In the Matter of Implementation of Section 302 of the Telecommunications Act of 1996 Open Video Systems CS Docket No. 96-46 FEDERAL COMMUNICATIONS COMMISSION 1996 FCC LEXIS 4309 RELEASE-NUMBER: FCC 96-334 August 8, 1996 Released; Adopted August 7, 1996 ACTION: [*1] THIRD REPORT AND ORDER AND SECOND ORDER ON RECONSIDERATION JUDGES: By the Commission: Commissioner Quello issuing a separate statement. OPINION: I. INTRODUCTION 1. The Telecommunications Act of 1996 n1 added Section 653 to the Communications Act, establishing open video systems as a new framework for entry into the video programming marketplace. n2 Section 653 required that the Commission, within six months after the date of enactment of the 1996 Act, "complete all actions necessary (including any reconsideration) to prescribe regulations" to govern the operation of open video systems. n3 Accordingly, on March 11, 1996, the Commission issued a Notice of Proposed Rulemaking regarding open video systems. n4 Based on the extensive record submitted in response to the Notice, on May 31, 1996, the Commission adopted a Second Report and Order in which we prescribed rules and policies for governing the establishment and operation of open video systems. n5 n1 Telecommunications Act of 1996, Pub. L No. 104-104, 110 Star. 56, approved February 8, 1996 (the "1996 Act"). n2 Communications Act of 1934, as amended, @ 653, 47 U.S.C. @ 573 ("Communications Act"). n3 47 U.S.C. @ 573(b), (c). n4 Report and Order and Notice of Proposed Rulemaking in CS Docket No. 96-46 and CC Docket No. 87-266 (terminated), 61 FR 10496 (3/14/96), FCC 96-99, released March 11, 1996 ("Notice"). [*2] n5 Second Report and Order in CS Docket No. 96-46, 61 FR 28698 (6/5/96), FCC 96-249, released June 3, 1996 ("Second Report and Order"). 2. As designed by Congress and implemented by the Commission, open video systems provide an option, particularly to local exchange carriers ("LECs"), for the distribution of video programming to consumers other than as a traditional cable television system regulated under Title VI. n6 In the Second Report and Order, the Commission sought to fulfill Congress' intent by establishing streamlined regulations that provide telephone companies with the flexibility to establish and operate open video systems. We determined that such flexibility would encourage these and other entities to enter the video programming distribution market by deploying open video systems, thereby fostering competition to incumbent cable operators. We further ensured that, as required under Section 653, open video system operators provide unaffiliated video programming providers with non-discriminatory access to their systems. n7 n6 Communications Act @ 653(a)(3), 47 U.S.C. @ 573(a)(3). n7 See, e.g., Second Report and Order at para. 2. 3. We received 19 petitions [*3] for reconsideration of the Second Report and Order. n8 In this Second Order on Reconsideration, we address issues raised in these filings, and modify or clarify our regulations accordingly. In addition, in the Order and Notice of Proposed Rulemaking in CS Docket No. 96-85 ("Cable Reform Proceeding"), we sought comment on the definition of "affiliate" in the context of open video systems. n9 In light of the six-month deadline set by Congress for the Commission to establish final open video system regulations, we address the affiliate issue in this Third Report and Order. n8 A listing of the parties' filing petitions for reconsideration and oppositions or comments, and the abbreviations used to refer to such parties, is attached as Appendix A. We note that on July 12, 1996, the Cable Services Bureau issued an Order declining to grant the motion of the National League of Cities, et al. to accept their late-filed petition for reconsideration, but granting their motion, in the alternative, to accept the petition as a filing in opposition to and/or in support of the petitions for reconsideration that were timely filed. See Order, CS Docket No. 96-46, DA 96-1127 (released July 12, 1996). [*4] n9 Order and Notice of Proposed Rulemaking in CS Docket No. 96-85 (Implementation of the Cable Act Reform Provisions of the Telecommunications Act of 1996) ("Cable Reform Proceeding"), 11 FCC Rcd 5937 (1996). II. THIRD REPORT AND ORDER -- DEFINITION OF "AFFILIATE" A. Background 4. In the Cable Reform Proceeding, we amended certain of our rules to conform with the clear, self-effectuating provisions of the 1996 Act and sought comment on proposed rules to the extent necessary to implement various provisions of the 1996 Act. n10 We specifically sought comment regarding the definition of "affiliate" in the context of the new statutory provisions governing open video systems. n11 We noted that Congress added a new definition of "affiliate" in Section 3 of Title I of the Communications Act. This new provision defined "affiliate" for purposes of the Act, unless the context otherwise requires, as: a person that (directly or indirectly) owns or controls, is owned or controlled by, or is under common ownership or control with, another person. For purposes of this paragraph, the term "own" means to "own an equity interest (or the equivalent thereof) of more than 10 percent. [*5] n12 We noted also, however, that Congress did not alter the separate definition of "affiliate" set forth under Title VI. Under Title VI, the term "affiliate" is defined, when used in relation to any person, to mean "another person who owns or controls, is owned or controlled by, or is under common ownership or control with, such person." n13 We sought comment regarding the definition of the term "affiliate" in the context of the new statutory provisions for open video systems. n14 n10 Id. n11 Id. at 5970. We subsequently received comments in the Cable Reform Proceeding, CS Docket 96-85, addressing this issue. For purposes of our decision in this Third Report and Order, we incorporate those comments to the extent they specifically address the definition of affiliation in the context of the statutory provisions for open video systems. n12 Communications Act @ 3(1), 47 U.S.C. @ 153(1). n13 Communications Act @ 602(2), 47 U.S.C. @ 522(2). n14 Cable Reform Proceeding, 11 FCC Rcd at 5970. We also sought comment on the definition of affiliate in the context of other provisions of the 1996 Act. Id. at 5963-65, 5970. We will address the affiliation definition for these provisions in the Cable Reform Proceeding. [*6] 5. BellSouth maintains that the existing affiliate definition under Title VI should continue to apply in open video systems. n15 BellSouth contends that the Commission should assume that Congress was satisfied with the existing definition in Title VI since had it believed the existing definition inadequate, it could have amended the definition in Title VI as easily as it added the definition of affiliate in Title I. n16 Further, BellSouth cites to 47 C.F.R. @ 76.5(z) (definition of "affiliate") as already containing a definition of affiliate that follows the Title VI definition exactly. n17 RCN also concludes that Congress did not intend the Commission to apply a different definition of "affiliate" to LEC systems under Title VI than that applicable to Title VI generally and maintains that the existing Title VI definition of affiliate should be applicable to all provisions of the Title. n18 n15 BellSouth Comments in the Cable Reform Proceeding at 3-4. n16 Id. at 4. n17 Id. at n.9. Section 76.5(z) provides for the definition of affiliate as, "when used in relation to any person, another person who owns or controls, is owned or controlled by, or is under common ownership or control with, such person." 47 C.F.R. @ 76.5(z). This is the same definition as provided in Title VI. [*7] n18 See RCN Comments in the Cable Reform Proceeding at 6. 