greater than a carriage rate imputed
'"Telephone Joint Petitioners Opposition at 13-14. 
™Second Report and Order at paras. 112, 119-120.
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Federal Communications Commission FCC 96-334
to the operator's affiliated video programming provider under a specified formula.
76. The just and reasonable presumption attaches to open video system carriage rates 
where at least one unaffiliated video programming provider, or unaffiliated programming 
providers as a group, occupy capacity equal to the lesser of one-third of the system capacity or 
that occupied by the open video system operator and its affiliates, and where the rate complained 
of is no higher than the average of the rates paid by unaffiliated programmers receiving carriage 
from the open video system operator. We further concluded that the mathematical average rate 
may be adjusted to account for legitimate variances in rates, such as discounts given for volume, 
contract length, creditworthiness, or the number of subscribers reached. These elements were not 
intended to be exclusive.
77. Once the open video system operator demonstrates that the presumption conditions 
are present, the burden shifts to the complainant to demonstrate that the rate is not just and 
reasonable. This presumption of reasonableness permits the open video system operator to 
implement its carriage rates and provide service without prior regulatory rate filings or review. 
We further concluded that this structure would provide the open video system operator with 
flexibility and an incentive to attract unaffiliated programming providers to the system, and would 
reduce litigation and administrative expenses associated with prior rate review processes. In 
addition, the Second Report and Order found that these conclusions also apply when a group of 
unaffiliated programming providers negotiate and obtain capacity equal to that of the open video 
system operator and its affiliates, if the operator or affiliate occupies less than one-third
17Qcapacity.
78. Where the presumption conditions are not met, and a potential video programming 
provider files a complaint with the Commission, the Second Report and Order placed the burden 
on the open video system operator to demonstrate that the contested carriage rate is no greater 
than a carriage rate that could be imputed to the operator's affiliated video programming. The 
Second Report and Order required the operator to show that it charges the unaffiliated 
programmer no more for carriage than it earns from carrying its own affiliates' programming, 
and treated analog and digital channel capacity separately for this purpose. 180 It stated that the 
imputed rate approach provides a legitimate basis to fulfill the law's requirement that the rate be 
just and reasonable, and explains that, in principle, the method chosen to arrive at the imputed 
carriage rate was an application of the efficient component pricing rule ("ECPR") to open video systems. 181
mld at para. 123.
" A/. at paras. 114, 125-128.
'"William J. Baumol & J. Gregory Sidak, The Pricing of Inputs Sold to Competitors, 11 Yale J. Reg. 171 
(1994); Alfred E. Kahn & William E. Taylor, The Pricing of Inputs Sold to Competitors: A Comment, 11 Yale J. 
Reg. 225 (1994).
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Federal Communications Commission FCC 96-334
79. A number of parties filed petitions for reconsideration or clarification of these 
open video system carriage rate requirements. 182 In general, incumbent LECs supported the 
overall approach, but challenged the use of the imputed rate formula, where the presumption 
conditions are not met, as too regulatory. 183 In contrast, cable companies, local authorities, and 
other competitors argue that the procedures established are too cumbersome from a procedural 
perspective, and fail to protect adequately both unaffiliated programmers and LEG telephone rate
1R4payers. 1*4
80. National League of Cities, et al. critique the pricing rules as inadequate to fulfill 
the statutory requirements of ensuring open access, nondiscrimination, and reasonable rates. It 
argues that the presumption approach places an undue financial and regulatory burden on the 
unaffiliated programmer to determine whether the LEC's terms are fair; that the Commission's 
rules will encourage the routine filing of carriage complaints by all video programmers that will 
"flood" the Commission; and that the presumption's conditions fail to protect unaffiliated 
programming providers. National League of Cities, et al. maintain that the criteria related to 
average rates is largely meaningless since only the LEG has the necessary information to make 
such a determination and the average may be adjusted in a variety of ways left totally 
indeterminate under the Commission's rules. 185
81. MCI contends that the rules fail to establish a mechanism that prevents incumbent 
LECs from pricing open video system carriage rates below incremental cost due to the transfer, 
by means of improper cost allocation, of video-related costs to their telephone customers. 186 MCI 
argues further mat the Commission has recognized that incumbent LECs have an incentive and 
opportunity to shift costs from unregulated to regulated services. MCI submits that the likelihood 
that open video system carriage rates will be set below incremental costs nearly guarantees that 
one-third of open video system capacity will be occupied by parties not affiliated with the 
incumbent LECs that are unlikely to complain about the carriage rates, for they will share in the 
cross-subsidy provided by the incumbent LEC's telephone customers. 187 National League of 
Cities, et al. also argue that the presumption approach permits a LEG to control effectively two- 
thirds of the capacity directly, and one-third indirectly, by finding and favoring a single
lKSee Alliance for Community Media, et al. Petition at 19; Telephone Joint Petitioners Petition at 5-10; City of 
Indianapolis Petition at 3; National League of Cities, et al. Petition at 20-24; MCI Petition at 2-5; NCTA Petition 
at 18-19.
l"See Telephone Joint Petitioners Petition at 5-10.
]MSee NCTA Petition at 20-24; City of Indianapolis Petition at 3; National League of Cities, et al. Petition at 
20-24; MCI Petition at 2-6.
'"National League of Cities, et al. Petition at 20-23. 
I86MCI Petition at 2-3. 
l"Id at 3-4.
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___________Federal Communications Commission _____FCC 96-334
"unaffiliated" programmer so as to meet the presumption conditions. 188
 82. MCI also contends that the open video system pricing rules will permit incumbent
LECs to charge discriminatory rates once one-third of their open video system capacity is 
occupied by non-affiliates. MCI argues that the large amount of common telephone and open 
video system costs will result in a gap between the below-incremental cost rate (resulting from 
cross-subsidies) offered to existing non-affiliated programmers and a rate equal to incremental 
cost plus common costs. MCI contends that the Commission has compounded this problem by 
unilaterally excluding the parties harmed by the possibility of this cross-subsidization from 
challenging open video system carriage rates by bringing complaints against the presumptive 
reasonableness of the rates.189 MCI argues, therefore, that the Commission should: (a) permit 
any party potentially affected by an open video system carriage rate to file a complaint with the 
Commission; and (b) require telephone companies seeking open video system status to publicly 
file incremental and stand alone telephone and video cost studies, along with appropriate 
subscriber and usage data as part of their open video system applications. 190
83. In response, LECs generally urge the Commission to reject requests to reconsider 
the open video system pricing rules based on allegations of the potential for discriminatory 
pricing. 191 They state that MCI's request that the Commission reverse many of the key 
determinations made in Grafting a rate regulation scheme suited to open video systems as new 
entrants without any market share or power, is simply a rehash of MCI's earlier unsuccessful 
advocacy of Title II-like regulation for open video systems, which should be rejected by the 
Commission on reconsideration. 192 USTA contends that competition would be disserved by 
requiring LECs to file incremental and stand-alone telephone and video cost studies with the 
Commission along with subscriber and usage data as MCI requests. USTA claims that the only 
result of such requirements would be to hamper LEG market entry, delay competition and 
increase costs for the LECs. 193 Similarly, RCN supports the Commission's goal of avoiding the 
imposition of barriers to entry similar to those that have hindered the development of competition 
in the multichannel video distribution market thus far. RCN notes that the Commission has long 
recognized, with respect to the non-dominant new entrants in the long distance and local 
telephone market, and in other telecommunications markets where competition exists, that Title 
II-type rate and entry regulation is (a) not necessary to protect consumers or to assure just and
""National League of Cities, et al. Petition at 22-23.
189MCI Petition at 3-4.
]90Id at 4-6.
>9>See, e.g., USTA Opposition at 5.
""Telephone Joint Petitioners Opposition at 13; NYNEX Opposition at 11; USTA Opposition at 3-4.
193USTA Opposition at 6.
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Federal Communications Commission FCC 96-334
reasonable rates, and (b) likely to impair the ability of open video system operators to compete 
effectively in the market by "stiflfing] price competition and service and marketing innovation." 194
84. The Telephone Joint Petitioners also respond that there is no possibility that an 
open video system operator who charges one group of programmers below cost rates, and then 
seeks to charge another programmer a discriminatorily high rate, will escape detection by the 
Commission when it compares the latter programmer's rate to the weighted average rate of the 
first group. They strongly disagree with MCI's request that third-parties be permitted to bring 
complaints regarding open video system carriage rates, as well as MCI's request that open video 
system operators be required to produce stand alone cost studies for telephony and video. 195 The 
Telephone Joint Petitioners also urge the Commission to reject MCI's requests on grounds that 
such requirements would recreate the type of tariff proceedings that the Commission conducted 
under the video dialtone regime. 196 NYNEX argues that permitting third-party complaints would 
lead to the same results that the Commission obtained in the video dialtone process, where most, 
if not all, challenges against video dialtone were raised by incumbent cable interests and their 
affiliated programmers, rather than by unaffiliated programmers. NYNEX states that the 
Commission's open video system rate scheme properly focuses on that latter, rather than the 
former, group, and that the Commission should not countenance the regulatory tactics of 
competitors seeking to impede open video system. 197
85. In their petition, the Telephone Joint Petitioners request that the Commission 
modify the requirements for applying the presumption. They argue that the Commission's 
threshold capacity requirement is unrelated to whether carriage rates are just and reasonable and 
will penalize open video system operators using advanced technologies. For example, the 
Telephone Joint Petitioners assert, operators of switched-digital open video systems will be unable 
to show that unaffiliated video programming providers occupy a threshold amount of capacity 
and will be unable to meet the presumption conditions. 198 The Telephone Joint Petitioners 
suggest that the Commission remove the minimum capacity requirement and instead find that the 
presumption applies when two unaffiliated programmers purchase any level of capacity on an 
open video system. 199 USTA supports the Commission's commitment to flexibility, and urges 
that it be extended further to permit and encourage the introduction of new technologies by
194RCN Opposition at 11 (citing Policy and Rules of Competitive Common Carrier Service and Facilities 
Authorizations in CC Docket No. 79-252 (Competitive Carrier Proceedings), Second Report and Order, 91 FCC 2d 
59 (1982) (Second Report) (subsequent history omitted).
"'Telephone Joint Petitioners Opposition at 12-13. 
mld at 13.
197NYNEX Opposition at 12-13.
198Telephone Joint Petitioners Petition at 6; see also USTA Opposition at 5-6. 
'"Telephone Joint Petitioners Petition at 7-8.
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Federal Communications Commission FCC 96-334
focusing on the presence of unaffiliated programmers, rather than the use of an arbitrary 
percentage of capacity utilitization before allowing LECs the safe-harbor of the presumption of 
just and reasonable rates.200
86. The Telephone Joint Petitioners further argue that the phrase "unaffiliated 
programmers as a group" in our presumption conditions could be interpreted as a requirement that 
the unaffiliated programmers market their programming as a package in competition with the 
open video system operator and its affiliates to meet the presumption conditions.201 The 
Telephone Joint Petitioners suggest that the Commission clarify that the presumption applies 
whether the unaffiliated programmers market their programming in competition or in cooperation 
with the open video system operator's programming.202
87. While the Telephone Joint Petitioners agree as a general matter that the 
Commission's imputed rate approach is preferable to more overtly regulatory prescriptions for 
setting prices, they argue that the Commission has not properly applied the ECPR methodology, 
and that computing an imputed rate is not necessary for the purpose of establishing just and 
reasonable open video system carriage rates.203 The Telephone Joint Petitioners include with their 
petition a "Declaration of William E. Taylor," one of the authors of an economics article on 
ECPR cited in the Second Report and Order?* Taylor's declaration discusses several ways in 
which the Second Report and Order allegedly misstates and misapplies the ECPR, including the 
premise that open video system carriage is an essential input. It generally concludes that the 
circumstances of the evolving video programming marketplace will not warrant the search for 
ECPR-based pricing standards, and urges that the marketplace itself should be able to determine 
the proper rates for open video system carriage.205 The Telephone Joint Petitioners suggest that 
if the pricing methodology is retained, the Commission should clarify its use of the imputed rate 
approach and how ECPR is to apply to open video system carriage rates. The Telephone Joint 
Petitioners argue that the imputed rate will set an artificially low ceiling on carriage rates because 
it omits the incremental cost of carriage, and that a ceiling on carriage rates based on the ECPR 
is inappropriate because open video system operators are new entrants that will compete with 
incumbent cable operators and other video programming distributors.206 They also suggest
200USTA Opposition at 6 n. 15.
"'Telephone Joint Petitioners Petition at 7.
202A/. at 8.
203Id. at 8-10.
2W"Second Report and Order at para. 126 n.295.
205Telephone Joint Petitioners Petition, Declaration of William E. Taylor at 4-8.
206Telephone Joint Petitioners Petition at 8-10, Declaration of William E. Taylor at 6-8; accord NYNEX 
Opposition at 12.
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___Federal Communications Commission FCC 96-334
that the use of the terms "earn" and "profit allowance" require clarification.207
88. Other petitioners challenge the methodology as inadequate to protect unaffiliated 
programmers. The City of Indianapolis and the Alliance for Community Media, et al. object to 
the imputed rate formula on the ground that it improperly compensates the open video system 
operator for lost subscribers. They argue that unaffiliated programmers will pay higher carriage 
rates than affiliated programmers, and this will cause unaffiliated programming provision to be 
unprofitable.208 The National League of Cities, et al. interpret the imputed rate formula as 
improperly permitting open video system operators to charge unaffiliated programming providers 
a price for carriage equal to the price they charge subscribers for affiliated programming.209
89. MCI contends that the Commission may not use ECPR as a means of ensuring 
nondiscriminatory open video system carriage rates, because there is no practical method of 
determining whether an open video system carriage rate is greater than the rate that would be 
established by the ECPR. According to MCI, this is due in part to the Commission's inability 
to determine a carrier's actual opportunity cost.210 MCI instead proposes that the incumbent 
LECs be required to charge video carriage rates in excess of the incremental cost of providing 
video services.211 In response, USTA urges the Commission to dismiss MCI's efforts to increase 
LEC regulatory burdens by urging that video carriage rates must be delivered in excess of 
incremental cost.212
b. Discussion
90. In the Second Report and Order we specifically noted MCI's concerns as to the 
need for effective cost accounting and auditing procedures to ensure that incumbent LECs do not 
engage in the allocation of excessive costs to their regulated telephone services. We stated that 
the substantive cost allocation requirements are being addressed in a separate rulemaking.213 In 
its petition, MCI has provided no new facts or arguments to justify reconsideration of these 
concerns in the instant proceeding.214 We also decline to impose the other pre-certification and
"'Declaration of William E. Taylor at 6-8.
208City of Indianapolis Petition at 3; Alliance for Community Media, et al. Petition at 19.
209National League of Cities, et al. Petition at 23.
210MCI Petition at 5.
21 lld. at 6.
2I2USTA Opposition at 6.
2nSecond Report and Order at para. 29 n.92.
214See generally, 47 C.F.R. § 1.429(b) and (c).
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Federal Communications Commission FCC 96-334
reporting requirements MCI seeks. We believe that these requirements are inconsistent with our 
flexible regulatory approach to the provision of open video system, and are not necessary to 
protect either unaffiliated programmers or the public in general. In addition, we decline to 
require open video system operators to base their carriage rates on detailed studies of incremental 
and stand alone cost and estimates of actual opportunity cost, as suggested by MCI,215 because 
of the 1996 Act's direction that Title II requirements not be applied to open video systems,216 and 
the limited time allowed for the review of certifications and complaints.217 Instead, as we discuss 
below, we reaffirm our imputed rate approach for determining whether carriage rates are just and 
reasonable where the presumption conditions are not present.
91. We also decline to adopt MCI's proposal to allow parties other than potential video 
programming providers seeking carriage on the open video system to file complaints with the 
Commission regarding the carriage rates offered by the system operator. We think that such a 
rule would inevitably result in the filing of numerous complaints by parties with no direct interest 
in providing programming over open video systems, and thus delay the initiation of open video 
system service. We therefore reaffirm our decision to allow only potential video programming 
providers to file complaints regarding open video system carriage rates. This decision does not 
leave other parties who claim to be adversely affected by an open video system operator's 
carriage rate without remedies. For example, a party seeking to challenge a rate it pays for 
common carrier services provided by that operator on the ground of improper cost-shifting from 
an open video system, retains its rights under section 208 of the Communications Act to file a 
complaint.218 These statutory rights afford adequate protection in the event that third parties 
believe open video system operators are improperly shifting costs relating to video carriage at the 
expense of telephone customers.
92. We disagree with the general assertion by the National League of Cities, et al. that 
our presumption conditions will not provide adequate protection to unaffiliated video 
programming providers. As we noted in the Second Report and Order, where the presumption 
conditions are met, there is sufficient reason to conclude that the open video system is accessible 
and the negotiated carriage rates are just and reasonable.219 The National League of Cities et al. 
have presented no new arguments or data to refute this conclusion. Moreover, we disagree with 
National League of Cities et al.'s contention that the presumption approach places a undue 
financial and regulatory burden on the unaffiliated programmer to determine whether the
215MCI Petition at 5.
2l65ee Communications Act § 653(c)(3), 47 U.S.C. § 573(c)(3); Telecommunications Act of 1996 Conference 
Report, S. Rep. 104-230 at 178 (February 1, 1996) ("Conference Report").
™Second Report and Order at para. 120.
™See 47 U.S.C. § 208.
2}9Second Report and Order at para. 122.
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Federal Communications Commission FCC 96-334
operators' rates are fair.220 Our presumption approach strikes an appropriate balance between the 
interests of the open video system operator in establishing service to end users quickly, without 
undue regulatory intervention by competitors, and the interests of unafflliated programmers in 
obtaining just and reasonable carriage rates. To the extent National League of Cities, et al.'s 
argument is directed at the pre-complaint rate disclosure process, we further clarify the rights of 
unafflliated programmers to obtain preliminary rate estimates, and the information these estimates 
must contain, infra in Section III.H., Dispute Resolution.
93. The National League of Cities, et al. also expressed the specific concern that the 
presumption conditions will allow the average rate paid by the unafflliated programming 
providers receiving carriage to be "weighted" or adjusted, but that only the open video system 
operator will possess the information necessary to calculate the average or to "weight" the 
average.221 We clarify that, as part of its burden of showing that the presumption conditions are 
met, an open video system operator will be required to make available to a complainant all 
information needed to calculate the average rate paid by the unafflliated programming providers 
receiving carriage on its system, including the information needed for any weighting of the 
individual carriage rates that the operator has included in the average rate. The complainant may 
challenge the weighting methodology used by the open video system operator as part of its case. 
Requests for confidential treatment of particular information shall be addressed consistent with 
our rules concerning proprietary information.222
94. The Telephone Joint Petitioners have reiterated their original request that carriage 
rates be presumed just and reasonable even if a small number of unafflliated video programming 
providers occupied only one channel each.223 We again reject their suggestion on the grounds, 
stated in the Second Report and Order, that the presence of one or more unafflliated programmers 
on a diminutive portion of an open video system's channel capacity is not sufficient to show that 
its carriage rates are just and reasonable.224 We agree with the Telephone Joint Petitioners that 
the one-third threshold capacity requirement may not be appropriate in the future when advanced 
technologies that are under development, such as switched digital video, may be deployed. 
Because these technologies have not yet been deployed, however, we will not now modify the 
requirement. We will consider requests
to waive or otherwise modify the threshold capacity requirement to reflect the special 
circumstances of such advanced systems.
220National League of Cities, et al. Petition at 21. 
221M at 22.
™See 47 C.F.R. § 76.15130).
"'Telephone Joint Petitioners Petition at 7-8; see NCTA Opposition at 7-9 (disagreeing).
2241 Second Report and Order at para. 124.
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Federal Communications Commission FCC 96-334
95. Moreover, the presumption requirement is met not only when unaffiliated 
programmers occupy one-third of capacity, but also when unaffiliated programmers occupy the 
same amount of capacity as the open video system operator or its affiliate. Take, for example, 
the case of a system that has a theoretical capacity of 1,000 channels, and assume that the open 
video system operator and its affiliate choose to occupy 100 of these channels. Under these 
conditions, it will not be necessary for unaffiliated programmers to occupy 333 channels (one- 
third of system capacity) to meet the presumption requirements. Rather, the open video system 
operator will meet the presumption requirements if unaffiliated programmers occupy 100 
channels. This factor may eliminate the problems that the Telephone Joint Petitioners foresee.
96. In response to the Telephone Joint Petitioners' request, we clarify that in the 
Second Report and Order, the phrase "unaffiliated programmers as a group" does not impose a 
requirement that the programmers market their programming in competition with the operator.225 
Rather, the phrase is used to give open video system operators greater flexibility in meeting the 
presumption conditions. It allows operators to meet the requirement by providing carriage to 
several unaffiliated programmers that in total occupy the threshold capacity requirement.
97. We reaffirm our basic imputed rate approach for ensuring just and reasonable open 
video system carriage rates where the presumption conditions are not met, but clarify our use of 
certain terminology. We structured the imputed rate in the Second Report and Order to reflect 
what the open video system operator, or its affiliate, effectively "pays" for its own carriage of 
programming over the system by starting with the revenues received from the end user subscriber, 
and subtracting the costs avoided by the open video system operator by permitting another 
programming provider to serve that subscriber.226 No petitioner has convinced us that an imputed 
rate approach is not suitable to the circumstances of open video system carriage, where a new 
market entrant (the open video system operator) will, in the majority of areas, face competition 
from an established incumbent (the cable operator). We continue to believe that, under these 
circumstances, the imputed rate approach will produce carriage rates that encourage market entry 
and therefore result in greater competitive choices for video programming customers.227 
Therefore, we reaffirm that the imputed carriage rate established in the Second Report and Order, 
which equals the revenues received from subscribers for the open video system operator's 
programming package, minus the cost to the operator of creating the package, provides a sound 
basis for comparison to the challenged carriage rate offered the unaffiliated programmer.
98. Telephone Joint Petitioners have instead urged us to let the market set the rates for 
carriage. We do not, however, find that market conditions alone are sufficiently competitive to 
produce just and reasonable carriage rates for unaffiliated programmers. One of the premises of 
the open video system is that it will be providing independent programmers an alternative video
22ild at para. 122. 
™Id at para. 127.
221Second Report and Order at para. 127.
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Federal Communications Commission FCC 96-334
carriage outlet that will encourage multiple programming sources. Today, independent 
programmers have limited ability to obtain carriage on cable systems on an open basis. Other 
alternatives to the open video system, e.g., DBS and wireless cable, currently serve approximately 
9% of the market.228 Accordingly, these alternatives similarly appear to offer limited 
opportunities for carriage on an open basis for unaffiliated programmers. We therefore reject the 
position of the Joint Telephone Petitioners that the market alone will ensure just and reasonable 
carriage rates. We believe that the imputed rate approach will encourage entry by open video 
systems, while ensuring that video carriage rates are just and reasonable for unaffiliated 
programmers.
99. As we noted in the Second Report and Order, open video systems are essentially 
a combination of: (a) the creative development and production of programming, (b) the packaging 
of various programs for the open video system operator's offering, and (c) the creation and 
maintenance of infrastructure for the carriage of both the operator's affiliated programming and 
unaffiliated programming.229 Our rules are intended to ensure that unaffiliated programming 
providers pay a rate for carriage that is no more than the carriage price that can be fairly imputed 
for the carriage of the operator's affiliated programming packages. In so doing we seek to attain 
an important result of the ECPR, which is that the price the operator charges unaffiliated 
programming providers for carriage must be .no higher than the sum of its incremental cost of 
carriage and the contribution to fixed infrastructure costs in its retail price of programming.230
100. We disagree with the assertion by the Telephone Joint Petitioners that the 
Commission errs by using an ECPR methodology to establish carriage pricing on open video 
systems, where it is not appropriate, while declining to use ECPR to establish LEG 
interconnection pricing in situations where they assert it is appropriate.231 Like ECPR, our 
imputed rate approach will provide the open video system operator the same return when it 
carries unaffiliated programming as when it carries its own programming. We believe that in the 
case of open video systems, application of an ECPR methodology provides full economic 
incentives for LEC entry into video in competition with incumbent cable providers.
101. By contrast, in the case of interconnection to the local telephone network, 
application of ECPR would reduce the incentives for entry into local exchange services by 
enabling incumbent LECs to charge higher rates for interconnection than would result from a 
forward-looking economic cost model. In this latter case, application of the ECPR for network
""See Second Competition Report, 11 FCC Red at 2063.
229W. at para. 127.
""Declaration of William E. Taylor at 5.
"'Telephone Joint Petitioners Petition, Declaration of William E. Taylor at 5 n.15, citing Implementation of the 
Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, Notice of Proposed 
Rulemaking (1996) (Interconnection Notice) at para. 148.
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Federal Communications Commission FCC 96-334
interconnection under sections 251 and 252 of the 1996 Act would be inappropriate, and we have 
therefore declined to use it.232 More specifically, the Commission has concluded that the ECPR 
is not appropriate in the pricing of unbundled local telephone network elements for the purposes 
of interconnection.233 There are significant differences in the market circumstances open video 
systems will face, as compared to the pricing of unbundled local telephone network elements. 
As we have noted, open video systems, as the new market entrant, will face competition from 
the established incumbent cable operator. By contrast, existing end user rates in local 
telecommunications services are not competitively set. In the Commission's interconnection 
proceeding under section 251, we noted the ECPR's potential to permit higher rates than those 
established by a forward-looking economic cost model, to limit competitive entry, and to preserve 
pricing inefficiencies.
