What is Effective Competition?

Under FCC regulations at 47 C.F.R. § 76.905 cable systems are subject to effective competition when any of the following conditions are met:

1. Fewer than 30% of the households in its franchise area subscribe to the cable service of a cable system.

2. The franchise area is:

i. served by at least two unaffiliated multi-channel video programming distributors (“MVPDs”) each of which offers comparable programming to at least 50% of the households in the franchise area; and

ii. the number of households subscribing to multi-channel video programming other than the largest MVPD exceeds 15% of the households in the franchise area.

3. A MVPD, operated by the franchising authority for that franchise area, offers video programming to at least 50% of the households in the franchise area.

4. A local exchange carrier or its affiliate (or any MVPD using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area.

The key criteria which the cable industry has been using in its petitions for effective competition is the criteria outlined in #2 above. Generally, the industry’s petitions argue that a direct broadcast satellite (“DBS”) provider meets this criteria because it offers comparable programming to the entire franchise area via its satellite delivered signal and its penetration in the franchise area exceeds 15% of the households.

FCC regulations at 47 C.F.R. § 76.905 provide a few definitions which may be helpful when analyzing whether effective competition is present in your community.

1. Each separately billed or billable customer counts as a “household” subscribing to or being offered video programming services, with the exception of multiple dwelling buildings that are billed as a single customer. Individual units of multiple dwelling buildings count as separate households.

2. The term “households” does not include those dwellings that are used solely for seasonal, occasional or recreational use.

3. A MVPD is an entity such as, but not limited to, a cable operator, a multi-channel multipoint distribution service, a DBS service, a television receive-only satellite program distributor, a video dial tone service provider or a satellite master antenna television service provider that makes available for purchase, by subscribers or customers, multiple channels of video programming.

4. For purposes of determining the number of the households subscribing to the services of a MVPD, other than the largest MVPD, the number of subscribers of all MVPDs that offer service in the franchise area will be aggregated.

5. In order to offer comparable programming, as that term is used above, a competing MVPD must offer at least 12 channels of video programming, including at least one channel of non-broadcast service programming.

Despite the cable industry’s efforts to the contrary, 47 U.S.C. § 76.906 maintains that cable systems are presumed not to be subject to effective competition absent a demonstration to the contrary. In other words, your cable operator must prove to the FCC that effective competition exists.

Why is Effective Competition So Important?

1. If the FCC determines a cable operator is subject to effective competition the local franchising authority can no longer regulate rates for: a) the basic cable services tier, b) converters, c) remotes, d) installation, and e) hourly service charges.

2. Cable operators generally are prohibited from requiring customers to subscribe to specified tiers of programming on their cable system, other than the basic service tier (“BST”), as a condition of subscription to video programming offered on a per channel or per program basis. Thus, a cable operator is not allowed to force a customer to subscriber to expanded basic service or some level of digital cable service before that customer is permitted to buy HBO or pay-per-view movies. However, if the cable operator is deemed subject to effective competition this prohibition (found at 47 C.F.R. § 76.921) is no longer applicable.

3. A cable operator is no longer required to maintain a low priced BST if subject to effective competition. Some cable operators have argued that maintaining a low priced BST permits customers to buy DBS services and then receive local channels via the BST offered by the cable operator. Many cable operators have indicated that if subject to effective competition they would consider eliminating the BST and moving to a single, unregulated, tier of expanded basic programming so as to prevent DBS customers from obtaining local channels at a low cost. The problem with this approach is that those residents of the community on a fixed income or otherwise unable to afford a greater price for cable service may be prevented from receiving cable programming as no low priced options may be maintained from any provider.

4. A number of other provisions under the FCC regulations would also no longer be enforceable against the cable operator including

i. 47 C.F.R. § 76.980 which places limitations on the charges which can be imposed by a cable operator on a customer for various changes in the services which the customer selects from the cable operator.

ii. 47 C.F.R. § 76.981 which prohibits negative option billing by a cable operator.

iii. 47 C.F.R. § 76.984 which requires a uniform rate structure throughout a franchise area with respect to the rates charged by a cable operator for basic service, cable programming service, and associated equipment and installation charges.

Does Effective Competition Affect Many Cities?

According to the most recent FCC Report on Competition in the Video Markets (Docket No. 02-145 released December 31, 2002) “relatively small percentages of consumers have a second wire line alternative, such as an overbuild cable system. Of the 33,246 cable community units nationwide, 671 or approximately 2% have been certified by the Commission as having effective competition as a result of consumers having a choice of more than one wire line MVPD.” Between June 30, 2001 and June 30, 2002 the Commission granted eight petitions for effective competition, representing 75 communities, based on competitive entry for LECs or their affiliates and DBS providers.

However, the FCC report on competition generally gathers information through the prior June, therefore, the information in the Ninth Report on Competition is over 14 months old. Within the last 14 months hundreds of communities nationwide have received effective competition filings from their cable operators and the trend appears to be on the increase. In fact the NCTA has suggested to the FCC that the FCC should certify that effective competition is present in 44 states around the country where the penetration of DBS meets or exceeds the 15% threshold. The NCTA proposal would shift the burden to the franchising authority to prove that the penetration of DBS within its jurisdiction does not meet the 15% threshold. The FCC has not yet ruled on NCTA’s request.