6. Some commenters contend that the definition of "affiliate" should focus on common ownership or control between the subject entities. n19 These parties assert that the Title VI definition of affiliate based on control is consistent with Congressional intent because it will lessen the regulatory burden on open video system providers and not duplicate the overly intrusive and burdensome regulatory structure of video dialtone. n20 USTA states that Congress provided for reduced regulatory burdens for an open video system operator and a definition of affiliation premised upon control will further this end. n21 According to USTA, such limited regulation will permit the proper functioning of market forces and competition making an arbitrary percentage determination of ownership unnecessary. n22 Bell Atlantic contends that finding common ownership or control at low levels of equity ownership or non-equity interests could impede the ability of telephone companies and cable operators to construct pro-competitive business arrangements. n23 For example, Bell Atlantic suggests that where a single person owns a majority interest [*8] in a particular entity, the other owner(s) should not be deemed to have "control" over the entity, even if their interests exceed a specific threshold. n24 n19 See Bell Atlantic Comments in the Cable Reform Proceeding at 2; USTA Comments in the Cable Reform Proceeding at 10-11. n20 Id. n21 USTA Comments in the Cable Reform Proceeding at 11. n22 Id. n23 See Bell Atlantic Comments in the Cable Reform Proceeding at 2. n24 Id. 7. In its comments, Time Warner acknowledges that the 1996 Act's addition of a general definition of "affiliate" under Title I, while retaining the preexisting affiliate definition contained in Title VI, provides the Commission discretion to fashion different affiliation tests to effectuate the varying policy goals in each specific context. n25 Time Warner urges the Commission to apply the Title VI definition in the context of the statutory provisions for open video systems, as embodied in the notes accompanying Section 76.501 (cross-ownership) of the Commission's rules. n26 Section 76.501 reflects the broadcast attribution rules contained in the notes to Section 73.3555 of our rules. n27 Time Warner contends that two provisions of the [*9] statute -- the statutory prohibition on open video system operators not to discriminate against video programming providers with respect to carriage and the channel occupancy restrictions in the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") n28 -- are based on the same policy of ensuring that facilities operators affiliated with video programmers do not favor such programmers in determining carriage on their facilities. n29 Because the Commission adopted an attribution standard for the 1992 Cable Act's channel occupancy restrictions based on the notes to Section 73.3555, Time Warner argues that the same definition should be used to accomplish the non-discriminatory requirements that are at the heart of open video systems. n30 n25 Time Warner Comments in the Cable Reform Proceeding at 31. n26 Id. n27 47 C.F.R. @ 73.3555. Generally, under the broadcast attribution rules, all voting stock interests of 5% or more are considered attributable. All non-voting stock interests (including most "preferred" stock classes) are generally not attributable. There are several exceptions to the 5% voting stock benchmark. For example, there is a "single majority shareholder" exception, which provides that minority voting stock interests will not be attributed where there is a single holder of more than 50% of the outstanding voting stock. In addition, the interests of sufficiently "insulated" limited partners are not attributable, upon a certification that the limited partner is not materially involved, directly or indirectly, in the management or operations of the licensee's media-related activities. Id. at note 2. The broadcast attribution rules are currently the subject of Commission review. See Notice of Proposed Rulemaking, MM Docket Nos. 94-150, 92-251, 87-154, 10 FCC Rcd 3606 (1995). [*10] n28 Pub. L. No. 102-385, 106 Stat. 1460 (1992), 47 U.S.C. @ 521, et seq. (1992). The 1992 Cable Act amends Title 6 of the Communications Act of 1934, 47 U.S.C. @ 151 et seq. n29 Time Warner Comments in the Cable Reform Proceeding at 31-32 (citing Sections 573(b)(1)(A) and 533(f)(1)(B) of the 1996 Act). n30 Id. at 31-32. 8. City and County of Denver, Colorado states in its comments that the Title VI definition of "affiliate" should be used to determine interest because Congress did not intend for more than one definition of "affiliate" to be used as it regards the provision of cable services and the new Title I definition of "affiliate" would not recognize Congressional intent. n31 In applying Title VI, however, the City and County of Denver asserts that the Commission does not have the discretion to add a percentage of ownership interest to the federally-developed Title VI affiliation standard, and submits that in this regard, any ownership interest constitutes an affiliation between the cable service provider and another entity. n32 n31 City and County of Denver, Colorado Comments in the Cable Reform Proceeding at 5-6. n32 Id. 9. According to some commenters, [*11] the Commission must define any relationship exceeding the carrier-user relationship as "affiliation" for open video system purposes. n33 The National League of Cities, et al. propose that the Commission define "affiliate" broadly in a way that encompasses the variety of equity and non-equity relationships through which an open video system operator might seek effectively to control program selection. n34 The National League of Cities, et al. argue that any relationship between an open video system operator and an ostensibly non-equity related programmer other than that of carrier and user inherently poses a substantial risk that the open video system operator will exercise control over programming, or will have an incentive for discrimination in rates, terms, or conditions. n35 The National League of Cities, et al. contend that all relationships between the open video system operator and a video programmer that exceed a carrier-user relationship must be considered to involve "control" and be counted as "affiliation" for purposes of the open video system capacity limitations. n36 To truly limit "unaffiliated" programmers to a carrier-user relationship, the National League of Cities, [*12] et al. propose that the ownership criterion be limited to 1%. n37 n33 See National League of Cities, et al. Comments in the Cable Reform Proceeding at 7; Alliance for Community Media, et al. Comments in the Cable Reform Proceeding at 3; Rainbow Comments (in CS Docket No. 96-46) at 7-8. See also Michigan Cities, et al. Reply Comments (in CS Docket No. 96-46) at 6 (stating that they support the comments of National League of Cities, et al. and others that independent programmers must be truly "independent" to be counted towards the two-thirds requirement of the Act). n34 See National League of Cities, et al. Comments in the Cable Reform Proceeding at 3. n35 Id. at 12. n36 Id. n37 Id. at 14. However, the National League of Cities, et al. note that a standard based solely on ownership percentage or managerial control would ignore the other types of relationships that can give an open video system operator effective programming control. 10. Alliance for Community Media, et al. state that the definition of "affiliate" should be broad enough to prevent an open video system operator from exercising editorial and financial control over entities that are formally "unaffiliated" [*13] for purposes of this provision. n38 Alliance for Community Media, et al. urge the Commission to adopt regulations which recognize that contractual arrangements through unaffiliated companies may hide affiliations which are not revealed by an "equity" ownership test. n39 Alliance for Community Media, et al. do not believe the "affiliate" definition found in Section 3 of the 1996 Act, which defines ownership as an equity interest of 10%, sufficiently protects would be unaffiliated programmers from manipulation of the system by open video system providers, claiming that there is a significant danger of abuse because the open video system operator may still be able to favor some "unaffiliated" programmers over others for editorial and/or marketing purposes. n40 In order to prevent such potential abuse, Alliance for Community Media, et al. recommend that in every circumstance where an open video system operator has contracted with an entity it certifies as unaffiliated, the Commission should examine that contract and any additional contracts between the operator and the provider. n41 n38 Alliance for Community Media, et al. Comments in the Cable Reform Proceeding at 2. n39 Id. at 3. [*14] n40 Id. n41 Id. 11. Similarly, TCI and Rainbow have urged the Commission to define the term "affiliate" to include all entities who have any financial or business relationship with