Split FCC Adopts New Deregulation Test

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Washington -- A divided Federal Communications Commission
released new cable regulations last week, highlighted by an interpretation of the
Telecommunications Act of 1996 that could keep cable operators price-regulated longer than
some think Congress intended.

In the ruling, the FCC basically said it was unacceptable
to deregulate a cable operator that is facing only limited competition in a franchise area
from a video competitor owned by, or affiliated with, a local phone company.

The cable industry took the opposite stance, saying that
even the slightest bit of telco competition was enough for the FCC to find under the law
that the cable operator faced "effective competition."

"We reject the argument advocated by the cable
interests that any service offering in the franchise area, no matter how minimal, should
be sufficient for a finding of effective competition," the FCC said in a 94-page
order that took three years to complete.

The order contained a bevy of items that cable operators,
their competitors and local regulators battled over in seemingly endless lobbying visits
to the FCC.

FCC commissioners Michael Powell and Harold Furchtgott-Roth
-- the five-member panel's two Republicans -- issued written dissents on the
effective-competition ruling.

By requiring that the telco's facilities
"substantially overlap" the network of the cable incumbent, the FCC's
ruling flew in the face of the plain language of the law, they said.

"Congress has not asked the commission to define the
term, 'effective competition,' based on our understanding of what is and is not
effective in terms of a market-disciplining presence," Furchtgott-Roth said.

Frank Lloyd, a cable attorney here with Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, said Powell and Furchtgott-Roth "wrote the road map for
potential cable-industry appeal, if the industry is so inclined."

Given the fact that the FCC lost its authority to regulate
expanded-basic rates March 31 -- two days after the commission released its
"cable-reform" order -- the impact of the effective-competition ruling is likely
to be minimal.

In essence, the decision will mean that cable operators
competing against telcos won't become deregulated on the basic tier or be released
from other consumer-protection mandates as quickly as they once expected.

Since February 1996, the FCC has relied on interim rules to
deregulate cable operators in 36 franchise areas based on telco competition.

Many of the cases involved wall-to-wall cable-system
overbuilds by Ameritech New Media in Michigan and Ohio, as well as a few involving GTE
Corp. in Florida.

However, the FCC was less inclined to agree that effective
competition was present when the competitor was a wireless cable operator affiliated with
a local phone company.

"I think that any [cable] overbuild is going to be
rubber-stamped, absent an extraordinary circumstance," an FCC source said.

The FCC has 19 pending applications for effective
competition filed by cable operators claiming telco competition. For example, in Boston,
Cablevision Systems Corp. says its 115,000-subscriber system is competing against start-up
overbuilder RCN Corp.

In other decisions, the FCC said:

• It would, as expected, continue to accept rate
complaints after March 31 based on rates in effect on or before March 31.

• A small cable operator would not lose basic-tier
deregulation based on a "truly passive" investment of greater than 20 percent by
an entity with more than $250 million in gross annual revenue.

• Cable operators can offer bulk discounts directly to
subscribers residing in apartment buildings, rather than negotiating global agreements
with landlords.

• Cities cannot impose technical standards on cable
operators that differ from FCC standards.

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