[Federal Register Volume 61, Number 84 (Tuesday, April 30, 1996)]
[Proposed Rules]
[Pages 19013-19020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10172]



=======================================================================
-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[CS Docket No. 96-85, FCC 96-154]


Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Commission has adopted an Order and Notice of Proposed 
Rulemaking regarding implementation of the Cable Act reform provisions 
of the Telecommunications Act of 1996 (``1996 Act''). The Order segment 
of this action may be found elsewhere in this issue of the Federal 
Register. This Notice of Proposed Rulemaking (``NPRM'') solicits 
comment on several issues arising from the enactment of the 1996 Act. 
This NPRM solicits comment regarding possible revisions to the interim 
final rules established in the companion Order and requests comment on 
other issues critical to the 1996 Act's implementation. The intended 
effect of this action is to develop rules that fully implement the 
mandates of the 1996 Act with regard to cable television.

DATES: Comments filed in response to this NPRM must be filed by May 28, 
1996. Reply Comments are due June 28, 1996. Written comments by the 
public on the proposed and/or modified information collections are due 
on or before May 28, 1996. Written comments must be submitted by the 
Office of Management and Budget (OMB) on the proposed and/or modified 
information collections on or before July 1, 1996.

ADDRESSES: An original and six copies of comments and reply comments 
should be sent to Office of the Secretary, Federal Communications 
Commission, 1919 M Street, NW., Room 222, Washington, DC 20554, with a 
copy to Nancy Stevenson of the Cable Services Bureau, 2033 M Street, 
NW., Room 408A, Washington, DC 20554. Parties should also file one copy 
of any documents filed in this docket with the Commission's copy 
contractor, International Transcription Services, Inc., 2100 M Street, 
NW., Suite 140, Washington, DC 20037. Comments and reply comments will 
be available for public inspection during regular business hours in the 
FCC Reference Center, 1919 M Street, NW., Room 239, Washington, DC 
20554.
    In addition to filing comments with the Secretary, 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, NW., Washington, DC 20054, or via the Internet to 
[email protected], and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 
725-17th Street, NW., Washington, DC 20503 or via the Internet to 
[email protected].

FOR FURTHER INFORMATION CONTACT: Tom Power, Paul Glenchur, or Nancy 
Stevenson, Cable Services Bureau, (202) 416-0800. For additional 
information concerning the information collections contained in this 
NPRM contact Dorothy Conway at 202-418-0217, or via the Internet at 
[email protected].


[[Page 19014]]


