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Federal Regulation of the Telecommunications Industry Under the Telecommunications Act of 1996: A Brief Synopsis.
Federal regulation of the telecommunications industry has been driven primarily by the competing needs of the varied communications industries. As the radio and telephone industries grew and evolved following the turn of the twentieth century, it became increasingly apparent that uniform regulation of the communications industry was necessary. Early common carrier decisions, the Mann-Elkins Act of 1910, and subsequent Interstate Commerce Commission rulings provided the initial framework for federal regulation of the telecommunications industry. However, it was the Communications Act of 1934 that formed the cornerstone of federal communications law.
THE COMMUNICATIONS ACT OF 1934
The objective of the Communications Act of 1934 ("1934 Act") was to "make available, so far as possible, to all the people of the United States a rapid, nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges." The 1934 Act established dual state and federal regulation of telecommunications services, but essentially limited federal authority to interstate and foreign communications.
Essentially, the 1934 Act vests the authority over and regulation of communications "common carriers" in the Federal Communications Commission ("FCC"). The 1934 Act grants the FCC regulatory authority over common carriers’ pricing and classifications; moreover, the 1934 Act mandates several duties that common carriers must extend to customers and other carriers. A common carrier must: (1) furnish communications services upon reasonable request to any member of the public, (2) interconnect with other carriers when in the public interest, (3) make reasonable and just any charges, practices, classifications, and/or regulations, (4) refrain from engaging in any unjust and unreasonable discrimination with respect to its service, (5) refrain form giving any undue or unreasonable preferences or advantages to any particular person, class, or locality, (6) file with the FCC a schedule of changes for itself and any connecting carriers, (7) only make agreements that are in the public interest with intercarriers and file the same with the FCC, (8) obtain a certificate of public convenience and necessity from the FCC before constructing lines, and (9) obtain FCC approval prior to discontinuing or reducing communications service.
Under the 1934 Act, in order to provide telecommunications services in general, a company must have a tariff on file with the FCC. The FCC regulates both domestic and international carriers on a facilities-based or resale basis. Facilities-based global Section 214 authorization enables carriers to provide international basic switched, private line, data, television and business services using authorized facilities to virtually all countries in the world. Resale global Section 214 authorization enables carriers to provide, on a resale basis, international basic switched, private line, data, television and business services by reselling the services of virtually any authorized U.S. international common carrier subject to certain exceptions.
A comprehensive statute, the 1934 Act enjoyed little revision for most of the twentieth century. Following the divestiture of the Bell Operating companies from AT&T, federal regulation of the telecommunications industry focused primarily on two parties: local exchange carriers ("LECs") and interexchange carriers ("IXCs"). In the post-divestiture era, the FCC and the state Public Utilities Commissions ("PUCs") regulated the interstate access and intrastate services respectively including basic local service, toll, private line, access, directory assistance, and quality of service. The regulation was traditional and based on rate cases. Providers were to set all rates that met revenue requirements based upon LECs assets, rate of return, and expenses. Tariffed rates, terms and conditions were subject approval by state PUCs and the FCC.
However, telecommunications technologies evolved and the industry transitioned. The rise of new communications technologies, such as the cable and fiber optic, extended beyond the purview of the 1934 Act. Thus, the Cable Communications Policy Act of 1984, and its counterpart, the Cable Television Consumer Protection and Competition Act of 1992, were brought into the fold of federal communications regulation. The changes in FCC rules, in addition to the cable legislation prompted new entrants into the communications market. Alternate operator service providers, customer premises equipment providers, enhanced services providers, competitive access providers, and wireless providers emerged. These new telecommunications technologies began to eviscerate the monopolistic nature of the telecommunications industry and the LECs power in general. As such, regulation of the industry under the 1934 Act shifted: telecommunications competition replaced telecommunications monopolies as focus of federal regulation.
In an attempt to accommodate and foster telecommunications competition, the FCC streamlined its regulation of common carriers. The federal requirement that common carriers file tariffs setting forth charges, regulations, classifications and practices was relaxed for non-dominant carriers. Non-dominant carriers such as Sprint, MCI, and various other resellers, have limited tariff filing requirements, little rate regulation and alleviated reporting requirements.
Similarly, the rigidity of rate cases began to loosen as the FCC and state PUCs grappled with the problems of regulating the interaction of LECs with cellular providers, cable programmers and enhanced service providers. Rate cases gave away to alternative forms of regulation cases, price caps, price plans and individual product filings. The various issues presented by an expanding competitive telecommunications market prompted a equally varied array of regulative schematics: open network architecture, expanded interconnection/collocation, pole attachment regulation, wireless interconnection arrangements, customer proprietary network information, and cost allocations, just to name a few.
THE TELECOMMUNICATIONS ACT OF 1996
In response to the national policy favoring telecommunications competition, and in an effort to update the 1934 legislation which the telecommunications industry rapidly was outgrowing, President Clinton singed the Telecommunications Act of 1996 ("1996 Act") on February 8, 1996. The 1996 Act is essentially the first revision of federal telecommunications law in sixty-two years. The principle objective of the 1996 Act is to open all telecommunications markets to competition. Under the 1996 Act, it is envisioned that any and all communications business may compete in any and all communications markets. The 1996 Act is meant to modify and add to the 1934 Act, and in so doing, direct the FCC and individual states to implement its provisions. While the 1996 Act presumes to reduce the regulation of the telecommunications industry, it more accurately increases the sophistication of the industry’s regulation.