the open video system operator, whether by contract or otherwise, directly or indirectly other than the carrier-user relationship. n42 In comments to the Notice, these parties submit that this definition would capture all relevant relationships between the LEC and users of its open video system facilities and would encompass the existence of any ownership or financial interest, affiliation, contingent interest, or other agreement. n43 These parties claim that such a definition is necessary because otherwise a LEC would be able to favor video programming providers with whom it has a close relationship without violating the statutory proscription on discrimination. n44 TCI notes that the 1996 Act did not change the special definition of affiliate applicable to Title VI, which does not reference any particular ownership interest but speaks in terms of "ownership or control." TCI contends that the Commission remains free to fashion various applications of this term appropriate to the particular policy [*15] goals at issue in a particular context. n45 In response, U S West argues that the Commission should reject TCI and Rainbow's expanded definition of the term "affiliate" because it would make practically every video programming provider over an open video system an affiliate of the open video system operator. n46 n42 See TCI Comments (in CS Docket No. 96-46) at 8, Rainbow Comments (in CS Docket No. 96-46) at 7-8. n43 Id. n44 Id. n45 See TCI Comments (in CS Docket No. 96-46) at n.25. n46 See U S West Reply Comments (in CS Docket No. 96-46) at 10. B. Discussion 12. As an initial matter, we agree with those commenters that argue that the new definition of "affiliate" in Title I does not apply to matters under Title VI since Title VI contains a separate definition of that term that does not set a percentage threshold as to what constitutes ownership. n47 For our purposes, therefore, we must determine the point at which an open video system operator's ownership or control of another entity, or another entity's ownership or control of the open video system operator, makes that entity an affiliate for purposes of Section 653. This determination is an important [*16] element of Congress' open video system framework. For instance, where demand for carriage exceeds system capacity, Section 653(b)(1)(B) prohibits an open video system operator "and its affiliates" from selecting the video programming services for carriage on more than one-third of the activated channel capacity. n48 Thus, if we set the threshold too high, and fail to designate as "affiliates" those entities that are in fact controlled by the open video system operator, it could conflict with Congress' intent that open video system operators be permitted to control the programming selection on no more than one-third of the activated channel capacity. On the other hand, if we set the threshold too low, we run the risk of unduly restricting the flow of capital and other beneficial arrangements at levels that pose no threat of actual or effective control by the open video system operator. n47 See Communications Act @ 602(2), 47 U.S.C. @ 522(2). n48 Communications Act @ 653(b)(1)(B), 47 U.S.C. @ 573(b)(1)(B). 13. In defining "affiliate" for purposes of Section 653, we will adopt the attribution standard that we use in the program access Context. n49 Thus, as we do in the program [*17] access context, we will apply the definitions contained in the notes to 47 C.F.R. @ 76.501 (which reflect the broadcast attribution rules contained in the notes to 47 C.F.R. @ 73.3555), with certain modifications. For instance, in contrast to the broadcast attribution rules: (a) we will consider an entity to be an open video system operator's "affiliate" if the open video system operator holds 5% or more of the entity's stock, whether voting or non-voting; (b) we will not adopt a single majority shareholder exception; n50 and (c) all limited partnership interests of 5% or greater will qualify, regardless of insulation. n51 In addition, as with both the program access standard and the broadcast attribution rules, actual working control, in whatever manner exercised, will also be deemed a cognizable interest. n52 n49 See 47 C.F.R. @ 76.1000(b). See also Implementation of Sections 12 and 19 of the Cable Television Consumer Protection and Competition Act of 1992 (Development of Competition and Diversity in Video Programming Distribution and Carriage), First Report and Order, 8 FCC Rcd 3359, 3370-71 (1993). n50 Under the single majority shareholder exception, where there is a single holder of more than 50% of a corporation's outstanding voting stock, minority voting stock interests in the corporation are not attributable to shareholders irrespective of whether they exceed the 5% benchmark. See 47 C.F.R. @ 73,3555 note 2. [*18] n51 See 47 C.F.R. @ 76.1000(b). n52 See 47 C.F.R. @@ 73.3555 note 1, 76.501 note 1. There is substantial case law interpreting the meaning of "control" under the broadcast attribution rules that we will apply here. See, e.g., Benjamin L. Dubb, 16 FCC 274, 289 (1951); WWIZ, Inc., 36 FCC 562, recon. denied, 37 FCC 685 (1964), aff'd sub nom. Lorain Journal Co. v. FCC, 351 F.2d 824, 828-29 (D.C. Cir. 1965), cert. denied, 383 US 967 (1966); Stereo Broadcasters, Inc., 55 FCC 2d 819, 821 (1975), modified, 59 FCC 2d 1002 (1976); Southwest Texas Public Broadcasting Council, 85 FCC 2d 713, 715 (1981); Metromedia, Inc., 98 FCC 2d 300, 306 (1984), recon. denied, 56 RR2d 1198 (1985), appeal dismissed sub nom., California Association of the Physically Handicapped v. FCC, 778 F.2d 823 (D.C. Cir. 1985). 14. We decline Time Warner's suggestion that we adopt an affiliation standard identical to the attribution standard applied to the mass media multiple ownership rules, as set forth in the notes to 47 C.F.R. @ 76.501. The mass media multiple ownership rules are intended primarily to ensure diversity of information sources to the American public. n53 Section 653, in addition to promoting [*19] diversity of video programming sources, also is designed to reduce the likelihood that open video system operators will discriminate against or otherwise disfavor unaffiliated programming providers. n54 This anti-discrimination objective is analogous to the purpose of the program access rules. These dual objectives warrant adoption of a definition of "affiliate" that is similar to the program access attribution standard. Moreover, by adopting our program access attribution standard, we avoid the possibility that a video programming provider will be considered an affiliate of the open video system operator for one purpose but not for the other. n53 See Reexamination of the Commission's Rules and Policies Regarding the Attribution of Ownership Interests in Broadcast, Cable Television and Broadcast Entities, 97 FCC 2d 997, 1004 (1984), recon. granted in part, 58 RR 2d 604 (1985), further recon. 1 FCC Rcd 802 (1986). n54 See, e.g., Communications Act @@ 653(b)(1)(A), 653(b)(1)(E), 47 U.S.C. @@ 573(b)(1)(A), 573(b)(1)(E). 15. We believe that the certainty provided by the definition we adopt above is preferable to the ad hoc inquiries into ownership or control suggested by some [*20] of the commenters. In addition, to the extent these commenters are proposing a majority ownership standard, we believe, as noted above, that interests well below 50% ownership are sufficient to provide open video system operators with the incentive to favor an affiliated programming provider over a competing provider with which the operator has no affiliation. Similarly, we decline to adopt the Title I definition of "affiliate." As described above, we believe that our program access standard is the appropriate standard for identifying the interests at issue here. No commenter has proposed that we adopt the Title I standard, or provided any record evidence that would support such a standard. We have no basis to find that the Title I standard would identify the interests at issue as well as our program access standard. 