SUPPLEMENTARY INFORMATION: This is a synopsis of a Commission Notice of 
Proposed Rulemaking in CS Docket No. 96-85, FCC-154, adopted April 5, 
1996 and released April 9, 1996. The complete text of this document is 
available for inspection and copying during normal business hours in 
the FCC Reference Center, 1919 M St., NW., Washington, DC, and also may 
be purchased from the Commission's copy contractor, International 
Transcription Services, Inc. at (202) 857-3800, 2100 M Street, NW., 
Suite 140, Washington, DC 20017.
    This NPRM contains either proposed or modified information 
collections. The Commission has obtained Office of Management and 
Budget (``OMB'') approval, under the emergency processing provisions of 
the Paperwork Reduction Act of 1995 (5 CFR 1320.13), of the information 
collections contained herein. OMB approval is effective no later than 
the date that the summary for the NPRM appears in the Federal Register. 
The OMB control number for information collections contained in this 
rulemaking is 3060-0706. Emergency OMB approval for the information 
collections expires July 31, 1996. The Commission, as part of its 
continuing effort to reduce paperwork burdens and to obtain regular OMB 
approval of the information collections, invites the general public and 
OMB to comment on the information collections contained herein, as 
required by the Paperwork Reduction Act of 1995. Public and agency 
comments are due at the same time as other comments on this Order and 
NPRM; OMB notification of action is due 60 days after publication of 
the NPRM in the Federal Register. Comments should address: (a) Whether 
the proposed collections of information are necessary for the proper 
performance of the functions of the Commission, including whether the 
information shall have practical utility; (b) the accuracy of the 
Commission's burden estimates; (c) ways to enhance the quality, 
utility, and clarity of the information collected; and (d) 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.
    OMB Approval Number: 3060-0549.
    Title: FCC Form 329 Cable Programming Service Rate Complaint Form, 
76.950 Complaints regarding cable programming service rates and 76.1402 
CPST rate complaints.
    Form No.: FCC Form 329.
    Type of Review: Revision of existing collection.
    Respondents: State, local and tribal governments; individuals.
    Number of Respondents: 1,600.
    Estimated Time Per Response: 45 minutes.
    Total Annual Burden: 1,200 hours.
    Estimated costs per respondent: $1,600. $1 per response for postage 
and stationery costs.
    Needs and Uses: FCC Form 329 will be used by local franchise 
authorities to file cable programming service tier rate complaints, 
upon receipt of more than one subscriber complaint about such rates.
    OMB Approval Number: 3060-0652.
    Title: 76.309 Customer service obligations and 76.964 Notice to 
subscribers.
    Type of Review: Revision of existing collection.
    Respondents: Businesses and other for profit entities.
    Number of Respondents: 12,000.
    Estimated Time Per Response: 2.91 hours.
    Total Annual Burden: 34,917 hours.
    Estimated costs per respondent: None.
    Needs and Uses: This information collection accounts for the 
notifications requirements found in 76.309 and 76.964. Cable operators 
are no longer required to provide prior notice to subscribers of any 
rate change that is the result of a regulatory fee, franchise fee, tax 
assessment, or charge of any kind imposed by any Federal agency, State, 
or franchise authority. Eliminating this requirement reduces annual 
notification burdens imposed on operators by 30 minutes per operator, 
for an aggregate reduction of 6,000 hours. 12,000 systems x .30 
minutes=6,000.
    OMB Approval Number: 3060-0551.
    Title: 76.1002 Specific unfair practices prohibited.
    Type of Review: Revision of existing collection.
    Respondents: Businesses and other for profit entities.
    Number of Respondents: 52 (26 proceedings x 2 parties).
    Estimated Time Per Response: Each proceeding has an average burden 
of 25 hours. 50% of respondents undergo a burden of 1 hour to instead 
coordinate information with outside legal assistance.
    Total Annual Burden: 676 hours. (26 x 25 hours) + (26 x 1 hour).
    Estimated costs for respondents: 50% of respondents will use 
outside legal assistance paid at $150 per hour. 26 x 25 hours per 
proceeding x $150 per hour=$97,500.
    Needs and Uses: The information is used by the Commission to 
determine on a case-by-case basis whether particular exclusive 
contracts for cable television programming are in compliance with the 
statutory public interest standard of Section 628(c)(2)(D) of the 
Communications Act of 1934.
    OMB Approval Number: 3060-0552.
    Title: 76.1003 Adjudicatory proceedings.
    Type of Review: Revision of existing collection.
    Respondents: Businesses and other for profit.
    Number of Respondents: 24 (12 proceedings x 2 parties).
    Estimated Time Per Response: Each proceeding has an average burden 
of 20 hours. 50% of respondents undergo a burden of 1 hour to instead 
coordinate information with outside legal assistance.
    Total Annual Burden: 252 hours. (12 x 20)+(12 x 1).
    Estimated costs per respondent: 50% of respondents will use outside 
legal assistance paid at $150 hour. 12 x 20 hours per proceeding x $150 
per hour=$36,000.
    Needs and Uses: Information contained in the proceedings is used by 
the Commission to resolve disputes alleging unfair methods of 
competition and deceptive practices where the purpose or effect of 
which is to hinder significantly or to prevent any multichannel video 
programming distributor from providing satellite cable programming or 
satellite broadcast programming to consumers.
    OMB Approval Number: 3060-0706.
    Title: 76.1401 Effective competition and local exchange carriers, 
76.1403 Small cable operators, and 76.1404 Use of cable facilities by 
local exchange carriers.
    Type of Review: New collection.
    Respondents: Businesses and other for profit entities; state, local 
and tribal governments.
    Number of Respondents: 300 petitions for determination of effective 
competition; 400 requests for certification of small cable operator 
status; 50 contract submissions.
    Estimated Time Per Response: Petitions for determination of 
effective competition have an average burden of 20 hours. However, 75% 
of respondents (225) will undergo a burden of 1 hour instead to 
coordinate information with outside legal assistance. Requests for 
certification of small cable operator status have an average burden of 
2 hours. However, 25% of respondents (100) will undergo a burden of 1 
hour instead to coordinate information with outside legal assistance. 
LFAs will then undergo an average burden of 3 hours to review each 
request. Sending copies of contracts pertaining to use of cable 
facilities by local exchange carriers

[[Page 19015]]

along with explanations of how such contract is reasonably limited in 
scope and duration has an average burden of 1 hour.
    Total Annual Burden: 3,675 hours. (75 x 20 hours)+(225 x 1 
hour)+(300 x 2 hours)+(400 x 3 hours)+(100 x 1 hour)+(50 x 1 hour).
    Estimated costs for respondents: $705,750. Outside legal assistance 
used to file petitions for determination of effective competition and 
requests for certification of small operator status will be paid at 
$150 per hour. 225 petitions x 20 hours x $150 per hour=$675,000. 300 
petitions x $1 for postage and stationery=$300. 100 requests for 
certification x 2 hours x $150 per hour=$30,000. 400 requests for 
certification x $1 for postage and stationery=$400. 50 contract 
submissions x $1 for postage and stationery=$50.
    Needs and Uses: Information collected in petitions for 
determination of effective competition will be used by the Commission 
to make such determinations for operators. Information collected in 
requests for certification of small operator status will be used by 
franchise authorities to make such determinations of small operator 
status. Information collected in contract submissions will be used by 
the Commission to determine whether the local exchange carrier's use of 
the transmission facilities is limited in scope and duration.

Notice of Proposed Rulemaking

    1. In this NPRM, we propose final rules implementing certain 
provisions of the 1996 Act. We seek to adopt clear rules streamlining 
our processes, establishing certainty for cable operators, Local 
Franchise Authorities (``LFAs'') and subscribers, and effectuating the 
intent of Congress. A number of the issues discussed below are also the 
subject of a related Order. In commenting on such issues, parties 
should consider the discussion and treatment of them in the Order.