What Does My Cable Operator File to

Obtain a Finding of Effective Competition

The cable operators petition will be filed with the FCC as well as with the franchising authority. The filing may be over 100 pages in length although 5-10 pages will consist of the actual petition with the balance consisting of exhibits and supporting documentation allegedly demonstrating the presence of competition in the given jurisdiction. In some cases the cable operator may submit joint petitions to groups of cities utilizing the same set of exhibits which may increase the overall bulk of the filing.

Many of the exhibits consist of programming line-ups and advertising from DBS providers offering service in a jurisdiction. It may include newspaper clippings regarding the availability of DBS dishes, promotional packages and related offerings from DBS providers. In addition, the petition will include exhibits from a company known as SkyTrends (see discussion later in this paper) purporting to specify a precise number of DBS subscribers within the jurisdiction.

What is the Procedure to Contest an Effective Competition Filing?

Upon receipt of an effective competition filing the city should immediately utilize the the FCC’s web page to identify matters placed on public notice. You can have the FCC;s digest emailed to you daily. To subscribe or un-subscribe to the FCC’s free Daily Digest mailing list, send the appropriate message below to subscribe@info.fcc.gov

subscribe digest Your-first-name Your-last-name
or
unsubscribe digest Your-first-name Your-last-name

and leave the subject line blank. These should be the only words in the body of the message.

Typically the filing will be placed on public notice within two to four weeks of the date it is received by the city. Once the matter is placed on public notice the city then has 20 days within which to file a response to the FCC. When filing the response the city should also provide copies to the “service list” which is attached to the cable operator’s filing. This service list will typically include a contact name for the cable operator, the cable operator’s legal counsel and any other interested parties to the proceeding. The response should contain a full showing, supported by affidavit of any facts or considerations relied on. The city should forward one original and four copies of the response to the FCC. The cable operator may file a reply to the response within 10 days after the city’s submission.

What Key Issues Should the City Focus on When Reviewing a

Cable Operator’s Petition for Effective Competition Filing?

Assuming the cable operator’s petition focuses on the presence of a DBS provider there are a number of standard issues which the city should immediately review. First, the FCC criteria requires the presence of “comparable programming” to at least 50% of the households in the franchise area. There is generally little question that the DBS provider has the ability to reach virtually every household within the jurisdiction and clearly more than 50%. However, it is not always so clear whether the DBS provider offers “comparable programming.”

The city should carefully scrutinize the exhibits attached to the cable operator’s filing to determine if in fact the DBS provider is marketing its programming offerings within that jurisdiction. In certain cases, cable operators have attempted to use national advertising or even advertising from providers that do not market services in a given jurisdiction as evidence of comparable programming. Because cable operators often attempt to send out numerous filings simultaneously it is not uncommon for the exhibits to not accurately meet the burden of proof required under the FCC’s criteria.

The FCC’s criteria also requires that at least 15% of the households in the franchise area subscribe to the DBS provider. In cases where other competitors are present the cable operator may aggregate all subscribers from these competing sources. Typically the cable operator will rely on data provided from a company called SkyTrends.

First and foremost the city should carefully double check the mathematics used in the cable operator’s calculation. The cable operator typically identifies the number of households in the franchise area based on census information from the year 2000. For fast growing suburban communities that household data may be grossly inaccurate particularly given the fact that the 2000 census data was actually collected as much as 18 months prior to its publication date. There may be nearly five years of household growth since the 2000 census data was established. The total number of households is a key number since this will determine the requisite number of households that must subscribe to a DBS provider to reach the 15% penetration level.

Next, the city should verify the data used by SkyTrends to calculate the number of DBS served households. While it is not possible to obtain from SkyTrends the underlying data used by that company in its calculations, it is possible to verify the zip code regions used by SkyTrends. Typically, SkyTrends will calculate DBS subscribership based on zip code information. Frequently, a postal zip code will not match identically with the jurisdictional boundaries of a city and may encompass large portions of neighboring jurisdictions. Since it is impossible to verify whether DBS subscribers reside within the city or within the neighboring jurisdiction based solely on a five-digit zip code this may be a shortcoming in the cable operator’s filing.

SkyTrends typically offer two different types of data to cable operators. One set of data is based on a five-digit zip code while the other, more expensive data, is provided on a nine-digit zip code. However, even the nine-digit zip code data can sometimes be misleading as SkyTrends has admitted that in the past it has identified households with two DBS converter boxes as two household subscribers instead of a single household subscriber.

Since the cable operator bears the burden of proof in an effective competition proceeding it is important that a city raise all relevant concerns in any opposition filing. In cases where the cable operator is relying on a DBS penetration of just over 15% even the slightest calculation error could result in a penetration below 15% and a finding that no effective competition is present.

Who or What is SkyTrends?