The 1996 Act is a comprehensive statute as it mandates a plethora of catalysts to communications industry competition. The 1996 Act seeks to: (1) open the telecommunications market to participation by the cable industry, and vice versa; (2) reduce broadcast service regulation, (3) open telephone companies participation in video programming; (4) regulate obscene, harassing and wrongful utilization of telecommunications facilities; (5) ensure the privacy of communications customer information; (6) open participation of former Bell Operating Companies to provide long distance services and telecommunications equipment manufacture; and (7) readily provide disabled persons with access to telecommunications equipment and services.
Title I: Telecommunications Services. Under the Title I, the 1996 Act sets forth four (4) telecommunications industry service categories: (1) all telecommunications carriers, (2) LECs, (3) incumbent LECs, and (4) former Bell Operating Companies. The 1996 Act places the array of new and expanded services under the umbrella term "interconnection" and imposes differing interconnection duties/obligations on each telecommunications industry service category.
All Telecommunications Service Providers. All telecommunications service providers have a duty to interconnect with other carriers and to refrain from installing network features incompatible with interconnection and/or with services for disabled persons.
Local Exchange Carriers. All local exchange carriers (LECs) must provide: (1) resale of their services in a non-discriminatory and reasonable manner, provide number portability; (2) number portability; (3) dialing parity to competing providers of telephone exchange service and toll service; (4) non-discriminatory access to telephone numbers, operator services, directory assistance, and directory listing without unreasonable dialing delays; (5) access to the poles, ducts, conduits, and rights-of-way of such carrier to competing providers; and (6) provide reciprocal compensation arrangements for the transport and termination of traffic between providers.
Incumbent Local Exchange Carriers. Incumbent local exchange carriers must also: (1) negotiate in "good faith" the agreements involved with the interconnection duties imposed on LECs; (2) provide for interconnection with any requesting LECs at any technically feasible point with quality at least equal to their own and on rates, terms, and conditions that are reasonable and nondiscriminatory; (3) provide to any requesting carrier, nondiscriminatory access to network elements on an unbundled basis; (4) permit resale of retail services to end users at a wholesale rate; (5) provide reasonable notice of network changes affecting interoperability; (6) to provide for physical collocation of facilities to other providers at reasonable and nondiscriminatory rates; and (7) base interconnection/unbundling rates upon cost plus reasonable profit (determined without reference to rate of return proceeding ).
Upon receiving a request for interconnection, incumbent LECs are to negotiate with other providers and such negotiations are subject to State commissioned mediation and/or arbitration.
Bell Operating Companies. Under the 1996 Act, Bell Operating companies and GTE must continue to provide equal access to interexchange carriers and information service providers.
Universal Service. Under the 1996 Act, "Universal Service" contributions are required of all telecommunications providers who do not fall within the FCC determined de minimis exemption. The funds generated by Universal Service contributions are to be used for the preservation and advancement of universal service (i.e., the maintenance and improvement of (1) quality and rates, (2) access to advanced services, (3) access in rural, low-income, and high cost areas, etc.). As administered by the Universal Service Administration Company, each telecommunications provider must file a biannual Worksheet with the FCC. The Worksheet, which schedules disclosure of gross interstate and international revenues, provides the basis for the FCC’s determination of each telecommunications provider’s required Universal Service contribution. The 1996 Act mandates that LECs make available their infrastructure for those providers who qualify for Universal Service subsidies.
Similarly, the 1996 Act provides that states may adopt regulations not inconsistent wit the FCC’s rules to preserve and advance Universal Service. Accordingly, several states have mimicked the Universal Service Worksheet, requiring telecommunications providers to disclose intrastate gross revenues. The states then use this figure for determining the respective contribution base. In most states, such filings will also be biannual.
Common Carrier Regulation. Under the 1996 Act, common carriers are prevented from practicing cross subsidization. Common carriers may not subsidize telemessaging services with revenues generated from local exchange services. Additionally, the 1996 Act provides an across the board non-discrimination principle such that all telecommunications services must be accessible without regard to discrimination the basis of race, color, religion, natural origin, or sex. Similarly, manufacturers of telecommunications equipment, customer premises equipment, and providers of services must ensure accessibility to personas with disabilities, if readily achievable.
Special Provisions Concerning Bell Operating Companies (BOCs). The 1996 Act provides that a BOC or any affiliate thereof may provide interLATA/long distance service or manufacture telecommunications equipment only under certain circumstances. BOCs may provide interLATA services originating in any of its in-region States if they have either negotiated an interconnection agreement with a carrier and have that carrier provide access and interconnection under that agreement, or have not had any requests for interconnection but have filed and received state approval for a "statement" of how it would provide interconnection/access if a request were to be made and the FCC approves the application for such service. Once approved, these services must be provided through a separate affiliate for three years. BOCs may provide interLATA services originating outside its in-region States after the date of enactment. BOCs may provide incidental interLATA services originating in any State after the date of enactment. Only after a BOC is approved to provide interLATA services by the FCC may it manufacture telecommunications equipment or customer premises equipment, and once authorized, a BOC must manufacture through a separate affiliate for three years. Finally, under the 1996 Act, a BOC is required to provide electronic publishing through a separate affiliate for four years.
Title IV of the 1996 Act. Title IV of the 1996 Act pertains to Regulatory Reform and directs the FCC to streamline its practices with respect to telecommunications service. Under the 1996 Act, the FCC must forbear from implementing and enforcing provisions of the 1996 Act where such forbearance will promote and enhance competition among providers of telecommunications services. Likewise, providers may petition for FCC forbearance, and a state commission may not enforce regulations that the FCC has determined to forbear. In this spirit, the 1996b Act provides for a biennial review of FCC regulations whereby those found unnecessary will be eliminated.