A. Effective Competition

1. Generally
    2. The new test for effective competition requires that the LEC-
delivered programming be ``comparable'' to that of the cable operator. 
The Conference Report to the 1996 Act, H.R. Rept. 104-458, states that 
video programming services are comparable if they ``include access to 
at least 12 channels of programming, at least some of which are 
television broadcasting signals.'' We tentatively conclude that this 
definition of comparable programming should be adopted. We note that 
after defining ``comparable'' in this manner, the Conference Report 
cites Section 76.905(g) of our rules which in fact has a slightly 
different definition of comparable. The rule defines ``comparable'' as 
meaning a minimum of 12 channels of programming, ``including at least 
one channel of nonbroadcast service programming.'' Commenters should 
consider this factor in addressing the meaning of ``comparable'' 
programming for purposes of the new test for effective competition.
    3. In light of our tentative conclusion that ``comparable 
programming'' requires access to broadcast channels, commenters should 
address whether this could include satellite-delivered broadcast 
channels (e.g., ``superstations''). In the same context, commenters 
should address whether a multichannel multipoint distribution service 
(``MMDS'') subscriber should be deemed a recipient of ``comparable 
programming'' if the broadcast stations are received by way of an over-
the-air antenna located at the subscriber's residence, rather than as 
part of the MMDS operator's microwave signals. Would it matter if the 
antenna was provided by the subscriber as opposed to the MMDS operator? 
We believe that a single definition of ``comparable programming'' 
should apply to both prongs of the effective competition test in which 
that term is used. Commenters who disagree with this conclusion should 
provide a justification for having a different definition of comparable 
programming in different prongs of the effective competition test.
    4. We tentatively conclude that the new test for effective 
competition applies with equal force regardless of whether the LEC or 
its affiliate is merely the video service provider, as opposed to the 
licensee or owner of the facilities. We seek comment on this tentative 
conclusion. Further, we seek comment as to whether the type of service 
provided by, or over the facilities of, the LEC or its affiliate should 
be relevant. For example, we seek comment as to whether satellite 
master antenna television (``SMATV'') systems constitute direct-to-home 
satellite services and hence do not fall within the class of video 
providers that can be a source of effective competition under the new 
test.
    5. We seek comment on whether we should follow the standards 
adopted in the companion Order for purposes of the permanent rule by 
which cable operators may show that the competing MVPD is offering 
service in the franchise area. We note that the new definition of 
effective competition, unlike the other three effective competition 
tests, does not include a percentage of homes passed or a specific 
penetration rate. We seek comment as to whether Congress intended 
effective competition to be found if a LEC's, or its affiliate's, 
service was offered to subscribers in any portion of the franchise 
area, or whether the competitor's service must be offered to some 
larger portion of the franchise area to constitute effective 
competition. In addressing this issue, commenters should consider what 
level of competition provided by a LEC or its affiliate is sufficient 
to have a restraining effect on cable rates. Commenters also should 
address the likelihood that an incumbent cable operator's response to 
the presence of a competitor may depend not just upon the current pass 
rate of the competitor, but also on its potential pass rate. That is, a 
LEC that offers service to 5% of the residents in a franchise area and 
that, due to technical constraints, will never exceed this reach would 
seem to pose less of a competitive threat than a LEC with a 5% pass 
rate that eventually will be able to offer service throughout the 
franchise area. We seek comment as to whether to take account of this 
factor in implementing the new test for effective competition.
    6. In the companion Order, we have adopted interim filing 
procedures by which regulated operators may seek to establish the 
presence of effective competition under the new statutory test. We 
tentatively conclude that we should adopt these procedures as a final 
rule and conform our existing procedures accordingly, such that all 
tests for effective competition would be determined in a uniform 
manner. We seek comment on this tentative conclusion.
2. Definition of ``Affiliate''
    7. With respect to the definition of ``affiliate'' for purposes of 
the new prong of the effective competition test, we note that the 1996 
Act does not specifically alter the following definition of 
``affiliate'' which remains applicable for purposes of cable regulation 
under Title VI of the Communications Act, Sec. 602(2):
    The term ``affiliate,'' when used in relation to any person, means 
another person who owns or controls, is owned or controlled by, or is 
under common ownership or control with, such person;
    8. Although this definition remains unchanged, the following 
definition of ``affiliate'' is now found in Title I as a result of the 
enactment of the 1996 Act:

[[Page 19016]]

    The term ``affiliate'' means 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.
    9. As engrafted into Sec. 3 of the Communications Act, this 
definition of ``affiliate'' now applies ``[f]or purposes of this 
[Communications] Act, unless the context otherwise requires * * * .'' 
Commenters should address whether, for purposes of the new effective 
competition test, ``the context * * *  require[s]'' a definition of 
``affiliate'' other than the one now contained in Title I.
    10. We tentatively conclude that the Title I definition of 
``affiliate'' should be adopted for purposes of the new effective 
competition test. While we do not believe that Congress mandated the 
use of this definition for purposes of Title VI, incorporating the 
Title I definition for purposes of Title VI is not inconsistent with 
Congressional intent and would create some uniformity throughout the 
Commission's rules. We also tentatively conclude that both passive and 
active ownership interests are attributable and seek comment 
accordingly. We also seek comment on whether a beneficial interest in a 
cable operator would be ``equivalent'' to an equity interest under this 
proposed definition of ``affiliate'' and, if so, how ``beneficial 
interest'' should be defined. Commenters should address whether the 
affiliation standard has to be met by a single LEC or whether the 
interests of more than one LEC can be aggregated.