According to SkyTrends’ web site it is a market research, data collection and reporting program for the home satellite industry. Its partner companies include DirecTV, Echostar Communications, Corp., Hubbard Media Group, Hughes Network Systems and a number of other programming sources. SkyTrends purportedly collects and maintains a comprehensive, computerized, sophisticated data base of satellite industry information. Unfortunately, only the partner companies and/or industry constituencies are permitted to obtain SkyTrends data. SkyTrends will not permit a audit of their collection techniques nor verification of the accuracy of their data. The FCC has repeatedly accepted the SkyTrends data without further analysis over municipal objections and despite the fact that SkyTrends has admitted to reporting errors.

Given the FCC’s acceptance of the SkyTrends data, virtually without question, it is difficult to demonstrate inaccuracies in their purported conclusions. Moreover, to the extent the FCC ever acts on the NCTA’s request for state-wide effective competition certifications, municipalities will likely be unable to access SkyTrends data to prove up a lack of effective competition in a given jurisdiction.

If Effective Competition is Present Why Are Rates So High?

The biggest question regarding effective competition is whether its presence will lead to lower cable rates. At the present time there is no evidence to suggest that jurisdictions with high DBS penetration enjoy lower rates from their cable operator. According to FCC information cable rates have continued to outpace inflation. On July 8, 2003, the FCC issued a report regarding cable industry rates. As reported in many media outlets the monthly rate for cable programming services and equipment increased by over 8% despite the fact that the Consumer Price Index for the same period increased by only 1.5%. As a result of the FCC’s Order Senator John McCain, Chairman of the Senate Commerce Committee, described the cable rate increases as “astounding” and stated that “this means that cable rates increased an unbelievable five and one-half times faster than inflation.”

The FCC’s regulations are premised on the concept that if subscribers have a choice between DBS and a cable operator that the marketplace should govern rates and government regulation will no longer be necessary. However, to date the FCC has yet to find any evidence that cable rate increases have slowed and in fact, various elected officials in Washington, D.C. have started to suggest that they may be revisiting cable rate regulation in the upcoming session.

What appears clear is that in cases where the FCC has found effective competition to be present cable operators have utilized their freedom from rate regulation to package services differently, offer different price packages within the same jurisdiction yet not decrease the overall per subscriber revenue derived.

Conclusion

If your community has not yet received a petition for effective competition it is likely to arrive in the near future. When it does the time frame for a response is short and the city should be prepared to consider whether opposition is appropriate. One thing to keep in mind is that these filings are not overly lengthy and the time and money associated with an opposition to an effective competition filing is generally quite modest in comparison with other FCC proceedings. There may also be opportunities for a city to partner with neighboring jurisdictions involved in similar effective competition proceedings. We have attached hereto a sample filing which may be used as a generic model by cities.

~~ END OF PAPER ~~

Brian T. Grogan is a shareholder with the Minneapolis law firm of Moss & Barnett practicing in the areas of telecommunications and cable television law. Brian represents entities throughout the country on franchise renewals, transfers of ownership, competitive franchising, telecommunications planning, right-of-way management, first amendment issues, tower siting, leasing and zoning, litigation and other related communication matters. He is a frequent presenter at state and national conferences regarding communications law and he is a member of the American Bar Association (Forum Committee on Communications Law), National Association of Telecommunications Officers and Advisors, International Municipal Lawyers Association (Contracts, Franchises and Technology Section), and is past chair of the Communications Law Section of the Minnesota State Bar Association.

Brian T. Grogan, Esq., Moss & Barnett, A Professional Association

4800 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402-4129

Phone: 612-347-0340 Facsimile: 612-339-6686

E-mail: groganb@moss-barnett.com Web Site: www.municipalcommunicationslaw.com

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington D.C. 20554

In the Matter of:

Charter Communications, Inc. on behalf of:

Falcon Cable Media; Robin Media Group, Inc.;

The Helicon Group, LP; Marcus Cable Associates;

Charter Communications Properties, LLC; HPI CSR No:

Acquisition Co., LLC

For Determination of Effective Competition in:

Clyde, NC NC0213

Holly Ridge, NC NC0427

Lenoir, NC NCO024

NCO148

Marion, NC NCO029

New Hanover County, NC NCO152

NC0369

North Topsail Beach NC0965

Old Fort, NC NC0217

Onslow County, NC NC0487

NC0490

Richlands, NC NC0377

Roxboro, NC NC0232

Surf City, NC NC0338

Sugar Mountain, NC NCO157

Topsail Beach, NC NC0339

Wallace, NC NC0492

Weaverville, NC NC0300

To: Chief, Media Bureau:

PETITION FOR SPECIAL RELIEF

Charter Communications, Inc. (“Charter”), on behalf of Falcon Cable Media, Robin Media Group, Inc., The Helicon Group, LP, HPI Acquisition Co., LLC, Marcus Cable Associates, Charter Communications Properties, LLC, by its attorneys, and pursuant to Section 76.905 of the Commission's rules,[1] hereby requests that the Commission find that Charter faces effective competition in the above-captioned franchise areas ("Franchise Areas"). The Cable Television and Consumer Protection and Competition Act of 1992 ("the Act") permits rate regulation only in the absence of effective competition. Specifically, Section 623(a)(2) of the Act provides:

[I]f the Commission finds that a cable system is subject to effective competition, the rates for the provision of cable service by such system shall not be subject to regulation by the Commission or by a State or franchising authority under this section.[2]

The Act further states that, under the "competing provider" test set forth in Section 623(1)(1)(B) of the Act, and Section 76.905(b)(2) of the Commission's rules (the "Competing Provider Test"), a cable system will be subject to effective competition and, therefore, exempt from rate regulation if the franchise area is:

(i) served by at least two unaffiliated multichannel video programming distributors each of which offers comparable programming to at least 50 percent of the households in the franchise area; and

(ii) the number of households subscribing to multichannel video programming other than the largest multichannel video programming distributor exceeds 15 percent of the households in the franchise area.[3]

As demonstrated below, at least two multichannel video programming distributors ("MVPDs") offer comparable service throughout each of Charter’s Franchise Areas and the cumulative penetration of Charter's competition in the Franchise Areas exceeds 15 percent. Accordingly, Charter requests that the Commission issue an order finding that Charter is subject to effective competition under the Competing Provider Test in the following franchise areas in North Carolina: Clyde, Holly Ridge, Lenoir, Marion, North Topsail Beach, Old Fort, Richlands, Roxboro, Surf City, Sugar Mountain, Topsail Beach, Wallace and Weaverville.

The Act also provides that a cable system that serves less than 30 percent of the subscribers in a franchise area will be exempt from regulation. Charter is also subject to effective competition pursuant to the "less than 30 percent" test in New Hanover and Onslow County, North Carolina pursuant to Section 543(1)(1)(A) of the Cable Act and Section 76.905(b)(1) of the Commission's Rules.

I. CHARTER SATISFIES THE COMPETING PROVIDER TEST IN THE FRANCHISE AREAS

A. More Than Two Unaffiliated MVPDs Offer Comparable Programming To Over 50 Percent Of The Households In The Franchise Areas

The Act requires that "at least two unaffiliated multichannel video programming distributors" serve the Franchise Areas.[4] In this case, Charter exceeds the Act's requirement because more than two unaffiliated MVPDs[5] serve the Franchise Areas, namely Charter, DirecTV and Echostar.[6] Charter therefore satisfies this first element under the Competing Provider Test.

The Commission has determined that DBS service is presumed to be technically available due to its nationwide satellite footprint, and presumed to be actually available if households in a franchise area are made "reasonably aware" that the service is available. The Commission has explained that:

[O]nce a `competitive' DBS satellite system is launched, it will be deemed technically available to households in a franchise area . . . if its footprint covers those households, absent extraordinary circumstances ....Moreover, for DBS service to be actually available, households in a franchise area must be reasonably aware that the service is available in their area, and reception equipment and subscription service must be reasonably available in the area ....[S]uch awareness may be accomplished through any sort of local, regional or national media, provided that such media reach the community in question.[7]

The Franchise Areas are within the satellite footprint of DirecTV and EchoStar (the "DBS Providers"), both of which are unaffiliated with Charter, and Charter is unaware of any local regulations prohibiting reception of DBS service by home satellite dishes. In addition, advertising through various media sources have made consumers reasonably aware of the availability of these DBS services in the Franchise Areas.[8] Attached hereto are examples of regional and national advertising used by DBS providers to promote their services within the Franchise Areas.[9] Given these marketing efforts, residents in the Franchise Areas are undoubtedly aware that they may purchase DBS service. Indeed, as demonstrated below, the success of this advertising is manifest in the local penetration rates.

The Act also prescribes that the programming offered by the competing provider must be "comparable" to the programming offered by the cable operator.[10] The Commission's rules define comparable programming as "at least 12 channels of video programming, including at least one channel of nonbroadcast service programming."[11] The Commission has previously recognized that the DBS Providers offer comparable programming under the Competing Provider Test.[12] The DBS Providers offer well over 100 video channels, most of which are nonbroadcast services.[13] As shown in the attached channel lineups, Charter's programming service offerings in each of the Franchise Areas are substantially similar to the DBS providers' programming services.[14] Accordingly, Charter has satisfied the first prong of the Competing Provider Test.