Regulatory Reform. Under the Regulatory Reform provision of the 1996 Act, a provider need not obtain a Section 214 license for line extensions and the FCC is granted authority to repeal the setting of depreciation rates, authorize other entities to conduct FCC inspections and audits, and eliminate certain construction permits.
Conclusion. The Telecommunications Act of 1996 has the potential to change the face of the telecommunications industry. However, the 1996 Act leaves many critical decisions regarding reasonable and non-discriminatory interconnection and access to the FCC’s rule-making authority. As such, it will take some time before bright lines are drawn from the ink of the 1996 Act. This said, the 1996 Act charges the state PUCs with implementing the FCC’s rules and regulations. Thus, it will be the states, not necessarily the federal government, who will bear the burden of overseeing that interconnection and access are established and practiced in the spirit of the 1996 Act.
The 1996 Act professes to "de-regulate" the telecommunications industry. In many respects it does so, by removing legal barriers to entry in the market and providing for more flexibility in licensing and tariffing. In truth, however, the 1996 Act "re-regulates" the industry as it increases both the sophistication and complication of the regulation currently in place and shifts many regulatory burdens over to those states in which the provider is authorized to do business.
Nevertheless, the impact of the 1996 Act will probably not be felt for some time, as it will take several years for many of the provisions to take effect. FCC rules and regulations under the 1996 Act will, in large part, be implemented and enforced by the state PUCs. As such, individual state PUCs will be the best source for provider compliance questions and issues regarding federal and state telecommunications regulation.
After several false starts and last minute political wrangling, Congress passed the sweeping "Telecommunications Act of 1996." The House of Representatives and the Senate passed the bill on February 1, 1996 by overwhelming margins. President Clinton signed the Act into law in a ceremony at the Library of Congress on February 8, 1996.
This memorandum highlights the important provisions of the legislation, and notes where reforms previously proposed were dropped. For a more detailed analysis of the 1996 Act and its implications for telecommunications providers, please refer to A Practical Guide to the 1996 Telecommunications Act. It is available from Cole, Raywid & Braverman for $200.
CABLE ENTRY INTO TELEPHONY
Local Entry Conditions Relaxed
The Act substantially abolishes the historic barriers to cable's delivery of telephone services. The Act declares that no state or local laws or regulations "may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." This provision does not, however, appear to be self-enforcing. If a new entrant feels that it is being unfairly barred from a market by a state or local law or rule, the Act contemplates specific pre-emption by the FCC after notice and comment. Also, states are specifically authorized to impose "competitively neutral" requirements regarding universal service, public safety and welfare, service quality, and consumer protection.
Local Franchising Precluded for Cable's Telecom Services
The Act explicitly provides that cable operators and affiliates providing telecommunications services are not required to obtain a separate franchise, and that the provisions of the Cable Act do not apply to cable operators or affiliates to the extent they are providing telecommunications services. Indeed, the local authority may not order a cable operator or affiliate to discontinue providing telecommunications services or discontinue operating its cable system on the basis that it has failed to obtain a separate franchise or renewal for the provision of telecommunications services.
The Act prohibits local franchising authorities ("LFAs") from requiring cable operators to provide telecommunications service or facilities, other than to negotiate regarding I-Nets, as a condition of a grant of a franchise, franchise renewal, or franchise transfer. Finally, the Act clarifies that traditional cable franchise fees may only be based on revenues derived from the provision of cable television services. Other sections of the Act, however, leave open the possibility for local authorities to require reasonable, competitively neutral compensation for management of the public rights-of-way. The local or state authority must publicly disclose such compensation requirements.
The Act prohibits LFAs from prohibiting or restricting a cable system's use of any type of subscriber equipment or any transmission technology.
LEC Interconnection/Resale Obligations
The Act imposes interconnection obligations on all "telecommunications carriers," both new entrants and incumbents. All carriers must interconnect their networks with other carriers and must not deploy network features and functions that interfere with interoperability. Local exchange carriers ("LECs") must allow resale, provide for number portability and dialing parity, provide access to rights-of-way and easements, and provide reciprocal compensation to interconnecting carriers.
Existing LECs also have a set of separately identified obligations that go beyond those that apply to new entrants. These include: (1) good faith negotiation with those seeking interconnection; (2) unbundling, equal access and non-discrimination requirements; (3) resale of services, including "resale at wholesale rates" (exception for certain low-priced residence services to business customers); (4) notice of changes in the network that would affect interconnection and interoperability; and (5) physical collocation unless shown that practical technical reasons, or space limitations, make physical collocation impractical. The FCC has six months to "complete all actions necessary to establish regulations" needed to effectuate this section. The Act also directs the FCC, within one year of enactment, to adopt regulations for existing LECs to share infrastructure with "qualifying" carriers.
The Act contemplates that interconnection agreements will be negotiated by the parties and submitted to a state commission for approval. The state PSC can get involved, at the request of either party, if negotiations fail.
The Act permits carriers to agree on a "bill and keep" system, but does not require such a system. Under the Act, individual interconnection rates must be "just and reasonable," and based on "cost," but expressly does not contemplate that "cost" be determined in a "rate of return" based proceeding. Interconnection rates may also "include a reasonable profit." Traffic termination charges shall be "mutual and reciprocal." The Act prohibits both the FCC and PSCs from "engaging] in any rate regulation proceeding to establish with particularity" the costs that are to form the basis of mutual compensation agreements.