16. We also decline to define "affiliate" as a 1% ownership interest or as any relationship exceeding a carrier-user relationship, as suggested by certain commenters. In essence, many of these commenters argue that a strict standard is necessary because of the inherent risk that an open video system operator would favor a programming provider with which it has any relationship [*21] beyond carrier-user. We decline to depart from the focus in Section 602(2) on ownership or control, and believe that the definition we adopt today will permit us to make such determinations. n55 In addition to being inconsistent with Title VI, we believe that these restrictive definitions could unnecessarily restrict the flow of capital to unaffiliated programming providers, and could unduly hamper the effective functioning of the platform. For instance, a carrier-user relationship standard could prevent an open video system operator from providing billing and collection services to programming providers, or from entering into co-packaging arrangements. We decline to impose a standard that implicates such relationships. n55 See Communications Act @ 602(2), 47 U.S.C. @ 522(2). We therefore do not believe it is necessary, as the Alliance for Community Media, et al. suggest, to examine all contracts between open video system operators and unaffiliated programming providers. III. SECOND ORDER ON RECONSIDERATION A. Qualifications to be an Open Video System Operator 1. Background 17. New Section 653(a)(1) of the Communications Act provides: A local exchange carrier [*22] may provide cable service to its cable service subscribers in its telephone service area through an open video system that complies with this section. To the extent permitted by such regulations as the Commission may prescribe consistent with the public interest, convenience, and necessity, an operator of a cable system or any other person may provide video programming through an open video system that complies with this section. n56 In the Second Report and Order, we concluded that the second sentence of Section 653(a)(1) authorizes the Commission to allow non-LECs to operate open video systems and to allow LECs to operate open video systems outside of their telephone service areas when the public interest, convenience, and necessity are served. n57 We found that it would serve the public interest, convenience and necessity to permit other entities, besides LECs, to become open video system operators. n58 With respect to cable operators within their cable franchise areas, we concluded that it would serve the public interest, convenience, and necessity to allow a cable operator to operate an open video system in its cable franchise area if it is subject to "effective competition" [*23] under Section 623(l)(1) in the franchise area. n59 This condition applies even if a cable operator also provides local exchange service within the franchise area. n60 In addition, we provided an exception for cable operators that are not subject to effective competition within their cable franchise areas if they can demonstrate that the entry of a facilities-based competitor into the cable franchise area would likely be infeasible. n61 We also stated that our decision to allow cable operators to become open video system operators under the above circumstances shall not be construed to affect the terms of any existing franchise agreements or other contractual agreements. n62 n56 Communications Act @ 653(a)(1), 47 U.S.C. @ 573(a)(1). n57 Second Report and Order at para. 12. n58 Id. n59 Id. n60 Id. n61 Id. at para. 24. n62 Id. at para. 12. 18. Several petitioners contend that a cable operator should not be allowed to convert its cable system into an open video system, regardless of the circumstances. Metropolitan Dade County asserts that effective competition is not an adequate precondition to ensure consumers are offered a real choice and that the [*24] open video system alternative was created to stimulate competition in the video marketplace, not to enable cable operators to escape the cable franchising process. n63 Michigan Cities, et al. argue that permitting non-LEC entry into the open video system marketplace will discourage competition because LECs will have less incentive to enter the market if all competitors receive the same regulatory benefits. n64 Michigan Cities, et al. also oppose the exception provided for certain cable systems not subject to effective competition, arguing that the exception is overly broad because there are a variety of reasons why facilities-based competition may be unlikely to develop in a particular cable franchise area. n65 n63 Dade County Petition at 3. But see U S West Opposition at 34 (the Commission's decision to allow cable operators to convert to open video if they are subject to effective competition serves the public interest). n64 Michigan Cities, et al. Petition at 7. n65 Id. at 8-9 (citing Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, First Report in CS Docket No. 94-48, 9 FCC Rcd 7442, 7550-54 (1994)). 19. Michigan [*25] Cities, et al. claim that various references to "common carriers," "local exchange carriers," and "telephone companies" in the statute and its legislative history demonstrate Congress' intent to limit the open video system option to LECs. n66 According to Michigan Cities, et al., allowing non-LECs to become open video system operators is inconsistent with the plain language of the 1996 Act, and thus the Commission incorrectly concluded that it had the authority under Section 4(i) to permit such a result. n67 The National League of Cities, et al. assert that Congress could not have intended cable operators to become open video system operators because it would defeat the purposes of certain provisions of the Communications Act. n68 For example, they argue that conversion to an open video system would enable a cable operator: (a) to avoid a franchise renewal agreement with updated public, educational, and governmental ("PEG") requirements; (b) to evade the cable-telco buyout restrictions; and (c) to circumvent a local franchising authority's decision to deny the renewal of the cable operator's franchise. n69 The National League of Cities, et al. also argues that the Commission's decision [*26] is inconsistent with the statute's use of cable operators' PEG and franchise fee obligations as a yardstick for open video system operators. n70 n66 Michigan Cities, et al. Petition at 3-4. n67 Id. at 6-7. n68 National League of Cities, et al. Petition at 17-19. n69 Id. n70 Id. at 17. 20. U S West urges the Commission to clarify that cable operators may become open video system operators upon the termination of their franchise agreements, even in the absence of effective competition. n71 U S West argues that the Commission's contractual concerns would not apply once a franchise agreement has terminated. n72 The National League of Cities, et al., on the other hand, is concerned that cable operators will simply declare themselves open video system operators upon the expiration of their franchise agreements, rather than seek renewal. n73 n71 U S West Petition at 3-4. n72 Id. n73 National League of Cities, et al. Petition at 17. See also Michigan Cities, et al. Opposition at 11-12 (allowing cable operators to convert to open video upon the termination of their franchise agreements would not stimulate competition). 21. Other petitioners claim that [*27] all cable operators, without limitation, should be allowed to convert their cable systems to open video systems. NCTA and Cox petition the Commission to eliminate its general restriction that cable operators may not become open video system operators within their cable franchise areas until they are subject to effective competition. n74 NCTA asserts that the inherent design of an open video system, allowing multiple programming providers to compete for subscribers, obviates the need for an effective competition requirement. n75 NCTA argues that Congress would have limited the open video system option to areas already served by franchised cable operators if it had intended open video systems to exist only in areas served by more than one provider. n76 Cox argues that it is inconsistent to preclude cable operators that may eventually become subject to effective competition from converting to an open video system, while allowing an exception for cable operators that can demonstrate that facilities-based competition is infeasible in their franchise areas. n77 Cox reasons that, by allowing this exception, the Commission implicitly recognizes that the primary reason for reduced regulatory [*28] burdens for open video systems is not to foster facilities-based competition, but to foster competition among competing programmers on an open platform. n78 Cox further contends that there are no countervailing public policy reasons for imposing an artificial disadvantage upon incumbent cable operators in contradiction of the Commission's acknowledgement that the same options generally should be available to all entities. n79 n74 NCTA Petition at 7-8; Cox Petition at 8-10. But see Michigan Cities, et al. Opposition at 9 (the Commission's "effective competition" restriction is a necessary limitation on the ability of cable operators to switch to open video). n75 NCTA Petition at 7-8. n76 Id. at 7. n77 Cox Petition at 9-10. n78 Id. n79 Id. at 8 (citing Second Report and Order at para. 18). 