102. We disagree also with the assertion by the Telephone Joint Petitioners that the 
imputed price omits the incremental cost of carriage.234 Under normal market conditions, the 
imputed price of carriage will exceed the open video system operator's incremental cost of 
carriage (which is greater than zero) and make a contribution to the fixed infrastructure cost of 
the open video system. For this reason, we reject the Telephone Joint Petitioners' assertion that 
the imputed rate approach will produce a carriage rate of zero or less.235 The imputed rate is 
based in part on the price charged by the open video system operator or its affiliate to end-user 
subscribers. The price charged the subscriber will generally be greater than the incremental cost 
of carriage. In addition, the imputed rate subtracts out the costs of developing the programming 
and creating the package, which removes the costs avoided when unaffiliated programming is 
carried. After subtracting these costs, the imputed rate will correspond to the carriage rate that 
the open video system operator "pays" to carry its own programming. The imputed rate approach 
is designed to give the open video system operator the same economic return when it sells 
carriage to unaffiliated programming providers as when it "sells" carriage to its own 
programming. Consequently, we would expect the use of the ECPR approach to minimize any 
disincentives the open video system operator may have to carry unaffiliated programming.
103. We believe that this result of the imputed rate approach should be achieved even 
under the competitive conditions assumed by the Telephone Joint Petitioners in their petition.236 
Even assuming that, at the outset of open video system operations, competition lowered the retail 
price of video programming to subscribers to the point that the open video system operator
^Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 
96-98, Report and Order, (adopted August 1, 1996).
""Declaration of William E. Taylor at 6.
"'Telephone Joint Petitioners Petition for Reconsideration at 9.
236Jd. at 9.
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incurred losses, this would not justify the operator's shifting the burden of such losses to 
unaffiliated video programming providers by charging them a higher carriage rate than the rate 
that it effectively "charges" itself. The unaffiliated programming providers would also face lower 
retail prices for their programming under the competitive conditions assumed by the Telephone 
Joint Petitioners. We disagree with the Telephone Joint Petitioners' assertion that unaffiliated 
programmers would be largely unaffected by retail price competition.237 Unaffiliated 
programming providers would be offering services to subscribers in the same area as the open 
video system operator and would, as a result, face essentially the same competitive conditions 
faced by the operator.
104. The imputed rate approach was chosen as a flexible regulatory approach for 
determining what are just and reasonable carriage rates in an imperfectly competitive carriage 
market. However, it may not be the sole means of establishing just and reasonable carriage rates. 
There may be alternative, market-based approaches to demonstrating that a challenged rate is just 
and reasonable, that may also be useful in particular cases. We would consider such an argument 
in response to a complaint regarding a carriage rate. The open video system operator would be 
required to demonstrate that its carriage service is subject to sufficiently strong competitive forces 
to ensure that its carriage rates are just and reasonable, or that it has computed its rate using a 
methodology that aims to produce or replicate the working of a competitive carriage market.
105. In addition, on reconsideration, we find that certain aspects of our explanation and 
use of terminology should be clarified. As we stated above, under our approach, the imputed 
price of carriage for an affiliated programming package equals the price of the package delivered 
to a subscriber minus the cost of creating the package. To clarify the terms identified by the 
Telephone Joint Petitioners, in the Second Report and Order we use the term "earning" to refer 
to the difference between the price of the package delivered to a subscriber and the cost of 
creating the package.238 We use the term "profit allowance" to refer to one type of cost of 
creating the programming package, namely the cost of capital used to create the package. 
We also clarify Section 76.1504 of the rules to indicate more clearly the types of avoided costs 
that must be subtracted by an open video system operator in calculating the imputed rate.
106. We also clarify in response to the National League of Cities, et al. that the imputed 
rate formula will not allow open video system operators to charge unaffiliated programming 
providers a price for carriage equal to the price they charge subscribers for affiliated 
programming. The imputed rate formula, as we have discussed, requires open video system 
operators to subtract the cost of creating affiliated programming from the price of the 
programming. The carriage rate that unaffiliated programming providers pay will be less than 
the price subscribers pay for affiliated programming.
237Declaration of William E. Taylor at 6. 
23*See supra at para. 87.
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Federal Communications Commission FCC 96-334
107. The concerns of the City of Indianapolis and the Alliance for Community Media, 
et al. regarding how subscriber losses will affect the imputed carriage rate are overstated because 
they do not reflect the effects of subscriber gains. We wish to clarify that the imputed carriage 
rate will recognize both losses and gams in the number of subscribers to the open video system 
operator's programming package resulting from carrying unaffiliated programming. Increases in 
subscribers may occur because unaffiliated programming attracts subscribers to the open video 
system from cable or broadcast television. Decreases in subscribers may occur because 
unaffiliated programming attracts subscribers away from affiliated programming on the open 
video system. The average of these individual channel effects, which may be an increase or a 
decrease, is the one that will be recognized by the imputed carriage rate.
108. We also wish to clarify that, .contrary to MCI's suggestion, our imputed rate 
approach does not require that we determine an open video system operator's actual opportunity 
cost. Because it is computed by averaging costs over all channels carrying affiliated 
programming, the imputed carriage rate will include an estimate of the average opportunity cost 
resulting from the carriage of unaffiliated programming. This average is adequate to achieve the 
goal of ensuring that the operator's carriage rates are just and reasonable, without determining 
the operator's actual opportunity cost.
2. Open Video System Carriage Rates Must Not be Unjustly or 
Unreasonably Discriminatory
a. Background
109. In the Second Report and Order, we concluded that some level of open video 
system carriage rate differentiation is permissible, provided that the bases for the differences are 
not unjust or unreasonable. We suggested that some legitimate, objective factors on which rate 
differences could be based are volume discounts, differences in creditworthiness and financial 
stability, differences in the number of subscribers reached, and preferential rates for not-for-profit 
programming providers.239
110. NCTA challenges the sufficiency of the presumption approach to protect 
unaffiliated programmers from discrimination, and requests that it be changed. NCTA states that 
the scheme leaves opportunities for open video system operators to "game the system" to 
discriminate against selected programmers. NCTA submits that the simplest and most effective 
means of preventing such discrimination is to require, unless open video system operators can 
justify the difference, that each programmer be charged the same rate. NCTA contends that the 
Commission should not place the burden of proof on the programmer alleging a violation of 
section 653(b)(l)(A) standard; rather, open video system operators should always bear the burden
239}Second Report and Order at para. 130.
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Federal Communications Commission FCC 96-334
240of demonstrating that rate differences are justified by the circumstances.
111. MCI argues that would be complainants will be unable to ensure that open video 
system carriage rates are nondiscriminatory because there is no practical method of determining 
whether a rate is greater than the rate that would be established by ECPR.241 The Alliance for 
Community Media, et al. argues that the Commission should require open video system operators 
to charge non-profit video programming providers a reduced carriage rate.242
b. Discussion
112. The petitioners' concerns about whether open video system rates are 
nondiscriminatory ignores the wording of the 1996 Act, which prohibits rate differences only 
when unjust or unreasonable.243 As we noted in the Second Report and Order, we decided to 
permit carriage rate differentiation because requiring open video system operators to charge all 
programming providers the same carriage rate would exclude providers whose programming has 
a low market value.244 Neither NCTA nor MCI has offered new factual or legal arguments to 
refute this reasoning. We will continue to permit open video system operators to charge different 
rates based on objective factors.
113. MCI's rate discrimination concern arising from our use of an ECPR pricing model 
to compute an imputed rate is misplaced.245 In the Second Report and Order, we decided to rely 
on the complaint process to ensure that open video system carriage rates are not unjustly or 
unreasonably discriminatory. If a rate discrimination complaint is filed, the challenged rate 
difference will have to be justified by legitimate, objective factors.246 We have heard no new 
argument that demonstrates that the complaint process will fail to ensure that differences in open 
video system carriage rates have just and reasonable bases.
114. We disagree with the Alliance for Community Media, et al., that open video 
system operators should be required to charge reduced carriage rates to non-profit programming 
providers. In the Second Report and Order, we identified not-for-profit status as one of the 
legitimate, objective factors on which open video system operators could base reduced rates. We
240NCTA Petition at 18-19.
2"'MCI Petition at 5.
242Alliance for Community Media, et al. Petition at 9-11.
243Notice at para. 32.
wSecond Report and Order at para. 130.
2AiSee our discussion of the imputed carriage rate,, supra at paras. 97-108.
24<'Second Report and Order at para. 130.
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Federal Communications Commission FCC 96-334
also cited comments that identified PEG channels as a source of carriage for non-profit 
programmers.247 We note that the Alliance for Community Media, et al. recognize the significant 
contribution that PEG requirements will make.248 Moreover, we are concerned about the impact 
of mandatory reduced carriage rates on a new entrant in the markets for video carriage and 
distribution. Our decision to allow preferred carriage rates for non-profit programmers on a 
voluntary basis reflects our goals of promoting open video system entry and competition with 
incumbent cable systems, while providing access to carriage by unaffiliated programming 
providers. We will stand by our decision not to make reduced rates for non-profit programmers 
mandatory.
E. Gross Revenues Fee 
L Background
115. Section 653(c)(2)(B) provides that an open video system operator shall be subject 
to a fee on the gross revenues of its cable service, "in lieu of the cable franchise fee under 
Section 622.249 In the Second Report and Order, we concluded that the gross revenues fee should 
be based on all revenues received by an open video system operator or its affiliate relating to its 
provision of video services (including all subscriber revenues and all carriage revenues received 
from unaffiliated programming providers), but should exclude the gross revenues of unaffiliated 
video programming providers.250
116. On reconsideration, some local governments argue that the gross revenues fee 
should be applied to a broader revenue base than that specified in the Second Report and Order. 
The Village of Schaumburg and Metropolitan Dade County argue that the fee should be applied 
to all revenues derived from the operation of open video systems, regardless of whether they are 
received by the open video system operator, the operator's affiliate, or an unaffiliated video 
programming provider.251 These petitioners assert that the Commission's formulation of the gross
wld. at para. 130 n.300.
""Alliance for Community Media, et al. Petition at 13 n.39.
"'Specifically, Section 653(c)(2)(B) provides:
An operator of an open video system under this part may be subject to the payment of fees on the 
gross revenues of the operator for the provision of cable service imposed by a local franchising 
authority or other governmental agency, in lieu of the franchise fees permitted under Section 622. 
The rate at which such fees are imposed shall not exceed the rate at which franchise fees are 
imposed on any cable operator transmitting video programming in the franchise area.
""Second Report and Order at paras. 218-220.
251 Village of Schaumburg Petition at 2; Metropolitan Dade County Petition at 3. See also NCTA Opposition at 
5-7; Michigan Cities, et al. Opposition at 3-4.
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Federal Communications Commission FCC 96-334
revenues fee will reduce the amount of fees collected by local authorities. Metropolitan Dade 
County speculates that this "could lead to claims of discrimination from existing cable operators 
to be released from cable franchises to the extent that OVS operators have lesser fiscal 
burdens."252 The National League of Cities, et al. and NATOA argue that the Commission's 
gross revenues fee fails to adequately compensate local governments for the use of public rights- 
of-way.253 In addition, the National League of Cities, et al. and Municipal Services, et al. assert 
that the Commission has not made it clear that local governments have a positive authority to 
charge and receive the fee.254 Finally, NATOA requests that we clarify that advertising revenues 
received by an open video system operator or its affiliate should be included in the fee 
calculation.255
117. By contrast, telephone companies generally argue that the gross revenues fee 
should be applied to a narrower revenue base than the base specified in the Second Report and 
Order. In their petitions, the Telephone Joint Petitioners and NYNEX argue that, on its face, 
Section 653(c)(2)(B) applies only to the gross revenues of the open video system operator and 
not the operator's affiliate.256 These petitioners differ, however, regarding which operator 
revenues should be included in the fee calculation. The Telephone Joint Petitioners argue that 
the fee should be based only on the open video system operator's revenues from subscribers, and 
should exclude carriage revenues from unaffiliated video programming providers.257 NYNEX, 
on the other hand, argues that the fee should be based only on the operator's carriage revenues 
from affiliated and unaffiliated programming providers, and should exclude all subscriber 
revenues.258 Finally, NYNEX and U S West are concerned that collecting a fee solely from the 
open video system operator and its affiliates will discriminate in favor of unaffiliated 
programming providers, which will not be burdened by a similar fee.259 U S West proposes that 
open video system operators be permitted to include a portion of the gross revenues fee on the 
bills of all subscribers to an open video system ~ not just those receiving programming directly
252Village of Schaumburg Petition at 2; Metropolitan Dade County Petition at 3. 
"'National League of Cities, et al. Petition at 5; NATOA Opposition at 2-5. 
""National League of Cities, et al. Petition at 8; Municipal Services, et al. Petition at 3.
"5NATOA Opposition at n.4 (responding to statement in NYNEX's Petition at n.5 indicating that NYNEX 
appeared to believe that advertising revenues were excluded).
"'Telephone Joint Petitioners Petition at 4-5; NYNEX Petition at 3-9 and Opposition at 17-18. 
"'Telephone Joint Petitioners Petition at 4-5. 
"8NYNEX Petition at 3-9.
"*NYNEX Petition at 7-8; U S West Petition at 7-8. NYNEX adds that unless some mechanism is established 
to relieve the affiliated provider of this unique burden, that the resulting scheme could violate the affiliated provider's 
constitutional right to equal protection. NYNEX Petition at n.ll.
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Federal Communications Commission FCC 96-334
from the operator or its affiliates.260
118. In response, NATO A argues that excluding the open video system operator 
affiliate's revenues from the gross revenues fee calculation would defeat the entire purpose of the 
fee, and would permit an open video system operator to pay far less than a cable operator by the 
simple expedient of creating a corporate subsidiary.261 Similarly, Michigan Cities, et al. argue 
that excluding the affiliate's revenues would thwart Congress' goal of ensuring equal treatment 
among video providers, and would permit an operator to engage in a corporate "shell game" in 
which the operator provided essentially no services and had all revenue-generating activities 
provided by its affiliates.262 In addition, NCTA argues that the Telephone Joint Petitioners' 
proposal to exclude carriage revenues from the fee calculation "is simply beyond the pale, as it 
would allow LECs to avoid paying any gross .revenue fee by the simple expedient of providing 
"cable" service through an affiliate.263 Conversely, NCTA and the Alliance for Community 
Media, et al. argue that NYNEX's proposal to include only those revenues derived from carriage 
in the fee calculation would understate the revenues derived from open video service,264 ignores 
the significance of the statute's use of the term "cable service" instead of carriage, and would 
create a fee that is not nearly equivalent to the franchise fee imposed on cable operators.265
2. Discussion
119. We generally reaffirm our conclusions in the Second Report and Order. We 
continue to believe that our interpretation represents the best reading of Section 653(c)(2)(B). 
We will, however, clarify our rule to make clear our intent that local governments have the 
authority to charge and receive the gross revenue fee. In addition, consistent with Congress' 
intent of ensuring "parity among video providers,"266 we will clarify that any advertising revenues 
received by an open video system operator or its affiliates in connection with the provision of 
video programming should be included in the fee calculation, where such revenues are included 
in the incumbent cable operator's franchise fee calculation.
260U S West Petition at 8.
26'NATOA Opposition at 3-5 (arguing that an open video system operator's carriage and other non-subscriber 
revenues that would not exist "but for" the operator's provision of video services must also be included in the fee 
calculation).
262Michigan Cities, et al. Opposition at 5-6.
263See NCTA Opposition at 6 (emphasis in original).
265Alliance for Community Media, et al. Opposition at 6. 
"'Conference Report at 178.
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Federal Communications Commission FCC 96-334
120. Those petitioners seeking to include the gross revenues of unaffiliated 
programming providers in the fee calculation have largely repeated arguments made by the 
National League of Cities, et al. earlier.267 In our view, those arguments fail to account for the 
clear statutory language that the gross revenues fee applies to the open video system operator's 
revenues relating to its provision of cable service.268 We also disagree with these petitioners that 
our formulation necessarily will result in lost revenues to local governments. Petitioners assume 
that an entity would build the same system, whether it was going to provide cable service or open 
video service. This may not be accurate. For example, an open video system operator may have 
additional incentives to build a large capacity system in order to be assured of a sufficient number 
of channels to compete head-to-head with the incumbent cable operator. Similarly, whether the 
fee that a local government receives is greater or lesser than the incumbent cable operator pays 
will vary depending upon the relative channel capacity of the systems, the amount of channel 
capacity occupied by the open video system operator, and the carriage rates the operator is able 
to negotiate with unaffiliated providers.269
121. On the other hand, we do not agree with the Telephone Joint Petitioners and 
NYNEX that the revenues of an open video system operator's affiliates should be excluded from 
the calculation of the gross revenue fee. Section 653(c)(2)(B) applies to gross revenues 
attributable to an open video system operator's "provision of cable service." Under the 
Communications Act, "cable service" is defined as "the one-way transmission to subscribers of 
(i) video programming, or (ii) other programming service . . . "27  Thus, to the extent that an 
open video system operator employs an affiliate to provide video programming to subscribers, 
the revenues that its affiliate receives from subscribers are subject to the gross revenues fee.271 
To hold otherwise would place form over substance and would create a disparity between open 
video system operators that use affiliates to provide video programming and those that provide 
programming themselves. The Telephone Joint Petitioner's proposal to exclude carriage revenues 
from the fee calculation would widen this potential difference. There is no indication in Section
26''See, e.g., National League of Cities, et al. Comments (filed April 1, 1996) at 45-46, and Reply Comments 
(filed April 11, 1996) at 38-39. We address the Fifth Amendment argument raised by the National League of Cities, 
et al. and NATOA in Section III.F.5., below.
""Communications Act § 653(c)(2)(B), 47 U.S.C. § 573(c)(2)(B).
269In addition, we find no ground for Dade County's belief that any difference in the total fees assessed on an 
incumbent cable operator and a competing open video system would entitle the cable operator to be released from 
its franchise agreement. The gross revenues fee provision is part of Congress' overall open video framework. The 
fact that, in relation to cable, Congress' open video framework imposes certain obligations and provides certain 
benefits, does not constitute actionable "discrimination." Dade County Petition at 3.
""Communications Act § 602(6), 47 U.S.C. § 522(6).
271On similar grounds, we reject NYNEX's proposal to apply the gross revenues fee only to carriage revenues 
received by the open video system operator, whether from affiliated or unaffiliated programming providers. See 
NYNEX Petition at 3-9.
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____ Federal Communications Commission_______FCC 96-334
653(c)(2)(B) that Congress intended to limit "gross revenues of the operator" to those revenues 
derived solely from the sale of its own programming. Indeed, the Telephone Joint Petitioner's 
proposal could result in an open video system operator that provided its programming through 
an affiliate paying little or no fee, contrary to Congress' intent "to ensure parity among video providers."272
122. Finally, we agree with NYNEX and U S West that the application of the gross 
revenues fee provision should not disadvantage any particular video programming provider. Like 
the costs of PEG and must-carry, we believe that the gross revenues fee is a cost of the platform 
~ in this case, the cost of using the rights-of-way ~ that should be shared equitably among all 
users of the system. We therefore will permit open video system operators to recover the gross 
revenues fee from all video programming providers on a proportional basis as an element of the 
carriage rate.
F. Applicability of Title VI Provisions
1. Public, Educational and Governmental Access Channels
a. Establishing Open Video System PEG Access Obligations 
(1) Background
123. In the Second Report and Order, the Commission found that open video system 
operators should in the first instance be permitted to negotiate their PEG access obligations with 
the relevant local franchising authority and, if the parties so desire, the local cable operator.273 
We also provided a default mechanism in case an agreement cannot be reached, whereby the open 
video system operator will be required to satisfy the same PEG access obligations as the local 
cable operator.274 We stated that this could be accomplished through connection to the local cable 
operator's PEG access channel feeds and by sharing the costs directly related to supporting PEG 
access, including the costs of PEG equipment and facilities, and equipment necessary to achieve 
the connection.275
124. Alliance for Community Media, et al. state that the Commission must require the 
open video system operator to add PEG resources to those provided by the existing cable operator 
as opposed to cutting those resources in half and forcing entities providing PEG access to perform
"Conference Report at 178.
mSecond Report and Order at para. 137.
274/rf. at para. 141.
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Federal Communications Commission FCC 96-334
more services on existing budgets.276 National League of Cities, et al. claim that because a cable 
operator's PEG access obligations are established by franchise agreement, the Commission may 
not reduce them.277 Furthermore, according to National League of Cities, et al.. the Commission 
mistakenly assumes that a community has obtained all the PEG support it needs from the cable 
operator.278 National League of Cities, et al. claim that the local franchising authority has the 
right to obtain additional compensation in the form of PEG from the open video system
970operator.
125. Telephone Joint Petitioners assert that the Commission's approach may remove a 
local franchising authority's incentive to negotiate PEG access obligations that do not match or 
exceed those of the incumbent cable operator. In addition, Telephone Joint Petitioners claim that 
the Commission's approach may give local franchising authorities the power to demand other 
obligations from open video system operators.280 According to Telephone Joint Petitioners, if no 
agreement with the local franchising authority can be reached, an open video system operator 
should be permitted a third option of demonstrating (either in a complaint proceeding before the 
Commission or in arbitration) that it is not possible to satisfy the local franchising authority's 
demands or to duplicate exactly the PEG access obligations of the cable operator, or that the open 
video system operator's proposal is different but "no greater or lesser" than the local cable 
operator's obligations.28' NATOA argues that this third option urged by Telephone Joint 
Petitioners would allow an open video system operator to be able to impose its own conception 
of equivalent support unilaterally and would not allow local communities to take a proactive role
"'Alliance for Community Media, et al. Petition at 6; see also National League of Cities, et al. Petition at 14; 
City of Indianapolis Petition at 2 (unclear whether cable operators' obligations are to be doubled or halved); 
Cablevision Opposition at 8 (the Commission has cited no evidence supporting its conclusion that duplication of PEG 
facilities would be inefficient and not in the public interest); Michigan Cities, et al. Opposition at 12-13.
277National League of Cities, et al. Petition at 14; see also Alliance for Community Media, et al. Petition at 6 
(a cable operator and an open video system operator cannot share an existing contractual commitment to the local 
franchising authority); Michigan Cities, et al. Opposition at 12 (the Commission cannot abrogate existing franchise 
agreements with respect to PEG access requirements by allowing the cable operator to reduce its contractual 
obligations).
""National League of Cities, et al. Petition at 14-15; see Michigan Cities, et al. Opposition at 12 (open video 
systems should increase the local PEG access availability to subscribers). But see NYNEX Opposition at 8.
279National League of Cities, et al. Petition at 15. But see NYNEX Opposition at 8.
""Telephone Joint Petitioners Petition at 13-14. But see NATOA Opposition at 7 (the LECs provide no support 
for their claim that local franchising authorities could or would attempt to extract other concessions); Michigan Cities, 
et al. Opposition at 12 (the Commission's approach provides no incentive for the open video system operator to 
negotiate with the local franchising authority).
28 'Telephone Joint Petitioners Petition at 14-15. But see Alliance for Community Media, et al. Opposition at 4-5 
(opposing binding arbitration in the event of a stalemate).
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Federal Communications Commission FCC 96-334
in establishing open video system PEG access obligations.282
126. According to Comcast, because cable operators do not have a "default mechanism" 
of interconnection if their franchise negotiations with the local franchising authority fail, the open 
video system rules fail to ensure that the open video system's PEG access obligations are "no 
greater or lesser" than those of the cable operator.283 Comcast also contends that neither the cable 
operator nor the open video system operator should be required to agree to a connection and cost 
sharing arrangement, and that, if an open video system operator and the cable operator do agree 
to connect their PEG access channel feeds and cost share, the open video system operator and 
the cable operator should be required to negotiate the terms and conditions of the sharing and 
connection.284 NCTA claims that forced connection with the cable operator's channel feeds 
violates the 1996 Act's mandate to ensure that the open video system's PEG access obligations 
are "no greater or lesser" than those of the cable operator.285 NCTA also asserts that requiring 
such connection is inconsistent with the statutory proscription against regulating cable systems 
as common carriers.286
127. In their opposition, Telephone Joint Petitioners also ask the Commission to 
eliminate the requirement for open video systems to share hi the costs of facilities or equipment 
for PEG access, claiming that open video systems are required to provide only channel capacity 
for PEG access.287 They claim that a local franchising authority's power to require cable 
operators to provide PEG-related services, facilities and equipment is derived from Section 621,
282NATOA Opposition at 6.
283Comcast Petition at 8. But see Telephone Joint Petitioners Opposition at 9; NYNEX Opposition at 7 (the 
Commission's decision recognizes that open video system operators are not required to negotiate franchises but are 
required to provide PEG access, and that it is not efficient to require that a burden be suffered twice where it can 
be satisfied once).
284Comcast Petition at 11-12; see also NCTA Petition at 16 (absent a voluntary agreement with a cable operator 
to share PEG facilities, an open video system operator must meet its PEG access obligations independently).
285NCTA Petition at 16; see also Cablevision Opposition at 5-8 (connection and cost sharing impose more costs 
and burdens on the cable operator than on the open video system operator and therefore contravene the 1996 Act 
and unfairly benefit open video system operators); Michigan Cities, et al. Opposition at 12, 13 (simply connecting 
and sharing costs are not satisfying the same PEG access requirements). But see MFS Communications Opposition 
at 6 (cost sharing will result in apportioning the burdens on both open video system and cable operators and will be 
more efficient than requiring duplicate facilities).
286NCTA Petition at 16; see also Cablevision Comments at 4. But see Telephone Joint Petitioners Opposition 
at 7-8; NYNEX Opposition at n.18 (the Commission's approach does not burden cable companies as "PEG utilities," 
but instead reduces their contractual franchise burden through cost sharing); USTA Opposition at 11-12 (stating that 
the Commission's rule is entirely within Congress' directive to speed the introduction of competition for the cable 
incumbents, and that to require separate PEG facilities would be inefficient and burdensome).
287'Telephone Joint Petitioners Opposition at 8-9.
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Federal Communications Commission FCC 96-334
28$not Section 611, and therefore cannot be extended to open video systems.