Procedures
The Act sets up a system of negotiations, followed by petitions to a state regulator. If the state regulator refuses to act, the FCC can step in to determine the matter. If the state regulator does act, an aggrieved party's remedy is to file a case in federal district court.
Rural Exceptions to Interconnection Requirements
The Act contains two separate interconnections exceptions. The first is a "rural telco exemption" for LECs serving rural areas with limitations on population (10,000), or a certain number of access lines (50,000-100,000 depending on location). For such companies, interconnection is mandated only on receipt of a bona fide interconnection and an affirmative determination by state PSC that interconnection is "technically feasible" and "not unduly economically burdensome."
The second exception is a "rural carrier suspension" for LECs with fewer than 2% (2.9 million) of the nation's access lines, regardless of location. For these companies, the interconnection obligation exists, but state PSC may waive based on economic conditions.
The exceptions do not apply as a defense to a cable operator request for interconnection from a rural LECs if such LEC provides video programming on the date of enactment.
Universal Service
The Act requires that the FCC (through a state-federal "Joint Board") periodically define the term "universal service." All telecom providers must contribute equitably to a Universal Service Fund (USF), and the FCC may exempt an interstate carrier or class of carriers if their contribution would be minimal under the USF formula. The Act allows states to determine which intrastate telecom providers contribute to the USF, but state standards cannot be inconsistent with FCC rules. The Act prohibits geographic rate deaveraging to protect rural subscribers' rates. The Joint Board will include a state-appointed utility consumer advocate.
School and Libraries/Health Care
Public or non-profit health care providers in rural areas are entitled to rates "reasonably comparable to" rates charged for similar services in urban areas. Educational providers and libraries are entitled to MFN rates achieved by others. LECs may offset health and education discounts from USF.
Slamming
The Act extends protection against "slamming" (the unauthorized switching of serving carrier) to local exchange service.
CABLE ACT REFORM
Effective Competition
As before, rate regulation is limited to areas lacking "effective competition." The definition of effective competition is expanded to include any franchise area where a LEC (or affiliate) provides video programming services to subscribers by any means other than through DBS. The test is satisfied even where the LEC competes through an open video system (legislative replacement for video dialtone) or MMDS, and it appears to apply even where the LEC is providing video services outside its local exchange area. There is no penetration minimum for the LEC to qualify as an effective competitor, but it must provide "comparable" programming services in the franchise area. The Conference Report describes "comparable" service as including at least 12 channels of programming, at least some of which are broadcast television signals.
Basic Regulation
Except in the special case of small cable companies offering a single "fat" Basic (discussed below), BST remains subject to rate regulation.
CPST RegulationCSmall Companies
Small cable companies are immediately liberated from prospective CPST regulation. These companies are also freed from BST regulation where BST "was the only service tier subject to regulation as of December 31, 1994." A "small cable operator" its defined as one that serves fewer than one percent of all subscribers in the United States (approximately 600,000 subscribers). There are two important restrictions: (1) the small operator cannot be affiliated with entities whose gross annual revenues exceed $250 million, and (2) the small operator cannot serve more than 50,000 subscribers in the franchise area.
CPST RegulationCLarge Companies
For these operators, CPST rate regulation sunsets as of March 31, 1999. In the meantime, CPST regulation can now be triggered only by an LFA filing a complaint with the FCC. The LFA will be permitted to do so only if it receives more than one subscriber complaint within 90 days of a rate increase. There does not appear to be a limitation on how quickly the LFA must file its complaint. The FCC, however, will be obligated to resolve all CPST cases within 90 days of the LFA complaint, unless the parties agree to an extension.
Equipment Rates
Cable operators are allowed "to aggregate, on a franchise, system, regional or company level, their equipment costs into broad categories, such as converter boxes, regardless of the varying levels of functionality of the equipment within each such broad category." The statutory change will facilitate the rationalizing of equipment rates across jurisdictional boundaries. More importantly, the change will allow operators to average together costs of different types of converters (including non-addressable, addressable, and digital). The favorable cost-aggregation rule does not apply to the limited equipment used by "basic-only" subscribers.
Uniform Rates
The Act clarifies that the "uniform rate" requirement does not apply where the operator faces "effective competition." It also exempts bulks discounts to multiple dwelling units from the "uniform rate" requirement, although complaints about "predatory" pricing may be taken to the FCC. Upon a prima face showing that there are reasonable grounds to believe that the discounted price is predatory, the cable system will have the burden of proving otherwise.
Cost-of Service
The Act clarifies that, for cost-of-service purposes, the original franchisee of any cable system shall be entitled to recover any system losses incurred prior to September 4, 1992. (The FCC's recent Cost-of-Service Order already relaxed its previously harsh position on this issue.)
Subscriber Notifications
The Act clarifies that cable operators can meet the obligation to provide 30 day advance notice of service and rate changes by "any reasonable written means at its sole discretion." It also clarifies that the prior notice requirement shall not apply to rate changes resulting from a "regulatory fee, franchise fee, or any other fee, tax, assessment or charge of any kind imposed . . . on the transaction between the operator and the subscriber."
Technical Standards.
Franchising authorities will no longer be permitted to apply for a waiver to impose technical standards more stringent than those generally prescribed by the FCC. Franchising authorities are also foreclosed from restricting a system's use of any type of subscriber equipment or any transmission technology.
MISCELLANEOUS REFORMS TO THE 1992 CABLE ACT
Definition of a "Cable System"
The Act changes the definition of a "cable system" for regulatory purposes so that SMATVs will be excluded from the definition, regardless of the type and ownership of buildings they serve, as long as they do not use any public rights-of-way.