B. Competing Providers Serve Greater Than 15 Percent Of The Households In Each of the Franchise Areas

The subscriber base of any community or MVPD, other than the largest MVPD, serving a franchise area must exceed 15 percent of the households in that franchise area in order to meet the second prong of the Competing Provider Test. In each of the Franchise Areas at issue, Charter's subscribership exceeds the aggregate total of DBS subscribers, indicating that Charter is the largest MVPD.[15]

To determine the number of DBS subscribers in a given franchise area, cable operators must purchase zip code specific subscriber reports from DBS consulting firm SkyTrends, Inc. ("SkyTrends") identifying the number of DBS subscribers associated with each five-digit zip code in the franchise area.[16] Charter recognizes that zip code figures provided by SkyTrends may not precisely match franchise boundaries. Accordingly, out of an abundance of caution, Charter has applied a competitive penetration methodology that accounts for that possibility.[17] Rather than simply using the SkyTrends-provided DBS figures, Charter's method takes into consideration that some of the reported DBS subscribers may be located in zip code areas outside the actual franchise boundary. By comparing U.S. Census household figures for the franchise area with household figures for the zip code area, Charter is able to derive an allocation figure to apply to the (zip code based) DBS subscriber count provided by SkyTrends. The Commission has repeatedly approved this methodology for determining DBS subscribership.[18]

As detailed in the chart below, when applying this competitive penetration methodology in each of the Franchise Areas, the subscriber base for the DBS Providers easily exceeds the 15 percent threshold required under Section 623(l)(1)(B) of the Act.[19]

Community	2000 Census Household[20]	Households per 5-digit Zip Code	Allocation %	DBS Subs per Zip Code	DBS Subs Allocated[21]	Penetration Rate
Clyde, NC	547	4,567	12.00%	1,596	192	35.10%
Holly Ridge, NC	321	2,693	11.90%	601	72	22.40%
Lenoir, NC	6,913	20,652	33.50%	3,214	1,077	15.60%
Marion, NC	2,146	12,545	17.10%	3,374	577	26.90%
North Topsail Beach	451	2,970	15.20%	769	117	25.90%
Old Fort, NC	441	3,277	13.50°/a	1,108	150	34.00%
Richlands, NC	399	4,273	9.30%	1,570	146	36.60%
Roxboro, NC	3,666	5,987	61.20%	2,026	1,240	33.80%
Sugar Mountain, NC	121	5,635	2.10%	1,153	24	19.80%
Surf City, NC	689	2,693	25.60°/a	601	154	22.40%
Topsail Beach, NC	252	2,693	9.40%	601	56	22.20%
Wallace, NC	1,329	3,961	33.60%	1,594	536	40.30%
Weaverville, NC	1,008	8,633	11.70%	1,313	154	15.30%

Accordingly, Charter faces effective competition under the Competing Provider Test in each of the Franchise Areas.

II. CHARTER SERVES FEWER THAN 30 PERCENT OF THE HOUSEHOLDS IN ITS COUNTY FRANCHISE AREA.

Charter is also subject to effective competition pursuant to the "less than 30 percent" test in the New Hanover County and Onslow franchise area. Section 623(1)(1)(A) of the Act and Section 76.905(b)(1) of the Commission Rules provides that a cable system will be subject to effective competition and, therefore, exempt from rate regulation, if "fewer than 30 percent of the households in the franchise area subscribe to the cable service of a cable system.”[22] The measurement of subscribership under this test "will be based on the subscribership of the particular cable system in question, and not an aggregation of the subscriberships of all cable systems and competitors in the franchise area."[23]

New Hanover County Analysis. As of October 2002, Charter served 4,420 subscribers in its New Hanover County franchise area.[24] According to the 2000 Census, there are 68,183 households in New Hanover County.[25] Within New Hanover County, however, there are four incorporated areas that are not served by Charter's New Hanover County franchise.[26] Charter excluded the number of households in those incorporated areas from the 2000 Census household figure for New Hanover County, which results in a net total of 29,530 households for the unincorporated part of the County.[27] Charter's resulting penetration rate in this franchise area is 15.0% percent (4,420 / 29,530 = .1496).

Onslow County Analysis. As of October 2002, Charter served 2,630 subscribers in its Onslow County franchise area.[28] According to the 2000 Census, there are 48,122 households in Onslow County.[29] Within Onslow County, however, four incorporated areas that are not served by Charter's Onslow County franchise.[30] Charter excluded the number of households in those incorporated areas from the 2000 Census household figure for Onslow County, which results in a net total of 29,520 households for the unincorporated part of the County.[31] Charter's resulting penetration rate in this franchise area is 8.90% percent (2,630/ 29,520 = .089).

Charter has clearly demonstrated that fewer than 30 percent of the households in the New Hanover and Onslow County franchise area subscribe to its cable service and therefore has satisfied the criteria for establishing effective competition under 47 C.F.R. § 76.905(b)(I).

CONCLUSION

Accordingly, Charter has met its burden under Sections 623(1)(1)(A) and 623(1)(1)(B) of the Act. Charter respectfully requests that the Media Bureau promptly issue an order granting the instant Petition for Special Relief.