128. In addition, Municipal Services, et al. request that the Commission clarify that 
existing LECs seeking to provide open video system service may be required in their 
telecommunications franchise to provide PEG access.289 City of Indianapolis asserts that by not 
allowing local franchising authorities to require specific channel alignment for PEG access 
channels, the Commission has given open video system operators the ability to realign PEG 
access channels on a whim and presents identity and logistical problems for many access 
channels, especially those that are known simply by channel number.290
(2) Discussion
129. We continue to believe that open video system operators should in the first instance 
be permitted to negotiate their PEG access obligations with the relevant local franchising 
authority and, if the parties so desire, the local cable operator. Furthermore, we continue to 
believe that it is necessary to have a default mechanism in case the open video system operator 
and the local franchising authority are unable to agree. We disagree with Comcast that open 
video system operators should be required to negotiate with local franchising authorities.291 
Providing a "backstop" is an appropriate balance between imposing Section 611 's requirements 
and not imposing franchise requirements on open video systems. If the open video system 
operator matches the PEG access obligations of the cable operator, the actual PEG access 
obligations imposed on the open video system operator will be, as the statute requires, to the 
extent possible no greater or lesser than those imposed on the cable operator. This is true even 
if the open video system operator's obligations are established through our default mechanism 
and the cable operator's obligations are established through negotiation and the franchise process.
130. After considering the arguments made by the various petitioners, we believe, 
however, that some modification of our rule regarding how to establish open video system PEG 
access obligations is appropriate. We believe that imposing Section 611 obligations on open 
video system operators so that to the extent possible the obligations are "no greater or lesser" man 
those imposed on cable operators means that, in the absence of an agreement with the local 
franchising authority, an open video system operator must match, rather than share, the annual 
PEG access financial contributions of the local cable operator. Under our current rule, open
"'Municipal Services, et al. Petition at 5-7; see also Telephone Joint Petitioners Opposition at 7 (whether existing 
rights-of-way agreements cover open video systems is a matter between the LEG and the local government or private 
property owner).
290City of Indianapolis Petition at 3-4.
29]See Telephone Joint Petitioners Opposition at 9-10 (it is the 1996 Act not the Commission's default mechanism 
that relieves open video system operators of the requirement to negotiate with local franchising authorities).
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Federal Communications Commission FCC 96-334
video system operators are required to match the PEG access channel capacity provided by the 
local cable operator, but are required to share the contributions towards PEG access services, 
facilities and equipment. Our modified rule will apply the matching principle which we have 
applied to channel capacity also to PEG contributions that cable operators make, and that are 
actually used for PEG access services, facilities and equipment. For instance, if a cable operator 
makes an annual contribution of $15,000 that is used to purchase PEG access equipment, the 
open video system operator will now be required to do likewise.
131. For in-kind contributions (e.g., cameras, production studios), we believe that 
precise duplication would often be unnecessary, wasteful and inappropriate. Instead, open video 
system operators may work out mutually agreeable terms with cable operators over in-kind 
equipment, studios and the like so that PEG service to the community is improved or increased 
and the open video system operator fulfills its statutory obligation. As a backstop, however, we 
will permit the open video system operator to pay the local franchising authority the monetary 
equivalent of the depreciated in-kind contribution, or in the case of facilities, the annual 
amortization value. Any matching PEG access contributions provided by an open video system 
operator are to be used by the local franchising authority to fund activities arising under Section 
611. We believe that information on the cable operator's PEG access contributions should be 
available to the local franchising authority, since a cable operator's monetary costs of complying 
with franchising requirements, including PEG access requirements, are identified as "external 
costs" under our cable rate rules.292
132. We decline to modify our rule-that requires the local cable operator to permit the 
open video system operator to connect with the cable operator's PEG access channel feed.293 We 
clarify, however, that any costs associated with the open video system operator's connection to 
the cable operator's PEG access channel feed shall be borne by the open video system operator. 
These costs shall be counted towards the open video system operator's matching obligation 
described above. Contrary to NCTA's assertion, we do not believe that this connection 
requirement impermissibly treats cable operators as common carriers. The connection 
requirement here is far different from a common carrier interconnection requirement.294 We are 
not requiring the local cable operator to permit others to interconnect with and use their cable 
system to reach consumers.295 Rather, we are simply requiring the local cable operator to provide
292See 47 C.F.R § 76.922(c)(3)(iv)(C).
293The connection requirement we affirm herein is not intended to affect any copyright protections applicable to 
PEG access channel feeds.
"'See, e.g., Communications Act § 251(c)(2), 47 U.S.C. § 251(c)(2).
™See Southwestern Bell Telephone Co. v. FCC, 19 F.3d 1475, 1480 (D.C. Cir. 1994), citing National Ass 'n of 
Reg. Utility Commissioners, 533 F.2d 601, 608-09 (D.C. Cir. 1976) (two characteristics of a "common carrier" are 
that the entity: (1) deals indifferently with the public; and (2) provides a system on which customers transmit 
intelligence of their own design and choosing).
20283
____ Federal Communications Commission_______FCC 96-334
its PEG access channel feed to a particular competitor that shares a similar PEG access obligation 
in order to avoid an unnecessary duplication of facilities and promote Congress' goal of 
competitive entry.
133. We do not agree with Telephone Joint Petitioners that the open video system 
operator should be allowed to decide unilaterally how to satisfy its PEG access obligations, 
subject to a complaint before the Commission or arbitration. This approach would be inefficient 
and would increase the burdens on the local franchising authority, as well as the Commission.296 
Telephone Joint Petitioners' approach does not allow the local communities, which we recognized 
in the Second Report and Order are often in the best position to determine the needs and interests 
of the local community,297 to participate effectively in establishing open video system PEG access 
obligations.298 We believe that the Telephone Joint Petitioners' argument that the adopted 
approach will reduce a local franchising authority's incentive to negotiate is misplaced. Our 
approach should not be used to coerce local franchising authorities into agreeing to less than what 
Section 653(c)(2)(A) provides, specifically "... obligations that are no greater or lesser" than the 
obligations imposed on cable operators. In addition, as NATOA states, the record in this 
proceeding does not contain any evidence that local franchising authorities will use their ability 
to negotiate open video system PEG access obligations to obtain other concessions.299
134. We also disagree with Telephone Joint Petitioners with respect to whether open 
video system operators are required under the statute to provide more than channel capacity for 
PEG access. Telephone Joint Petitioners argue that, because open video system operators are 
required only to provide channel capacity, and not programming or other services, cable operators 
and local franchising authorities must cooperate in providing access to existing PEG programming 
feeds. Telephone Joint Petitioners also claim that the Commission has erroneously included the 
provision of "services, facilities or equipment which relate to PEG use" as a PEG access 
requirement to be imposed on open video systems. As stated in the Second Report and Order, 
Section 611(c) permits a local franchising authority to enforce any requirement in a franchise 
regarding the provision or use of PEG channel capacity, including provisions for services, 
facilities or equipment which relate to PEG use of channel capacity.300 This provision 
incorporates the requirement of providing PEG access services, facilities and equipment into 
Section 611 and therefore, as applied through Section 653(c), imposes a responsibility on open 
video system operators to contribute toward PEG access services, facilities and equipment to the
296See Alliance for Community Media, et al. Opposition at 4-5.
^Second Report and Order at para. 137.
2985ee NATOA Opposition at 6.
™Id. at 7.
30C'Second Report and Order at para. 142; Communications Act § 611(c), 47 U.S.C. § 531(c).
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Federal Communications Commission FCC 96-334
  same extent as the local cable operator.301 We therefore refuse to modify our rule as requested 
by Telephone Joint Petitioners.
135. In response to the request of Municipal Services, et al., we clarify that the 
negotiated PEG access obligations of an open video system operator may be enforced regardless 
of where and when the agreement is made.302 Regarding City of Indianapolis's assertion that 
channel alignment should not be at the discretion of the open video system, we affirm our 
decision in the Second Report and Order that there is insufficient evidence to support mandating 
that PEG access channels be carried at the same channel location on the open video system 
operator as on the cable system.303 City of Indianapolis has presented no new evidence or 
argument not presented to the Commission before.
b. Establishing Open Video System PEG Access
Obligations Where No Local Cable Operator Exists
(1) Background
136. We stated in the Second Report and Order by way of example that if a cable 
system converts to an open video system, the operator will be required to maintain the previously 
existing terms of its PEG access obligations.304 Alliance for Community Media, et al. assert that 
if a common carrier buys the facilities of a cable operator, and at the expiration of the franchise 
term converts the system into an open video system, the PEG access obligations at the time of 
the purchase should not necessarily be retained by the open video system operator. Alliance for 
Community Media, et al. contend that this would leave many communities without PEG access 
as only 16% of cable systems have PEG access obligations.305 Alliance for Community Media, 
et al. suggest that the local franchising authority should be able to request PEG access obligations 
at the time the cable system converts to an open video system, and then once every ten years
'"'Telephone Joint Petitioners claim that the Commission misinterpreted the legislative history of the 1996 Act 
by relying on language in the Conference Report which explained language in H.R. 1555 which was not carried over 
to the 1996 Act as adopted. Telephone Joint Petitioners Opposition at 9. We note that our primary reliance was 
and is on the statute itself, and that, as described above, Section 611(c) together with Section 653(c) impose an 
obligation on open video system operators to contribute toward PEG services, facilities and equipment to the same 
extent as the local cable operator.
M2See also Telephone Joint Petitioners Opposition at 7. 
3mSee Second Report and Order at para 141 n.329. 
™ld. at para. 151.
305We believe that many of these cable systems with PEG access obligations are located in large urban areas, and 
therefore that the percentage of cable subscribers nationwide that receive PEG access channels may be far higher than
16%.
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____ Federal Communications Commission_______FCC 96-334
thereafter.306
(2) Discussion
137. Our discussion in the Second Report and Order regarding the establishment of 
open video system PEG access obligations where no local cable operator exists was not intended 
to foreclose a local franchising authority from negotiating with the open video system operator. 
The discussion, which was premised on the idea that the local franchising authority and the open 
video system operator may in the first instance negotiate the operator's PEG access obligations, 
was intended to explain how to establish open video system PEG access obligations where no 
local cable operator exists and the local franchising authority and the open video system operator 
cannot agree.307 The parties are therefore free to negotiate PEG access obligations as Alliance 
for Community, et al. request.308 As stated in the Second Report and Order, however, if the open 
video system operator and the local franchising authority cannot agree, the operator must make 
a reasonable amount of channel capacity available for PEG use. In the Second Report and Order, 
we found that where a cable franchise previously existed, such as where a cable system is able 
to convert to an open video system, what constitutes a reasonable amount of channel capacity is 
to be governed by the previously existing franchise agreement with respect to PEG access 
obligations.309 This approach was formulated to comply with the statutory requirement that to 
the extent possible the PEG access obligations of open video system operators are to be no 
greater or lesser than those imposed on cable operators.310
138. While we do not believe that Congress intended open video system PEG access 
obligations to correct deficiencies in what the local franchising authority negotiated for cable 
operator PEG access obligations, we also recognize the concern that PEG access requirements 
should not be frozen in time in perpetuity. We will therefore modify our approach for a situation 
in which there was a previously existing cable franchise, such as where a cable system converts 
to an open video system, and provide that, when the open video system operator and the local 
franchising authority cannot agree on PEG access obligations, the local franchising authority may 
either keep the previously existing PEG access obligations or may elect to have the open video 
system operator's PEG access obligations determined by comparison to the franchise agreement
306Alliance for Community Media, et al. Petition at 8-9; see also Michigan Cities, et al. Opposition at 12-13.
3mSee Second Report and Order at para. 151 ("Where there is no local cable operator and the open video system 
operator and the local franchising authority cannot agree on appropriate PEG access obligations, . . .").
308As stated above, Alliance for Community Media, et al. propose that the local franchising authority be permitted 
to request PEG access obligations once every ten years. The local franchising authority and the open video system 
operator are free to negotiate as often as the wish. We conclude that, if the parties cannot agree, however, the open 
video system operator's PEG access obligations should be re-established every 15 years, as discussed below.
3WSecond Report and Order at para. 151.
3l°See Communications Act § 653(c), 47 U.S.C. § 573(c).
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Federal Communications Commission FCC 96-334
for the nearest operating cable system that has a commitment to provide PEG access and that 
serves a franchise area with a similar population size. The local franchising authority shall be 
permitted to make a similar election every 15 years thereafter. We believe the PEG access 
obligations should be revisited every 15 years (unless the parties otherwise agree) because this 
is a common term length of a franchise agreement.311 This approach will allow PEG access 
obligations to change over time with the needs and interests of the communities, rather than being 
frozen in perpetuity simply because a cable system has been converted to an open video system. 
With this modification, we otherwise affirm our decision regarding open video system PEG 
access obligations where no local cable operator exists as contained in the Second Report and 
Order.
c. Provision of PEG Access Channels to All Subscribers
(1) Background
139. In the Second Report and Order, the Commission found that PEG access channels 
should be provided to all subscribers, but that open video system operators should have the 
flexibility to determine how all subscribers will receive access channels, i.e., whether to provide 
a basic programming tier similar to that provided by cable systems, or to require unaffiliated 
video programming providers to offer PEG access channels to their subscribers.312 NCTA 
believes that to make implementation more certain and enforcement more likely the Commission 
should institute a national approach to the required delivery of must-carry and PEG channels to 
subscribers, rather than leaving the method of implementation to the open video system operator. 
According to NCTA, programmers and packagers should not be responsible for PEG and must- 
carry provision if subscribers purchase these channels from another source.313 USTA states that 
the Commission correctly determined that the open video system operator should have discretion 
over the manner in which it would fulfill its PEG access obligations.314
(2) Discussion
140. We affirm our decision that PEG access channels should be provided to all 
subscribers, but that open video system operators should have the discretion to determine how 
best to accomplish this. As stated in the Second Report and Order, this flexibility will permit 
the operator to provide PEG access channels in an efficient manner while not diminishing the
* ]]See, e.g., National League of Cities, et al. Petition at Appendices 1-5 (four of the five franchise agreements 
attached to the Petition are for a term of 15 years; one is for a term of ten years).
3}2Second Report and Order at para. 153. 
3 "NCTA Petition at 15. 
3HUSTA Opposition at 11.
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Federal Communications Commission FCC 96-334
/
provision of the PEG access channels to the community.315 NCTA provides no new arguments 
or evidence as to why we should change our decision. NCTA simply restates its position 
previously presented in its comments which the Commission rejected.
d. Open Video System PEG Obligations Where
System Overlaps with More than One Franchise Area
(1) Background
141. The Second Report and Order stated that open video system operators should be 
required to satisfy the PEG access obligations for all franchise areas with which their systems 
overlap.316 Telephone Joint Petitioners assert that, from a technical standpoint, open video 
systems may be configured in a potentially significantly different manner than cable systems, and 
that the Commission therefore erred hi relying on cable operators' claims that it is possible to 
configure overlapping systems in order to meet multiple PEG access requirements.317
(2) Discussion
142. While we do not disagree with Telephone Joint Petitioners that open video systems 
may be configured differently from cable systems, as Alliance for Community Media, et al. point 
out, Telephone Joint Petitioners provide insufficient support for why open video systems will not 
be able to be configured to comply with the PEG access obligations for each franchise area with 
which each system overlaps.318 In fact, Michigan Cities, et al. demonstrate that, in at least one 
situation, it is indeed possible.319 We therefore deny Telephone Joint Petitioners' petition with 
respect to this matter.
e. Institutional Networks 
(1) Background
143. With regard to institutional networks, we stated in the Second Report and Order 
that Section 611 does not specifically authorize local franchising authorities to require cable 
operators to build institutional networks, and that we would therefore not require open video
315'Second Report and Order at para. 153. 
316A/. at para. 154-155.
"'Telephone Joint Petitioners Petition at 14-15. But see Alliance for Community Media, et al. Opposition at 5; 
NATOA Opposition at 7; Michigan Cities, et al. Opposition at 15-16.
318Alliance for Community Media, et al. Opposition at 5. 
3 "Michigan Cities, et al. Opposition at 15-16.
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Federal Communications Commission FCC 96-334
system operators to build institutional networks. We also provided that if an open video system 
operator does build an institutional network, the local franchising authority may require that 
educational and governmental access channels be designated on that network to the extent such 
channels are designated on the institutional network of the local cable operator.320 Alliance for 
Community Media, et al. state that, under Section 653(c)(2)(B), an open video system operator 
must provide institutional networks if a cable operator is required to provide institutional 
networks. If such a requirement is not imposed on open video system operators, according to 
Alliance for Community Media, et al., the open video system operator is not contributing towards 
PEG access obligations to the same extent as the cable operator.321 Alliance for Community 
Media, et al. believe it is "an incongruous reading of Section 611 that a franchising authority 
could require that an OVS operator require educational and governmental access on an 
institutional network without being able to require construction of the underlying network."322 
City of Indianapolis asks that we clarify what an institutional network is, apparently because "the 
Act forbids municipalities from asking for telecommunication services from cable operators as 
part of a franchise agreement, which is what the cable industry is claiming an I-NET is."323
144. Michigan Cities, et al. assert that local franchising authorities have the power under 
Section 611 to require cable operators to provide institutional networks, and that they should 
therefore be permitted to require them of open video system operators. According to Michigan 
Cities, et al., the Commission must defer to the local franchising authorities on the interpretation 
of Section 611,324 Similarly, National League of Cities, et al. contend that institutional networks 
are entirely a creature of PEG, and that the open video system operator must therefore have 
exactly the same institutional network requirements as the cable operator.325
145. USTA supports our interpretation of Section 611. USTA asserts that the fact that 
cable operators are resisting efforts by local franchising authorities to require the building of 
institutional networks is not a viable basis to misconstrue Section 611, and that the requiring open 
video system operators to build institutional networks would serve as a disincentive for LECs
™Second Report and Order at para. 143; see also Communications Act § 611, 47 U.S.C. § 531.
"'Alliance for Community Media, et al. Petition at 7; see also Michigan Cities, et al. Petition at 19 (the "no 
greater or lesser" requirement is not met unless institutional network requirements are met on a franchise area by 
franchise area basis).
322Alliance for Community Media, et al. Petition at 7; see also Michigan Cities, et al. Petition at 14; National 
League of Cities, et al. Petition at 16.
323City of Indianapolis Petition at 2; see also Communications Act § 621(b)(3)(D), 47 U.S.C. § 541(b)(3)(D).
""Michigan Cities, et al. Petition at 13-14.
"'National League of Cities, et al. Petition at 16. But see Telephone Joint Petitioners Opposition at 4-5.
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Federal Communications Commission FCC 96-334
326to enter the video marketplace through open video systems.
(2) Discussion
146. We affirm our decision to preclude local franchising authorities from requiring 
open video system operators to build institutional networks327 because the cable operator is 
required to do so under the terms of its franchise agreement. Because there is confusion over our 
interpretation of Section 611 as it applies to institutional networks, however, we make the 
following clarifications. Contrary to the understanding of certain petitioners,328 we agree that 
institutional networks may be required of a cable operator, but we do not agree that this 
requirement is found in Section 611.329 As stated in the Second Report and Order, Section 611 
only provides that a local franchising authority may require that channel capacity on institutional 
networks be designated for educational or governmental use and does not authorize local 
franchising authorities to require cable operators to build institutional networks.330 The building 
of an institutional network is a requirement negotiated in the franchise agreement.331 Section 
621(b)(3)(D), as added by the 1996 Act, makes clear that a local franchising authority may 
require a cable operator to provide institutional networks as a condition of the initial grant,
326USTA Opposition at 10-11.
327As stated above, City of Indianapolis requests that we clarify what an institutional network is. As stated in 
the Second Report and Order, institutional networks are defined in Section 611. Second Report and Order at n.334. 
Section 611(f) defines an institutional network as a communications network which is constructed or operated by 
the cable operator and which is generally available only to subscribers who are not residential subscribers. 
Communications Act § 611(f), 47 U.S.C. § 531(f). We decline to define institutional networks other than as the 
statute states. See, however, Michigan Cities, et al. Petition at 10-13 describing examples of the functions of 
institutional networks. As stated above, City of Indianapolis expresses concern over the definition of institutional 
networks apparently because the 1996 Act forbids municipalities from asking for telecommunication services from 
cable operators as part of a franchise agreement, "which is what the cable industry is claiming an I-NET is." City 
of Indianapolis Petition at 2. We note that Section 621(b)(3)(D), which contains the prohibition to which City of 
Indianapolis appears to be referring, specifically excludes institutional networks. See Communications Act § 
621(b)(3)(D), 47 U.S.C. § 541(b)(3)(D). Although institutional networks may be telecommunications services, local 
franchising authorities are not restricted from requiring them.
3MSee, e.g., Michigan Cities, et al. Petition at 14 and Opposition at 13-14.
329See Telephone Joint Petitioners Opposition at 3-4 (the issue is not whether local franchising authorities may 
require institutional networks, but whether that right is derived from Section 611).
330Seeond Report and Order at para. 143. We note that Michigan Cities, et al. misquotes Section 611 as 
providing that local franchising authorities may require "channel capacity for institutional networks." See Michigan 
Cities, et al. Petition at 15. Furthermore, contrary to the claim of Michigan Cities, et al., the Commission does not 
have to defer to local franchising authorities in interpreting Section 611, a federal statute.
33>See, e.g., Michigan Cities, et al. Petition at 15-16.
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Federal Communications Commission FCC 96-334
renewal or transfer of a franchise.332 Pursuant to Section 653(c)(l)(C), open video system 
operators are not subject to franchise requirements, so we cannot apply an institutional network 
requirement to open video systems.333
147. While institutional networks may or may not function like PEG access as National 
League of Cities, et al. assert^ the statutory definition is broader than merely PEG use. We do 
not agree that precluding the local franchising authority from requiring an open video system 
operator to build an institutional network, but permitting the local franchising authority to require 
channel capacity on a network if an open video system operator does build one, is inconsistent, 
as Michigan Cities, et al. suggest.334 Rather, once an open video system operator decides to build 
an institutional network, the 1996 Act's mandate that an open video system operator's PEG 
access obligations be no greater or lesser than ihose of the cable operator become operative. We 
thus deny the petitions for reconsideration with respect to this matter.
2. Must-Carry and Retransmission Consent
a. Background
148. In the Second Report and Order, the Commission promulgated rules pursuant to 
Section 653(c)(l) that apply the provisions of Sections 325, 614, and 615 to open video system 
operators certified by the Commission.335 In applying these provisions to open video system 
operators, we attempted to impose obligations that were, to the extent possible, "no greater or 
lesser" than the obligations imposed on cable operators.336
149. Sections 614 and 615 set forth a cable operator's "must-carry" obligations 
regarding local commercial and local noncommercial educational television signals, 
respectively.337 They require that cable operators set aside a portion of their capacity for carriage 
of qualified local broadcast stations. Section 325 sets form a cable operator's retransmission
'"Communications Act § 621(b)(3)(D), 47 U.S.C. § 541(b)(3)(D). See also Telephone Joint Petitioners 
Opposition at 5 (the separate references to Section 611 and institutional networks contained in Section 621(b)(3)(D) 
indicate that Congress understood that Section 611 is not the source of any right that franchising authorities may have 
to require cable operators to provide institutional networks). We also note that National League of Cities, et al. are 
therefore wrong when they state that the only mention in the Cable Act of institutional networks is in Section 611. 
See National League of Cities, et al. Petition at 16.
mSee Telephone Joint Petitioners Opposition at 4-5. 
"*See Michigan Cities, et al. Petition at 14.
"'See Second Report and Order at paras. 157-70; Communications Act § 653(c)(l), 47 U.S.C. § 573(c)(l). 
"'See Communications Act § 653(c)(2)(A), 47 U.S.C. § 573(c)(2)(A). 
"'Communications Act §§ 614, 615, 47 U.S.C. §§ 534, 535.
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Federal Communications Commission FCC 96-334
consent obligations, which generally prohibit cable operators and other multichannel video 
programming distributors from carrying a commercial broadcast station without obtaining the 
station's consent.338 Local commercial stations seeking carriage must choose to proceed according 
to either the must-carry or retransmission consent requirements.339 Stations choosing to proceed 
under must-carry are entitled to insist on carriage in their local market area.340 Stations choosing 
to pursue carriage through retransmission consent must negotiate the terms of a carriage 
arrangement with a multichannel video programming distributor, and may receive compensation 
in return for carriage.341 Non-local commercial stations may also be carried by a cable system 
pursuant to a retransmission consent agreement because Section 325 applies to broadcast stations 
in general.342
150. In the Second Report and Order, the Commission found that our must-carry and 
retransmission consent rules should apply to open video systems in largely the same manner as 
they currently apply to cable systems.343 We stated that the operator of an open video system 
must "ensure that every subscriber on the open video system receives all appropriate must-carry 
channels carried in accordance with our rules," and we provided open video system operators the 
flexibility to choose the most appropriate method of complying with this requirement.344 In 
addition, as with cable systems that span multiple television markets, we gave open video system 
operators the option of providing must-carry broadcast stations to all of the subscribers on their 
systems or configuring their systems so that subscribers only receive the signals of eligible 
television broadcast stations in their local market.345 The Commission also found that with 
respect to must-carry and retransmission consent elections, certain anomalies might result as a 
consequence of the potentially vast size of open video systems. We found that it was not 
necessary for broadcast stations to apply the same election to all cable and open video systems 
serving the same geographic area.346
151. In its petition for reconsideration, NCTA recommends that the Commission specify
"'Communications Act § 325, 47 U.S.C. § 325.
"'Communications Act § 325(b)(3)(B), 47 U.S.C. § 325(b)(3)(B).
""Communications Act §§ 614(a), 615(a), 47 U.S.C. §§ 534(a), 535(a).
"'Communications Act § 325, 47 U.S.C. § 325.
™Id.
™See Second Report and Order at paras. 160-61.
wld. at para. 162.
™Id. at para. 166.
346Id. at para. 169.
