NCTA Fights Loophole for SMATVs

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Washington -- The cable industry is hoping that a federal
court in Chicago will patch a potentially big hole in cable-franchising law created by a
Federal Communications Commission ruling last June.

In the decision that disappointed the cable industry, the
FCC said a Michigan private-cable operator had structured its business in a manner
deserving an exemption from the cable-franchise requirement, as well as from a host of
other key cable-franchising obligations.

The FCC said the company, satellite-master-antenna-TV
(SMATV) operator Entertainment Connections Inc., was entitled to an exemption because it
relied upon Ameritech Corp. to distribute video programming across public rights of way.

Use of public rights of way by a wireline-video distributor
is typically the triggering mechanism for the franchise requirement.

But the FCC said that because ECI and Ameritech, a phone
company, were unaffiliated and had a genuine carrier-user relationship, ECI was not a
"cable operator" running a "cable system" as those terms are defined
under Title VI of the Communications Act.

On the day when the decision was announced, the National
Cable Television Association promised that it would appeal. The appeal is pending before a
three-judge panel of the U.S. Court of Appeals for the Seventh Circuit in Chicago.

A large number of cities, which stand to lose franchise-fee
revenue under the ECI ruling, were so upset that they managed to file their appeals before
the cable industry did. Cities are also concerned that incumbent cable operators might use
the ECI decision to evade traditional franchising obligations.

With 1,600 subscribers in 12 apartment buildings in
Meridian Township and East Lansing, Mich., ECI is a small company that is not in a
position to exploit the FCC ruling to a large extent.

But larger players might find the regulatory environment
created by the ECI decision too inviting to resist because they would have to shoulder
none of the regulatory burdens of incumbent cable operators.

The NCTA alluded to this possibility in the 18-page brief
that it filed with the Seventh Circuit last week, but it added that Congress "did not
intend to create any such loophole."

The exemption list includes: no franchise agreement, no
payment of franchise fees, no mandatory carriage of local TV signals and no provision of
public and leased-access channels.

The only FCC commissioner who recognized the potential
imbalance was Gloria Tristani, who said the ECI decision was an invitation for companies
to "artificially restructure" their ownership in order to escape the cable
regulation.

In its court brief, the NCTA said the relationship between
ECI and Ameritech clearly met the legal definition of a cable system, even though all of
the facilities used to provide video programming were not under common ownership.

"The statutory definition of the term 'cable
system' encompasses the complete set of transmission paths and equipment used to
provide video programming to subscribers," the NCTA said. "The mere fact that
the facility uses public rights of way leased from Ameritech does not alter the fact that
the facility is a cable system."

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