Definition of "Cable Service"
The definition is amended slightly to clarify that cable service includes not only one-way transmission to subscribers, but also any subscriber interaction over the system "used" in the provision of interactive services such as game channels and information services.
Anti-Trafficking
The three year holding requirement is eliminated.
Must Carry-Market Modifications
A minor "housekeeping" adjustment clarifies that the FCC shall establish must carry zones using "where available, commercial publications which delineate the television markets based on viewing patterns." To ensure prompt resolution of market modification requests, the Act requires the FCC to resolve existing and future modification requests within 120 days or receipt of the Act's enactment date (whichever is later).
POLES
Investor-owned utilities must make poles and conduits available to cable systems and to telecommunications carriers (such as CAPS) under these terms. (Utility relations with major telephone LECs are excluded.) Electric utilities are given the right to deny access to particular poles on a nondiscriminatory basis for lack of capacity, safety, reliability, and generally accepted engineering purposes.
The current regulated rate, which averages about $4.50, applies to cable delivery of cable services, and for any other service for the next five years. However, the FCC is to establish a new formula for poles used for telecommunications services. Instead of the current formula, which assigns all pole costs in proportion to usage of useable space (1/13.5), the new formula will assign ground set and grade clearance space at 2/3 the amount which would apply if it were equally divided among attaching parties. Thus, depending on the number of attaching parties, rents for telecom poles could rise to the low teens. However, the increase may not begin for 5 years and is then stair-stepped in equal increments over years 5-10. This formula does not apply in states which certify that they regulate pole rents.
Pole owners must impute pole rentals to themselves if they offer telecommunications or cable services.
Cable operators need not pay future make-ready on poles currently contacted if the make-ready is required to accommodate the attachments of another user, including the pole owner. If owners of poles, conduits, ducts or rights of way intends to modify those structures, it must notify current attachees so that they may add to or modify their facilities, in which case they must bear a proportionate share of the cost.
TELCO ENTRY INTO CABLE TELEVISION
Repeal of Telco-Cable Cross-Ownership Ban and Open Video Service
The Act immediately repeals the telco-cable cross-ownership ban and also terminates video dialtone regulations. In addition, the Act supersedes the MFJ, GTE consent decree and AT&T-McCaw consent decree. Pre-enactment conduct and general antitrust jurisdiction are undisturbed.
Regulatory Treatment of LEC-Delivered Video Programming Services
If a LEC provides video via radio waves, it is subject to Title III broadcast regulations. If a LEC provides common carrier channel service it is subject to Title II common carrier provisions. A LEC providing video programming to subscribers otherwise is a cable operator, subject to the Cable Act (including franchising, leased access, customer service and other requirements), unless the LEC elects to provide its programming via an "open video system" (described below) that replaces the video dialtone scheme. LEC owned programming services are also fully subject to program access requirements.
No Section 214 Authorization Required
LECs do not have to obtain authority pursuant
to Section 214 to construct video delivery systems and are exempt from Title II
access requirements. The FCC shall also permit any common carrier to be exempt
from Section 214 when extending any line.
Establishment of Open Video Systems
The Act replaces the FCC's video dialtone rules with a scheme by which LECs can provide cable service in their telephone service area through an "open video system" ("OVS"). Under the Act, a LEC certifying that its OVS complies with the Commission's regulations regarding OVS (discussed below) will receive reduced regulatory treatment if the Commission approves the certification. The Act requires the FCC to act on any such certification within 10 days of its filing.
Under the reduced regulatory burden applicable to certified OVS, only the Cable Act's program access, negative option billing prohibition, subscriber privacy, EEO, PEG, must-carry, retransmission consent, and noncommercial educational channel carriage provisions will apply to a LEC's OVS. Franchising, rate regulation, consumer service provisions, leased access, prohibitions on system sales, and equipment compatibility, however, will not apply. Cable copyright provisions will apply to programmers using OVS.
LFAs may require OVS operators to pay "franchise fees" only to the extent that the OVS provider or affiliates provides cable services over the OVS. OVS operators will be subject to general ROW management regulations, as discussed below. Such fees may not exceed the franchise fees charged to cable operators in the area, and the OVS provider may pass-through the fees as a separate subscriber bill item.
In order to implement the establishment of
open video systems, the Act requires the FCC to adopt, within 6 months,
regulations prohibiting an OVS operator from discriminating among programmers,
and ensuring that the OVS operator's rates, terms, and conditions for service
are reasonable and nondiscriminatory. Further, the FCC is to adopt regulations
prohibiting an OVS operator, or affiliate, from occupying more than one-third of
the system's activated channels when demand for channels exceeds supply,
although there are no numeric limits. The Act also mandates regulations allowing
channel sharing; extending the FCC's sports exclusivity, network nondupe, and
syndex regulations; and controlling the positioning of programmers on menus and
program guides.
No Separate Subsidiary
The Act does not require LECs to use separate subsidiaries to provide interLATA video or audio programming services to subscribers or for their own programming ventures.
Buyouts
While there remains a general prohibition on LEC buyouts of cable systems (over 10% interest), cable operator buyouts of LEC systems, and joint ventures between cable operators and LECs in the same market, there are broad exceptions to this constraint. There is a rural exemption for buyouts where the system being obtained serves an incorporated or unincorporated area with less than 35,000 inhabitants outside an urban area. Further, when a LEC is purchasing a cable system, the system, in addition to any other system in which the LEC has an interest, must serve less than 10% of the LEC's telephone service area.