B. CPST Rate Complaints

    11. Here we propose to adopt the interim rules regarding the filing 
of rate complaints by LFAs, adopted in the Companion Order, as final 
rules and solicit comment accordingly.
    12. In addition to addressing the interim procedures, parties 
should comment on whether we should establish a deadline by which LFA 
complaints must be filed. Although Section 301(b)(1)(C) permits the LFA 
to file a CPST rate complaint with the Commission only if the LFA has 
received subscriber complaints within 90 days of a CPST rate increase, 
it specifies no deadline for the LFA complaint. Commenters should 
propose possible deadlines, taking into account the steps that a LFA 
may be required to undertake following the close of the 90-day window 
on subscriber complaints in order to file its own complaint with the 
Commission. Finally, because Section 301(b)(1)(C) alters the rate 
complaint process, we propose eliminating the requirement contained in 
Section 76.952 of our rules that operators must include the name, 
mailing address, and telephone number of the Cable Services Bureau of 
the Commission on monthly subscriber bills.

C. Small Cable Operators

1. National Subscriber Count
    13. Here we propose specific rules to clarify implementation of 
Section 301(c) which provides for greater deregulation of small cable 
operators. We first must determine the method by which we will 
establish the total number of cable subscribers in the United States, 
since only operators serving fewer than 1% of all subscribers qualify 
as small cable operators. We propose to establish such a number on an 
annual basis and to have that number serve as the applicable threshold 
until a new number is calculated the following year. While the number 
of subscribers varies daily, we tentatively conclude that fixing a 
number on an annual basis will produce certainty and reduce 
administrative burdens for operators, LFAs, and the Commission. 
Commenters should address these tentative conclusions and propose any 
reasonable alternatives.
    14. As noted, the method we select to count the total number of 
subscribers should minimize administrative burdens as well as ensure a 
subscriber count that is as accurate and reliable as is reasonably 
possible. We are aware that industry groups, trade journals, and other 
private concerns already attempt to track subscriber figures. We 
tentatively conclude that using the most reliable of these figures, or 
perhaps some average of these figures, would best further our goals. We 
solicit comment on this tentative conclusion and on what data would be 
the most reliable for this purpose.
2. Definition of ``Affiliate''
    15. In addition, we seek comment on the proper definition of 
``affiliate'' for purposes of the small operator provisions. We already 
have discussed the separate definitions of ``affiliate'' contained in 
Title I and Title VI. We note that the Title I definition of 
``affiliate'' does not strictly apply to matters under Title VI, since 
Title VI contains a separate definition of that term that, unlike the 
Title I definition, does not set a percentage threshold as to what 
constitutes ownership. We believe this gives us discretion to establish 
a percentage ownership threshold other than 10% for purposes of Title 
VI.
    16. As for the precise threshold we should establish here, we note 
that last year in applying the Title VI definition in the context of 
our small system rules, we concluded that a 20% ownership interest, 
active or passive, would be deemed affiliation. There we observed: 
``Relaxing regulatory burdens should free up resources that affected 
operators currently devote to complying with existing regulations and 
should enhance those operators' ability to attract capital, thus 
enabling them to achieve the goals of Congress * * *.'' We believe that 
Congress had a similar intent when it crafted the small cable operator 
provisions of the 1996 Act and, therefore, we tentatively conclude that 
the affiliation standard applicable under our small system cost-of-
service rules also should be applied for present purposes. Under this 
approach, an entity would be affiliated with a cable operator if the 
entity held an ownership interest of 20% or more, either active or 
passive, in the cable operator. De facto control also would constitute 
affiliation. We seek comment on this proposed definition.
3. Definition of ``Gross Revenues''
    17. Once a cable operator identifies its affiliates under whatever 
rule we adopt, it will have to calculate the gross annual revenues of 
those affiliates. We have defined ``gross revenues'' in other contexts, 
such as determining eligibility for certain licenses for frequencies 
devoted to personal communications services:
    Gross revenues shall mean all income received by an entity, whether 
earned or passive, before any deductions are made for costs of doing 
business (e.g., cost of goods sold), as evidenced by audited quarterly 
financial statements for the relevant period.
    18. We tentatively conclude that this definition should be applied 
under the small cable operator provisions of the 1996 Act, although we 
do not intend to require that all entities produce audited financial 
statements. If an entity maintains such statements as a matter of 
course, they would seem to be the best record of its gross revenues. 
However, we realize that some smaller business may not go to the 
expense of having their financial statements audited; certainly they 
should not be required to do so on the basis of legislation intended to 
minimize burdens for smaller businesses. Therefore, we propose to adopt 
the definition of ``gross revenues'' quoted above, as modified to 
eliminate any requirement that the operator or its affiliates produce 
audited