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Federal Communications Commission FCC 96-334
exactly how an open video system operator must satisfy its obligation to provide must-carry 
signals to all subscribers.347 NCTA argues that if the Commission imposed some mechanism akin 
to the cable "basic tier" requirement, implementation would be more certain and enforcement 
would be easier.348 NCTA also urges the Commission to find that programmers are not 
responsible for providing must-carry signals to subscribers if subscribers purchase those signals 
from some other source.349
152. ALTV urges the Commission to prohibit an open video system's widespread 
carriage of local signals beyond a station's local market area.350 First, ALTV argues that the rule 
allowing cable operators to "narrowcast" the must-carry signals to the particular areas or to 
deliver signals throughout a system should not be applied to open video systems.351 ALTV argues 
that unlike the cable systems that were already established when the must-carry rules were 
adopted, open video systems are still being designed and can be built to distribute must-carry 
signals to specific local markets.352 ALTV also argues that stations will not be able to use 
retransmission consent outside of their local markets if open video systems carry these stations 
beyond their local markets pursuant to the must-carry rules.353 Finally, ALTV argues that stations 
may encounter prohibitive copyright fees if open video systems are eventually subject to the cable 
compulsory license.354 It argues that on very large open video systems that are not configured 
to limit distribution of must-carry signals to the station's local market, the copyright fees will be 
prohibitively high, since the open video system operator will be allowed to recover from the 
station all such fees incurred as a result of carriage beyond the station's local market area.355
153. In response, NYNEX argues that the Commission should avoid creating "stringent 
regulatory solutions" for problems characterized by NYNEX as "speculative."356 NYNEX also 
suggests that the issues raised by ALTV may be irrelevant because open video systems have not 
yet been developed and may be able to "carry programming to households on a selective,
347NCTA Petition at 15.
350ALTV Petition at 1.
351The term "narrowcast," as used in this section, means the transmission of a signal to a limited geographic area.
352ALTV Petition at 1.
™Id
"'Id at 3.
355W. at 1-3.
356NYNEX Opposition at 9.
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Federal Communications Commission FCC 96-334
'addressable' basis."357
154. Tele-TV recommends that the Commission reconsider its decision not to require 
broadcasters to make the same election among open video systems and cable systems serving the 
same geographic area.358 Tele-TV argues that the Commission's decision is inconsistent with its 
finding that the technical and size differences between open video systems and large cable 
systems are insufficient to warrant application of significantly different must-carry and 
retransmission consent rules.359 Tele-TV submits that if broadcasters are allowed to make 
different elections, they may discriminate between open video systems and cable systems in areas 
serving the same subscribers.360 It states that such a rule could result in unfair situations, such 
as open video systems being forced to pay for competitively valuable signals that are provided 
to cable systems for free.361 Tele-TV asserts that the Commission need not assume that large 
open video systems will be unable to provide signals to specific parts of their systems pursuant 
to either must-carry or retransmission consent.362 It argues that the Commission's current rule 
should apply until an open video system operator is able to certify to broadcasters that made 
different elections in different franchise areas that its system is capable of operating in conformity 
with those elections.363 U S West supports Tele-TV's proposal.364
155. ALTV opposes Tele-TV's recommendation that the Commission reconsider its 
decision to permit broadcasters to make different must-carry and retransmission consent elections 
for open video systems and cable systems serving the same geographic area. ALTV argues that 
Tele-TV has failed to show that the Commission's findings in the Second Report and Order were 
inconsistent or unreasonable.365 It further argues that it is speculative for Tele-TV to suggest that 
open video systems may be able to implement different must-carry/retransmission consent 
elections in different areas served by their systems.366
357W. See also Joint Telephone Petitioners Opposition at 14-15 (arguing that network efficiencies will drive open 
video system configurations rather than attempts to game the must-carry/retransmission consent rules).
358Tele-TV Petition at 8-13.
™Id. at 8-9.
360M at 9-10.
367rf.
362M at 12.
363Id. at 13.
3MU S West Opposition at 6-7.
365ALTV Opposition at 2-3.
™Id. at 3.
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Federal Communications Commission FCC 96-334
b. Discussion
156. In the Second Report and Order, the Commission considered and rejected 
suggestions similar to NCTA's that we specifically require the use of a basic tier-type 
arrangement in order to provide all subscribers on a system with the signals carried in fulfillment 
of the must-carry requirements.367 As we noted in the Second Report and Order, the basic tier 
requirement is contained hi Section 623 of the Communications Act, which does not apply to 
open video systems.368 NCTA has presented no new evidence in support of a basic tier 
requirement. We therefore decline to adopt NCTA's request. We agree with NCTA, however, 
that video programming providers should not be required to duplicate must-carry programming 
already provided to subscribers from another source.
157. The Commission recognizes ALTV's valid concern that stations electing must-carry 
status will have to reimburse open video system operators for extensive copyright fees that may 
result from carriage beyond their local market areas.369 As ALTV notes, these dangers may be 
avoided if open video system operators tailor the distribution of must-carry signals to the parts 
of their system that are located within a station's local market.370 We believe that our rules 
provide open video system operators with an incentive to design and construct their systems with 
this capability. Where an open video system has such a capability, we will require open video 
system operators to limit the distribution of must-carry signals to the appropriate local markets, 
unless a local broadcast station consents otherwise. If an open video system operator cannot limit 
its distribution of must-carry signals in this manner, the open video system operator will be 
responsible for any increase in copyright fees and may not pass through such increases to the 
local station electing must-carry treatment.371
158. Finally, we agree with Tele-TV and U S West that we should amend our current 
rule that allows broadcasters to make different elections among open video systems and cable 
systems serving the same geographic area.372 The "common election" requirement is contained 
in Section 325(b)(3)(B): "If there is more than one cable system which services the same 
geographic area, a station's election shall apply to all such cable systems."373 In Section 653(c),
361Second Report and Order at para. 163.
368^
369ALTV Petition at 3. 
370M at 4.
"'The Commission does not here intend to prejudge the issue of the applicability of the cable compulsory license 
to open video systems.
372Tele-TV Petition at 12-13; U S West Opposition at 6-7. 
. ™See Communications Act § 325(b)(3)(B), 47 U.S.C. § 325(b)(3)(B)
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Federal Communications Commission FCC 96-334
Congress provided that Section 325 should apply to open video system operators, to the extent 
possible, no greater or lesser than it applies to cable operators.374 By directing equal treatment 
under Section 325, we believe that Congress intended to remove Section 325 as a distinguishing 
factor between those entering the video marketplace as a cable operator and those entering as an 
open video operator. Thus, since LECs and other entities entering the video marketplace as 
overbuilding cable operators would be entitled to rely upon Section 325's common election 
requirement, we believe that overbuilding open video system operators should be entitled to do 
the same. To hold otherwise would tip the balance in favor of the traditional cable option in a 
manner that Congress did not intend.
159. In the Second Report and Order, however, we found that as a practical matter the 
potential size differences between open video systems and cable systems could make common 
election on overlapping cable and open video systems infeasible.375 We agree with Tele-TV that 
our concern in the Second Report and Order may no longer apply to the extent that an open 
video system can tailor the distribution of local broadcast stations to the appropriate 
communities.376 As noted above, we believe that our rules provide open video system operators 
with an incentive to construct their systems with this "narrowcast" capability.377 We will 
therefore amend our rules to require that broadcasters make the same election for open video 
systems and cable systems serving the same geographic area unless the overlapping open video 
system is unable to deliver appropriate signals in conformance with the broadcast station's 
elections for all cable systems serving the same geographic area.
3. Program Access
a. Background
160. In the Second Report and Order, we concluded that, pursuant to Section 
653(c)(l)(A), the program access restrictions should apply to the conduct of open video system 
operators in the same manner as they are currently applied to cable operators and common 
carriers or their affiliates that provide video programming directly to subscribers.378 We 
concluded that it was most appropriate to apply Section 628 to open video system operators by 
creating parallel provisions for cable operators and open video system operators, such that, for 
example, open video system operators are prohibited from entering into exclusive agreements with 
satellite programming vendors in which an open video system operator has an attributable interest,
""Communications Act § 653(c), 47 U.S.C. § 573(c).
375ALTV supports the rule we adopted in light of this potential difficulty. ALTV Opposition at 2-3. 
376Tele-TV Petition at 12. 
"''See supra at Section III.F.2.b. 
,1,. 37tSecond Report and Order at para. 175.
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Federal Communications Commission FCC 96-334
but are permitted to enter into an exclusive agreement with a satellite programming vendor in 
which a cable operator has an attributable interest.379 We also stated that, in order to effectuate 
the purposes of the program access statute in the open video system context, open video system 
programming providers should be subject to the program access provisions. Specifically, we 
concluded that we would extend our program access rules to prohibit cable-affiliated satellite 
programmers and cable-affiliated open video system programming providers from entering into 
exclusive programming agreements, unless the Commission first determines that the exclusive 
arrangement is in the public interest under the factors listed in Section 628(c)(4).380 Finally, we 
found that open video system programming providers that provide more than one channel of 
programming clearly fit within the definition of an MVPD and that they are therefore entitled to 
the benefits of the program access provisions.381
161. NCTA and Rainbow ask the Commission to reconsider its decision to apply the 
program access rules to video programming providers on an open video system.382 They argue 
that the Commission impermissibly extended the exclusivity provisions of Section 628 to open 
video system video programming providers, contrary to the plain language of Section 
653(c)(l)(C), which extends the program access rules solely to open video system operators.383
162. Rainbow also argues that the Commission's interpretation of the 1996 Act 
contravenes the policy underlying open video systems.384 Rainbow states that by giving 
competing video programming providers the right to access each other's programming, the 
Commission has undermined the competition and diversity open video systems were intended to 
promote.385 Rainbow cautions that if the Commission expands the program access rules to open 
video system programming providers, Rainbow will be forced to provide its programming directly 
to its potential competitors and will have no incentive to use open video systems on its own.386
mld. at paras. 176-177, 179.
™Id at paras. 186-194.
38 7rf at paras. 195-196.
382NCTA Petition at 10; Rainbow Petition at 6. See Second Report and Order at para. 182.
383NCTA Petition at 10; Rainbow Petition at 6-9.
""Rainbow Petition at 10.
385Id. at 11; see also NCTA Petition at 11 (arguing .that the effect of the Order's prohibition on certain exclusive 
arrangements between programmers and open video system video programming providers will reduce competition 
among such providers).
3KId. at 12. Conversely, in its opposition to petitions for reconsideration, RCN argues that under Rainbow's 
model "only OVS programming providers that are affiliated with satellite programmers (most of whom are also 
affiliated with cable operators) could survive." RCN at 8.
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Federal Communications Commission FCC 96-334
163. USTA and NYNEX support the Commission's decision to apply the program 
access rules to open video system video programming providers.387 USTA argues that despite 
claims by cable incumbents, "parity of access is an essential pre-condition for LECs to provide 
meaningful competition to incumbent cable operators, due to the concentration of control over 
vast portions of... programming among a handful of vertically integrated cable operators."388 
RCN characterizes Rainbow and NCTA's arguments as "merely an attempt by cable affiliated 
entities to maintain their dominant market position despite the procompetitive policy of the 1996 
Act."389 RCN submits that the Commission's application of Section 628 to open video system 
programming providers is based on the 1992 Cable Act, and that the Commission had no need 
to rely on the extension of that provision in the 1996 Act.390
164. Rainbow further objects to the Commission's conclusion that open video system 
programmers qualify as multichannel video programming distributors ("MVPDs").391 Rainbow 
argues that Congress declined to add open video system video programming providers to the list 
of representative entities under the definition of MVPDs in Title VI.392 Rainbow asserts that this 
omission is significant, in that the listed MVPDs all operate the vehicle for distribution (e.g., 
cable, MMDS, DBS), whereas open video system video programming providers distribute their 
product on a common platform in direct competition with other programming providers.393
165. In opposition to Rainbow's argument that programming providers are not MVPDs, 
MPAA, RCN, and Tele-TV argue that open video system programming providers are MVPDs, 
based on the illustrative, not exhaustive, list of MVPDs set forth in Section 602(13).394 MPAA, 
RCN and Tele-TV argue that open video system video programming providers clearly fit the 
definition of MVPD because they "make available for purchase, by subscribers or customers, 
multiple channels of programming."395
387USTA Opposition at 6; NYNEX Opposition at 15-16.
""Rainbow Petition at 7.
389RCN Opposition at 3-4.
™Id. at 4.
'"Rainbow Petition at 17.
392W. at 18.
™ld
394MPAA Comments at 3; RCN Opposition at 9-10; Tele-TV Opposition at 1-2.
"'Communications Act § 602(13), 47 U.S.C. § 522(13). See MPAA Comments at 3; RCN Opposition at 9-10; 
Tele-TV Opposition at 1-2.
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Federal Communications Commission FCC 96-334
166. NCTA contends that the Commission erred in applying the exclusivity provisions 
of Section 628 to contracts between cable-affiliated satellite programmers and cable-affiliated 
open video systems video programming providers.396 NCTA contends that the exclusivity 
prohibitions in Sections 628(c)(2)(C) and (D) apply only to exclusive contracts between cable 
operators and cable-affiliated satellite programmers.397 NCTA points out that Sections 
628(c)(2)(C) and (D) do not say "cable operator or its affiliate."m Nor, according to NCTA, is 
the Commission authorized to reach such exclusive arrangements under Section 628(b), since 
628(b) is limited by its plain language to unfair or deceptive acts or practices of a cable operator, 
not a cable-affiliated open video system programming provider.399
167. Finally, NCTA argues that the Second Report and Order impermissibly precludes 
individual vertically integrated satellite programmers from marketing directly to open video 
system subscribers unless they accept a "duty to deaT' with open video system video programming 
providers on the system.400 NCTA submits that there is nothing per se unreasonable or 
anticompetitive about a supplier choosing to retail directly to customers.401 In any event, NCTA 
submits that the Commission cannot artificially create and discriminate against a subclass of the 
open video system technology (i.e., open video system programming providers).402
b. Discussion
168. We believe that our initial interpretation applying the provisions of Section 628 
to open video system programming providers is reasonable and should stand. First, Rainbow and 
NCTA's argument that Congress limited the applicability of the program access rules to open 
video system operators was expressly considered and rejected in the Second Report and Order.403 
Nevertheless, we will take this opportunity to reiterate the basis for our decision. We reject 
NCTA's challenge to our authority to apply the exclusivity provisions of Section 628(c)(2)(C) 
and (D) to the exclusive arrangements between satellite programmers in which a cable operator 
has an attributable interest and open video system programming providers in which a cable 
operator has an attributable interest. The structure of Section 628 confers broad authority on the
396NCTA Petition at 11.
"'Rainbow Petition at 11.
398NCTA Petition at 12 (emphasis in original).
™Id.
"*Id at 13.
mld
W2Id. at 14.
403See Second Report and Order at paras. 182, 186.
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Federal Communications Commission FCC 96-334
Commission to adopt regulations in order to promote "the public interest ... by increasing 
competition and diversity in the multichannel video programming market and the continuing 
development of communications technology."404 Congress required that such regulations specify 
particular conduct prohibited by Section 628(b), which makes it:
unlawful for a cable operator, a satellite cable programming vendor in which a 
cable operator has an attributable interest, or a satellite broadcast programming 
vendor to engage in unfair methods of competition or unfair or deceptive acts or 
practices, the purpose or effect of which is to hinder significantly or to prevent 
any [MVPD] from providing satellite cable programming or satellite broadcast 
programming to subscribers or consumers.405
Therefore, we reject NCTA's argument that Section 628(b) and our implementing regulations 
only apply to the conduct of cable operators. Our regulations clearly can extend to the conduct 
of cable-affiliated satellite programmers, including, of particular relevance here, the manner in 
which such programmers deal with open video system programming providers.
169. Moreover, as we stated in the Second Report and Order, Section 628(b) authorizes 
the Commission to adopt additional rules to accomplish the program access statutory objectives 
"should additional types of conduct emerge as barriers to competition and obstacles to the broader 
distribution of satellite cable and broadcast programming."406 The Commission has called Section 
628(b) a "clear repository of Commission jurisdiction" to address those obstacles.407 By entitling 
Section 628(c) "Minimum Contents of Regulations," Congress gave the Commission authority to 
adopt additional rules that will advance the purposes of Section 628; it did not limit the 
Commission to adopting rules only as set forth in that statutory provision.408
170. As we stated in the Second Report and Order, an exclusive contract between a 
cable-affiliated video programming provider on an open video system and a cable-affiliated 
programmer presents many of the same concerns as an exclusive contract between a cable 
operator and a vertically integrated satellite programming vendor. A primary objective of the
^Communications Act § 628(c)(l), 47 U.S.C. § 548(c)(l). 
""Communications Act § 628(b), 47 U.S.C. § 548(b).
W6See Second Report and Order at para. 186; First Report and Order in MM Docket No. 92-265 ("First Report 
and Order"), 8 FCC Red 3359, 3374; Implementation of Cable Television Consumer Protection and Competition Act 
of 1992: Development of Competition and Diversity in Video Programming Distribution and Carriage, Memorandum 
Opinion and Order on Reconsideration of the First Report and Order in MM Docket No, 92-265 ("DBS Order"), 
10 FCC Red 3105, 3126-3127 (1994).
^First Report and Order, 8 FCC Red at 3374.
A°*See RCN Opposition at 6 (discussing the Commission's broad mandate to adopt additional regulations that it 
finds necessary to effectuate the purpose of Section 628(b)).
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Federal Communications Commission FCC 96-334
program access requirements is the release of programming to existing or potential competitors 
of traditional cable systems so that the public may benefit from the development of competitive 
distributors.409 Exclusive arrangements among cable-affiliated open video system programming 
providers and cable-affiliated satellite programmers may impede the development of open video 
systems as a viable competitor to cable.410 NCTA and Rainbow fail to challenge or address these 
concerns.
171. Second, we believe that the benefits of the program access provisions apply to 
open video system providers. Contrary to Rainbow's arguments, open video system programming 
providers fall within the definition of MVPDs, which Section 628 identified as the intended 
beneficiaries of the program access regime.411 Specifically, in response to Rainbow's argument 
that Congress did not amend Section 602(13.) to add open video system video programming 
providers to the list of MVPDs, we agree with.MPAA, Residential Communications and Tele-TV 
that the list of entities enumerated in that section is expressly a non-exclusive list. Section 
602(13) states that the term MVPD "means a person such as, but not limited to, a cable operator, 
a multichannel multipoint distribution service, a direct broadcast satellite service. . ., "412 We 
also agree with those commenters that asserted that open video system video programming 
providers fit the definition of MVPD because they make "available for purchase, by subscribers 
or customers, multiple channels of video programming.413 Furthermore, we find Rainbow's 
argument that video programming providers cannot qualify as MVPDs because they may not 
operate the vehicle for distribution to be unsupported by the plain language of Section 602(13), 
which imposes no such requirement.414 The conclusion that open video system programming 
providers are MVPDs is further supported by the amendment to the effective competition "test' 
of Section 623(d) added by the 1996 Act.415 That section explicitly refers to "a local exchange 
carrier or its affiliate (or any multichannel video programming distributor using the facilities of 
such carrier or its affiliate)."416 In light of these factors, an open video system video
""See Second Report and Order at para. 188. 
™Seeid. at paras. 189-191.
*"See, e.g., Communications Act § 628(b), 47 U.S.C. § 548(b) (prohibiting certain conduct which "hinder[s] 
significantly or [prevents] any multichannel video programming distributor from providing satellite cable 
programming or satellite broadcast programming to subscribers or consumers.")
"''Communications Act § 602(13), 47 U.S.C. § 522(13) (emphasis added).
wld.
'"See also Tele-TV Opposition at 2 (the fact that most open video system programming providers will use 
another party's network has no relevance under Section 602(13)).
"'Communications Act § 623(d), 47 U.S.C. § 543(d) (emphasis added). 
"''Communications Act § 623(1)(1)(D), 47 U.S.C. § 543(1)(1)(D).
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Federal Communications Commission FCC 96-334
programming provider clearly constitutes such an MVPD.
172. Third, we reject NCTA's argument that intra-system competition would be harmed 
by applying the program access rules to cable-affiliated video programming providers on an open 
video system. As we stated in the Second Report and Order, our concern is the same as in the 
cable context   that a cable operator would use its control over programming to keep that 
programming from other competing MVPDs. Specifically, as we stated in the Second Report and 
Order, we are concerned that exclusive arrangements among cable-affiliated open video system 
programming providers and cable-affiliated satellite programmers may serve to impede 
development of open video systems as a viable competitor to cable to the extent that popular 
programming services are denied to open video system operators or unaffiliated open video 
system programming providers that seek to. package such programming for distribution to 
subscribers.
173. We reiterate that the prohibition, absent a Commission public interest finding, on 
exclusive contracts applies only to contracts between cable-affiliated satellite programmers and 
cable-affiliated open video system programming providers and contracts between satellite 
programmers affiliated with an open video system operator and open video system programming 
providers affiliated with an open video system operator.417 We note that, consistent with the DBS 
Order, a vertically integrated satellite programmer is not generally restricted from entering into 
an exclusive contract with an MVPD that is not affiliated with a cable operator, although such 
a contract is subject to challenge under Section 628(b) of the Communications Act and Section 
76.1001 of the Commission's rules.418
174. Finally, we disagree with NCTA's contention that by applying the program access 
rules to open video system video programming providers, the Commission has deemed retailing 
directly to customers to be patently unreasonable or anticompetitive. The open video system rules 
do not prohibit any open video system video programming provider from selling directly to 
customers. Rather, the open video system rules address dealings between satellite programmers 
(in particular, those affiliated with cable operators and open video system operators) and open 
video system programming providers.
"''Rainbow's comments misleadingly fail to make the distinction between cable-affiliated video programming 
providers and non-affiliated video programming providers.
*™See Second Report and Order at paras. 184-85. -See also MPAA Opposition at 3 (under the principles of the 
DBS Order, the program access rules do not preclude an exclusive arrangement by a cable-affiliated satellite 
programming vendor and a non-cable MVPD (including an open video system MVPD)).
20302
_____ Federal Communications Commission ____FCC 96-334
4. Sports Exclusivity, Network Non-Duplication and Syndicated Exclusivity
a. Background
175. In the Second Report and Order, the Commission prescribed regulations pursuant 
to Section 653(b)(l)(D) that "extend to the distribution of video programming over open video 
systems the Commission's regulations concerning sports exclusivity (47 C.F.R. 76.67), network 
non-duplication (47 C.F.R. 76.92 et seq. ), and syndicated exclusivity (47 C.F.R. 76.151 et seq. ).419 
These regulations allow the holders of certain exclusive rights to prohibit cable systems from 
carrying various sports, network and syndicated programming within specified geographic zones.420
176. In the Second Report and Order, we generally found that our exclusivity and non- 
duplication rules should be applied to open video systems in the same manner as they apply to 
cable systems.421 Specifically, the Commission found that open video system operators should 
be responsible for compliance with our exclusivity and non-duplication rules.422 In order to 
account for the administrative differences between open video systems and cable systems, the 
Commission provided that all notices of exclusive or non-duplication rights must be received by 
the open video system operator. We further required that the open video system operator make 
all such notices immediately available to all appropriate video programming providers so that they 
have the opportunity to either delete or substitute signals where possible.423 The Commission 
recognized that some systems would be configured to allow individual programmers to substitute 
or delete the necessary signals. Therefore, we decided that an operator would not be subject to 
our sanctions when that operator provided proper notices to the necessary programming providers 
and took prompt steps to stop distribution of the infringing program once it was notified of a 
violation.424
177. The Joint Sports Petitioners request that the Commission reconsider its findings 
regarding sports exclusivity because the current rules give sports teams and leagues holding 
exclusive rights less protection than they receive in the cable context.425 The Joint Sports 
Petitioners argue that our rules improperly permit open video system operators to escape liability
^Second Report and Order at paras. 199-204.
42047 C.F.R. §§ 76.67, 76.92-.97 and 76.151, .153-.159, .163.
™ Second Report and Order at para. 201.
mld. at para. 202.
mld. at para. 204.
Joint Sports Petitioners Petition at 2.
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Federal Communications Commission FCC 96-334
if they notify the appropriate unaffiliated programming providers of the request for deletion and 
take steps to stop the distribution of infringing programs once they are notified of a violation.426 
The Joint Sports Petitioners argue that, unlike network non-duplication and syndicated exclusivity, 
sports exclusivity requires infrequent deletions that cannot be re-couped once missed.427 The Joint 
Sports Petitioners suggest that the Commission require that the open video system operator always 
be responsible for compliance even after notifying programming providers and taking steps after 
a violation occurs.428 The Joint Sports Petitioners suggest that open video system operators be 
allowed to require indemnification as a condition of carriage, for any monetary sanctions it may receive.429
178. Further, the Joint Sports Petitioners ask the Commission to clarify that it is not 
necessary for a sports team or league to notify both the individual programming providers and 
the open video system operator.430 They also ask that the Commission make clear when such 
notifications will be deemed to have been made "immediately available" to a programmer and 
suggest that the Commission require open video system operators to transmit such notices to the 
necessary program providers on the same day that they are received.431
179. In its opposition, MFS urges the Commission not to alter the open video system 
rules regarding sports exclusivity.432 It argues that open video system operators will be 
unnecessarily burdened if they are required to do anything more than notify individual 
programming providers of any notifications they receive.433 For instance, the Joint Telephone 
Petitioners argue that operators should not be placed in the middle of such disputes because they 
risk liability from either the party claiming exclusive rights or the programmer depending on 
who's directions they follow.434
180. In its petition for reconsideration, U S West asks the Commission to provide 
guidance as to the necessary "prompt steps" that must be taken by an open video system operator
t2"Id at 2-3.
mld. at 3.
428W.
™ld at 3 n.4.
wld at 4.
wld.
432MFS Communications Opposition at 8.
433Id. at 8-9.
'"Joint Telephone Petitioners Opposition at 12.