Respectfully submitted,

Charter Communications, Inc. on behalf of:

Falcon Cable Media; Robin Media Group, Inc.;

The Helicon Group, LP; Marcus Cable Associates;

Charter Communications Properties, LLC;

HPI Acquisition Co., LLC

Date: December 23, 2002

EXHIBITS NOT INCLUDED

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the matter of: )

)

Charter Communications, Inc. on behalf of: ) CSR No.: 6092-E

)

Falcon Cable Media; Robin Media Group, Inc.; )

The Helicon Group, LP; Marcus Cable Associates; )

Charter Communications Properties, LLC; HPI )

Acquisition Co., LLC )

)

For Opposition of Effective Competition )

in Lenoir, North Carolina )

)

Community Identification No. NC0024 )

NC0148 )

To: The Chief, Media Bureau:

OPPOSITION TO PETITION FOR

DETERMINATION OF EFFECTIVE COMPETITION

The City of Lenoir, North Carolina (“City”), by its attorneys, and pursuant to Section 76.7 of the Commission’s Rules, hereby opposes Charter Communications, Inc.’s (“Charter”) request that the Commission find that Charter faces effective competition in the City.

BACKGROUND

In Charter’s Petition for Determination of Effective Competition (“Petition”) Charter accurately cites to 47 U.S.C. § 543 and Section 76.905(b)(2) of the Commission’s rules with respect to the “Competing Provider Test” to determine if a cable system is subject to effective competition. In its Petition, Charter asserts that this test has been met with the entry of two Direct Broadcast Satellite (“DBS”) providers-DirecTV and EchoStar-into the Lenoir marketplace. While DBS providers have been determined by the FCC to be qualified Multi-video Channel Video Programming Distributors (MVPDs) for purposes of an effective competition analysis, their presence alone does not demonstrate the existence of effective competition. Charter has failed to show that there is a sufficiently high level of DBS penetration within the franchise area to overcome the strong presumption against effective competition.

DBS DOES NOT ENJOY 15% PENETRATION IN THE CITY

Because of the possible adverse impact on consumers, particularly senior citizens and other individuals living on fixed incomes, flowing from the elimination of rate regulation, there is a congressionally created presumption against the existence of effective competition. It is the burden of the petitioning cable operator to rebut this presumption and affirmatively demonstrate the presence of effective competition. Based upon the DBS providers’ nationwide footprint and prior FCC determinations, the City accepts (without conceding) that the DBS providers satisfy the first prong of the Competing Provider Test – comparable programming is being made available to at least 50 percent of the households in the franchise area and these potential consumers are reasonably aware of this service availability. The City, however, does not believe that Charter has satisfied the second prong of the Competing Provider Test. [32] Specifically, Charter has not met its burden of demonstrating that the number of DBS subscribers within Lenoir exceeds 15 percent of the households in the Charter franchise area for the City. Charter relies upon flawed data to project the number of DBS subscribers within the City and therefore its Petition cannot be sustained.

In an attempt to demonstrate that greater than 15 percent of the households in the City subscribe to DBS, Charter cites to reports provided by SkyTrends that identify the number of DBS subscribers associated with a five digit zip code. Charter acknowledges “that the zip code figures provided by SkyTrends may not precisely match franchise boundaries.”[33] Charter then references the number of households within the franchise area[34] and extrapolates a variety of numbers to conclude that the DBS providers have achieved a 15.60 percent penetration rate within the City. What Charter fails to consider in its analysis, however, is the fact that the vast majority of DBS subscribers reside outside the City limits yet still are covered by the SkyTrends zip code data. The reason DBS penetration is so high outside of the City limits is because Charter does not extend service to many of these households and therefore these households have no choice but to subscribe to DBS.

Charter has miscalculated the penetration of DBS subscribers based on its use of the zip code data purchased from Skytrends. According to the local postmaster, the zip code of 28645 serves not only the City with 6,913 households, but also the following communities: Brown Mountain Beach, Edgemont, Gamewell, Joyceton, Kings Creek, Laytown, Mortimer, Upton, Valmead, Warrior, Whitnel (“Surrounding Communities”).

Many of the DBS subscribers which Charter includes in its calculations are located outside of the City limits in the rural Surrounding Communities many of which do not have sufficient density to justify a capital expenditure by Charter to extend service. Faced with the choice of no cable television service from Charter there is no other option available but to subscribe to DBS. Thus the penetration of DBS is significantly higher outside of the City limits. However, inside of the City limits Charter’s cable system passes the majority of all residential dwelling units and Charter enjoys a very high penetration rate.[35]

There is no question but that the penetration of DBS dishes just beyond the City limits is substantially greater than within the City and renders Charter’s calculations completely inaccurate and unreliable. The data relied upon by Charter in its Petition is not sufficiently precise to determine whether the DBS subscribers that it is attributing to the Lenoir franchise area actually live outside of the City but share the same zip code as City residents. Given the strong congressional presumption against the finding of effective competition, Charter should not be able to meet this heavy burden on the basis of a questionable and overly broad extrapolation.

This is particularly the case in light of the ready availability of more accurate zip code information from SkyTrends through the purchase of “Zip Plus 4” reports. While it is true that the FCC has accepted the use of a five digit code allocation formula in Charter Communications Properties, LLC, CSR No. 5804-E, DA02-605 (Rel, March 14, 2002) that proceeding was uncontested. In this instance there is a specific objection to the use of the five digit code by a real party in interest-the City-and evidence that the information provided thus far is widely inaccurate.