22. Comcast argues that the Commission's decision to permit cable operators that are subject to effective competition to convert to open video systems is rendered meaningless by the qualification that the terms of an existing local franchise agreement remain enforceable until the termination of the agreement. n80 Comcast claims that this restriction eliminates the primary [*29] incentive for operating an open video system, i.e., relief from many of the Title VI obligations and regulations. n81 Comcast reasons that, when a cable operator converts its cable system to an open video system, local franchising authorities lose their authority under Section 624 to enforce certain franchise requirements, since that provision is inapplicable to open video systems. n82 In response, Alliance for Community Media, et al. assert that there is "no legal principle which permits unilateral abrogation of existing contractual commitments to permit an entity to take advantage of an elective deregulatory option." n83 Alliance for Community Media, et al. further argue that, because Title VI has not been rescinded, the enforcement powers of local franchising authorities under Section 624 remain intact. n84 NATOA claims that exempting cable operators from their franchise obligations would constitute a taking of local government property. n85 n80 Comcast Petition at 5. n81 Id. n82 Id. at 6. n83 Alliance for Community Media, et al. Opposition at 3 (emphasis in original). See also Michigan Cities, et al. Opposition at 10-11 (nothing in the 1996 Act indicates that Congress intended to abrogate existing franchise agreements). [*30] n84 Alliance for Community Media, et al. opposition at 3. n85 NATOA Opposition at 8. 23. Cox and NCTA assert that the Commission incorrectly concluded that Section 653(a)(1) authorizes it to restrict the ability of cable operators that also provide local exchange service within their cable franchise areas to convert to open video. n86 Cox asserts that this conclusion contradicts the Commission's determination that the first sentence of Section 653(a)(1) permits LECs to operate open video systems in their telephone service areas "without qualification." n87 Cox argues that the Commission's interpretation of the second sentence of Section 653(a)(1) would lead to the false conclusion that the Commission could also determine when "any other person" that is providing local exchange service could become an open video system operator. n88 Cox claims that the Commission wrongly views the second sentence as providing an exception limiting which LECs can operate open video systems without qualification, while the more reasonable construction is that the second sentence permits other entities, in addition to LECs, to operate open video systems when deemed by the Commission to serve [*31] the public interest, convenience, and necessity. n89 In response, Sprint asserts that Cox and NCTA's argument is based on the incorrect premise that a cable operator that becomes a LEC somehow loses its identity as a cable operator, even though it continues to provide cable services. n90 n86 Cox Petition at 4; NCTA Petition at 6-7. n87 Cox Petition at 4. n88 Id. n89 Id. at 5. See also NCTA Petition at 6-7 (arguing that the language of Section 653(a)(1) plainly allows any entity that qualifies as a LEC to operate open video systems, regardless of whether the entity also fits into other legal categories). n90 Sprint Opposition at 3-4. 2. Discussion 24. We decline to modify our decision in the Second Report and Order to allow non-LECs to operate open video systems, and to allow cable operators that are subject to effective competition in their cable franchise areas to convert their cable systems to open video systems. As discussed at length in the Second Report and Order, we disagree with Michigan Cities, et al. that our decision allowing non-LECs to operate open video systems is inconsistent with the plain language of the 1996 Act or the Act's legislative [*32] history. n91 As we explained in the Second Report and Order, permitting non-LECs to become open video system operators is not only a permissible reading of the statute, but is most consistent with Congress' goal of opening all telecommunications markets to competition. Because our decision is consistent with the statute, we also disagree that the Commission does not have the authority under Section 4(i) to permit non-LECs to become open video system operators. In addition, we disagree with the argument of the National League of Cities, et al. that our decision to permit cable operators to convert to open video may defeat the purposes of other Title VI requirements that apply to cable operators. Congress established cable and open video systems as two distinct video delivery models, each offering a particular combination of regulatory benefits and burdens. That an entity, by assuming the regulatory responsibilities of an open video system, may be relieved of regulatory responsibilities relating to cable is neither novel nor improper. n91 Second Report and Order at paras. 14-17. We also described therein the availability of Section 4(i) as an alternative basis for our authority to permit cable operators to operate open video systems. Id. at paras. 20-22. [*33] 25. While we believe that cable operators should be allowed to operate open video systems, we also decline to alter our decision that cable operators may do so in their existing cable franchise areas only if they are subject to "effective competition." As we stated in the Second Report and Order, the underlying premise of Section 653 is that open video system operators would be new entrants in established markets, competing directly with an incumbent cable operator. n92 We believe that Congress exempted open video system operators from much of Title VI regulation because, in the vast majority of cases, they will be competing with incumbent cable operators for subscribers. n93 Our effective competition restriction implements Congress' intent by ensuring that, where it is the incumbent cable operator itself that seeks to enter the marketplace as an open video system operator, there is at least one other multichannel video programming provider competing in the market (or, if the cable operator enters under the "low penetration" test for effective competition, n94 that it does not possess a level of market power that Congress believed requires regulation). n92 Second Report and Order at para. 24. [*34] n93 Id. n94 See Communications Act @ 623(l)(1)(A), 47 U.S.C. @ 543(l)(1)(A). 26. We are not convinced, as NCTA argues, that the potential presence of multiple video programming providers on open video systems obviates the need for an effective competition requirement. There is no assurance that any particular system will generate sufficient competition between providers of "comparable" video programming services to qualify as a meaningful stand-in for effective facilities-based competition. n95 Nor do we find significant the fact that Congress did not specify that open video systems may operate only in areas currently served by cable. Given that cable passes approximately 96% of all television households nationwide, we do not believe that any purposeful intent can be inferred from the fact that Congress did not limit open video systems to only those areas already served by franchised cable operators. n96 n95 See Communications Act @ 623(l)(1)(D), 47 U.S.C. @ 543(l)(1)(D). n96 See Annual Assessment of the Status of Competition in the Market for Delivery of Video Programming, Second Annual Report in CS Docket No. 95-61, 11 FCC Rcd 2060, 2063 (1996) ("Second Competition Report"). [*35] 27. Moreover, the underlying competitive premise of Section 653 is not dependent on the contractual nature of the cable operator's franchise agreement. While we agree with U S West that the expiration of a franchise agreement may remove a contractual impediment to a cable operator's conversion to an open video system, the public interest rationale that gave rise to the effective competition restriction remains. So long as a cable operator has the ability to exercise market power -- i.e., is not subject to effective competition - it has not met the necessary pre-condition for operating an open video system. Thus, in response to U S West, we find that it would not serve the public interest to allow incumbent cable operators, in the absence of effective competition, to become open video system operators upon the termination of their franchise agreements. 