LECs may purchase cable systems where the system serves less than 17,000 subscribers, of which over 8,000 are in an urban area and over 6,000 are in a non-urban area, the system is not owned by one of the top 50 MSOs, and the system is not in the top 100 television markets as of June 1, 1995.
Further, LECs with less than $100 million in annual operating revenues may purchase or joint venture with any cable system in its telephone service area, if the cable system serves no more than 20,000 subscribers, of which no more than 12,000 are in an urban area.
LEC buyouts of cable systems are permitted where the purchased cable system operates in a non-Top 25 television market, where that market has more than 1 cable system, and where the purchased cable system is not largest cable system in the market. Further, the purchased cable system must hold the same geographic franchise as the larger system in the market, not be owned by one of the 50 largest MSOs, and the larger system must be owned by one of the 10 largest MSOs.
Joint use of cable drops is authorized if limited in scope and duration, as determined by the FCC.
Finally, the Act grants the FCC the power to grant waivers of the buyout provisions in cases where the market conditions are such that: (1) the cable operator or LEC would be subject to undue economic distress; (2) the system or facilities would not be economically viable; or (3) the anticompetitive effects of the proposed transaction are clearly outweighed by the effect of the transaction in meeting community needs. The LFA must also approve the waiver.
ELECTRIC ENTRY
Public utility holding companies and subsidiaries are now cleared for entry into telecommunications services (including cable) notwithstanding PUHCA ("Public Utilities Holding Company Act") or state laws prohibiting such diversification. Electrics must establish separate subsidiaries, known as "exempt telecommunications companies" ("ETCs"). An ETC must apply to the FCC for operating authority, and is limited to telecommunications services, information services, or other services or products under the FCC's jurisdiction.
Registered (interstate) utility holding companies and their affiliates must obtain state PSC approval before selling any asset (e.g., fiber optic plant) to ETCs, if the asset was associated with retail electric service as of December 19, 1995. This does not apply to intrastate utility holding companies. Electric utilities must also obtain prior approval from PSCs to purchase telecom services from an affiliated ETC, unless states waive this authority. Further, electrics affiliated with registered holding companies may not issue securities for the purpose of financing or owning an ETC, nor may they assume the liabilities of an ETC, or pledge or mortgage its assets for the benefit of an ETC.
Financing and other relationships such as sales, service and construction contracts, between ETCs and registered holding companies do not require approval from the SEC. However, electric companies acquiring an ownership interest in an ETC must report any such investment activities to the SEC. The FCC and States may exercise regulatory authority over the activities of ETCs. The Federal Energy Regulatory Commission and the States retain jurisdiction over electrics to guard against cross subsidies from electric retail rates to ETCs.
Finally, PSCs may examine the books of any ETC selling products or services to any electric utility subject to those PSCs' jurisdiction, and may order an independent audit of any electric utility within its jurisdiction that is associated with a registered holding company and that transacts business with an ETC.
LOCAL TELEPHONE (LEC) ENTRY INTO LONG DISTANCE
Out-of-Region
The Act provides that RBOCs can offer interLATA service outside their regions upon enactment.
In-Region: Competitive Checklist Survives
Under the Act an RBOC can offer in-region interLATA service within 90 days after FCC application demonstrating the following (this "competitive checklist" tracks S. 652): (1) non-discriminatory interconnection; (2) unbundled network elements; (3) open access to RBOC poles, ducts, conduits and ROWs pursuant to FCC formula rates; (4) unbundled local loops; (5) unbundled trunk side transport; (6) unbundled local switching; (7) nondiscriminatory access to 9-1-1 and E9-1-1, directory assistance data bases and signalling points; (8) white pages listings for competitors' subscribers; (9) nondiscriminatory number assignment; (10) nondiscriminatory access to network databases; (11) interim number portability; (12) 1+ dialing parity; (13) reciprocal compensation (which may include "bill and keep"); and (14) resalable network functions (excluding universal services).
RBOCs must also satisfy a "facilities-based competitor" test to offer in-region interLATA services (this test tracks H.R. 1555). An RBOC must demonstrate that it has entered an interconnection agreement with an actual competitor offering service "predominantly over its own telephone exchange service facilities," or, the RBOC can prove that it has received no interconnection requests from such companies for 10 months, before it can offer in-region interLATA service. The following companies do not qualify as actual competitors in this context: CAPs, LEC resellers, and cellular.
DOJ role
Under the Act the FCC must consult with the Attorney General prior to affording interLATA entry to any RBOC, and must give "great weight" to any DOJ position. DOJ is not, however, given any determinative role.
BROADCAST REFORMS
V-CHIP
The V-chip, to be installed in new TV sets, will identify coded programming and block such coded programming as a subscriber dictates. FCC is to create advisory committee rather than waiting one year for industry to act on its own, even though industry can still come up with voluntary code. Also, manufacturing of sets to begin no sooner than 2 years after enactment, with date to be determined by consultation between FCC and industry.
Broadcast/Cable Cross-ownership
The Act eliminates the broadcast/cable cross-ownership restrictions, but FCC rules still in place subject to rulemaking. By contrast, the Act orders the FCC to eliminate restrictions on the co-ownership of TV networks and cable systems. However, the Commission is advised to revise its rules, if necessary, to "ensure carriage, channel positioning and nondiscriminatory treatment of non-affiliated broadcast stations" by any network-owned cable system.
The SMATV and MMDS/cable cross-ownership restrictions are eliminated for cable operators subject to effective competition.