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Federal Communications Commission FCC 96-334
in order to avoid being subject to sanctions for any violation of our non-duplication and 
exclusivity rules.435 U S West suggests that the Commission avoid the complication of involving 
the operator by placing the compliance burden on the alleged violator, the video programming 
provider.436 Alternatively, U S West suggests that the Commission find that sanctions will not 
be imposed on open video system operators if proper notice has been given to the programming 
providers that have allegedly violated the rules.437 In its opposition, NYNEX argues that open 
video system operators cannot ensure compliance.438 It submits that the individual video 
programmers on an open video system should be responsible for blocking distribution of 
necessary signals or negotiating over the validity of any claims of exclusive or non-duplication rights.439
b. Discussion
181. Upon reconsideration, we grant the petition filed by the Joint Sports Petitioners 
regarding our current rule governing sports exclusivity. We find merit in their position that, 
unlike network non-duplication and syndicated exclusivity, sports exclusivity requires infrequent 
deletions that cannot be recouped once missed. We believe that our rule that extends the 
Commission's regulations concerning sports exclusivity to open video systems must be amended 
in order to preserve the same level of protection received by sports teams and leagues in the cable 
context.440 While we hold open video system operators responsible for compliance with our rules, 
we also recognize that they are forced by the structure of an open video system to rely, to a 
degree, on individual programming providers who may dispute a claim of exclusivity or may 
attempt to substitute a signal for the signal that is to be deleted.
182. In the Second Report and Order, we stated that the open video system operator 
would be responsible for compliance with these rules and would be liable if it failed to delete 
signals once it was made aware that a violation had occurred.441 We amend our rule to provide 
that open video system operators will be subject to sanctions for any violation of our sports
435U S West Petition at 5.
436W. See also Joint Telephone Petitioners Opposition at 11-12.
437U S West Petition at 5.
438NYNEX Opposition at 14.
wld. at 14-15. See also Joint Telephone Petitioners Opposition at 11-12.
'""We are also not persuaded by the arguments raised in the oppositions filed by MFS Communications and 
NYNEX. In the Second Report and Order, the Commission considered and rejected proposals similar to those made 
by NYNEX that we hold the individual programming providers on the system responsible for compliance with our 
sports exclusivity rules. Second Report and Order at paras. 202-203.
^Second Report and Order at paras. 202-204.
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Federal Communications Commission FCC 96-334
exclusivity rules. Operators generally may effect the deletion of signals for which they receive 
deletion notices unless they receive notice within a reasonable time from the appropriate 
programming provider that the rights claimed are invalid. If a programmer challenges the 
validity of claimed exclusive or non-duplication rights, the open video system operator shall not 
delete the signal. However, we agree with the Joint Sports Petitioners that an open video system 
operator should be allowed to require indemnification as a condition of carriage for any sanctions 
it may incur in reliance on a programmer's claim that certain exclusive or non-duplication rights 
are invalid.442
183. Contrary to the further concerns mentioned by the Joint Sports Petitioners, our 
current rules do not require a sports team or league to provide notifications to individual video 
programming providers in addition to the open video system operator. The holder of exclusive 
or non-duplication rights is, of course, free to notify individual programming providers when it 
notifies the open video system operator as required by our rules. In addition, our rules require 
an open video system operator to make the notices it receives "immediately available" to the 
appropriate programming providers on its system.443 Given the different types of systems and 
different circumstances in which notice will be provided, we do not believe at this time that a 
specific time requirement is necessary or appropriate.
184. We also deny U S West's petition for reconsideration which suggests that the 
Commission hold individual programming providers responsible for" compliance with our 
exclusivity and non-duplication rules, and asks the Commission to further define the "prompt 
steps" that must be taken by an operator in order to avoid liability after a violation of our rules 
has occurred.444 In the Second Report and Order, the Commission responded to the issues raised 
in U S West's petition.445 U S West does not present any further evidence to support the 
adoption of different rules. We also recognize that the procedures necessary to stop the 
distribution of infringing programs may vary from system to system. Therefore, we decline to 
state the specific steps that an open video system operator will be required to take in order to 
promptly stop the further distribution of infringing programs.
5. Local Franchising Requirements
a. Background
185. In the Second Report and Order, we found that Congress' open video system 
framework permits state and local authorities to impose conditions on an open video system
442Joint Sports Petitioners Petition at 3 n.4.
443See47 C.F.R. §§ 76.1506(m)(2), 76.1508(c), 76.1509(c).
444U S West Petition at 5.
^Second Report and Order at paras. 202-204.
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Federal Communications Commission FCC 96-334
operator for use of the rights-of-way, so long as such conditions are applied equally to all users 
of the rights-of-way (i.e., are non-discriminatory and competitively neutral).446 We also found 
that, in light of Congress' stated intent, state and local governments cannot require any open 
video system operator to obtain a Title VI franchise from a state or local authority for use of 
public rights-of-way necessary to operate its open video system. We therefore concluded that a 
state or local government requirement that directs an open video system operator to obtain a Title 
VI franchise, or seeks to impose Title VI "franchise-like" requirements, directly conflicts with 
Section 653 of the Communications Act and is preempted.447 In addition, we disagreed in the 
Second Report and Order that this narrow preemption necessarily constitutes a "taking" under the 
Fifth Amendment, specifically finding that Congress has provided "just compensation" to local 
authorities for use of the public rights-of-way.448
186. Several parties representing state and local interests have requested reconsideration 
of the Second Report and Order. The National League of Cities, et al. state that, at times, the 
Order's language regarding preemption is too broad and the Commission should clarify that its 
intent was only to preempt local franchising authority under Title VI.449 In the absence of a 
specific directive from Congress, the National League of Cities, et al. argue that the Commission 
has no authority to preempt any non-Title VI local franchising requirement.450
187. The National League of Cities, et al. also reiterate its claim that any preemption 
of non-Title VI franchises would violate the Fifth Amendment.451 In particular, the National 
League of Cities, et al. argue that the Second Report and Order grossly underestimates the 
compensation due to local franchising authorities, which in the cable context goes far beyond a 
monetary franchise fee.452 Since the Second Report and Order's rules fall short of requiring that 
the open video system operator's compensation will match the cable operator's obligations (i.e., 
the market value of the public rights-of-way), the Commission has deprived the community of 
just compensation.453 Finally, the National League of Cities, et al. assert that open video systems
""See Id. at paras. 207-222.
441 Id. at paras. 208-212.
"*Id. at paras. 217-222.
"'National League of Cities, et al. Petition at 2.
™Id. at 3.
4"Id. at 4-12.
"52W. at 5-8 (noting that local governments receive compensation from cable operators that include franchise fees, 
in-kind compensation such as PEG facilities, and other community benefits such as build-out requirements, system 
design parameters and customer service standards).
4"ld. at 8-9.
20307
Federal Communications Commission FCC 96-334
will impose massive costs on local governments for the repair and maintenance of the rights-of- 
way, including costs attributable to street cuts, paving and repaving.454
188. In addition, the National League of Cities, et al. and the City of Indianapolis argue 
that the Second Report and Order mistakenly equates the 1996 Act's "non-discriminatory and 
competitively neutral" standard for local management of the public rights-of-way with "equal" 
treatment, which is a far more inflexible standard.455 The Village of Schaumburg, while it 
concurs with the Commission's statement that local authorities may ensure the public safety in 
the use of rights-of-way by "gas, telephone, electric, cable and similar companies, "requests that 
the Commission clarify that "similar companies" includes open video system operators.456 The 
Village of Schaumburg also states that the Second Report and Order does not outline mechanisms 
for local governments to impose terms and .conditions on the use of the rights-of-way, and 
requests the Commission to require open video system operators to enter into contractual 
agreements with local authorities regarding such use.457
189. Municipal Services, et al. contend that municipalities in a majority of states have 
existing franchises with their LECs, pursuant to state laws that require the telephone company 
to obtain local authorization prior to using the public rights-of-way. Municipal Services, et al. 
request the Commission to state that LECs using the public rights-of-way for open video service 
remain subject to pre-existing and otherwise valid telephone franchise requirements.458
190. In response, NYNEX argues that the arguments of the National League of Cities, 
et al. are based on a "fundamentally flawed misunderstanding."459 The source of local 
governments' cable franchising authority, according to NYNEX, is Part III of Title VI of the 
Communications Act, and Congress clearly stated in the 1996 Act that local governments did not 
have similar franchising authority over open video operators.460 NYNEX asserts that the National 
League of Cities, et al. compounds their error by reciting a litany of mechanisms by which local 
governments obtain in-kind compensation and services from cable operators in excess of the 
maximum permissible 5% franchise fee.461 According to NYNEX, such attempts to evade the
'"id. at 9-12.
*"Id at 13; City of Indianapolis Petition at 1.
'"Village of Schaumburg Petition at 1.
'"Id at 2.
'"Municipal Services, et al. Petition at 2-6.
45»NYNEX Opposition at 18.
AWId at 18-19.
461 Id. at 19.
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Federal Communications Commission FCC 96-334
5% limit through the franchise process was precisely the concern that led Congress to establish 
the 5% cap in the first place   a concern that Congress may have had in mind when it exempted 
open video system operators from local franchise requirements and provided instead for a 
payment in lieu of franchise fee.462
191. US West also disagrees with the National League of Cities, et al. that the 
Commission does not have the authority to preempt non-Title VI state and local franchise 
requirements.463 U S West argues that, contrary to the claim of the National League of Cities, 
et al., the key is not how such requirements are labeled, but their effect. If the local requirements 
are Title Vl-like requirements that would frustrate Congress' intent in adopting the 1996 Act's 
open video provisions, the Commission has sufficient authority to preempt any such requirements; 
whereas if the local requirements are non-discriminatory and competitively neutral, the 
Commission would have no grounds for preemption.464
192. In their response, the Telephone Joint Petitioners object to the suggestion that local 
authorities should have the same degree of regulatory control over open video that Congress has 
permitted them to exercise over cable service.465 The Telephone Joint Petitioners argue that both 
open video and cable are activities in interstate commerce, over which Congress is supreme.466 
According to the Telephone Joint Petitioners, the Commission therefore must follow Congress' 
direction limiting local regulation of open video to non-discriminatory and competitively neutral 
management of public rights-of-way, and prescribing the "compensation" that local authorities 
may receive for use of the rights-of-way.467
b. Discussion
193. We thoroughly explained the bases of our findings in the Second Report and Order 
on these issues.468 No parties on reconsideration raise any arguments that lead us to revisit our 
conclusions therein. We continue to believe that the general distinction we adopted reflects 
Congress' stated intent: state and local authorities may manage the public rights-of-way in a non- 
discriminatory and competitively neutral manner, but may not impose Title VI franchise or Title
462 Id. at 20 (quoting Memorandum Opinion and Order in the Matter of United Artists Cable of Baltimore, FCC 
96-188 (released April 26, 1996) at para. 17).
463U S West Opposition at 5-6.
Telephone Joint Petitioners Opposition at 6.
'8See Second Report and Order at paras. 207-222.
20309
Federal Communications Commission FCC 96-334
VI "franchise-like" requirements on open video system operators.
194. We do, however, clarify our decision in several respects. First, we clarify that the 
preemption is limited to Title VI or Title VI "franchise-like" requirements, and does not extend 
to all types of potential franchises. If, for example, a state or local government characterizes 
permission to use the public rights-of-way as a "franchise," such franchises are not preempted so 
long as they are issued in a non-discriminatory and competitively neutral manner. We agree with 
U S West that the key in this regard is not how such requirements are labeled, but their effect. 
If the local requirements are Title Vl-like requirements that would frustrate Congress' intent in 
adopting the 1996 Act's open video provisions, we continue to believe they are preempted.
195. Second, we clarify that "non-discriminatory and competitively neutral" treatment 
does not necessarily mean "equal" treatment. For instance, it could be a non-discriminatory and 
competitively neutral regulation for a state or local authority to impose higher insurance 
requirements based on the number of street cuts an entity planned to make, even though such a 
regulation would not treat all entities "equally." Third, we clarify that when the Second Report 
and Order stated that local authorities may ensure the public safety in the use of rights-of-way 
by "gas, telephone, electric, cable and similar companies," an open video system would qualify- 
as a "similar company."
196. In addition, we continue to disagree with the National League of Cities, et al. that 
the narrow preemption in the Second Report and Order violates the Fifth Amendment. First, 
although the National League of Cities, et al. assert that the Second Report and Order "grossly 
underestimates" the compensation due to local authorities, they fail to address the Commission's 
finding that the "before and after" test ~ in which the measure of compensation is the difference 
in the value of the property before a partial taking and the value of the property after the partial 
taking ~ is the proper test to apply.469 Second, we do not agree with the National League of 
Cities, et al. that the local community has not received just compensation unless an open video 
system operator matches the franchise and other obligations imposed upon the incumbent cable 
operator. Such a requirement would obviously render meaningless Congress' exemption of open 
video from Section 621 franchising requirements, since an open video system operator would be 
forced to comply with each of the incumbent cable operator's franchise terms or be subject to a 
Fifth Amendment "takings" claim. Third, the Second Report and Order specifically permits the 
recovery of normal fees associated with the construction of an open video system: "[A] state or 
local government could impose normal fees associated with zoning and construction of an open 
video system, so long as such fees [are] applied in a non-discriminatory and competitively neutral 
manner."470 We clarify, however, that these "normal fees associated with zoning and 
construction" should not duplicate the compensation provided by the gross revenues fee. As we
*69See Second Report and Order at para. 221 (citing United States v. 8.41 Acres of Land, 680 F.2d 388, 391 (5th 
Cir. 1982)).
mld. at para. 209.
20310
Federal Communications Commission FCC 96-334
stated in the Second Report and Order, it is apparent that the gross revenue fee "in lieu of a 
franchise fee was intended as compensation by open video system operators for use of the public 
rights-of-way.471 The National League of Cities, et al. have not explained why the fees associated 
with the construction of open video systems would be any different than the fees associated with 
any other users of the rights-of-way, and why regulations applied in a non-discriminatory, 
competitively neutral manner on all users of the rights-of-way would be insufficient to deal with 
such matters.472
197. Finally, we find that a determination of whether LECs that use the rights-of-way 
for open video service remain subject to the same conditions contained in the pre-existing 
telephone franchise agreements can only be made on a case-by-case basis in light of the particular 
agreement between the parties. Thus, we make no general conclusions here. Similarly, we do 
not believe it necessary, as the Village of Schaumburg suggests, to require open video system 
operators to enter into contractual agreements with local authorities for use of the rights-of-way. 
Management of the rights-of-way is a traditional local government function. Local governments 
should be able to manage the rights-of-way in their usual fashion without the imposition of 
unique requirements for open video service.
G. Information Provided to Subscribers 
1. Background
198. In the Second Report and Order, we stated that an open video system operator is 
not relieved of the non-discrimination provisions of Section 653(b)(l)(E)(i) if it offers a 
navigational device that works only with affiliated programming packages.473 Similarly, we found 
that an open video system operator should not be able to evade its non-discrimination obligations 
by having its affiliate nominally provide the navigational device, guide or menu.474
199. On reconsideration, the Joint Telephone Petitioners, Tele-TV, and NYNEX contend 
that Section 653(b)(l)(E) requires only that open video system operators, and not their affiliates, 
be prohibited from discriminating with respect to information provided for the selection of 
programming.475 According to the Joint Telephone Petitioners, applying this non-discrimination 
requirement to affiliated programmers effectively makes affiliates the servant of non-affiliates and
47 'See Second Report and Order at paras. 219-222. 
472See Joint Telephone Petitioners Opposition at 6. n. 13.
*73Second Report and Order at para. 23 1 .
5Joint Telephone Petitioners Petition at 2; Tele-TV Petition at 4; NYNEX Petition at 10-12.
20311
Federal Communications Commission FCC 96-334
subjects affiliates to substantial cost and competitive disadvantages.476 NYNEX states that the 
application of the requirement to affiliates should be limited to situations in which there is only 
one navigational device available on the system.477
200. The Joint Telephone Petitioners, Tele-TV, U S West and NYNEX also object to 
any implication that there will only be a single navigational device provided by the open video 
system operator or its affiliate.478 According to the Joint Telephone Petitioners, while consumers 
may only want a single navigational device, the device could be provided by any programming 
provider that has created its own navigational device.479 Tele-TV states that affiliated 
programmers will face a distinct disadvantage if they are unable to highlight their own 
programming while unaffiliated programmers are able to offer individualized navigational 
devices.480 The Joint Telephone Petitioners state that "the OVS operator may choose to allow 
programmers obtaining carriage on its system to provide such devices by making the necessary 
technical information available as part of the information provided in the open enrollment 
period."481 Similarly, NYNEX states that it will provide all programming providers with the 
necessary technical specifications for development of independent program guides and 
navigational devices.482
201. The Joint Telephone Petitioners assert that if an OVS operator chooses to allow 
programming packagers to provide their own navigational devices, the operator should be 
permitted to offer a system-wide menu or guide (electronic or paper) to all subscribers to fulfill 
its obligations under Section 653(b)(l)(E)(i) and (v).483 The guide would provide a non- 
discriminatory listing of all programming providers on the system, along with instructions on how 
to subscribe to that provider's programming.484 If the menu or guide were electronic, it would 
be part of the mandatory package of PEG and must carry channels that the operator requires as
47sJoint Telephone Petitioners Petition at 2 
477NYNEX Petition at note 16.
478Joint Telephone Petitioners Petition at 2-3; NYNEX Petition at 12; Tele-TV Petition at 3-4; U S West Petition 
at 6-7.
479Joint Telephone Petitioners Petition at 3.
"""Tele-TV Petition at 6.
'"Joint Telephone Petitioners Petition at 3.
482NYNEX Petition at 12.
483Joint Telephone Petitioners Petition at 3.
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Federal Communications Commission FCC 96-334
a condition of carriage.485 Similarly, U S West states that the non-discrimination requirement 
should be satisfied if all programming providers on the system are displayed in a non- 
discriminatory manner in an introductory guide or menu and all programming is equally 
accessible at the initial navigational level, such as a cable-ready TV set.486 Sprint states that, 
rather than applying the requirement to affiliates, the Commission should instead prohibit 
operators from providing a navigational device that only works with its affiliate.487
202. In response, the Alliance for Community Media, et al. and MPAA agree with the 
Commission's finding that the non-discrimination provisions of Section 653(b)(l)(E) apply to an 
open video system's affiliate if the affiliate, and not the operator, provides a navigational 
device.488 According to the Alliance for Community Media, et al., applying the non- 
discrimination provisions of Section 653(b)(l)(E) only to an operator when its affiliate provides 
the navigational device renders the non-discrimination provisions meaningless.489 The Alliance 
for Community Media, et al., however, recommend that, because the precise configuration of 
navigational devices is currently unknown, the Commission should state that the rules in this area 
will be revisited by the Commission as systems develop.490
2. Discussion
203. On reconsideration, we agree that video programming providers, including those 
affiliated with the open video system operator, should be permitted to develop and use their own 
navigational devices. We agree with Tele-TV and NYNEX that individualized navigational 
devices could be a factor in subscribers' choice of programming providers, thereby fostering 
innovation and competition among providers. While for technical considerations we will not 
require open video system operators to permit programming providers to use their own 
navigational devices, we do not believe that the same limitation should be placed on a provider's 
right to develop and use their own individualized guides and menus. We believe that it would 
be an impermissible term or condition of carriage under Section 653(b)(l) for an open video 
system operator to restrict a video programming provider's ability to use part of its channel 
capacity to provide an individualized guide or menu to its subscribers.
204. In light of the above decision, we believe that several safeguards are necessary to
486U S West Petition at 7.
""Sprint Opposition at 6.
""Alliance Opposition at 1-2; MPAA Opposition at 2.
""Alliance Opposition at 1-2.
"90Wat2.
20313
Federal Communications Commission FCC 96-334
effectuate congressional intent and protect unaffiliated programming providers. First, we reaffirm 
our conclusion in the Second Report and Order that an open video system operator cannot evade 
its non-discrimination obligations under Section 653(b)(l)(E) simply by having its navigational 
devices, guides, or menus nominally provided by an affiliate.491 By this statement, we meant that 
where an open video system operator provides no navigational device, guide or menu of its own, 
its affiliate's navigational device, guide or menu will be subject to the requirements of Section 
653(b)(l)(E) even though such services are not formally provided by the open video system 
operator. We therefore will continue to apply the non-discrimination requirements of Section 
653(b)(l)(E) to the open video system operator's affiliate where the affiliate provides a 
navigational device, guide or menu and-the operator does not.
205. Second, if an open video system operator permits video programming providers, 
including its affiliate, to develop and use their own navigational devices, the operator must create 
an electronic menu or guide that all video programming providers must carry containing a non- 
discriminatory listing of programming providers or programming services available on the system. 
These menus or guides should also inform the viewer how to obtain additional information on 
each of the services listed. If an operator provides a system-wide menu or guide that meets these 
requirements, its programming affiliate may create its own menu or guide without being subject 
to the requirements of Section 653(b)(l)(E).
206. Third, an open video system operator may not require programming providers to 
develop and/or use their own navigational devices. Not all programming providers will have the 
desire or the resources to supply their own navigational devices. This may be especially true of 
smaller video programming providers seeking carriage on the open video system. Upon request, 
such programming providers must have access to the navigational device used by the open video 
system operator or its affiliate. Thus, for example, an open video system operator may not 
require a subscriber of its affiliated programming package to purchase a second set-top box in 
order to receive service from an unaffiliated programming provider that does not wish to use its 
own set-top box. An open video system operator need not physically integrate such programming 
providers into its affiliated programming package, or list such programming providers on its 
affiliate's guide or menu, so long as it meets the requirement set forth in the Second Report and 
Order that no programming service on its navigational device be more difficult to select than any 
other programming service.492
H. Dispute Resolution 
1. Background
207. In the Second Report and Order, we adopted procedures for resolving disputes
^Second Report and Order at para. 231. 
492M at para. 230-31.
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Federal Communications Commission FCC 96-334
under Section 653 that are modeled after our rules governing program access disputes. Among 
other things, we decided that requiring open video system operators to disclose their carriage 
contracts with video programming providers was unnecessary and undesirable. In order to protect 
video programming providers from discrimination, we required open video system operators to 
make preliminary rate estimates available to potential video programming providers. In addition, 
we made carriage contracts subject to discovery if a complaint was filed.493 We determined that 
discovery will not be permitted as a matter of right, but on a case-by-case basis as deemed 
necessary by Commission staff.494
208. On reconsideration, the National League of Cities, et al., argue that even where 
an unaffiliated programming provider has the financial resources to file a complaint challenging 
rates as discriminatory, it must, under the Commission's pleading rules, provide documentary 
evidence or an affidavit describing the differential of which it complains.495 Yet, under the open 
video system carriage pricing rules, open video system operators are not required to disclose their 
carriage arrangements. National League of Cities, et al., argue that these rules place the 
unaffiliated programming provider in a "Catch-22" situation: it cannot file a discrimination 
complaint without evidence of other parties' rates, but it can get no evidence of others' rates until 
it files a complaint, and then can get discovery only at the Commission's discretion.496
209. Similarly, the Alliance for Community Media, et al. argue that the Commission's 
decision not to require the disclosure of carriage contracts between the open video system 
operator and programming providers, whether affiliated or unaffiliated, will significantly 
undermine the Commission's ability to enforce the non-discriminatory access provisions of the 
1996 Act.497 The Alliance for Community Media, et al. also argue that the Commission's 
decision not to require disclosure of open video system carriage contracts will result in economic 
inefficiency because some carriage rates will differ from the most efficient marginal price.498 The 
Alliance for Community Media, et al. urge that the Commission require the filing of such 
contracts with the Commission and require that any subsequent unaffiliated programming 
providers that wishes to obtain carriage be subject to the same price, terms and conditions as any 
contract already on file (with any pro rata adjustments and bulk discounts as may be necessary). 
At a minimum, the Alliance for Community Media, et al. argue, the Commission should require 
that open video system operators provide copies of contracts upon request to unaffiliated
493Id. at para. 132.
494 Id at paras. 237-238.
49iSee41 C.F.R. § 76.1513(e)(l)(viii).
"'"National League of Cities, et al. Petition at 22-23 (citing 47 C.F.R. § 76.1513(i)).
497City of Indianapolis Petition at 3; Alliance for Community Media, et al. Petition at 13-15.
""Alliance for Community Media, et al. Petition at 13-14.
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Federal Communications Commission FCC 96-334
programmers if negotiations for carriage are unsuccessful. The Alliance for Community Media, 
et al. suggest that such pre-complaint disclosure will enable aggrieved parties to determine 
whether their allegations are justified before they approach the Commission with a complaint.49"
2. Discussion
210. We disagree with the Alliance for Community Media, et al. that not mandating 
public disclosure and filing of carriage contracts will result in economic inefficiency. Economic 
efficiency is promoted by increased competition. In similar contexts, we have discussed the 
economic inefficiencies and disincentives that tariff filings have in competitive markets.500 Open 
video system operators generally will be new entrants into markets that, although characterized 
by a degree of competition, have relatively few sellers of channel capacity over which video 
programming may be offered to subscribers. In such markets, increased competition is promoted 
when sellers of capacity, such as open video system operators, can negotiate contracts privately 
with individual buyers (i.e., video programming providers), and rival sellers cannot immediately 
match the contracts' terms and conditions. Thus, our rules are designed to increase economic 
efficiency by promoting competition in video programming carriage markets.
211. In addition, we believe that the National League of Cities, et al. raise valid 
concerns that would-be complainants may lack sufficient information to file a complaint under 
our pleading rules. We believe it appropriate to give unaffiliated programming providers seeking 
carriage on open video systems some access to other programmer's carriage rates under certain 
circumstances. We first reiterate that the complaint process appropriately may be initiated when 
the unaffiliated programmer uses the preliminary rate estimates that open video system operators 
will be required to make available to potential video programming providers. To ensure that the 
open video system operator provides useful information to the would-be complainant, we clarify 
that the preliminary rate estimates must include, upon request, all information needed to calculate 
the average rate paid by the unaffiliated programmers receiving carriage on the system, including 
the information needed for any weighting of the individual carriage rates that the operator has 
included in the average rate.501 This information may be made available subject to a reasonable 
non-disclosure agreement. In addition, we reiterate that the operator's carriage contracts may be 
subject to discovery as part of the complaint procedure. We believe that this approach will
t99ld. at 14-15.
mSee, e.g., Policy and Rules Concerning the Interstate, Interexchange Marketplace, Implementation of Section 
254(g) of the Communications Act of 1934, as amended in CC Docket No. 96-61, Notice of Proposed Rulemaking 
(1996), at paras. 21-39 (proposing the elimination of non-dominant carrier tariff filing requirements for domestic 
services, and discussing costs of requiring non-dominant common carrier to file tariffs, including removing carriers' 
ability to make rapid, efficient responses to changes in demand and cost; impeding and removing incentives for 
competitive pricing discounting; and imposing costs on carriers attempting to make new offerings).