[[Page 19017]]

financial statements. Commenters should address the propriety of this 
definition for establishing operator eligibility for small cable 
operator treatment. We also seek comment as to how the revenues of 
natural persons should be measured and verified under this rule.
    19. The plain language of the statute appears to require an 
operator with multiple affiliates to aggregate the gross annual 
revenues of all of the affiliates and to compare this aggregate figure 
to the $250 million threshold. We tentatively conclude that if the 
gross revenues of all affiliates, when aggregated in this manner, 
exceed $250 million, the operator does not qualify as small, even if no 
single affiliate has revenues in excess of that amount. We also solicit 
comment as to whether the statute should be read to exclude the 
revenues of the operator itself for purposes of applying the $250 
million threshold. Finally, we solicit comment on whether only 
affiliates of the cable operator that are also cable operators should 
be included when aggregating gross annual revenues with respect to the 
$250 million threshold.
4. System and Franchise Area Subscribers
    20. Rate regulation is reduced or eliminated for a small cable 
operator ``in any franchise area in which that operator services 50,000 
or fewer subscribers.'' Although a single cable system can serve more 
than one franchise area, deregulation under this provision of the 1996 
Act appears to be determined on a franchise area-by-franchise area 
basis, without regard to the total number of system subscribers. Under 
this analysis, a system serving well over 50,000 subscribers spread 
over multiple franchise areas could qualify for deregulation throughout 
the entire system as long as no individual franchise area contained 
more than 50,000 subscribers. Likewise, a single system could be 
subject to regulation in one franchise area but not in another because 
its subscriber counts are over and under the 50,000 mark in the two 
areas, respectively. We seek comment on our tentative conclusion that 
system size is irrelevant for purposes of this provision.
    21. In other contexts in which subscriber counts are important, 
such as determining whether effective competition exists in a franchise 
area, we have directed operators how to measure subscribership to take 
account of various circumstances, such as in vacation areas that 
experience seasonal shifts in population. However, in limited 
circumstances we have allowed operators to count subscribers residing 
in multiple dwelling units (``MDUs'') based on the equivalent billing 
unit methodology. We seek comment on the proper methodology to be used 
for purposes of the 50,000 subscriber limit under Section 301(c).
5. BST and CPST deregulation
    22. The 1996 Act plainly eliminates CPST rate regulation for 
systems that qualify under the revenue and subscriber criteria. For 
qualifying systems that do not offer a CPST, the statute eliminates BST 
regulation if that tier ``was the only service tier subject to 
regulation as of December 31, 1994 * * *.'' With respect to qualifying 
systems that had only a single tier subject to regulation as of that 
date, we seek comment as to whether Congress intended the BST to be 
deregulated even if the operator has created a CPST since then or 
creates a CPST hereafter. In other words, can a qualifying system with 
both a BST and a CPST be exempt from rate regulation on both tiers, as 
long as it had only a single tier as of December 31, 1994? Assume, for 
example, that as of December 31, 1994 an operator had only a single 
regulated tier, consisting of all of the channels that an operator is 
required to carry on its BST plus a large number of additional 
channels. Thereafter, the operator creates a CPST and migrates from the 
BST to the new CPST some or all of the channels that are not mandatory 
BST channels, including all of the most popular satellite-delivered 
cable networks. Arguably, the system's resulting BST would be exempt 
from regulation on the grounds that the BST ``was the only service tier 
subject to regulation as of December 31, 1994 * * *.'' It is also 
arguable, however, that the resulting BST should be subject to 
regulation because the fundamental nature of the original BST was 
significantly altered after December 31, 1994.
    23. We tentatively conclude that the scope of deregulation depends 
solely upon the number of tiers that were subject to regulation as of 
December 31, 1994. Under this construction of the statute, a system 
currently offering two or more tiers would be deregulated on all tiers 
if the BST was the only tier subject to regulation as of December 31, 
1994, but would be deregulated only on its CPST(s) if it had more than 
one tier subject to regulation as of December 31, 1994. We seek comment 
on this construction of the statute.
6. Procedures
    24. As for procedures, we seek to design a mechanism by which an 
operator can obtain a prompt determination of small operator status 
with a minimum of paperwork, while still giving LFAs and the Commission 
the ability to verify, when necessary, the subscriber and revenue data 
relied on by the operator in seeking such status. We understand that a 
large number of operators entitled to deregulation under the 1996 Act 
have subscriber and revenue figures that fall far below the statutory 
thresholds. We tentatively conclude that the procedures we adopt in 
this regard should be such that these systems can obtain a prompt 
declaration of their deregulatory status without having to comply with 
the rules that may be necessary for systems whose eligibility is not so 
certain. Accordingly, we propose to adopt on a permanent basis the 
interim procedures described above.
    25. While designed to simplify the process in the case of operators 
who clearly meet the statutory criteria, this process could be applied 
to all operators, even though further scrutiny may be required for 
operators that come closer to those statutory criteria. We seek comment 
on this approach and invite commenters to propose other mechanisms that 
would minimize the administrative burdens on operators and franchising 
authorities, particularly in cases where there will be no dispute as to 
the operator's eligibility for deregulation. We further seek comment as 
to the procedures to be followed where a determination of the 
operator's status will require further examination.
    26. We also must determine the treatment of systems that qualify 
for deregulation now, but later exceed the subscriber or revenue 
thresholds. We tentatively conclude that the plain language of the 
statute indicates that a deregulated system would become subject to 
regulation upon exceeding the statutory thresholds. Under this 
approach, would a system that qualifies for deregulation instantly lose 
that status the moment its subscriber base exceeds 50,000 in the 
franchise area, or at the moment its operator starts to serve more than 
1% of subscribers nationwide? Is deregulated status lost immediately 
upon the accumulation of annual revenues above $250 million? We 
tentatively conclude that an instantaneous shift from complete 
deregulation to full regulation may not be in the public interest 
because it could be disruptive to consumers and operators. The addition 
of subscribers by a system or operator would seem to indicate that the 
company is responding to consumer demand. We would not want to 
discourage such responsiveness on the part of cable operators.