TV Ownership Cap
The Act eliminates the ceiling on number of stations that may be owned nationally, and raises the audience reach limit to 35%. The FCC is directed to conduct a rulemaking to determine whether to relax local ownership restrictions, although the Conference Committee noted that VHF-VHF combination in a local market should be approved only in "compelling circumstances." The FCC's waiver policy with respect to "one-to-a-market" is extended to the top 50 markets.
Radio Ownership Cap
The Act eliminates FCC rules limiting the number of radio stations that can be owned by any one entity on a national basis. Locally, the number of stations one entity can own is determined by a sliding scale depending on the size of the market. In smaller markets (14 or fewer stations), one can own up to 5 commercial radio stations (up to 3 FM), so long as it is no more than half the stations in the market. In the largest markets (45 or more stations), one entity can own up to eight radio stations (5 of which may be FM). Additionally, the FCC has authority to waive these limits.
LMAs
The Act specifically authorizes broadcasters to enter into local marketing agreements, subject to compliance with FCC regulations.
DBS
The Act reserves to the FCC exclusive jurisdiction to regulate DBS. "Direct-to-home" satellite service is exempted from municipal fees and taxes, although states may tax DBS and remit proceeds to municipalities.
HDTV
Initial recipients of "advanced television" ("ATV") licenses are limited to current broadcasters. There is no obligation in the Act that ATV capacity be auctioned off. (The FCC has agreed to allow Congress to revisit this issue before it releases ATV spectrum.) ATV licensees can use spectrum apart from the main ATV channel for ancillary and supplementary services. Such ancillary services may be regulated by the FCC, but only in a fashion similar to like services offered by others. ATV and ancillary services do not have must carry status, but may be by Commission subject to rulemaking already required by Cable Act.
The FCC must adopt rulings requiring ATV licensees to surrender either the ATV channel or current broadcast channel, but there is no time limit on the FCC's action. Reallotment of surrendered license to be determined by FCC (not necessarily via competitive bidding).
License Terms and Renewals
Under the Act, the term of all broadcast licenses is extended to eight years. The Act gives the FCC authority to specify a shorter term for a class of station only at renewal, and the shorter term must apply to all stations within the class. The FCC cannot ask for materials at renewal that have already been filed with the FCC.
The Act provides that incumbent licensees are assured renewal if they have served the public interest, have not had any serious violation of the Act or FCC rules, and have not shown a pattern of abuse. No competing applications will be considered unless the incumbent licensee has been denied renewal under these standards. The Act also provides that television renewal applicants must submit a summary of viewer comments regarding violence.
Must Carry
The Act preserves must carry rights, and eliminates ADI measurement in favor of "commercial publications which delineate television markets based on viewing patterns." The FCC is directed to grant or deny must carry requests within 120 days of complaint filing with the FCC.
MANUFACTURING
Tracking S. 652, the Act permits a BOC to engage in manufacturing after the FCC authorizes interLATA service under the competitive checklist. A BOC or affiliate may not jointly manufacture with another BOC or its affiliate, but may enter R&D and royalty agreements. A BOC may not discriminate against independent CPE vendors. Standards organizations such as Bellcore must be separate subsidiaries. This provision sunsets for relevant industry segments when the FCC determines there are alternative sources available in the U.S.
EQUIPMENT COMPATIBILITY/SCRAMBLING
Equipment Compatibility.
The existing instructions to the FCC regarding the establishment of equipment comparability standards are expanded to emphasize: (1) narrow technical standards, mandating a minimum degree of common design among televisions, VCRs, and cable systems, and relying heavily on the open marketplace, should be pursued; (2) competition for all converter features unrelated to security descrambling should be maximized; and (3) adopted standards should not affect unrelated telephone and computer features. The Conference Report notes that Congress would like the FCC to promptly complete its pending equipment comparability rulemaking, but not "at the risk that premature or overbroad Government standards may interfere in the market-driven process of standardization in technology intensive markets."
Scrambling
The Act requires cable operators and other MVPDs, upon subscriber request, to fully scramble or block at no charge the audio and video portion of any channel not specifically subscribed to by a household. Further, the Act provides that sexually explicit programming must be fully scrambled or blocked. If the cable operator or MVPD cannot fully scramble or block its signal, it must restrain distribution to those hours of the day when children are unlikely to view the programming.
CPE Availability
The Act establishes new Section 629 directing the FCC to adopt regulations for MVPDs which assure the competitive availability of converters ("navigation devices") and other CPE from vendors other than cable operators. The FCC's rules cannot impinge upon signal security concerns or theft of service protections. Waivers are possible where the MVPD can show they are necessary for introduction of new services. This section sunsets the FCC regulations once the equipment market becomes competitive. This new statutory provision tracks H.R. 1555.
ALARM MONITORING
An RBOC may enter the alarm monitoring business 5 years after enactment; Ameritech's alarm monitoring affiliate is grand fathered, as are other RBOC affiliates in the alarm business as of November 30, 1995. RBOCs only (versus electrics, cable or others) must offer network elements supporting alarm service on a common carrier basis. An RBOC must market its alarm service without exploiting CPNI. The FCC is directed to issue regulations implementing this provision of the Act within 6 months. Finally, the Act establishes accelerated complaint procedures for RBOC competitors.
ELECTRONIC PUBLISHING
RBOCs may engage in electronic publishing only through a separate subsidiary. The Act permits three types of joint marketing: (1) inbound telemarketing or referral (customer-initiated call) so long as the RBOC makes referral service open to all; (2) nondiscriminatory teaming arrangements; and (3) joint ventures with parties where the RBOC or affiliate has not more than 50% equity in the venture. Violations give rise to a private right of action under the Act. Video programming is expressly defined as not electronic publishing. This section sunsets four years after enactment.