CONCLUSION

There are no other multi-channel video programming distributors available in the City other than Charter and the various DBS providers. Charter has failed to meet its burden that the DBS providers collectively serve 15 percent or more of the households in the City limits. The formula which Charter used to arrive at the 15.60 percent DBS penetration level is based purely on assumptions and approximations. Charter’s formula does not take into account any of the unique features which exist in the region served by the 28645 zip code or the fact that the penetration of DBS outside of the City limits is significantly greater than within the City limits. While the Commission may have accepted Charter’s method for determining DBS subscribership in other jurisdictions, the fact remains that the demographics in and around Lenoir, North Carolina simply do not justify Charter’s mathematical calculations.

Accordingly, the City submits that Charter has failed to meet its burden under the Competing Provider Test and has not demonstrated that DBS subscribership within the City limits exceeds the 15 percent threshold required under 47 U.S.C. § 543(1)(1)(B) of the Cable Act. The City respectfully requests that the Cable Services Bureau reject Charter’s Petition for Determination of Effective Competition.

Respectfully submitted,

City of Lenoir, North Carolina

By:________________________________

Brian T. Grogan

Moss & Barnett

A Professional Association

4800 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN 55402

(612) 347-0340

Its Attorneys

February 5, 2003

CERTIFICATE OF SERVICE

I, Terri L. Hammer, a legal assistant at Moss & Barnett, hereby certify that copies of the foregoing Opposition to Petition for Determination of Effective Competition were served this 5th day of February, 2003, via first-class mail, postage prepaid thereon to the following:

Terri L. Hammer

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington D.C. 20554

In the Matter of:

Charter Communications, Inc. on behalf of:

Falcon Cable Media; Robin Media Group, Inc.;

The Helicon Group, LP; Marcus Cable Associates;

Charter Communications Properties, LLC; HPI CSR No: 6092-E

Acquisition Co., LLC

For Determination of Effective Competition in:

Clyde, NC NC0213

Holly Ridge, NC NC0427

Lenoir, NC NCO024

NCO148

Marion, NC NCO029

New Hanover County, NC NCO152

NC0369

North Topsail Beach NC0965

Old Fort, NC NC0217

Onslow County, NC NC0487

NC0490

Richlands, NC NC0377

Roxboro, NC NC0232

Surf City, NC NC0338

Sugar Mountain, NC NCO157

Topsail Beach, NC NC0339

Wallace, NC NC0492

Weaverville, NC NC0300

To: Chief, Media Bureau:

MOTION TO WITHDRAW LENOIR, NC FROM PETITION FOR

DETERMINATION OF EFFECTIVE COMPETITION

Charter Communications, Inc., on behalf of Falcon Cable Media, Robin Media Group, Inc., The Helicon Group, LP, Marcus Cable Associates, Charter Communications Properties, LLC and HPI Acquisition Co., LLC (“Charter”), by its attorneys, hereby moves to withdraw the Lenoir, NC franchise areas (NC0024, NC0148) from its Petition for Special Relief seeking a determination of effective competition, filed December 23, 2002 (“Petition”). Charter maintains its Petition for the remaining 14 franchise areas in the above-captioned proceeding.

Charter seeks to withdraw Lenoir, NC from the Petition without prejudice. The instant Motion in no way indicates that Charter has not satisfied the required showing for effective competition in Lenoir, NC and Charter reserves the right to seek a determination of effective competition in Lenoir, NC in the future. Good cause exists for granting this request, as it will relieve the Bureau of reviewing one less community in its consideration of Charter’s Petition. Accordingly, Charter respectfully requests that the Bureau grant Charter’s motion to withdraw the Lenoir, NC franchise area from its Petition.

Respectfully,

Charter Communications, Inc. on behalf of:

Falcon Cable Media; Robin Media Group, Inc.;

The Helicon Group, LP; Marcus Cable Associates;

Charter Communications Properties, LLC;

HPI Acquisition Co., LLC

February 26, 2003

[1] See 47 C.F.R. § 76.905.

[2] 47 U.S.C. § 543(a)(2).

[3] 47 U.S.C. § 543(1)(1)(B)(i) and (ii); 47 C.F.R. § 76.905(b)(2)(i) and (ii).

[4] 47 U.S.C. § 543(1)(1)(B)(i); 47 C.F.R. § 76.905(b)(2)(i).

[5] Section 602 of the Communications Act of 1934, as amended, defines "multichannel video programming distributors" to include cable operators, as well as DBS and MMDS providers. See 47 U.S.C. § 522(13).

[6] See TCI of Ventura County, Inc., Petition for Special Relief, 13 FCC Rcd. 2545, ¶¶ 6-12 (1998) (granting petition under Section 623(1)(1)(B)(i) where presence of cable operator and only one other MVPD was sufficient to satisfy the Competing Provider Test). See also Falcon Telecable d/b/a Falcon Cable TV; Petition for Change of Regulatory Status, 13 FCC Rcd 17270, ¶ 16 (1998) (granting effective competition based upon presence of cable operator and second MVPD).

