FCC May Tackle Old Rate Rules

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Washington -- The Federal Communications Commission is
hoping to use its Oct. 22 meeting to issue a batch of cable rules that were first proposed
more than two years ago, agency sources said last week.

Under the Telecommunications Act of 1996, Congress ordered
the FCC to adopt new cable regulations and to overhaul old ones that ranged in scope and
significance, depending on the size of the cable operator.

The FCC followed orders by issuing rules in April 1996. But
many issues that Congress wanted the FCC to address went unresolved due to clashing
opinions among the four commissioners who were then in power.

Small cable operators, which were targeted by Congress for
rate relief, have been monitoring the FCC's progress on the new regulations with keen
interest.

Under the 1996 law, a small operator was deregulated on the
upper tier in franchise areas with fewer than 50,000 subscribers if the company served
fewer than 1 percent of all U.S. cable subscribers and if it had less than $250 million in
gross revenue.

The FCC proposed that an affiliate of a small operator was
an entity with 20 percent equity interest, passive or active.

Small operators were concerned that the affiliation test
was too stringent because it might deny basic-tier deregulation to an operator that had
obtained equity financing from a passive institutional investor with more than $250
million in gross revenue.

"It makes small operators choose between basic-tier
deregulation and access to capital," said Eric Breisach, a small-cable attorney with
Bienstock and Clark in Kalamazoo, Mich. "[A] passive [investor] should never give
rise to an affiliate relationship."

Breisach said the FCC came out with its proposals so long
ago that many of the FCC staff who he originally lobbied were no longer working in the
Cable Services Bureau or for the commissioners.

"All of the people who we spent hours and hours
talking to are gone," he said, adding that Anita Wallgren, a cable aide to
commissioner Susan Ness, is the only legal assistant who was around two years ago, when
the proposals were issued.

Small operators are also looking to the FCC for some
guidance on whether they will remain deregulated on the upper tier if they exceed the
statutory caps through internal growth.

Among the other issues that the FCC is planning to address
are:

Effective competition: The agency never resolved
precisely when cable operators are totally deregulated if the competitor is a phone
company offering comparable video programming, except for direct-broadcast satellite
service.

Two years ago, the FCC was split on whether deregulation
should be granted if the phone company is offering service in only a small portion of a
franchise area. The cable industry has argued that Congress did not prescribe
service-availability or subscriber-penetration tests with regard to phone-company
competitors.

Another issue is whether a satellite-master-antenna-TV
(SMATV) system owned by a phone company falls under the DBS exemption.

Rate regulation: With upper-tier deregulation of large
operators due to sunset March 31, 1999, the FCC has a practical problem to address: Does
it make any sense to require operators to refund subscribers after March 31 in connection
with rate complaints filed before that date?

Some in the FCC said ordering refunds would be futile
because operators would be free to raise rates to recover any penalties.

Multiple-dwelling-unit pricing: Under the 1996 law,
cable operators were released from the uniform-rate rule with regard to MDUs. But the law
stipulated that an operator not subject to effective competition was barred from charging
"predatory prices." The FCC never defined "predatory."

Tele-Communications Inc. has proposed that an cable
operator that offers MDU rates meeting the price of the competitor should not be viewed as
"predatory," even if the operator's rate is below cost.

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