OTHER REGULATORY REFORMS
Internet
Transmitting indecent material via the Internet to minors is made criminal by the Act. On-line access providers are exempted from criminal liability for simply providing interconnection service to a facility, system or network not owned or controlled by such providers; they are also granted an affirmative defense from criminal or other action where they try in "good faith" to implement reasonable, effective and appropriate measures to restrict access. The Act authorizes the FCC to describe measures that it deems reasonable, effective and appropriate for restricting access. Compliance with the FCC measures may be asserted as a defense in any criminal proceeding, but the FCC has no enforcement authority over the Internet. Inconsistent state and local laws are preempted.
The Act exempts on-line access providers from civil liability for actions taken in good faith to restrict access to obscene, excessively violent or otherwise objectionable material. Inconsistent state laws are preempted by the Act.
Use of the Internet to solicit criminal sexual acts or prostitution from minors is also made criminal under the Act.
Toll Fraud
The Act imposes new disclosure requirements on information service providers that charge for information provided over toll-free (800 and 888) numbers. The Act provides for written subscription agreements, disclosure of name, address and telephone number of provider, billing explanations, personal identification numbers (PINs) and termination of information service where the end user complains about information service provider. The Act directs the FCC to promulgate regulations implementing these statutory provisions within 6 months of enactment.
CPNI Privacy
The Act provides that telecommunications carriers must protect the confidentiality of Customer Proprietary Network Information ("CPNI"). CPNI includes calling patterns, billing records, etc., relating to other carriers, resale carriers, equipment manufacturers and customers. Carriers that receive CPNI in connection with providing a service can use the information only for that purpose and not for their own marketing or other purposes, though they may use it as necessary to protect against fraud. Carriers can use, disclose, and permit access to individually identifiable CPNI only in connection with provision of services or as directed by the customer. LECs must provide subscriber list information on request for directories, at reasonable and nondiscriminatory rates, terms and conditions.
Personal Wireless Service ("PWS") Facility Siting
The Act preserves, with certain exemptions, traditional local zoning authority over the construction, placement and modification of "Personal Wireless Services" facilities ("PWS"). PWS includes commercial mobile services (i.e., cellular, PCS and paging), as well as unlicensed wireless services using authorized devices, and common carrier wireless exchange services. States and local governments are prohibited from unreasonably discriminating among PWS providers, prohibiting the provision of PWS, or regulating the environmental effects of PWS emissions to the extent such emissions comply with FCC rules. State and local governments are also required to grant sitting authorizations within a reasonable time period and may only deny such sitting authorizations through a written decision based upon substantial evidence. The Act establishes a right of "expedited" action in the courts for violation of all provisions and at the FCC for violation of the emissions provision. The FCC is directed to promulgate rules concerning the environmental effects of emissions within 180 days. The Act provides that within 180 days the President or his designee shall prescribe rules governing the availability of federal rights-of-way, easements and other property that might be used for PWS facilities. The FCC is directed to provide technical support to states to encourage them to make similar property, rights-of-way and easements available.
Mobile Service Equal Access Obligations
The Act provides that no Commercial Mobile Service ("CMS") provider (i.e. cellular, PCS, SMR) is required to provide customers with equal access to long distance carriers. However, the FCC is given the authority to require unblocked access to long distance carriers through mechanisms like carrier identification codes, if it is determined that CMS customers are being denied access to the long distance carrier of their choice. Mobile satellite service providers will not be subject to any unblocking requirements that the FCC may adopt.
Payphones
The Act promotes the independent payphone market, adopting the H. R. 1555 approach, with some modifications permitting the FCC to withhold from the RBOCs the same rights accorded to independent payphone providers. New Section 276 of the Act preempts state regulation of payphone operations provided by RBOCs, and further directs these companies to remove all payphone operations and investments from the regulated books to prevent cross subsidization of higher cost RBOC payphone service from regulated revenues.
In addition, the Act directs the FCC to prescribe within nine months regulations establishing a provider-neutral system of per call compensation, including toll free and directory assistance charges. 9-1-1 and TRS calls are exempted from the FCC rules, meaning RBOC and private providers will absorb direct costs individually.
The RBOCs obtain the ability to negotiate directly with IXCs for service selection and revenue sharing, subject only to the agreement of the site provider. This places the RBOCs on the same footing as independent payphone operators.
Finally, the Act directs the FCC to consider whether to support "public interest payphones" in high cost/high crime areas where payphones do not exist are hard to maintain. There is no accommodation for funding of "public interest payphones."
Small Business
The Act directs the FCC to complete, within 15 months, a proceeding identifying market entry barriers for entrepreneurs and small businesses. Thereafter, every three years, the FCC is to update its analysis and amend its rules as necessary to encourage small business entry into telecommunications.
The Act also establishes the "Telecommunications Development Fund" to provide capital for small businesses. The fund will derive its revenues from interest on entry deposits held by the FCC in spectrum auctions. Under the Act the fund can make loans and advances, investments in or extensions of credit to eligible small businesses. Eligible firms are those whose gross assets are less than $50 million. The Act is silent as regards procedures, timing and loan amounts for which applicants might qualify.
Foreign Ownership
Although both S. 652 and H.R. 1555 contained relaxation of foreign ownership constraints for non-broadcast telecommunications facilities, the Act does not include such reform.
Depreciation
The Act makes formerly mandatory depreciation rate setting by the FCC over LEC depreciation rates permissive. This may eliminate triennial depreciation represcriptions between FCC, RBOCs and state PSCs.
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