28. We also continue to disagree with Cox's argument that the Commission has no authority to determine whether cable operators that are also LECs may operate open video systems. As explained in the Second Report and Order, the second sentence of Section 653(a)(1) authorizes the Commission to determine whether any cable operator may [*36] convert to open video, regardless of other services it may also provide, including local exchange service. n97 The Commission retains its authority over cable operators that also become LECs because, as Sprint notes, a cable operator does not lose its identity as a cable operator simply by offering additional types of services. n98 Finally, we disagree with Comcast that, since Title VI franchise agreements are unenforceable against open video system operators, conversion to open video should preempt the terms of a valid franchise agreement. n99 Comcast cites no basis for its belief that Congress intended to give cable operators the discretion to revoke their franchise agreements at will, or that requiring cable operators to abide by their valid agreements would be contrary to Congress' open video system framework. To the contrary, cable operators may operate open video systems only to the extent the Commission finds it serves the public interest, convenience and necessity. We do not believe that it would be in the public interest to permit cable operators to abrogate their otherwise valid and enforceable franchise agreements in order to become open video system operators. n97 Second Report and Order at para. 25. [*37] n98 See Sprint Opposition at 3-4. n99 Franchise agreements are binding contracts. See Denver Area Educational Telecommunications Consortium, Inc. v. FCC, U.S. , 116 S. Ct. 2374, 2410 (1996) (Kennedy, J., concurring in part, concurring in the judgment in part, and dissenting in part). B. Certification Process 1. Background 29. Section 653(a)(1) requires open video system operators to certify compliance with the Commission's regulations under Section 653(b). n100 The Commission must publish notice of receipt of a certification filing and must approve or disapprove the certification within ten days of receipt. n101 In the Second Report and Order, the Commission found that Congress intended the certification process to be streamlined and declined to impose extensive pre-certification requirements. n102 For example, open video system operators are not required to revise their cost allocation manuals prior to certification, but must certify that they will file changes to their manuals at least 60 days before the commencement of service. n103 Comments or oppositions to a certification filing must be filed within five days of the Commission's receipt of the certification. [*38] n104 Any certification filings that the Commission does not disapprove within ten days of receipt will be deemed approved. n105 n100 Communications Act @ 653(a)(1), 47 U.S.C. @ 573(a)(1). n101 Id. n102 Second Report and Order at paras. 28-30. n103 Id. at para. 33. n104 Id. at para. 35. n105 Id. 30. Several petitioners reiterate previous arguments that the Commission should require an open video system operator, as a precondition to certification: (a) to obtain the consent of local governments for use of public rights-of-way; n106 (b) to obtain approval from local franchising authorities regarding the manner in which PEG obligations will be fulfilled; n107 (c) to file a revised cost allocation manual; n108 and (d) to create a separate subsidiary to operate its open video systems. n109 Alliance for Community Media, et al. are concerned that using the dispute resolution process to resolve conflicts involving these issues will be unnecessarily cumbersome and difficult. n110 NCTA asserts that open video system operators must demonstrate compliance with specific rules governing channel allocation and carriage rates, and the Commission must make "affirmative [*39] findings compliance" within the ten-day review period. n111 In response to these petitions, several parties expressed their opposition to pre-certification requirements. n112 n106 Dade County Petition at 4; Village of Schaumburg Petition at 1; Alliance for Community Media, et al. Petition at 17-18. n107 Id. n108 NCTA Petition at 3-4; Alliance for Community Media, et al. Petition at 17-18. n109 Alliance for Community Media, et al. Petition at 2-4. n110 Id. at 17. See also NCTA Petition at 4 (urging the Commission to enforce compliance with its revised cost allocation rules prior to the certification process, rather than engage in post facto proceedings and remedies). But see USTA Opposition at 4-5 (extensive pre-certification requirements are unnecessary since "the Commission developed an appropriate mechanism for dispute resolution should LEC compliance be in doubt"). n111 NCTA Petition at 3-6. But see USTA Opposition at 3-4 (requiring detailed filings incorporating nondiscrimination requirements would turn the certification process into a "back door" Section 214 requirement); MFS Communications Opposition at 4 (Congress required certification of compliance, not documentary proof of compliance). [*40] n112 U S West Opposition at 4-5 (adopting burdensome pre-certification requirements would deter LECs from electing the open video system option, in contravention of Congress' intent); Residential Communications Opposition at 10-11 (adopting stringent pre-certification requirements would contradict the language of the statute and would violate the 1996 Act's pro-competitive underpinnings); NYNEX Opposition at 3-5 (proponents of pre-certification requirements are merely seeking a competitive or negotiating advantage); MFS Communications Opposition at 3-5 (the Commission already considered and properly rejected the imposition of pre-certification requirements). 31. The Telephone Joint Petitioners ask the Commission to reconsider its decision to require open video system operators to obtain Commission approval of their certifications prior to the commencement of construction, when new physical plant is required. n113 These petitioners argue that it is not the Commission's responsibility to "ensure that the public rights-of-way are disrupted only by those who are authorized to operate open video systems." n114 They contend that permission to use rights-of-way is a matter for local [*41] governments and the owners of any private property that may be involved, and that cable operators are not required to obtain federal certification before constructing in public rights-of-way. n115 n113 Telephone Joint Petitioners Petition at 10. n114 Id. (quoting Second Report and Order at para. 34). n115 Id. 32. Several petitioners claim that the Commission did not establish adequate procedures for providing notice of certification filings. The National League of Cities, et al. seek a requirement that certifications specify which local governments are affected and are served on those local governments. n116 Failure to require adequate notice, they allege, violates due process and hinders the ability of local authorities to apply the necessary management conditions over public rights-of-way. n117 Municipal Services, et al. argue that, in order to provide municipalities a meaningful opportunity to respond within the five-day period for comments and oppositions, an open video system operator must simultaneously notify a municipality that it is requesting a certification within the municipality's jurisdiction. n118 In response, MFS Communications claims that these notice [*42] proposals are unnecessary because local governments will learn of any proposed open video system well in advance of its operation when the operator negotiates its PEG obligations and obtains any necessary rights-of-way permits. n119 n116 National League of Cities, et al. Petition at 12 n.32. n117 Id. at 12-13 n.32. n118 Municipal Services, et al. Petition at 6-7. See also Alliance for Community Media, et al. Petition at 15-16 (requesting that open video system operators be required to provide local public notice in advance of filing for certification and to include proof of notice in their certification filings). n119 MFS Communications Opposition at 5. 