[7] In re Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992 Rate Regulation (Part 1 of 12), Report and Order, 8 FCC Rcd. 5631 at ¶ 32 (1993) (citations omitted) ("Rate Order").

[8] Under this element of the effective competition definition, cable operators may rely on "advertising in regional or local media, direct mail, or any other marketing outlet" to demonstrate that potential subscribers are reasonably aware of the competitors' service. Rate Order al ¶ 29.

[9] See Exhibit 1.

[10] See 47 U.S.C. § 543(1)(1)(B)(i); 47 C.F.R. § 76.905(b)(2)(i).

[11] 47 C.F.R. § 76.905(g).

[12] See Jones Intercable. Inc.; Petition for Determination of Effective Competition in Pima County, Arizona, 15 FCC Rcd. 7257 at ¶ 4 (2000) ("With respect to the first prong of the competing provider test, we find that the programming of DBS providers, such as DirecTV and EchoStar, satisfy the Commission's programming comparability criterion. DBS service is presumed to be technically available due to its nationwide satellite footprint, and presumed to be actually available if households in a franchise area are made reasonably aware that the service is available.") (citation omitted). See also Charter Communications d/b/a Marcus Cable Associates, LLC: Petition for Determination of Effective Competition in Fort Worth, Lake Worth and Certain Other Texas Communities, 17 FCC Rcd. 15491 at ¶ 4 (rel. Aug. 6, 2002); Time Warner Entertainment-AdvancelNewhouse Partnership; Petitions for Determination of Effective Competition in Dunedin. Oldsmar, Safety Harbor & Tarpon Springs, Florida, 17 FCC Red. 6370 at ¶ 2 (2000).

[13] See Channel Line-ups of DirecTV and EchoStar, attached hereto as Exhibit 2.

[14] See Charter Line-up, attached hereto as Exhibit 3.

[15] See Declaration of Denise Jones (hereinafter “Jones Declaration”).

[16] Cable operators also have the option of physically counting the number of DBS dishes within their franchise areas, but performing visual and statistical surveys are impracticable and often unreliable.

[17] Although a more detailed Zip +4 report is theoretically available, it is plagued by administrative difficulties, inaccurate reporting, significant delays and high costs.

[18] See, e.g., In re Petition for Determination of Effective Competition in San Luis Obispo County, California, 17 FCC Rcd. 4617 at ¶ 6 (2002) ("The Commission believes that Charter's methodology is sound since it seeks to accurately quantify subscribers without actually obtaining individual DBS subscribership data."). See also Fibervision, Inc. Petition for Determination of Effective Competition in Laurel, MT and Park City, MT, 17 FCC Rcd. 16313 at ¶ 5 (rel. Aug. 27, 2002) (supporting allocation methodology to estimate DBS subscriber count because such methodology "accurately quantif[ied] subscribers using the best available DBS subscriber data.").

[19] See Charter's Competitive Penetration Calculation, attached hereto as Exhibit 4.

[20] Household Data figures available at http://factfinder.census.gou attached hereto as Exhibit 5.

[21] As of September 2002, SkyTrends no longer inflates its DBS subscriber count by 15% to account for commercial and test accounts and households with dual DBS receivers. See Letter from SkyTrends, dated September 30, 2002, attached as Exhibit 6.

[22] 47 U.S.C. § 543(1)(1)(A); 47 C.F.R. § 76.905(b)(1). See also CC Michigan L.L.C. d1bla Charter Communications: Petition for Determination of Effective Competition in Petersburg, Michigan, 17 FCC Red. 1513 at ¶ 2 (2002).

[23] See Rate Order at ¶ 18.

[24] See Exhibit 7.

[25] See Exhibit 5. Household data figures available at http://factfinder.census.gov.

[26] See Jones Declaration.

[27] Specifically, the incorporated areas of the New Hanover County consist of the Town of Carolina Beach (2,296), Town of Kure Beach (723), City of Wilmington (34,359), and the Town of Wrightsville Beach (1,275). See Exhibit 5. Charter subtracted the sum of the number of households in these incorporated communities (38,653 households) from the 2000 Census total of 68,183 households to derive the net number of households encompassed in Charter's New Hanover County franchise area. See Jones Declaration.

[28] See Exhibit 7.

[29] See Exhibit 5. Household data figures available at http://factfinder.census.gov.

[30] See Jones Declaration.

[31] Specifically, the separately-franchised, incorporated areas of the Onslow County consist of the Town of Holly Ridge (321), Jacksonville City (17,175), North Topsail Beach City (451) and the Town of Swansboro (655). See Exhibit 5. Charter subtracted the sum of the number of households in these separately-franchised communities (18,602 households) from the 2000 Census total of 48,122 households to derive the net number of households encompassed in Charter's Onslow County franchise area. See Jones Declaration.

[32] 47 U.S.C. § 543(1)(1)(b); 47 C.F.R. § 76.905(b)(2).

[33] Charter’s Petition at p.7.

[34] The franchise area includes the entire City limits.

[35] The precise penetration rate enjoyed by Charter in Lenoir, North Carolina is conspicuously absent from the Petition.