50JAs discussed in Section III.D.l. above, the complainant also may challenge the weighting methodology used 
by the open video system operator as part of its case.
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Federal Communications Commission FCC 96-334
prevent the filing of pleadings whose sole purpose is to seek rate information, while avoiding 
unnecessary regulatory intervention in the contract negotiation process.
I. Joint Marketing, Bundling and Structural Separation 
1. Joint Marketing
a. Background
212. In the Second Report and Order, we declined to impose joint marketing restrictions 
on open video system operators/noting that Congress chose not to adopt joint marketing 
restrictions in Section 653 even though it specifically applied joint marketing restrictions to other 
provisions of the 1996 Act, and restricted joint marketing in some provisions of the 1996 Act 
until the introduction of competition in the local telephone market.502 We also noted, however, 
that any entity that offers any telecommunications service will be subject to both the customer 
proprietary network information ("CPNI") restrictions set forth in Section 222 of the 
Communications Act (and any regulations the Commission establishes pursuant to Section 222), 
and that any provider of cable or open video service will be subject to the cable privacy 
restrictions set forth in Section 631.503
213. On reconsideration, NCTA asserts that, until there is "workable competition for 
local telephone service," incumbent LECs stand in a unique position with regard to any other 
supplier of telecommunications or information services, since they are frequently the first 
company contacted by new residents in an area in order to start up essential telephone service.504 
NCTA argues that the Commission should reconsider its rejection of NCTA's prior proposal to 
require incumbent LECs, in the case of inbound marketing, to advise consumers that other video 
offerings are available in their area.505 NCTA further argues that we should not infer from 
Congress' silence on joint marketing that it intended to foreclose this option, but that it left the 
issue to the Commission's discretion.506 In response, Sprint argues that NCTA's motion should 
be denied, because it has introduced no new evidence nor presented any persuasive argument that 
the Commission erred in its previous decision.507
502See Second Report and Order at paras. 246-47. 
™Id. at para. 247. 
504NCTA Petition at 21-22.
™Id. at 22.
507Sprint Opposition at 2.
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Federal Communications Commission FCC 96-334
b. Discussion
214. We again decline to adopt NCTA's proposed restriction on joint marketing. While 
we agree that Congress' silence is not determinative, in light of Congress' silence on the issue, 
we believe that the burden is on those proposing joint marketing restrictions to demonstrate that 
such restrictions are necessary. NCTA requests that open video system operators be required to 
inform incoming callers that other video service providers exist in the area. To justify such a 
requirement, NCTA, at a minimum, would have to make some showing that consumers otherwise 
would likely be unaware of the existence of other video service options, such as cable service. 
NCTA made no such showing in its initial comments and has presented no new evidence here. 
In the absence of record evidence, the Commission declines to find that consumers would be 
unaware of the existence of other video providers such as cable, especially since cable currently 
accounts for 91% of multichannel video programming subscribers nationally, and passes 96% of 
all television households.508 NCTA's petition is denied.
2. Bundling
a. Background
215. The Second Report and Order declined to prohibit "bundling,"509 but imposed 
certain safeguards to protect consumers. First, the open video system operator, where it is the 
incumbent LEG, may not require that a subscriber purchase its video service in order to receive 
local exchange service. Second, while the open video system operator may offer subscribers a 
discount for purchasing the bundled package, the LEG must impute the unbundled tariff rate for 
the regulated service.510
216. AT&T and NCTA request that the Commission reconsider its decision on bundling. 
AT&T argues that until incumbent LECs have met their obligations under Sections 251 and 252 
of the 1996 Act, and effective competition for local exchange service has emerged, incumbent 
LECs will have the incentive and ability to leverage unfairly their monopoly status into the 
emerging video market.5" AT&T asserts that incumbent LECs can foreclose their potential 
competitors from the local market by "locking in" customers with bundled offers before those
iWSee Second Competition Report in CS Docket No. 95-61, FCC 95-491 (released December 1 1, 1995) at paras.
5-7.
^Second Report and Order at para. 248. By "bundling," we stated that we meant the offering of video service 
and local exchange service in a single package at a single price, or the situation in which an entity oifers one service 
at a discount if the customer purchases another service. Id.
511 AT&T Petition at 2-3. See also NCTA Opposition at 2-3.
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Federal Communications Commission FCC 96-334
new entrants have the ability to match those offers with competitive plans of their own.512 AT&T 
asserts that this concern is not addressed by the safeguards adopted by the Commission.513 
Similarly, NCTA asserts that its concern regarding cross-subsidization is not addressed by the 
Commission's safeguards.514
217. In response, Sprint and NYNEX assert that AT&T has presented no new arguments 
or rationale for its position and that its petition should be denied.515 USTA argues that the one- 
stop shopping attacked by AT&T in the open video context is of major convenience and benefit 
to consumers, and that the Commission's Part 64 cost allocation rules and the specific safeguards 
adopted in the Second Report and Order will adequately protect consumers.516
b. Discussion
218. AT&T and NCTA's concerns were considered and addressed in the Second Report 
and Order. They adduce no new evidence here, nor have they explained why the safeguards 
adopted by the Commission are inadequate to protect consumers' interests. The petitions for 
reconsideration are denied.
219. On our own motion, we will correct a typographical error in our rule regarding the 
bundling of video and local exchange services. The current text provides, in part, that any local 
exchange carrier offering a bundled package must impute the unbundled tariff rate for the 
"unregulated service."517 The rule will be corrected to be consistent with the text of the Second 
Report and Order, which states that a bundled package must impute the unbundled tariff rate for 
the "regulated service."518
3. Structural Separation
a. Background
220. In the Second Report and Order, we declined to impose a separate affiliate 
requirement on LECs providing open video service, concluding that Congress did not intend to
512AT&T Petition at 3.
snld at 3.
5HNCTA Petition at 22.
5l5Sprint Opposition at 4; NYNEX Opposition at 9-10.
M6USTA Opposition at 8-9.
51747 C.F.R. § 76.1514.
5{*Second Report and Order at para. 248.
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Federal Communications Commission FCC 96-334
impose such a requirement.519 NCTA and the Alliance for Community Media, et al. request that 
the Commission reconsider that decision.520 NCTA argues the Commission ignored the record 
evidence supporting the need for structural separation to protect against cross-subsidization and 
discrimination, and improperly took Congress' silence on the issue as limiting its discretion to 
impose such a requirement.521 Similarly, the Alliance for Community Media, et al. asserts that 
the absence of a specific separate affiliate requirement in Section 653 does not relieve the 
Commission of its general duty to ensure competition and non-discrimination in the open video 
context.522 The Alliance for Community Media, et al. further state that requiring a separate 
affiliate "is probably the simplest and most effective way of preventing cross-subsidization and 
securing full and fair competition."523 Although the Alliance for Community Media, et al. believe 
such a requirement should become a permanent safeguard, they urge the Commission to at least 
require separate affiliates until an order is adopted in the cost allocation docket, the rules it 
approves are tested in the marketplace, and effective cost allocation rules are in place.524
221. In response, Sprint asserts that NCTA's petition advances no new evidence or 
persuasive arguments on this issue that would warrant reconsideration.525 USTA states that the 
Commission correctly concluded that a separate affiliate requirement for open video is without 
basis in the 1996 Act, and, if imposed, could "decisively affect" the Commission's balance 
between a LEC's incentives to provide open video service and its regulatory burdens.526 NYNEX 
asserts that the Telephone Joint Petitioners' argument that the Commission has the power to 
impose a separate subsidiary requirement misses the mark, and that the Commission should not 
impose such regulatory constraints and operating inefficiencies without a compelling reason.527
b. Discussion
222. We deny the motions of NCTA and the Alliance for Community Media, et al. to 
reconsider our decision in the Second Report and Order, and accordingly decline to impose a
5[<>Id at para. 249.
5205ee NCTA Petition at 23; Alliance for Community Media, et al. Petition at 2-4.
S21NCTA Petition at 23.
522Alliance for Community Media, et al. Petition at 3.
523Id. at 4.
525Sprint Opposition at 2. 
526USTA Opposition at 9-10. 
527NYNEX Opposition at 10-11.
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Federal Communications Commission FCC 96-334
separate affiliate requirement. First, while both NCTA and the Alliance for Community Media, 
et al. point out that the Commission need not be restricted by congressional silence, they both fail 
to address the point raised in the Second Report and Order that Congress expressly directed in 
Section 653 that Title II requirements not be applied to "the establishment and operation of an 
open video system."528 In addition, as we stated in the Second Report and Order, we believe that 
the Commission's Part 64 cost allocation rules and any amendment thereto will adequately protect 
regulated telephone ratepayers from a misallocation of costs that could lead to excessive telephone 
rates.529 Neither NCTA nor the Alliance for Community Media, et al. has advanced any new- 
evidence or substantive arguments that a separate affiliate requirement is a necessary additional 
safeguard to protect against cross-subsidization. We therefore do not believe that it is necessary, 
as the Alliance for Community Media, et al. suggest, to impose a separate affiliate requirement 
until new cost allocation rules are adopted and tested in the marketplace.
IV. REGULATORY FLEXIBILITY ACT ANALYSIS
223. As required by Section 603 of the Regulatory Flexibility Act, 5 U.S.C. § 603 
(RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Report and 
Order and Notice of Proposed Rulemaking ("Notice") in CS Docket No. 96-46 and CC Docket 
No. 87-266 (terminated) (In the Matter of Implementation of Section 302 of the 
Telecommunications Act of 1996 - Open Video Systems), FCC 96-99, 61 FR 10496 (3/14/96), 
released March 11, 1996. The Commission sought written public comments on the proposals in 
the Notice including comments on the IRFA, and addressed these responses in the Second Report 
and Order in CS Docket No. 96-46 (In the Matter of Implementation of Section 302 of the 
Telecommunications Act of 1996 ~ Open Video Systems), FCC 96-249, 61 FR 28698 (6/5/96), 
released June 3, 1996. In addition, in the Order and Notice of Proposed Rulemaking in CS 
Docket No. 96-85 ('Cable Reform Proceeding"), 11 FCC Red 5937 (1996), we sought comment 
regarding the definition of "affiliate" in the context of the new statutory provisions governing 
open video systems. The Third Report and Order and Second Order on Reconsideration adopts 
or modifies regulations only to the extent necessary to respond to comments filed with respect 
to the definition of affiliate in the context of the statutory provisions governing open video 
systems in the Cable Reform Proceeding and to petitions for reconsideration of the Second Report 
and Order. No IRFA was attached to the Second Report and Order because the Second Report 
and Order only adopted final regulations and did not propose regulations. This Final Regulatory 
Flexibility Analysis (FRFA) therefore addresses the impact of regulations on small entities only 
as adopted or modified in this Third Report and Order and Second Order on Reconsideration and 
not as adopted or modified in earlier stages of this rulemaking proceeding. The FRFA conforms 
to the RFA, as amended by the Contract with America Advancement Act of 1996 (CWAAA),
iKSecond Report and Order at para. 249. See Communications Act § 653(c)(3), 47 U.S.C. § 573(c)(3). 
5Kld. at para. 248.
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Federal Communications Commission FCC 96-334
530Pub. L. No. 104-121, 110 Stat. 847.
224. Need for Action and Objectives of the Rule. The rulemaking implements Section 
302 of the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56. Section 302 
directs the Commission to promulgate regulations governing the establishment and operation of 
open video systems.531 The purposes of this action are to establish a structure for open video 
systems that provides competitive benefits, including market entry by new service providers, 
enhanced competition, streamlined regulation, investment in infrastructure and technology, 
diversity of video programming choices and increased consumer choice.532
225. Summary and Assessment of Issues Raised by Petitioners in Response to the IRFA. 
With respect to the Third Report and Order, several parties filed comments in the Cable Reform 
Proceeding and also filed petitions for reconsideration of the Second Report and Order regarding 
the definition of the term "affiliate" in the context of the new statutory provisions for open video 
systems. These comments and the Commission's report are summarized in Section III, above. 
As mentioned, no IRFA was attached to the Second Report and Order. In petitions for 
reconsideration of the Second Report and Order, however, some parties raised issues that 
generally could involve small entities. For example, local cities urge the Commission to: (1) 
require that open video system operators obtain approval from local franchising authorities 
("LFAs") regarding the manner in which public, educational and governmental ("PEG") access 
obligations will be fulfilled as a precondition of certification; (2) further ensure that local 
governments receive notification of an operator's intent to establish an open video system, by 
requiring an operator to serve a copy of FCC Form 1275 on all affected local municipalities; (3) 
expand the base of open video system revenues on which gross revenue fees due the cities would 
be applied; and (4) require an open video system operator to match, rather than share, the local 
cable operator's PEG access obligations. As discussed in the Second Order on Reconsideration, 
we deny reconsideration of the first and third contentions, and grant reconsideration of the second 
and fourth. Other parties, including potentially small business video programming providers, urge 
the Commission to: (1) require an open video system operator to place the Notice of Intent in 
local newspapers and in telephone bill inserts to enhance the opportunities for non-profit video 
programming providers to become aware of the establishment of an open video system; (2) 
modify its regulations to further guard against an open video system operator's rate discrimination 
among unaffiliated video programming providers; and (3) modify its regulations to enhance 
programming providers' ability to access information necessary to pursue a rate complaint against 
an open video system operator. As discussed in the Second Order on Reconsideration, we deny 
reconsideration on the first two grounds and grant reconsideration on the third. Local television 
stations urge the Commission to require that open video system operators tailor the distribution
530Subtitle II of the CWAAA is The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 
codified at 5 U.S.C. § 610 et seq. (1996).
"'1996 Act §302.
"Conference Report at 172, 177-78.
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Federal Communications Commission FCC 96-334
of must-carry signals to the parts of their system that are located within a station's local service 
area so that stations electing must-carry status do not have to reimburse the operators for 
extensive copyright fees that may result from carriage beyond their local service areas. We grant 
reconsideration on this point.
226. The Commission also notes the positive economic impact that the new and 
modified rules will have on many small businesses. For example, the new rules will allow small 
businesses that use video programming delivery services to select from a broader range of service 
providers, which could result in significant economic benefits because providers will compete for 
customers, which, in turn, should result in improved service at lower prices. In addition, small 
business video programming providers will face fewer entry hurdles, and thus will be able to 
develop their markets and compete more effectively.
227. Description and Estimate of the Number of Small Entities Impacted. The RFA 
defines the term "small entity" as having the same meaning as the terms "small business," "small 
organization," and "small governmental jurisdiction," and the same meaning as the term "small 
business concern" under Section 3 of the Small Business Act."533 A small concern is one which: 
(1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business Administration (SBA).534 The 
rules we adopt today apply to municipalities, television stations, and business video programming 
providers. The rules also apply to entities that are likely to become open video system operators, 
including local exchange carriers and cable systems.
228. Local Exchange Carriers. The rules we adopt or modify in the Second Order on 
Reconsideration may affect local exchange carriers (LECs), as LECs are permitted under the 
Telecommunications Act of 1996 to establish open video systems. Neither the Commission nor 
SBA has developed a definition of small providers of local exchange services (LECs). The 
closest applicable definition under SBA rules is for telephone communications companies other 
than radiotelephone (wireless) companies. The most reliable source of information regarding the 
number of LECs nationwide of which we are aware appears to be the data that we collect 
annually in connection with the Telecommunications Relay Service (TRS). According to our 
most recent data, 1,347 companies reported that they were engaged in the provision of local 
exchange services.535 Although it seems certain that some of these carriers are not independently 
owned and operated, or have more than 1,500 employees, we are unable at this time to estimate 
with greater precision the number of LECs that would qualify as small business concerns under 
SBA's definition. Consequently, we estimate that there are fewer than 1,347 small incumbent
'"RFA, 5 U.S.C. § 601(3) (1980).
"4Small Business Act, 15 U.S.C. § 632 (1996).
"'Federal Communications Commission, CCB, Industry Analysis Division, Telecommunications Industry 
Revenue: TRS Fund Worksheet Data, Tbl. 21 (Average Total Telecommunications Revenue Reported by Class of 
Carrier) (Feb. 1996) (TRS Worksheet).
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Federal Communications Commission FCC 96-334
LECs that may be affected by the decisions and rules adopted in this Order.
229. Cable Systems: Under certain conditions explained in the Second Order on 
Reconsideration, cable operators may become open video system operators, and therefore, may 
be affected by the rules adopted or modified in this Order. SBA has developed a definition of 
small entities for cable and other pay television services, which includes all such companies 
generating less than $11 million in revenue annually. This definition includes cable systems 
operators, closed circuit television services, direct broadcast satellite services, multipoint 
distribution systems, satellite master antenna systems and subscription television services. 
According to the Census Bureau, there were 1,323 such cable and other pay television services 
generating less than $11 million in revenue that were in operation for at least one year at the end of 1992.536
230. The Commission has developed its own definition of a small cable system operator 
for the purposes of rate regulation. Under the Commission's rules, a "small cable company," is 
one serving fewer than 400,000 subscribers nationwide. 537 Based on our most recent information, 
we estimate that there were 1,439 cable operators that qualified as small cable system operators 
at the end of 1995.538 Since then, some of those companies may have grown to serve over 
400,000 subscribers, and others may have been involved in transactions that caused them to be 
combined with other cable operators. Consequently, we estimate that there are fewer than 1,439 
small entity cable system operators that may be affected by the decisions and rules adopted in this 
Order.
231. The Communications Act also contains a definition of a small cable system 
operator, which is "a cable operator that, directly or through an affiliate, serves in the aggregate 
fewer than 1 percent of all subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed $250,000,000."S39 The 
Commission has determined that there are 61,700,000 subscribers in the United States. Therefore, 
we found that an operator serving fewer than 617,000 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total annual revenues of all of its 
affiliates, do not exceed $250 million in the aggregate.540 Based on available data, we find that
536/PP2 Census, supra, at Firm Size 1-123.
"747 C.F.R. § 76.901(e). The Commission developed this definition based on its determinations that a small 
cable system operator is one with annual revenues of $100 million or less. Implementation of Sections of the 1992 
Cable Act: Rate Regulation, Sixth Report and Order and Eleventh Order on Reconsideration, 10 FCC Red 7393.
"'Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on figures for Dec. 30, 1995). 
"'47 U.S.C. § 543(m)(2).
540'47 C.F.R. § 76.1403(b).
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Federal Communications Commission FCC 96-334
the number of cable operators serving 617,000 subscribers or less totals 1.450.541 Although it 
seemscertainthatsomeof 
these cable system operators are affiliated with entities whose gross annual revenues exceed 
$250,000,000, we are unable at this time to estimate with greater precision the number of cable 
system operators that would qualify as small cable operators under the definition in the 
Communications Act.
232. Municipalities: The term "small governmental jurisdiction" is defined as 
"governments of... districts, with a population of less than fifty thousand. "54: There are 85.006 
governmental entities hi the United States.543 This number includes such entities as states, 
counties, cities, utility districts and school districts. We note that any official actions with respect 
to open video systems will typically be undertaken by LFAs, which primarily consist of counties, 
cities and towns. Of the 85,006 governmental entities, 38,978 are counties, cities and towns. The 
remainder are primarily utility districts, school districts, and states, which typically are not LFAs. 
Of the 38,978 counties, cities and towns, 37,566 or 96%, have populations of fewer than 50,000. 
Thus, approximately 37,500 "small governmental jurisdictions" may be affected by the rules 
adopted in this Third Report and Order and Second Order on Reconsideration.
233. Television Stations: The SB A defines small television broadcasting stations as 
television broadcasting stations with $10.5 million or less in annual receipts. 13 C.F.R. § 
121.201.
234. Estimates Based on Census and BIA Data. According to the Census Bureau, in 
1992, there were 1,155 out of 1,478 operating television stations reported revenues of less than 
$10 million for 1992. This represents 78% of all television stations, including non-commercial 
stations. See 1992 Census of Transportation, Communications, and Utilities, Establishment and 
Firm Size, May 1995, at 1-25. The Census Bureau does not separate the revenue data by 
commercial and non-commercial stations in this report. Neither does it allow us to determine the 
number of stations with a maximum of 10.5 million dollars in annual receipts. Census data also 
indicates that 81 percent of operating firms (that owned at least one television station) had 
revenues of less than 10 million dollars.544
M1Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on figures for Dec. 30, 1995).
M25 U.S.C. § 601(5).
543United States Dept. of Commerce, Bureau of the Census, 1992 Census of Governments.
'^Alternative data supplied by the U.S. Small Business Administration Office of Advocacy indicate that 65 
percent of TV owners (627 of 967) have less than $10 million in annual revenue and that 39 percent of TV stations 
(627 of 1,591) have less than $10 million in annual revenue. These data were prepared by the U.S. Census bureau 
under contract to the Small Business Administration. These data show a lower percentage of small businesses than 
the data supplied directly to us by the Census Bureau. Therefore, for purposes of our worst case analysis, we will 
use the data supplied directly to us by the Census Bureau.
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Federal Communications Commission FCC 96-334
235. We have also performed a separate study based on the data contained in the BIA 
Publications, Inc. Master Access Television Analyzer Database, which lists a total of 1,141 full- 
power commercial television stations.545 It should be noted that, using the SBA definition of 
small business concern, the percentage figures derived from the BIA data base may be 
underinclusive because the data base does not list revenue estimates for noncommercial 
educational stations, and these are therefore excluded from our calculations based on the data 
base.546 The BIA data indicate that, based on 1995 revenue estimates, 440 full-power commercial 
television stations had an estimated revenue of 10.5 million dollars or less. That represents 54 
percent of commercial television stations with revenue estimates listed in the BIA program. The 
data base does not list estimated revenues for 331 stations. Using a worst case scenario, if those 
331 stations for which no revenue is listed are counted as small stations, there would be a total 
of 771 stations with an estimated revenue of 10.5 million dollars or less, representing 
approximately 68 percent of the 1,141 commercial television stations listed in the BIA data base.
236. Alternatively, if we look at owners of commercial television stations as listed in 
the BIA data base, there are a total of 488 owners. The data base lists estimated revenues for 
60 percent of these owners, or 295. Of these 295 owners, 156 or 53 percent had annual revenues 
of less than 10.5 million. Using a worst case scenario, if the 193 owners for which revenue is 
not listed are assumed to be small, the total of small entities would constitute 72 percent of 
owners.
237. In summary, based on the foregoing worst case analysis using census data, we 
estimate that our rules will apply to as many as 1,150 commercial and non-commercial television 
stations (78 percent of all stations) that could be classified as small entities. Using a worst case 
analysis based on the data in the BIA data base, we estimate that as many as approximately 771 
commercial television stations (about 68 percent of all commercial televisions stations) could be 
classified as small entities. As we noted above, these estimates are based on a definition that we 
tentatively believe greatly overstates the number of television broadcasters that are small 
businesses. Further, it should be noted that under the SBA's definitions, revenues of affiliates 
that are not television stations should be aggregated with the television station revenues in 
determining whether a concern is small. The estimates overstate the number of small entities 
since the revenue figures on which they are based do not include or aggregate such revenues from 
non-television affiliated companies.
S45We have excluded Low Power Television (LPTV) stations or translator stations from the calculations because 
such stations could be affected by our open video system must-carry and retransmission consent regulations only 
under extremely limited circumstances. As of May 31, 1996, there were 1,880 LPTV stations and 4,885 television 
translators in the United States. FCC News Release, Broadcast Station Totals as of May 31, 1996, Mimeo No. 
63298, released June 6, 1996.
546In the Joint Comments of the Association of America's Public Television Stations and the Public Broadcasting 
Service (p. 6), it is reported that there are 38 public televisions stations (out of 197 public television licensees) with 
annual operating budgets of less than $2 million.
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Federal Communications Commission FCC 96-334
238. Video Programming Providers: Open video systems are an entirely new 
framework for delivering video programming to consumers. No open video systems have yet 
been certified to operate. Therefore, it is not possible at this time to estimate the size or number 
of video programming providers that may seek capacity on open video systems. We anticipate 
that two types of video programming providers may arise: (1) video programming providers 
seeking to utilize an open video system to offer a package of individual programming services 
via open video systems to subscribers; and (2) providers seeking to offer only one programming 
service. It is not possible to estimate the impact on or the number of video programming 
providers in the first category because no such entities exist. With respect to the second category, 
however, we believe that small cable programming services may provide a reasonable substitute. 
The Census Bureau category most similar to cable programming services is "motion picture and 
video tape production." See SIC Code 7812. Under this category, entities with less than $21.5 
million in annual receipts are defined as small motion picture and video tape production entities. 
13 C.F.R. § 121.201. There are a total of 7,265 motion picture and video tape production 
entities; of those, 7,002 have annual receipts of less than $24.5 million. The figures are not 
broken down further. Thus, we estimate that approximately 7,000 small cable programming 
services, or video programming providers, may be affected by the rules adopted in this Order. 
In addition, we note that the Census Bureau data does not reflect a likely significant number of 
small, independent motion picture and video tape production companies. Such companies may 
seek to become video programming providers on open video systems, although it is not possible 
at this time to estimate this number because no publicly available data is available that is specific 
to such entities. We therefore estimate that a minimum of 7,000 small cable programming 
services, or video programming providers, may be affected by this rule.
239. Reporting, Recordkeeping and Other Compliance Requirements. The following 
addresses the requirements of regulations adopted, amended, modified or clarified on 
reconsideration in the Third Report and Order and Second Order on Reconsideration.
1. Affiliate. In the Third Report and Order, the Commission adopts a definition 
of "affiliate" that will impact open video system operators and their affiliates, including open 
video system operators that are small entities. A primary effect of this rule concerns situations 
where demand for carriage exceeds the open video system's channel capacity. In such situations, 
the open video system operator and its affiliates are prohibited from selecting the video 
programming services for carriage on more than one-third of the activated channel capacity on 
its system.547
2. Certification. We revise FCC Form 1275 to require that applicants to become 
open video system operators, including applicants that are small businesses, list the names of the 
local communities in which they intend to operate.548 An applicant will have already identified
iA7See Section II., above. 