2. Discussion 33. The Second Report and Order fully explains our reasons for not imposing pre-certification requirements regarding public rights-of-way, PEG obligations, revisions to cost allocation manuals, or separate subsidiaries. n120 Petitioners have presented no new evidence or arguments that would cause us to change our earlier conclusion. n120 Second Report and Order at paras. 28-30. 34. In addition, we will maintain our rule that certification filings will be deemed approved unless disapproved [*43] by the Commission within ten days. Petitioners have not demonstrated that affirmative approval is necessary to provide notice to outside parties or to assure adequate Commission review. Also, because certification precedes the operator's actual implementation of the Commission's rules, we disagree with NCTA that the Commission is required, at this stage of the process, to do more than obtain adequate representations that the applicant will comply with the Commission's requirements. Further, we believe that any conflicts that arise regarding the operator's conduct can be addressed more fully in the 180-day dispute resolution process than in the ten-day certification process. Finally, we will not modify our rule that, if new physical plant is required, open video system operators must obtain Commission approval of their certification prior to the commencement of construction. n121 This requirement poses no significant additional burden on operators and will inform local authorities which entities have been granted enforceable rights to use the public rights-of-way. n121 See Id. at para. 34. 35. We do believe, however, that it is appropriate for a local government to have a reasonable [*44] opportunity to respond to a certification filing that implicates its community. We therefore will revise FCC Form 1275, our proposed certification form, to require applicants to list the names of the local communities in which they intend to operate, rather than describe them generally. n122 This modification will reduce the potential for confusion or ambiguity by providing more useful and precise information to local communities. Because some local communities may not have ready access to the Internet or to the Commission's public notices, we will also require applicants for certification to serve a copy of their FCC Form 1275 filing on the clerk or other designated official of all affected local communities on or before the date on which it is filed with the Commission. Service by mail is complete upon mailing, but if mailed, the served documents must be postmarked at least three days prior to the filing of the FCC Form 1275 with the Commission. Applicants also must inform the local communities that any oppositions and comments must be filed with the Commission within five days of an applicant's filing and must be served on the applicant. n122 A revised FCC Form 1275 and instructions, reflecting the changes herein, is attached at Appendix C. This revised FCC Form 1275 is subject to approval by the Office of Management and Budget. [*45] C. Carriage of Video Programming Providers 1. Notification and Enrollment of Video Programming Providers a. Background 36. In the Second Report and Order, we stated that the Commission will: (a) issue a Public Notice to announce receipt of an open video system operator's "Notice of Intent" to establish an open video system; (b) list the Public Notice in the Commission's Daily Digest; (c) place the Notice of Intent on the Commission's Internet site; (d) make the Notice of Intent available for inspection in the Cable Services Bureau's Reference Room; and (e) require that the Notice of Intent be served on all local cable television franchising authorities located in the anticipated service area of the open video system. In so doing, we specifically rejected suggestions that an open video system operator's notice be disseminated directly to community information providers, local newspapers, trade publications and the local media, among others We found that any benefits of additional distribution would be outweighed by the costs and that the Commission's Public Notice process will disseminate the information. n123 n123 Id. at paras. 45-46. 37. On reconsideration, the Alliance [*46] for Community Media, et al. urge the Commission to require an open video system operator to provide local notice of its intent to establish an open video system-by placing the Notice of Intent in local newspapers and in telephone bill inserts, if the system operator is also a telephone company. They argue that the current requirements are insufficient for local and non-profit program services because many people still do not have access to the Internet and those with access may not check the Commission's Internet site on a regular basis. Contrary to the Commission's finding, these parties assert that the additional cost imposed on an open video system operator of disseminating notice as they urge will not outweigh the public interest benefits resulting from the increased diversity of programming provided by these services. n124 n124 Alliance for Community Media, et al. Petition at 16. b. Discussion 38. In the Second Report and Order we fully considered the costs and benefits of requiring an open video system operator to provide local notice of its intent to establish an open video system. n125 The Alliance for Community Media, et al. do not provide additional evidence concerning [*47] these costs or benefits. We reiterate our finding that dissemination of the Notice of Intent as required under the Second Report and Order will be a sufficient means for an entity to notify the public of its intention to establish an open video system. n125 Second Report and Order at paras. 45-46. 2. Open Video System Operator Discretion Regarding Video Programming Providers a. Background 39. In the Second Report and Order, we found that it would serve the public interest, convenience and necessity to permit an open video system operator to limit the ability of a competing, in-region cable operator, or a video programming provider affiliated with such a cable operator, to obtain capacity on the open video system. n126 We stated, however, that we will consider petitions from competing, in-region cable operators showing that facilities-based competition will not be significantly impeded in their particular circumstances, such that the cable operator should be granted access to the open video system. In this regard, we provided a specific exception for the situation where: (a) the competing, in-region cable operator and affiliated systems offer service to less than 20% of [*48] the households passed by the open video system; and (b) the competing, in-region cable operator and affiliated systems provide cable service to a total of less than 17,000 subscribers within the open video system's service area. n127 n126 Id. at para. 52. n127 Id. at para. 56. 