[[Page 19018]]

Nevertheless, we tentatively conclude that the language of the 1996 Act 
requires the transition into regulation to begin as soon as the system 
no longer qualifies under the subscriber or revenue criteria. We seek 
comment on these issues.
    27. We note that last year the Commission adopted rules 
streamlining cost-of-service rate regulation for any system serving 
fewer than 15,000 subscribers, as long as the system is not owned by an 
operator serving more than 400,000 subscribers. Once a system qualifies 
under these criteria, it remains subject to the relaxed rules for so 
long as the system serves fewer than 15,000 subscribers. When the 
system exceeds 15,000 subscribers, it may maintain its current rates, 
but it is then subject to our standard rate rules applicable to systems 
generally, and therefore cannot seek an increase until such an increase 
is permitted under our standard rate rules. We seek comment as to 
whether this transition mechanism could be applied to systems when they 
exceed the statutory criteria, or whether some other approach would be 
more appropriate.

D. Definition of ``Affiliate'' in the Context of Open Video Systems and 
Cable-Telco Buy Outs

    28. We recently initiated a rulemaking to implement the provisions 
of Section 302(a) of the 1996 Act establishing open video systems [61 
FR 10496 (March 14, 1996)]. Open video systems represent a new medium 
for the provision of video programming to subscribers. The 1996 Act 
specifically authorizes a LEC to provide cable service over an open 
video system within its own telephone service area. The 1996 Act also 
provides that, to the extent permitted by Commission regulation, a 
cable operator or any other person may provide video programming 
through an open video system. As with other portions of the 1996 Act, 
Section 302(a) requires that we define the term ``affiliate'' in order 
to implement its provisions. Although Section 3 of the 1996 Act defines 
``affiliate,'' Congress did not alter the separate definition of 
``affiliate'' set forth in Title VI. Thus, we solicit comment regarding 
the definition of ``affiliate'' in the context of the new statutory 
provisions governing open video systems.
    29. The cable-telco buy out provisions of Section 302 of 1996 Act 
also refer to the ``affiliates'' of such entities. We request comment 
regarding the definition of ``affiliate'' in this context as well.

E. Uniform Rate Requirement

    30. As discussed above, Section 301(b)(2) of the 1996 Act amends 
the pre-existing requirement that a cable operator maintain a uniform 
rate structure throughout its franchise area by, among other things, 
exempting from that requirement bulk discounts offered to multiple 
dwelling units. We have amended the rule to comform with the exact 
statutory language. Here we solicit comment on the meaning of several 
terms in the statutory language.
    31. We tentatively conclude that the bulk rate exception does not 
permit a cable operator to offer discounted rates on an individual 
basis to subscribers simply because they are residents of a multiple 
dwelling unit, but rather requires a ``bulk discount[ ],'' to use the 
language of the statute, that is negotiated by the property owner or 
manager on behalf of all of the tenants. We seek comment on this 
tentative conclusion. We also seek comment as to whether the bulk 
discounts permitted under Section 301(b)(2) include discounts offered 
to MDU residents who are billed individually, or should only be 
permitted where the discount is deducted from a bulk payment paid to 
the cable operator by the property owner or manager on behalf of all of 
its tenants.
    32. We further seek comment as to the meaning of the term 
``multiple dwelling units'' as used in Section 301(b)(2). The 
Commission has a long-standing definition of ``multiple unit 
dwellings'' that historically has been significant in determining 
whether certain cable facilities fell within the private cable 
exemption to the definition of a cable system. As noted above, prior to 
the passage of the 1996 Act the definition of a cable system excluded 
facilities serving subscribers ``in 1 or more multiple unit dwellings 
under common ownership, control, or management, unless such facility or 
facilities uses any public right of way * * *.'' In that context, we 
defined a multiple unit dwelling to include a single building that 
contains multiple residences, and to exclude developments consisting of 
detached single-family residences, such as mobile home parks, planned 
and resort communities, and military installations. Congress now has 
expanded the private cable exemption to include all facilities located 
wholly on private property, without regard to the nature or common 
ownership of the property served. Thus, operators of private cable 
systems (e.g., SMATV systems) now may serve mobile home parks and 
planned developments without being subject to regulations applicable to 
cable systems. Since Section 301(b)(2) clearly authorizes a cable 
operator to deviate from its standard rate structure in order to 
respond to competition at multiple dwelling units, commenters should 
address whether we should interpret ``multiple dwelling units'' to 
correspond to the expanded private cable exemption to the cable system 
definition.
    33. Substantively, we believe that allegations of predation should 
be made and reviewed under principles of federal antitrust law as 
applied and interpreted by the federal courts. Commenters should 
address what standards should be applied to determine whether a 
complainant has made out a prima facie case ``that there are reasonable 
grounds to believe that the discounted price is predatory * * *.'' 
Because complaints in this connection are likely to involve some 
measure of discovery, we propose the adoption of procedures set forth 
in our rules for the adjudication of program access complaints. 
Commenters should address whether that section, or some modified 
version of procedures set forth in that section, should apply on a 
permanent basis.