Section III.B., above.
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Federal Communications Commission FCC 96-334
the local communities in which it intends to operate prior to preparing the form. Listing the 
names of the communities will neither require any specialized skills nor impose significant new 
burdens.
3. Service of FCC Form 1275. We modify our regulations to require that an open 
video system applicant, including those that are small entities, serve a copy of its FCC Form 1275 
on all affected local communities on or before the date it is filed with the Commission.549 An 
applicant will have already prepared the form for submission to the Commission. Therefore, 
merely serving the form on all affected local communities will not require any specialized skills.
4. Ad Avails. We modify our regulations to require that advertising availabilities 
("ad avails") associated with a programming, service carried by both the open video system 
operator or its affiliated video programming provider and an unaffiliated provider must be shared 
in an equitable manner.550 This may impose burdens on open video system operators, including 
those that are small entities, because an operator must now share the revenues or other benefits 
of such ad avails with unaffiliated entities, rather than keeping all such revenues. In certain 
instances, this approach may impose burdens on video programming providers that may have 
been able to keep all such revenues. We find that implementing this approach requires no 
specialized skills.
5. Gross Revenues Fee. We modify our regulations to permit an open video 
system operator to recover the gross revenues fee from all video programming providers using 
the platform on a proportional basis as an element of the carriage rate.551 This approach may 
impose additional burdens on video programming providers, including those that are small 
entities, because the carriage rate may be increased to reflect the open video system operator's 
gross revenues fees. We find that implementing this approach requires no specialized skills.
6. Matching of PEG Access Obligations. We modify our regulations to require 
open video system operators, in the absence of a negotiated agreement, to match, rather than 
share, all public, educational and governmental ("PEG") access financial contributions of the local 
cable operator.552 This matching requirement could result in additional financial burdens on open 
video system operators, including those that are small entities, because matching the cable 
operator's PEG access financial contributions will be more costly in many situations than merely 
sharing the cable operator's contributions towards PEG access services, facilities and equipment, 
as permitted under the previous approach. We find that implementing this approach requires no 
specialized skills.
™See Section III.B., above. 
i5°See Section III.C., above. 
5ilSee Section III.E., above. 
iaSee Section III.F., above.
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7. LFA Election. We modify our regulations so that, in areas where a cable 
franchise previously existed, such as where a cable operator is able to convert its cable system 
to an open video system, the local franchise authority will be permitted, absent a negotiated 
agreement, to elect either: (1) to maintain the previously existing PEG access requirements; or 
(2) to have the open video system operator's PEG access obligations determined by comparison 
to the nearest operating cable system that has a commitment to provide PEG access and that 
serves a franchise area with a similar population size. Every 15 years thereafter, the LFA is 
permitted to make a similar election.553 This requirement could impose new burdens on open 
video system operators, including those that are small entities, because an operator's PEG access 
obligations may be increased when compared to the nearest operating cable system that has a 
commitment to provide PEG access and that serves a franchise area with a similar population 
size. In addition, these obligations may be subject to increases every 15 years, rather than frozen 
in perpetuity.
8. Must-Cany/Retransmission Consent Election. The order requires a broadcast 
station to make the same election for open video systems and cable systems in the same 
geographic area, unless the overlapping open video system is unable to deliver appropriate signals 
in conformance with the broadcast station's elections for all cable systems serving the same 
geographic area. We estimate that this requirement will have an impact on some broadcast 
stations. We anticipate that this requirement will not require any more professional skills than 
are required to make such elections and notify operators in the context of cable systems.
9. Must-Carry Copyright. The order requires an open video system operator to 
pay for any additional copyright fees incurred as a result of carrying a local signal outside of its 
local service area.554 We estimate that this requirement may affect a limited number of large 
open video system operators. We anticipate that distribution of signals outside of a local market 
will most likely occur on large systems that overlap several markets. We also anticipate that 
many open video systems will have the ability to limit distribution of signals to local markets. 
If additional copyright fees are incurred by an open video system operator, we do not anticipate 
that the operator will have to use any professional skills beyond those already used to comply 
with the copyright rules.
10. Sports Exclusivity. The order holds an open video system operator responsible 
for any violation of our sports exclusivity rules.555 We estimate that this requirement will have 
an impact on open video system operators and programmers. We do not anticipate that this rule 
will require the use of any additional professional skills beyond the skills normally required for 
a programmer to assess the validity of exclusive rights to sports programming.
5"See Section III.F.
""See Section III.F.2, above.
555See Section III.F.4, above.
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Federal Communications Commission FCC 96-334
11. Navigational Devices. In this Order, we allow open video system operators 
to permit programming providers, including those affiliated with the open video system, to use 
their own navigational devices, subject to certain conditions.556 If the open video system operator 
permits programming providers to use their own navigational devices, the open video system 
operator must provide a nondiscriminatory guide or menu that all programming providers must 
carry, showing all programming available on the systems. We estimate that the requirement 
could result in additional burdens on open video system operators including small open video 
system operators. We find that implementing this approach requires no specialized skills.
12. Dispute Resolution. We clarify our regulations to require that the preliminary 
rate estimate provided by an open video system operator to video programming providers must 
include, upon request, all information needed to calculate the average rate paid by unaffiliated 
programming providers receiving carriage on the system, including the information needed for 
any weighting of the individual carriage rates that the operator has included in the average rate.557 
This clarification may impose new burdens on open video system operators, including those that 
are small entities, because an open video system operator may have to prepare this information 
earlier than under the previous approach. This will occur because an operator must now provide 
a video programming provider with the information upon request, rather than after a complaint 
is filed. On the other hand, an open video system operator is likely to have prepared such 
information in order to determine carriage rates to be charged. In such situations, the rule 
clarification may not impose significant new burdens because an open video system operator 
merely will have to provide a video programming provider with existing material, which should 
not require any specialized skills.
240. Steps Taken to Minimize the Significant Economic Impact on Small Entities and 
Significant Alternatives Rejected. This section analyzes the impact on small entities in the 
contexts of regulations adopted, amended, modified or clarified in this Third Report and Order 
and Second Order on Reconsideration.
1. Affiliate. In the Third Report and Order and Second Order on Reconsideration 
with respect to the definition of affiliate, we adopt the attribution standard that applies in the 
cable program access context. The factual, legal and policy reasons are set forth in Section II, 
above. The definition of affiliate we adopt will create opportunities for unaffiliated programmers, 
many of which may be small entities, by promoting diversity of video programming sources, and 
is intended to reduce the likelihood that open video system operators will discriminate against or 
otherwise disfavor unaffiliated programming providers, including small unaffiliated programmers. 
In addition, by adopting consistent standards, we reduce the burdens associated with determining 
whether a video programming provider will be considered an affiliate of the open video system 
operator for one purpose but not for the other. We rejected several alternatives to this definition
ii6See Section III.G., above. 
5i7See Section III.H., above.
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Federal Communications Commission FCC 96-334
of affiliate, as described in Section II, above.
2. Certification. Requiring applicants to list the names of all local communities 
in which they intend to operate will not impose significant new burdens on applicants for the 
reasons stated above and will reduce burdens on the affected local communities, including those 
that are small entities. This approach will also reduce the burdens on open video system 
operators by reducing the potential for confusion over which local communities will be served 
by the open video system.
3. Service of FCC Form 1275. Requiring service of FCC Form 1275 on local 
communities, as described above, will impose only minimal new burdens on open video system 
operators, including those that are small entities. These burdens are outweighed by the benefits 
to local communities, such as ensuring that a local community without ready access to the 
Internet or the Commission's Public Notices will be made aware of the applicant's filing. The 
factual, legal and policy reasons are described in Section III.B. This approach will reduce 
burdens on local communities by enhancing their ability to become aware of an open video 
system's establishment. This approach will also reduce the burdens on open video system 
operators by reducing the potential for confusion over which local communities will be served 
by the open video system. The primary significant alternative is not requiring such service, but 
as stated, we find that the benefits to local communities outweigh any minimal burdens of 
complying with this rule.
4. Ad Avails. Requiring that advertising availabilities ("ad avails") associated with 
a programming service carried by both the open video system operator or its affiliated video 
programming provider and an unaffiliated provider be shared in an equitable manner may impose 
burdens on open video system operators, including those that are small entities. Such burdens 
are described in the preceeding section of this FRFA. However, we find these burdens are 
outweighed by the benefits of this requirement, which include providing unaffiliated video 
programming providers with an equitable share of income from ad avails and preventing the open 
video system operator or its affiliate from having a significant financial advantage over 
unaffiliated video programming providers.558 The factual, legal and policy reasons are described 
in Section III.C. We reduce the burdens on open video system operators by specifying examples 
of acceptable methods of sharing ad avails, including apportioning the relevant revenues or 
apportioning the rights to sell the avails themselves. The primary significant alternative is 
maintaining our current rules which do not require such sharing; however, as stated, we find that 
the benefits to unaffiliated video programming providers outweigh the burdens of complying with 
this rule.
5. Gross Revenues Fee. Modifying our rules to permit an open video system 
operator to recover the gross revenues fee from all video programming providers using the 
platform on a proportional basis as an element of the carriage rate may impose additional burdens
"See Section III.C., above.
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on video programming providers, including those that are small entities. However, we find that 
these burdens, as described above, are outweighed by the benefits to open video system operators 
and are in the interests of competition. Permitting this recoupment of the gross revenues fee 
should promote competition on the platform among video programming providers by not 
disadvantaging any particular video programming provider with respect to the payment of the 
gross revenues fee. The factual, legal and policy reasons for this approach are described above 
in Section III.E. This approach will reduce burdens on open video system operators by 
permitting them to recoup a proportion of these costs from video programming providers. The 
primary significant alternative we rejected is maintaining our current regulations which may have 
permitted unaffiliated video programming providers to avoid paying any share of the gross 
revenues fee; however, as stated, we find that the benefits to open video system operators 
outweigh the burdens of this approach on video programming providers.
6. PEG Access Obligations. Requiring open video system operators to match, 
rather than share, all public, educational and governmental ("PEG") access financial contributions 
of the local cable operator may impose burdens on open video system operators, including those 
that are small entities. These burdens are described in the preceeding section of this FRFA. We 
find that these burdens are outweighed by the benefits of this revised approach. The factual, 
policy and legal reasons for this approach are described in Section III.F. We believe that this 
approach may reduce burdens on open video system operators by providing further certainty as 
to their PEG access financial obligations. Significant alternatives we rejected include: (1) 
maintaining our current rules which permit an open video system operator to share the PEG 
access contributions; (2) requiring an open video system operator to match precisely any in-kind 
contributions (e.g., cameras); and (3) not requiring open video system operators to share the costs 
of services, facilities or equipment for PEG access.559 Generally, we rejected the first alternative 
because we find that the matching principle more accurately fulfills the 1996 Act's mandate to 
impose PEG access obligations on open video system operators that are "no greater or lesser" 
than those imposed on cable operators. We rejected the second because we find that precise 
duplication would often be unnecessary, wasteful and inappropriate. We rejected the third 
alternative because we believe that providing support for PEG access services, facilities and 
equipment is a part of the open video system operator's PEG obligation under Section 611 of the 
Communications Act.560
7. LFA Election. Modifying a local franchise authority's ability to make an 
election concerning the PEG access obligations of an open video system operator, as described 
in the preceeding section of this FRFA, may impose additional burdens on open video system 
operators, including those that are small entities. These burdens are described above. However, 
we find that these burdens are outweighed by the benefits of this approach, which include 
preventing PEG access obligations from being frozen in perpetuity, thereby providing significant
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benefits to local franchise areas and communities. The factual, policy and legal reasons for this 
approach are described above in Section III.F. This approach may reduce burdens on local 
communities by permitting them to negotiate with open video system operators with respect to 
PEG access obligations, and on open video system operators by providing them certainty as to 
their PEG access obligations for a period of up to 15 years. The primary significant alternative 
we rejected is maintaining our current regulations which do not permit local franchise areas to 
make this election;561 however, as stated, we find that the benefits to local communities outweigh 
the burdens of this approach on open video system operators.
8. Must-Carry/Retransmission Consent Election. The rule which requires a 
broadcast station to make the same election for open video systems and cable systems in the same 
geographic area, unless the overlapping open video system is unable to deliver appropriate signals 
in conformance with the broadcast station's elections for all cable systems serving the same 
geographic area, may impose a burden on broadcast stations. The policy, factual and legal 
reasons for adopting this final rule are set forth in Section III.F.2.b. of this Order. The rule 
adopted in the Second Report and Order did not require a broadcast station to make the same 
election for open video and cable systems serving the same geographic area. The rule adopted 
in this order promotes parity between open video system operators and cable operators, in 
accordance with Section 653 of the Communications Act, and may reduce burdens on both open 
video system operators and television stations by providing further certainty with respect to the 
must-carry status of television stations.
9. Must-Carry Copyright. The rule which requires an open video system operator 
to pay for any additional copyright fees incurred as a result of carrying a local station beyond its 
local market area may impose a burden on open video system operators. It has not been 
necessary to take significant steps to minimize the burden on small open video system operators 
because we do not believe that this rule is likely to affect many open video systems and 
especially not smaller open video systems, because it will only apply to open video systems 
capable of carrying broadcast signals beyond their local service areas. The factual policies and 
legal reasons for adopting this final rule are set forth in Section III.F.2.b. Any burden on open 
video system operators is outweighed by the benefit to broadcast stations, especially small stations 
that might not be able to elect must-carry status if they were subject to copyright fees in distant 
markets.
10. Sports Exclusivity. The rule which holds an open video system operator 
responsible for any violation of our sports exclusivity rules may impose a burden on open video 
system operators. This burden is justified by the interest in protecting exclusive rights to sports 
programming. The factual policies and legal reasons for adopting this final rule are set forth in 
Section III.FAb. The rule adopted in the Second Report and Order, did not hold an open video 
system operator responsible for a violation of the sports exclusivity rules if the operator took 
prompt steps to delete the programming once it was notified of a violation. The rule adopted in
561Id
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Federal Communications Commission FCC 96-334
this order applies our sports exclusivity rules to open video systems more fairly than the 
Commission's previous rule for the reasons cited in Section III.FAb.
11. Navigational Devices. Allowing open video system operators to permit 
programming providers, including those affiliated with the open video system operator, to use 
their own navigational devices subject to certain conditions may impact open video system 
operators and their affiliates, including those that are small entities. If an operator permits 
programming providers, including its affiliate, to develop their own navigational devices, the 
operator must create an electronic menu or guide containing a non-discriminatory listing of 
programming providers or programming services available on the system that every programming 
provider must carry. If an operator creates a system-wide non-discriminatory menu or guide, then 
its programming affiliate may create its own-menu or guide without being subject to the non- 
discrimination requirements of Section 653(b)(l)(E). The factual and policy reasons for adopting 
the final rule are found in Section III.G., above. We believe that this rule minimizes burdens on 
open video system operators and their programming affiliates, by allowing the affiliated 
programmers the flexibility to develop and use their own navigational devices, guides and menus.
However, under the rule adopted, programming providers cannot be required to 
use their own navigational devices. Such providers must, upon request, have access to the 
navigational device used by the open video system operator or its affiliate. As is explained in 
Section III.G., above, not all programming providers will have the desire or resources to supply 
their own navigational devices. This may be especially true of smaller video programming 
providers seeking carriage on the open video system. This requirement can help minimize 
burdens on small programming providers by allowing them access to the navigational device used 
by the open video system operator or its affiliate.
12. Dispute Resolution. Requiring that the preliminary rate estimate provided by 
an open video system operator to video programming providers include, upon request, all 
information needed to calculate the average rate paid by unafflliated programming providers 
receiving carriage on the system, including the information needed for any weighting of the 
individual carriage rates that the operator has included in the average rate, may impose burdens 
on open video system operator, including those that are small entities. These burdens are 
described in the preceeding section of this FRFA. However, we find that these burdens are 
outweighed by the benefits of this clarification, which include providing an unaffiliated video 
programming provider with relevant information regarding whether to pursue a rate complaint 
against an open video system operator. The factual, policy and legal reasons are described above 
in Section III.H. The primary significant alternative rejected by the Commission is to maintain 
our current rules which do not require a system operator's provision of such information upon 
request but only in formal discovery; however, as stated, we find that the benefits to unaffiliated 
video programming providers outweigh the burdens of complying with this rule.
241. Report to Congress. The Commission shall send a copy of this FRFA, along with 
this Third Report and Order and Second Order on Reconsideration, in a report to Congress
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pursuant to the SBREFA, 5 U.S.C. § 801(a)910(A). A copy of this FRFA will also be published 
in the Federal Register.
V. PAPERWORK REDUCTION ACT OF 1995 ANALYSIS
242. The requirements adopted in the Third Report and Order and Second Order on 
Reconsideration have been analyzed with respect to the Paperwork Reduction Act of 1995 (the 
"1995 Act") and found to impose new or modified information collection requirements on the 
public. Implementation of any new or modified requirement will be subject to approval by the 
Office of Management and Budget ("OMB") as prescribed by the 1995 Act. The Commission, 
as part of its continuing effort to reduce paperwork burdens, invites the general public and OMB 
to comment on the information collections contained in this Third Report and Order and Second 
Order on Reconsideration as required by the 1995 Act.562 OMB comments are due 60 days from 
date of publication of this Third Report and Order and Second Order on Reconsideration in the 
Federal Register. Comments should address: (1) whether the proposed collection of information 
is necessary for the proper performance of the functions of the Commission, including whether 
the information shall have practical utility; (2) the accuracy of the Commission's burden 
estimates; (3) ways to enhance the quality, utility, and clarity of the information collected; and 
(4) ways to minimize the burden of the collection of information on the respondents, including 
the use of automated collection techniques or other forms of information technology.
243. Written comments by the public on the proposed and/or modified information 
collections are due on or before 30 days after publication of the Third Report and Order and 
Second Order on Reconsideration in the Federal Register. Written comments must be submitted 
by the Office of Management and Budget (OMB) on the proposed and/or modified information 
collections on or before 60 days after publication of the Third Report and Order and Second 
Order on Reconsideration in the Federal Register. A copy of any comments on the information 
collections contained herein should be submitted to Dorothy Conway, Federal Communications 
Commission, Room 234, 1919 M Street, N.W., Washington, DC 20554, or via the Internet to 
dconway@fcc.gov and to Timothy Fain, OMB Desk Officer, 10236, NEOB, 725 -17th Street, 
N.W., Washington, DC 20503 or via the Internet to fain_t@al.eop.gov. For additional 
information concerning the information collections contained herein contact Dorothy Conway at 
202-418-0217, or via the Internet at dconway@fcc.gov.
VI. ORDERING CLAUSES
244. Accordingly, IT IS ORDERED that, pursuant to Sections 4(i), 4(j), 303(r), and 653 
of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 303(r), and 573 
the rules, requirements and policies discussed in this Third Report and Order and Second Order 
on Reconsideration ARE ADOPTED and Sections 76.1000 and 76.1500 through 76.1515 of the 
Commission's rules, 47 C.F.R. §§ 76.1000 and 76.1500 through 1515, ARE AMENDED as set
2Pub. L. No. 104-13.
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Federal Communications Commission FCC 96-334
forth below.
245. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 40), 303(r), and 653 
of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 303(r), and 573 
the rules, the Petitions for Reconsideration set forth in Appendix A are GRANTED IN PART and 
DENIED IN PART, as provided herein.
246. IT IS FURTHER ORDERED that the requirements and regulations established in 
this decision shall become effective upon approval by OMB of the new information collection 
requirements adopted herein, but no sooner than 60 days after publication in the Federal Register.
247. IT IS FURTHER ORDERED that the Motion to Accept Late-Filed Opposition 
filed by the Telephone Joint Petitioners is HEREBY GRANTED.
248. IT IS FURTHER ORDERED .that the Secretary shall send a copy of this Third 
Report and Order and Second Order on Reconsideration including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration in 
accordance with paragraph 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 
1164, 5 U.S.C. §§ 601 etseq. (1981).
FEDERAL COMMUNICATIONS COMMISSION
William F. Caton 
Acting Secretary
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Federal Communications Commission FCC 96-334
APPENDIX A
List of Parties Filing Petitions for Reconsideration 
and Oppositions to Petitions for Reconsideration
Petitions for Reconsideration
Note: Unless otherwise specified, all filings listed below were styled as "Petition for 
Reconsideration" and are referred to in the text of this Order as "Petition."
Alliance for Community Media; Alliance for Communications Democracy;
People for the American Way; Center for Media Education; and Media Access Project
Petition for Reconsideration and Clarification (Alliance for Community Media, et al.) 
Association of Local Television Stations, Inc. (ALTV) 
AT&T Corporation (AT&T) 
Bell Atlantic Telephone Companies and Bell Atlantic Video Services Company; BellSouth
Corporation and BellSouth Telecommunications, Inc.; GTE Service Corporation and
affiliated domestic telephone companies and GTE Media Ventures, Inc.; Lincoln Telephone
and Telegraph Company; Pacific Bell; and SBC Communications, Inc. and Southwestern
Bell Telephone Company (Telephone Joint Petitioners) 
City of Indianapolis, IN (City of Indianapolis) 
Comcast Cable Communications, Inc. (Comcast) 
Cox Communications, Inc. (Cox) 
ESPN, Inc. (ESPN)
Metropolitan Dade County (Dade County) 
MCI Telecommunications Corp. (MCI)
Michigan; Illinois; and Texas Communities (Michigan Cities, et al.) 
Municipal Administrative Services, Inc.; David M. Griffith & Associates; and Lloyd,
Gosselink, Fowler, Blevins & Matthews, P.C. (Municipal Services, et al.) 
National Cable Television Association, Inc. (NCTA) 
NYNEX Corporation (NYNEX) 
Office of the Commissioner of Baseball; National Basketball Association; National Football
League; and National Hockey League Request for Clarification or, in the Alternative,
Petition for Reconsideration (Joint Sports Petitioners) 
Rainbow Programming Holdings, Inc. (Rainbow) 
Tele-TV
U S West, Inc. Petition for Clarification (U S West) 
Village of Schaumburg, IL Comments in Opposition to Certain Portions of FCC Second
Report and Order (Village of Schaumburg)
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Federal Communications Commission FCC 96-334
Oppositions to Petitions for Reconsideration
Note: All filings listed below are referred to in the text of this Order as "Opposition."
Alliance for Community Media; Alliance for Communications Democracy; and Center for
Media Education Opposition to Petition for Reconsideration (Alliance for Community
Media, et al.) 
Association of Local Television Stations, Inc. Opposition to Petition for Reconsideration
(ALTV) 
Bell Atlantic Telephone Companies and Bell Atlantic Video Services Company; BellSouth
Corporation and BellSouth Telecommunications, Inc.; GTE Service Corporation and
affiliated domestic telephone companies and GTE Media Ventures, Inc.; Lincoln Telephone
and Telegraph Company; Pacific Bell; and SBC Communications, Inc. and Southwestern
Bell Telephone Company Opposition to Petitions for Reconsideration (Telephone Joint
Petitioners) 
Cablevision Systems Corporation Comments on the Petition for Reconsideration of the
National Cable Television Association (Cablevision Systems) 
MFS Communications Company, Inc. Opposition to Petitions for Reconsideration (MFS
Communications) 
Michigan; Illinois; and Texas Communities, Reply to Petitions for
Reconsideration (Michigan Cities, et al.) 
Motion Picture Association of America, Inc. Comments on Petitions for
Reconsideration (MPAA) 
National Cable Television Association, Inc. Opposition to Petitions for
Reconsideration (NCTA) 
National Association of Telecommunications Officers and Advisors Opposition to Petitions for
Reconsideration (NATOA) 
National League of Cities; United States Conference of Mayors; National Association of
Counties; Montgomery County, MD; and the City of Los Angeles, CA (National League
of Cities, et al.)
NYNEX Corporation Opposition to Petition for Reconsideration (NYNEX) 
Residential Communications Networks, Inc. Opposition to Petitions for
Reconsideration (RCN)
Sprint Local Telephone Companies, Comments of the (Sprint) 
Staff of the Federal Trade Commission and the Antitrust Division of the Department of
Justice Comments in Opposition to Petitions for Reconsideration (FTC and DOJ Antitrust
Division) 
Tele-TV Opposition to Petitions for Reconsideration Regarding Application of Program
Access Rules to OVS and Incumbent Cable Operators' Use of OVS Capacity (Tele-TV) 
United States Telephone Association Opposition and Comments to Certain Petitions for
Reconsideration (USTA) 
U S West, Inc. Opposition to Petitions for Reconsideration (U S West)
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Comments in the Cable Reform Proceeding
Alliance for Community Media, Consumer Project on Technology and Alliance for 
Communications Democracy (Alliance for Community Media, et al.)
Bell Atlantic Telephone Companies and Bell Atlantic Video Services Companies (Bell 
Atlantic)
BellSouth Corporation (BellSouth)
City and County of Denver, Colorado (City of Denver)
National League of Cities and the National Association of Telecommunications Officers and 
Advisors (National League of Cities, et al.)
Residential Communications Network, Inc. (RCN)
Time Warner Cable (Time Warner)
United States Telephone Association (USTA)
Reply Comments in the Cable Reform Proceeding
Michigan, Illinois, and Texas Communities (Michigan Cities, et al.)
National League of Cities; United States Conference of Mayors; National Association of 
Counties; National Association of Telecommunications Officers and Advisors; 
Montgomery County, Maryland; City of Los Angeles, California; City of Chillicothe, 
Ohio; City of Dearborn, Michigan; City of Dubuque, Iowa; City of St. Louis, Missouri;
City of Santa Clara, California; and City of Tallahassee, Florida (National League of Cities,
et al.)
U S West, Inc. (U S West)
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APPENDIX B
Rule Changes
Part 76 of Title 47 of the Code of Federal Regulations is amended as follows: 
PART 76 -- CABLE TELEVISION SERVICE
1. The authority citation for Part 76 continues to read as follows:
AUTHORITY: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 307, 308, 309, 312, 315, 
317, 325, 503, 521, 522, 531, 532, 533, 534, 535, 536, 537, 543, 544, 544a, 545, 548. 552, 554, 
556, 558, 560, 561, 571, 572, 573.
2. Section 76.1500 is amended by redesignating paragraph (g) as paragraph (h) and adding new 
paragraph (g) to read as follows:
* * * * *
(g) Affiliate. For purposes of determining whether a party is an "affiliate" as used in this 
subpart, the definitions contained in the notes to Section 76.501 shall be used, provided, however 
that:
(1) The single majority shareholder provisions of Note 2(b) to Section 76.501 and the 
limited partner insulation provisions of Note 2(g) to Section 76.501 shall not apply; and
(2) The provisions of Note 2(a) to Section 76.501 regarding five (5) percent interests 
shall include all voting or nonvoting stock or limited partnership equity interests of five (5) 
percent or more.
(h) Other terms. Unless otherwise expressly stated, words not defined in this part shall be 
given their meaning as used in Title 47 of the United States Code, as amended, and, if not 
defined therein, their meaning as used in Part 47 of the Code of Federal Regulations.
* * *
3. Section 76.1502 is amended by revising paragraphs (c)(6) and (d) and by adding paragraph 
(e) to read as follows:
*****
(c) * * *
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Federal Communications Commission FCC 96-334
(6) A list of the names of the anticipated local communities to be served upon 
completion of the system;
* * *
(d) On or before the date an FCC Form 1275 is filed with the Commission, the applicant 
must serve a copy of its filing on all local communities identified pursuant to paragraph (c)(6) 
and must include a statement informing the local communities of the Commission's requirements 
in paragraph (e) for filing oppositions and comments. Service by mail is complete upon mailing, 
but if mailed, the served documents must be postmarked at least three days prior to the filing of 
the FCC Form 1275 with the Commission.
(e) Comments or oppositions to a certification must be filed within five days of the 
Commission's receipt of the certification and must be served on the party that filed the 
certification. If the Commission does not disapprove certification within ten days after receipt 
of an applicant's request, the certification will be deemed approved. If disapproved, the applicant 
may file a revised certification or refile its original submission with a statement addressing the 
issues in dispute. Such refilings must be served on any objecting party or parties and on all local 
communities in which the applicant intends to operate.
4. Section 76.1503 is amended by deleting paragraph (c)(2)(iv)(C) and adding paragraph 
(c)(2)(v) to read as follows:
*****
*****
(c)
(2) * * *
(iv) Notwithstanding the foregoing, an operator of an open video system may:
(A) Require video programming providers to request and obtain system 
capacity in increments of no less than one full-time channel; however, an operator of 
an open video system may not require video programming providers to obtain capacity 
in increments of more than one full-time channel; and
(B) Limit video programming providers from selecting the programming on 
more capacity than the amount of capacity on which the system operator and its 
affiliates are selecting the programming for carriage.
(v) Notwithstanding the general prohibition on an open video system operator's
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Federal Communications Commission FCC 96-334
discrimination among video programming providers contained in paragraph (a) of this 
section, a competing, in-region cable operator or its affiliate(s) that offers cable service 
to subscribers located in the service area of an open video system shall not be entitled 
to obtain capacity on such an open video system, except:
(A) Where the operator of an open video system determines that granting access 
to the competing, in-region cable operator is in its interests; or
(B) Where a showing is made that facilities-based competition will not be 
significantly impeded.
Note to paragraph (c)(2)(v)(B): The Commission finds that facilities-based competition will 
not be significantly impeded, for example, where: (1) the competing, in-region cable operator 
and affiliated systems offer service to less than 20% of the households passed by the open video 
system; and (2) the competing, in-region cable operator and affiliated systems provide cable 
service to a total of less than 17,000 subscribers within the open video system's service area.
* * * * *
Section 76.1504 is amended by revising paragraph (e) and adding paragraphs (e)(l) and (2) to 
read as follows:
(e) Determining just and reasonable rates subject to complaints pursuant to the imputed ratg 
approach or other market based approach. Carriage rates subject to complaint shall be found just 
and reasonable if one of the two following tests are met:
(1) The imputed rate will reflect what the open video system operator, or its affiliate, 
"pays" for carriage of its own programming. Use of this approach is appropriate in circumstances 
where the pricing is applicable to a new market entrant (the open video system operator) that will 
face competition from an existing incumbent provider (the incumbent cable operator), as opposed 
to circumstances where the pricing is used to establish a rate for an essential input service that 
is charged to a competing new entrant by an incumbent provider. With respect to new market 
entrants, an efficient component pricing model will produce rates that encourage market entry. 
If the carriage rate to an unaffiliated program provider surpasses what an operator earns from 
carrying its own programming, the rate can be presumed to exceed a just and reasonable level. 
An open video system operator's price to its subscribers will be determined by several separate 
costs components. One general category are those costs related to the creative development and 
production of programming. A second category are costs associated with packaging various 
programs for the open video system operator's offering. A third category related to the 
infrastructure or engineering costs identified with building and maintaining the open video 
system. Contained in each is a profit allowance attributed to the economic value of each 
component. When an open video system operator provides only carriage through its 
infrastructure, however, the programming and packaging flows from the independent program
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Federal Communications Commission FCC 96-334
provider, who bears the cost. The open video system operator avoids programming and 
packaging costs, including profits. These avoided costs should not be reflected in the price 
charged an independent program provider for carriage. The imputed rate also seeks to recognize 
the loss of subscribers to the open video system operator's programming package resulting from 
carrying competing programming.
Note to paragraph (e)(l): Examples of specific "avoided costs" include (a) all amounts 
paid to studios, syndicators, networks or others, including but not limited to payments for 
programming and all related rights; (b) packaging, including marketing and other fees; (c) talent 
fees; (d) a reasonable overhead allowance for affiliated video service support.
(2) An open video system operator can. demonstrate that its carriage service rates are just 
and reasonable through other market based approaches.
6. Section 76.1505 is amended by revising paragraphs (d)(l), (d)(4), (d)(6) and (d)(8) to 
read as follows:
(d) *****
(1) The open video system operator must satisfy the same public, educational and 
governmental access obligations as the local cable operator by providing the same amount of 
channel capacity for public, educational and governmental access and by matching the local cable 
operator's annual financial contributions towards public, educational and governmental access 
services, facilities and equipment that are actually used for public, educational and governmental 
access services, facilities and equipment. For in-kind contributions (e.g., cameras, production 
studios), the open video system operator may satisfy its statutory obligation by negotiating 
mutually agreeable terms with the local cable operator, so that public, educational and 
governmental access services to the community is improved or increased. If such terms cannot 
be agreed upon, the open video system operator must pay the local franchising authority the 
monetary equivalent of the local cable operator's depreciated in-kind contribution, or, in the case 
of facilities, the annual amortization value. Any matching contributions provided by the open 
video system operator must be used to fund activities arising under Section 611 of the 
Communications Act.
*****
(4) The costs of connection to the cable operator's public, educational and 
governmental access channel feed shall be borne by the open video system operator. Such costs 
shall be counted towards the open video system operator's matching financial contributions set 
forth above.
*****
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Federal Communications Commission FCC 96-334
(6) Where there is no existing local cable operator, the open video system operator 
must make a reasonable amount of channel capacity available for public, educational and 
governmental use, as well as provide reasonable support for services, facilities and equipment 
relating to such public, educational and governmental use. If a franchise agreement previously 
existed in that franchise area, the local franchising authority may elect either to impose the 
previously existing public, educational and governmental access obligations or determine the open 
video system operator's public, educational and governmental access obligations by comparison 
to the franchise agreement for the nearest operating cable system that has a commitment to 
provide public, educational and governmental access and that serves a franchise area with a 
similar population size. The local franchising authority shall be permitted to make a similar 
election every 15 years thereafter. Absent a previous franchise agreement, the open video system 
operator shall be required to provide channel capacity, services, facilities and equipment relating 
to public, educational and governmental access equivalent to that prescribed in the franchise 
agreement(s) for the nearest operating cable system with a commitment to provide public, 
educational and governmental access and that serves a franchise area with a similar population 
size.
Note to paragraph (d)(6): This subsection shall apply, for example, if a cable operator 
converts its cable system to an open video system under section 76.1501 of these rules.
*****
(8) The open video system operator and/or the local franchising authority may file 
a complaint with the Commission, pursuant to our dispute resolution procedures set forth in 
section 76.1514, if the open video system operator and the local franchising authority cannot 
agree as to the application of the Commission's rules regarding the open video system operator's 
public, educational and governmental access obligations under this subsection (d).
7. Section 76.1506 is amended by revising paragraphs (d), (1)(3) and (m)(2) to read as 
follows:
(d) Definitions applicable to the must-carry rules. Section 76.55 shall apply to all open 
video systems in accordance with the provisions contained in this section. Any provision of 
Section 76.55 that refers to a "cable system" shall apply to an open video system. Any provision 
of section 76.55 that refers to a "cable operator" shall apply to an open video system operator. 
Any provision of section 76.55 that refers to the "principal headend" of a cable system as defined 
in section 76.5(pp) shall apply to the equivalent of the principal headend of an open video 
system. Any provision of section 76.55 that refers to a "franchise area" shall apply to the service 
area of an open video system. The provisions of Section 76.55 that permit cable operators to 
refuse carriage of signals considered distant signals for copyright purposes shall not apply to open 
video system operators. If an open video system operator cannot limit its distribution of must- 
carry signals to the local service area of broadcast stations as used in 17 U.S.C. § 11 l(d), it will 
be liable for any increase in copyright fees assessed for distant signal carriage under 17 U.S.C.
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Federal Communications Commission FCC 96-334
§111.
***
(1)***
(3) Television broadcast stations are required to make the same election for open video 
systems and cable systems serving the same geographic area, unless the overlapping open video 
system is unable to deliver appropriate signals in conformance with the broadcast station's 
elections for all cable systems serving the same geographic area.
***
***(m)
(2) Notification of programming to be deleted pursuant to this section shall be 
served on the open video system operator. The open video system operator shall make all 
notifications immediately available to the appropriate video programming providers on its 
open video system. Operators may effect the deletion of signals for which they have 
received deletion notices unless they receive notice within a reasonable time from the 
appropriate programming provider that the rights claimed are invalid. The open video 
system operator shall not delete signals for which it has received notice from the 
programming provider that the rights claimed are invalid. An open video system operator 
shall be subject to sanctions for any violation of these rules. An open video system 
operator may require indemnification as a condition of carriage for any sanctions it may 
incur in reliance on a programmer's claim that certain exclusive or non-duplication rights 
are invalid.
***
8. Section 76.1511 is amended to read as follows:
An open video system operator may be subject to the payment of fees on the gross revenues 
of the operator for the provision of cable service imposed by a local franchising authority or other 
governmental entity, in lieu of the franchise fees permitted under Section 622 of the 
Communications Act. Local governments shall have the authority to assess and receive the gross 
revenue fee. Gross revenues under this paragraph means all gross revenues received by an open 
video system operator or its affiliates, including all revenues received from subscribers and all 
carriage revenues received from unaffiliated video programming providers. In addition gross 
revenues under this paragraph includes any advertising revenues received by an open video 
system operator or its affiliates in connection with the provision of video programming, where 
such revenues are included in the calculation of the incumbent cable operator's cable franchise 
fee. Gross revenues does not include revenues collected by unaffiliated video programming 
providers, such as subscriber or advertising revenues. Any gross revenues fee that the open video
20345
Federal Communications Commission ______FCC 96-334
system operator or its affiliate collects from subscribers or video programming providers shall 
be excluded from gross revenues. An operator of an open video system or any programming 
provider may designate that portion of a subscriber's bill attributable to the fee as a separate item 
on the bill. An operator of an open video system may recover the gross revenue fee from 
programming providers on a proportional basis as an element of the carriage rate.
9. Section 76.1512 is revised to read as follows: 
§ 76.1512 Programming information.
* * * * *
(b) In accordance with paragraph (a) of this section:
(1) An open video system operator shall not discriminate in favor of itself or its 
affiliate on any navigational device, guide or menu;
(2) An open video system operator shall not omit television broadcast stations or 
other unaffiliated video programming services carried on the open video system from jra 
navigational device, guide (electronic or paper) or menu;
(3) An open video system operator shall not restrict a video programming provider's 
ability to use part of the provider's channel capacity to provide an individualized guide D 
menu to the provider's subscribers;
(4) Where an open video system operator provides no navigational device, guide or 
menu, its affiliate's navigational device, guide or menu shall be subject to the 
requirements of Section 653(b)(l)(E) of the Communications Act;
(5) An open video system operator may permit video programming providers, including 
its affiliate, to develop and use their own navigational devices. If an open video system operator 
permits video programming providers, including its affiliate, to develop and use their own 
navigational devices, the operator must create an electronic menu or guide that all video 
programming providers must carry containing a non-discriminatory listing of programming 
providers or programming services available on the system and informing the viewer how to 
obtain additional information on each of the services listed;
(6) An open video system operator must grant access, for programming providers that 
do not wish to use their own navigational device, to the navigational device used by the open 
video system operator or its affiliate;
(7) If an operator provides an electronic guide or menu that complies withparagraph (5) 
of this subsection, its programming affiliate may create its own menu or guide without being 
subject to the requirements of Section 653(b)(l)(E) of the Communications Act.
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Federal Communications Commission FCC 96-334
(c) An open video system operator shall ensure that video programming providers or 
copyright holders (or both) are able to suitably and uniquely identify their programming services 
to subscribers.
(d) An open video system operator shall transmit programming identification without change 
or alteration if such identification is transmitted as part of the programming signal.
* * *
10. Section 76.1513 is amended by adding a note to paragraph (e)(viii) to read as 
follows:
* * * * *
(e) * * *
(viii) * * *
Note to paragraph (e)(viii): Upon request by a complainant, the preliminary carriage rate 
estimate shall include a calculation of the average of the carriage rates paid by the unaffiliated 
video programming providers receiving carriage from the open video system operator, including 
the information needed for any weighting of the individual carriage rates that the operator has 
included in the average rate.
* * *
11. Section 76.1514 is revised to read as follows:
* * * * *
(2) Any local exchange carrier offering such a package must impute the unbundled tariff 
rate for the regulated service.
* * *
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Federal Communications Commission FCC 96-334
APPENDIX C
INSTRUCTIONS FOR FCC FORM 1275 
OPEN VIDEO SYSTEM CERTIFICATION OF COMPLIANCE
Purpose of this Form
Section 653(a)(l) of the Communications Act, 47 U.S.C. § 573(a)(l), provides that an open video 
system operator must certify to the Commission that it complies with the Commission's 
regulations under Section 653(b) of the Communications Act, 47 U.S.C. § 573(b). This FCC 
Form 1275 is to be used by an open video -system applicant to obtain certification from the 
Commission. The Commission will publish notice of the receipt of FCC Form 1275 and will 
post the Form on its Internet site. The certification will be deemed approved if the Commission 
does not disapprove the certification within ten days of the Commission's receipt of the filing.
Please be sure to review all relevant FCC regulations and these instructions before completing 
this Form.
Filing Information
A hard copy of FCC Form 1275 and all attachments must be filed with the Office of the 
Secretary, Federal Communications Commission, 1919 M Street N.W., Room 222, Washington 
D.C., 20554, and with the Office of the Bureau Chief, Cable Services Bureau, 2033 M Street, 
N.W., Washington, D.C. 20554. The applicant must also file the Form 1275 on computer disk 
at these same two locations. Such a submission should be on a 3.5 inch diskette formatted in an 
IBM compatible form using Windows 3.1 and Excel 4.0 software. The diskettes should be 
submitted in "read only" mode. The diskettes should be clearly labelled as an open video system 
certification filing, should indicate the applicant's name and date of submission, and should be 
accompanied by a cover letter. Any attachments or other material not easily stored on computer 
disk may be filed in hard copy only.
On or before the date the Form 1275 is filed with the Commission, the applicant must serve a 
copy of its filing on all local communities listed in Module D, Line 1 of the Form. The applicant 
must include a statement informing the local communities that any oppositions or comments must 
be filed with the Commission within five days of the applicant's filing and must be served on the 
applicant. Service by mail is complete upon mailing, but if mailed, the served documents must 
be postmarked at least three days prior to the date the applicant files the Form 1275.
Instructions
Module A: Company Information. Indicate the applicant's name, address, telephone and fax 
numbers and the name of a person to contact for further information.
Module B: Ownership Information. Attach a statement of ownership interest in the open video
20348
______________ Federal Communications Commission_______FCC 96-334
system, including all affiliated entities.
Module C: Eligibility and Compliance Representations.
Line 1: If you are a cable operator applying for certification to operate within your cable 
franchise area, indicate whether you are qualified to become an open video system operator under 
Section 76.1501 of the Commission's rules. You must also attach a brief statement explaining 
how you qualify under Section 76.1501. Section 76.1501 provides that a cable operator is 
qualified to operate within its cable franchise area if it is subject to "effective competition" in the 
franchise area, as defined in Section 623(1)(1) of the Communications Act, 47 U.S.C. § 543(1)(1). 
If a cable operator is not subject to effective competition in its cable franchise area, it may still 
qualify to operate an open video system under Section 76.1501, provided that the Commission 
has issued a finding that such operation would serve the public interest, convenience, and 
necessity. If you are not a cable operator applying for certification within your cable franchise 
area, check "N/A" to indicate that the question is not applicable.
Line 2: Indicate whether you agree to comply with Sections 76.1503, 76.1504, 76.1506(m), 
76.1508, 76.1509, and 76.1513 of the Commission's rules, implementing Section 653(b) of the 
Communications Act. In certifying compliance with these regulations, you agree to abide by the 
Commission's requirements regarding non-discriminatory carriage; just and reasonable rates, terms 
and conditions; a one-third capacity limit on the amount of activated channel capacity on which 
an open video system operator may select programming when demand for carriage exceeds 
system capacity; channel sharing; application of the rules concerning sports exclusivity, network 
non-duplication, and syndicated exclusivity; and non-discriminatory treatment in presenting 
information to subscribers.
Line 3: Indicate whether you agree to comply with the Commission's requirements for 
enrollment of and for notice to unaffiliated video programming providers.
Line 4: If you are required under Section 64.903(a) of the Commission's rules to file a cost 
allocation manual, indicate whether you agree to file changes to your cost allocation manual at 
least 60 days before the commencement of service. If you are not required under Section 
64.903(a) to file a cost allocation manual, check "N/A" to indicate that the question is not 
applicable.
Module D: System Information.
Line 1: List the names of the anticipated local communities to be served upon completion 
of your open video system. If the space provided on the form is insufficient, attach additional 
sheets as necessary.
Line 2: Indicate the amount of digital capacity anticipated on the open video system. 
Line 3: Indicate the amount of analog capacity anticipated on the open video system.
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Federal Communications Commission FCC 96-334
Line 4: For switched digital systems, indicate the anticipated number of available channel 
input ports.
Module E: Verification Statement.
An officer or director of the applicant must sign and date Form 1275 certifying that, to the 
best of his or her information and belief, all representations contained in the filing are accurate 
according to the most recent information available.
FCC NOTICE TO INDIVIDUALS REQUIRED BY THE PRIVACY ACT AND THE 
PAPERWORK REDUCTION ACT
The solicitation of personal information in this form is authorized by the Communications Act 
of 1934, as amended. The information provided in this form is used by the Commission to 
determine that open video system operators comply with the Commission's regulations under 
Section 653 (b) of the Communications Act. In reaching that determination, or for law 
enforcement purposes, it may become necessary to provide personal information contained in this 
form to another government agency. If information requested on this form is not provided, 
processing may be delayed. All information provided in this form will be available for public 
inspection. Your response is required to obtain the requested certification. Individuals are not 
required to respond to a collection of information unless it displays a currently valid OMB control 
number.
Public reporting burden for this information is estimated to average one hour per response, 
including the time for reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the collection of information. Send 
comments regarding this burden estimate or any other aspect of this collection of information, 
including suggestions for reducing the burden, to the Federal Communications Commission, 
Records Management Division, Washington, D.C. 20554. Do not send completed forms to this 
address.
20350
Federal Communications Commission 
Washington. D.C. 20554
Approved by OMB XXXX-XXXX
FCC FORM 1275 
CERTIFICATION FOR OPEN VIDEO SYSTEMS
Company Name:
Contact Person:
Mailing Address:
City: State: Zip Code:
Phone Number: Fax Number:
Sslligiljii^^
1 . If you are a cable operator applying for certification within your cable franchise area, are you 
qualified to operate an open video system under 47 C.F.R. § 76.1501?
2. Do you agree to comply and to remain in compliance with each of the Commission's 
regulations in 47 C.F.R. §§ 76.1503, 76.1504, 76.1506(m), 76.1508, 76.1509, and 76.1513?
3. Do you agree to comply with the Commission's notice and enrollment requirements 
for unaffiliated video programming providers?
4. If applicable, do you agree to file changes to your cost allocation manual at least 
60 days before the commencement of service?
Yes No N/A
1. List the names of the anticipated local communities to be served upon completion of the system.
2. Anticipated Digital Capacity:
4. If Switched Digital, Anticipated 
Number of Channel Input Ports:
WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE PUNISHABLE BY FINE AND/OR IMPRISONMENT 
(U.S. CODE TITLE 18, SECTION 1001), AND/OR FORFEITURE (U.S. CODE. TITLE 47, SECTION 503)
To the best of my knowledge and belief, the representations made herein are accurate according to the most recent information available.
Name:
Title:
Signature:
Date:
FCC Form 1275 
August 1996
20351
August 8, 1996
SEPARATE STATEMENT
OF 
COMMISSIONER JAMES H. QUELLO
Re: Implementation of Section 302 of the Telecommunications Act; Open Video Systems, 
Third Report and Order and Second Order on Reconsideration. (CS Docket 96-46)
This Third Report and Order and Second Order on Reconsideration generally affirms 
the Commission's prior decision on the operation of open video systems (OVS), pursuant to 
the six-month deadline set by Congress in the Telecommunications Act of 1996 requiring the 
Commission to complete implementation of final rules.
When the Commission adopted OVS rules in June, I stated that it was necessary to be 
especially aware of the potential implications arising from the fact that this complicated 
proceeding, unlike many other pressing matters raised in the Telecommunications Act of 
1996, was to be completed through reconsideration by August 1996. The Commission has 
been most careful to follow the express will of Congress and in doing so has established a 
framework for the development of OVS in the video marketplace. I remain concerned, 
however, that this accelerated timeframe for completing final rules may result in unintended 
consequences through exacerbated uncertainty and potential competitive imbalances as 
companies in the video marketplace work to follow those rules.
In terms of specific rules adopted in this proceeding, I continue to question the 
decision to expand the application of program access rules in the context of programming 
services, video program packagers, and OVS operators rather than to follow past precedent in 
applying these rules. In particular, I question the necessity of prohibiting the use of exclusive 
contracts between cable-affiliated programming services and cable-affiliated programming 
packagers on the OVS system. The Commission previously has distinguished between the 
legitimate and beneficial uses of exclusivity, especially in the context of developing 
technologies such as DBS, as compared to practices that restrict the availability of 
programming to subscribers.' The Commisison found regarding DBS that "...an outright ban 
on any MVPD exclusive contracts in areas unserved by cable, without any determination of 
the effect of such exclusivity on competition, defeats the very purpose of the 1992 Cable Act 
to foster competition from other non-cable technologies."2
1 See Implementation of Cable Television Consumer Protection and Competition Act of 1992: Development 
of Competition and Diversity in Video Program Distribution and Carriage, First Report and Order in MM Docket 
No. 92-265, 8 FCC Red 3359 (1993); See also Memorandum Opinion and Order on Reconsideration in MM 
Docket No. 92-265, 10 FCC Red 3105 (1994).
2 10 FCC Red 3126 (1994).
20352
Moreover, the Commission's original decision to implement Section 628 regarding 
program access, especially concerning exclusive contracts in areas served by cable, treated 
exclusive contracts between vertically integrated programming vendors and cable operators "in 
a somewhat less restrictive manner" by not applying a per se prohibition and finding that 
contracts of this type are not prohibited where the Commission determines that "such [a] 
contract is in the public interest."' In that context the Commission also stated that 
"exclusivity under this provision is not prohibited" and that "the public interest in exclusivity 
in the sale of entertainment programming is widely recognized."4
The program access rules have been applied over time to preserve legitimate practices 
and to preclude practices that restrict the availability of programming to subscribers or favor a 
particular distribution technology to the exclusion of other competing distributors. As a 
result. I continue to believe that the Commission's application of program access rules in the 
context of OVS fails to find a similar level of balance, and I question how the original, 
specific competitive concerns that became the. basis for program access rules are manifested in 
the context of this new service.
Meanwhile, we all continue to await the resolution of the pressing matter of treatment 
of cost allocation for OVS, which is being addressed in a separate rulemaking. Throughout 
the extensive and contentious history of the video dialtone proceedings, perhaps no other issue 
was as critically important, and yet as tentatively treated, as the issue of cost allocation. 
While the 1996 Act establishes a new framework for LEC entry into the video marketplace 
through the advent of open video systems, the same analytical questions regarding cost 
allocation have to be answered, because the potential competitive inequities surrounding the 
treatment of common costs for OVS and voice networks have not in any way been changed. 
It is my hope that the Commission's treatment of cost allocation issues in the future will 
address my concerns, especially that the cost allocation mechanism: (1) should be understood 
by all parties at the outset of OVS development, and (2) should account for the carrier's 
incentive in competing with incumbent cable operators to set a price for video service that is 
artificially low. Accordingly, we still must face the question of how we will identify and 
analyze costs underlying the lower rate that might otherwise go unseen or underestimated, as 
opposed to scrutinizing inflated cost estimates that might be used to justify a higher rate. I 
look forward to addressing the cost allocation matter in the near future.
8 FCC Red 3383 (1993). 
8 FCC Red 3384 (1993).
20353 oU.S. GOVERNMENT PRINTING OFFICE:! 997-41 7-484/60023