F. Technical Standards

    34. The Commission has adopted technical standards that govern the 
picture quality performance of cable television systems. The rules 
generally have preemptive force in situations where there is any 
conflict between the Commission's requirements and those that might be 
imposed by state or local governments. Section 624(e) of the 
Communications Act, as adopted in the 1992 Cable Act, provided that the 
Commission should prescribe minimum technical standards.
    35. Current Commission rules dictate specific technical standards 
and provide for enforcement by LFAs. For example, the Commission's 
rules provide that, upon request by a LFA, an operator must be prepared 
to demonstrate compliance with the Commission's technical standards. In 
addition, the rules provide that, in some instances, an operator may 
negotiate with its LFA for standards less stringent than otherwise 
prescribed by the Commission's rules. Section 76.607 of the 
Commission's rules require an operator to establish a process for 
receiving signal quality complaints, and subscriber complaints must be 
referred to the franchising authority and the operator before being 
referred to the Commission.
    36. Here, we seek comment on the overall scope and meaning of new 
Section 624(e) of the Communications

[[Page 19019]]

Act, as amended by Section 301(e) of the 1996 Act. For example, how 
does this provision affect the Commission rules cited above? How does 
the 1996 Act's amendments to Section 624(e) affect the scope of the 
cable franchising, renewal or transfer process in the area of the 
technical considerations allowed in those situations? Commenters should 
bear in mind that the 1996 Act did not amend the franchising or the 
renewal provisions of the Communications Act. Specifically, Section 626 
of the Communications Act provides that, ``subject to Section 624'' an 
operator's proposal for franchise renewal ``shall contain such material 
as the franchising authority may require, including proposals for 
upgrade of the cable system.'' In addition, Section 626 provides for 
franchising authority consideration of the ``quality of the operator's 
service, including signal quality'' during the course of a renewal 
under Section 626. Section 621 provides, in part, that a franchising 
authority awarding a franchise ``may require adequate assurance that 
the cable operator has the * * * technical * * * qualifications to 
provide cable service.''

G. Prior Year Losses

    37. Section 301(k)(1) of the 1996 Act amends Section 623 of the 
Communications Act by adding the following provision:
    (n) Treatment of Prior Year Losses.--Notwithstanding any other 
provision of this section or of section 612, losses associated with a 
cable system (including losses associated with the grant or award of a 
franchise) that were incurred prior to September 4, 1992, with respect 
to a cable system that is owned and operated by the original franchisee 
of such system shall not be disallowed, in whole or in part, in the 
determination of whether the rates for any tier of service or any type 
of equipment that is subject to regulation under this section are 
lawful.
    38. This amendment was effective upon enactment and ``shall be 
applicable to any rate proposal filed on or after September 4, 1993, 
upon which no final action has been taken by December 1, 1995.''
    39. We note that this provision is similar to a rule change we 
recently made in the Second Report and Order, First Order on 
Reconsideration, and Further Notice of Proposed Rulemaking (``Final 
Cost Order''), found at 61 FR 9361 (March 8, 1996) and 61 FR 9411 
(March 8, 1996). The Final Cost Order established final rules 
applicable to operators that establish regulated rates in accordance 
with our cost of service rules, one of the two general approaches we 
have implemented with respect to rate regulation. The other, and 
primary, method of rate regulation is the benchmark approach. The cost 
of service rules, intended as a safety valve for operators unable to 
generate reasonable revenues under the benchmark mechanism, involve a 
detailed analysis of an operators investment, expenses, and revenues. 
One of the issues in such an analysis is the extent to which an 
operator should be permitted to recover ``start up losses'' incurred by 
the system. Start up losses occur in the early years of operation when 
rates are set more to attract customers than to fully cover the 
significant capital and operating costs that an operator incurs before 
and in the first years after initiating service. Prior to adoption of 
the Final Cost Order, we presumptively limited the recovery of start up 
losses to those losses incurred in the first two years of operation. We 
eliminated this presumption in the Final Cost Order and now permit 
operators to recover start up loses over whatever period of time such 
losses were actually incurred.
    40. We tentatively conclude that the statutory requirement of 
Section 301 (k)(1) is applicable to an operator's cost-of-service 
justification, but differs somewhat from the rule adopted in the Final 
Cost Order. First, our rule permitting the recovery of start up losses 
applies to all cable operators, while the recovery of prior year losses 
under Section 301(k)(1) is limited to ``a cable system that is owned 
and operated by the original franchisee of the system.'' Second, under 
our existing rule, reasonable start up losses may be recovered 
regardless of when they were incurred, while Section 301(k)(1) permits 
the recovery only of losses incurred prior to September 4, 1992. Third, 
while start up losses are those incurred in the early years of a 
system's operation, Section 301(k)(1) contains no such limitation. We 
seek comment on these tentative conclusions. Further, we seek comment 
as to whether Congress intended to permit the recovery of prior year 
losses attributable to imprudent or unreasonable expenditures.

H. Advanced Telecommunications Incentives

    41. Subsection 706(a) of the 1996 Act requires the Commission to 
``encourage the deployment on a reasonable and timely basis of advanced 
telecommunications capability to all Americans (including, in 
particular, elementary and secondary schools and classrooms) by 
utilizing, in a manner consistent with the public interest, convenience 
and necessity, price cap regulation, regulatory forbearance, measures 
that promote competition in the local telecommunications market, or 
other regulating methods that remove barriers to infrastructure 
investment.'' We seek comment on how we can advance Congress' goal 
within the context of our cable services regulation. The Commission has 
solicited such information in other proceedings and reserves its right 
to address the implementation of Subsection 706(a) in a consolidated 
action.

I. Cable Operator Refusal To Carry Certain Programming

    42. Here we solicit comment on the proper interpretation of the 
term ``nudity'' as used in Sections 506 (a) and (b) of the 1996 Act. We 
tentatively conclude that the term ``nudity'' should be interpreted in 
accordance with the decision of the Supreme Court in Erznoznik v. City 
of Jacksonville. In that decision, the Supreme Court found invalid a 
city ordinance that prohibited showing films containing nudity at 
drive-in theaters visible from public places. The Court found the 
restriction overly broad because it was not directed against sexually 
explicit nudity or otherwise limited. Accordingly, we tentatively 
conclude that the term ``nudity'' as used in Sections 506 (a) and (b) 
of the 1996 Act should be interpreted to mean nudity that is obscene or 
indecent. We seek comment on this tentative conclusion.

J. Other Matters

    43. We recognize that the cable reform subsections of the 1996 Act 
that we address in this NPRM are broad in scope, and that there may be 
additional issues regarding those subsections that we have not 
specifically addressed in the NPRM. Commenters may submit proposals or 
concerns regarding the implementation of these cable reform 
subsections, including their impact on other parts of the 1996 Act that 
are to be addressed in separate proceedings. We also seek proposals to 
ease the burdens of regulation for interested parties.

Regulatory Flexibility Analyses

    44. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 
601-612, the Commission's Initial Regulatory Flexibility Analysis with 
respect to the NPRM is as follows:
    45. Reason for action: The Commission is issuing this NPRM to seek 
comment on various issues concerning implementation of the 1996 Act.

[[Page 19020]]

    46. Objectives: To provide an opportunity for public comment and to 
provide a record for a Commission decision on the issues discussed in 
the NPRM.
    47. Legal Basis: The NPRM is adopted pursuant to Section 301 of the 
1996 Act; and sections 4(i), 602, 614, 617, 623, 624, 628, 632, of the 
Communications Act of 1934, as amended, 47 U.S.C. 154, 522, 534, 537, 
543, 544, 548, 552, and 548.
    48. Description, potential impact, and number of small entities 
affected: Amending our rules will directly affect entities which are 
small business entities, as defined in Section 601(3) of the Regulatory 
Flexibility Act. The 1996 Act reduces or eliminates rate regulation for 
many such entities.
    49. Reporting, recordkeeping, and other compliance requirements: 
None.
    50. Federal rules which overlap, duplicate, or conflict with the 
Commission's proposal: None.
    51. Any significant alternatives minimizing the impact on small 
entities and consistent with state objectives: The NPRM seeks to 
minimize burdens on small entities in conformance with the 1996 Act.
    52. Comments are solicited: Written comments are requested on this 
Initial Regulatory Flexibility Analysis. These comments must be filed 
in accordance with the same filing deadlines set for comments on the 
other issues in this NPRM, but they must have a separate and distinct 
heading designating them as responses to the Regulatory Flexibility 
Analysis. The Secretary shall send a copy of the NPRM to the Chief 
Counsel for Advocacy of the Small Business Administration in accordance 
with Section 603(a) of the Regulatory Flexibility Act, 5 U.S.C. 601, et 
seq.

Procedural Provisions

    53. Pursuant to applicable procedures set forth in Sections 1.415 
and Secs. 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, 
interested parties may file comments on or before May 28, 1996 and 
reply comments on or before June 28, 1996. To file formally in this 
proceeding, you must file an original and six copies of all comments, 
reply comments, and supporting comments. Parties are also asked to 
submit, if possible, draft rules that reflect their positions. If you 
want each Commissioner to receive a personal copy of your comments, you 
must file an original and eleven copies. Comments and reply comments 
should be sent to Office of the Secretary, Federal Communications 
Commission, 1919 M Street, N.W., Room 222, Washington, D.C. 20554, with 
a copy to Nancy Stevenson of the Cable Services Bureau, 2033 M Street, 
N.W., Room 408A, Washington, D.C. 20554. Parties should also file one 
copy of any documents filed in this docket with the Commission's copy 
contractor, International Transcription Services, Inc., 2100 M Street, 
N.W., Suite 140, Washington, D.C. 20037. Comments and reply comments 
will be available for public inspection during regular business hours 
in the FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, 
D.C. 20554.
    54. Parties are also asked to submit comments and reply comments on 
diskette, where possible. Such diskette submissions would be in 
addition to and not a substitute for the formal filing requirements 
addressed above. Parties submitting diskettes should submit them to 
Nancy Stevenson of the Cable Services Bureau, 2033 M Street, N.W., Room 
408A, Washington, D.C. 20554. Such a submission should be on a 3.5 inch 
diskette formatted in an IBM compatible form using MS DOS 5.0 and 
WordPerfect 5.1 software. The diskette should be submitted in ``read 
only'' mode. The diskette should be clearly labelled with the party's 
name, proceeding, type of pleading (comment or reply comments) and date 
of submission. The diskette should be accompanied by a cover letter.
    55. Written comments by the public 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 
Order and NPRM in the Federal Register. In addition to filing comments 
with the Secretary, 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, D.C. 20054, or via the Internet to [email protected], and to 
Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-17th Street, N.W., 
Washington, D.C. 20503 or via the Internet to [email protected].

List of Subjects in 47 CFR Part 76

    Cable television.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-10172 Filed 4-26-96; 8:45 am]
BILLING CODE 6712-01-P