40. On reconsideration, NCTA states that Section 653(b)(1)(a) directs the Commission to promulgate rules that "prohibit an operator of an open video system from discriminating among video programming providers with regard to carriage on its open video system." n128 NCTA argues that this provision requires the unqualified non-discriminatory treatment of video programming providers by open video system operators, and that the Commission therefore erred in allowing an open video system operator to discriminate against one particular class of entities seeking access, namely, cable operators. n129 n128 NCTA Petition at 8 (citing Communications Act @ 653(b)(1)(A)). n129 Id. 41. In addition, NCTA and Cox dispute the Commission's reliance on Section 653(a)(1) in distinguishing between cable operators and other potential video programming providers. n130 Cox asserts that Section 653 only addresses [*49] who may operate an open video system and, that contrary to the Commission's findings, "has nothing to do with who may obtain capacity on an [open video] system." Cox argues that, if Congress had intended the provision to address the access rights of video programming providers, it would have placed it with the other exceptions to the general prohibition against discrimination among video programming provider. s (e.g., PEG and must-carry obligations), rather than in the section regarding the certification process. n131 n130 NCTA Petition at 9-10; Cox Petition at 7-8. n131 Id. 42. Third, NCTA and Cox dispute the Commission's finding that an open video system operator may limit the access of a cable operator but not other potential video programming providers. Cox states that the Commission's finding in the Second Report and Order that, given Section 653(a)(1)'s reference to "any other person," the Commission erred in not permitting an open video system operator to also deny access to other multichannel video programming distributors, such as direct broadcast satellite ("DBS") services and wireless cable service providers. n132 NCTA states that the Commission's reasoning that [*50] allowing an open video system operator to limit access by cable operators would foster facilities-based competition compels the Commission to allow system operators to also limit access by DBS and wireless providers. n133 n132 Id. at 6-7. n133 NCTA Petition at 9-10. 43. Finally, NCTA argues that, having found in Section 653(a)(1) the discretion to decide when cable operators may obtain open video system capacity, the Commission erred in delegating this decision to the open video system operator. NCTA contends that it violates basic administrative law for a government agency to delegate its statutory authority to private parties absent express authority to do so. n134 n134 Id. at 8-9 (citing, among others, Carter v. Carter Coal Co., 298 U.S. 238, 310 (1936)). 44. In its opposition to these cable operators' petitions, MFS argues that Congress, in enacting Section 653(a)(1), specifically authorized the Commission to limit cable operators' use of open video systems to instances that are "consistent with the public interest, convenience and necessity." n135 MFS states that, until open video system operators can establish meaningful competition for cable operators, it would [*51] not be in the public interest to force these start-up entities to provide access to their competitors because: (a) it would allow cable operators to tie up capacity on an open video system without any reciprocal ability of the open video system operator to use the cable operator's facilities; (b) it would allow the cable operator to avoid its own construction costs; and (c) it would give cable operators access to confidential business plans or information. n136 n135 MFS Communications Opposition at 6-7 (citing Communications Act @ 653(a)(1)). n136 Id. at 7-8. See also NYNEX Opposition at 6. 45. Tele-TV disputes the cable operators' arguments that the 1996 Act gives incumbent cable operators an "unqualified" right to use open video systems. Tele-TV argues that Section 653(b)(1)(A) must be read in conjunction with Section 653(a)(1), such that the discrimination "among video programming providers" forbidden under Section 653(b)(1)(A) must be discrimination among only those entities eligible to "provide video programming" under Section 653(a)(1). n137 Second, Tele-TV rejects NCTA's assertion that the Commission erred in "delegating" its authority under Section 653(a)(1) to open [*52] video system operators. Tele-TV states that the Commission has not delegated any statutory authority; rather, it has merely established a specific exception to the general rule concerning cable operators' access to open video systems, which Tele-TV contends is within the Commission's rulemaking authority. n138 n137 Tele-TV Opposition at 8-9. n138 Id. at 10. 46. The Staff of the FTC and DOJ Antitrust Division also dispute cable operators' assertions, stating that the Commission's approach is consistent with well established legal and economic principles. For example, the FTC and DOJ Antitrust Division state the Supreme Court has held that a restraint on competition, such as the Commission's rule permitting open video system operators to preclude access by cable operators, is reasonable if it enhances consumer welfare. n139 They assert that the Commission's approach will enhance consumer welfare by fostering competition among cable and telephone companies, which likely will reduce prices and increase quality of service. The FTC and DOJ Antitrust Division also reject NCTA's argument that the Commission should have extended an open video system operator's ability to preclude [*53] access by cable operators to cover DBS and wireless service providers. The FTC and DOJ Antitrust Division explain that only cable operators possess market power in multichannel video programming distribution, and therefore may have different incentives than DBS and wireless providers, such as using open video mainly as a means to protect the market power of cable systems rather than as a means of expanding their penetration. n140 The FTC and DOJ Antitrust Division emphasize that only an open video system, independent from competitors with market power, will provide consumers with the benefits of competition. n141 n139 FTC and DOJ Antitrust Division Opposition at 5 (citing, among others, NCAA v. Board of Regents, 468 U.S. 85 (1984)). n140 Id. at 6-8. n141 Id. at 8. 47. The petitions of the Telephone Joint Petitioners generally support our rules concerning cable operators' access to open video systems. They seek clarification of the second prong of the exception to this general rule, where a competing, in-region cable system and its affiliated systems provide cable service to a total of less than 17,000 subscribers within the open video system's service area. Specifically, [*54] the Telephone Joint Petitioners urge the Commission to clarify that this exception coincides with an exception to the cable-telephone buy-out restriction in the 1996 Act, which applies only to small, rural cable systems that have no more than 17,000 subscribers in total and that are not owned by one of the 50 largest multiple cable system operators ("MSOs"). These parties assert that our present rules may require an open video system operator whose system overlaps with a small portion of a cable system to allow a cable operator to gain access to the open video system even though the cable operator is owned by large MSO, and even though the large MSO in question also owns the incumbent cable system that might overlap a majority of the open video system's service area. The Joint Telephone Petitioners believe that this approach will ensure that an open video system operator must lease capacity only to truly small, rural cable systems. n142 n142 Telephone Joint Petitioners Petition at 11-12. b. Discussion 48. We find that the Second Report and Order fully considered most of the arguments and evidence raised on reconsideration by NCTA and Cox, as described above. We explained in [*55] the Second Report and Order that Section 653(a)(1) specifically permits the Commission, "consistent with the public interest, convenience and necessity" to determine when a cable operator may provide programming through an open video system. n143 We also fully explained our construction of Section 653(b)(1)(A), which gives the Commission the discretion to determine when it is in the public interest, convenience and necessity for a cable operator either to become an open video system operator n144 or to provide video programming over another entity's open video system. n145 In the latter context, we determined that, because Section 653(a)(1) specifically addresses a cable operator's provision of video programming, the provision allows the Commission to determine when to permit a cable operator to provide such programming, notwithstanding the 1996 Act's general non-discrimination requirements contained in Section 653 (b)(1)(A). n146 We therefore deny the petitions of NCTA and Cox to the extent they raise these particular contentions. n143 Second Report and Order at para. 51. n144 Id. at paras. 13-22. n145 Id. at paras. 51-56. n146 Id. at para. 51. 49. We also reject [*56] the cable operators' argument concerning access to open video systems by DBS and wireless service providers. As explained in the Second Report and Order, and expanded upon by the Staff of the FTC and DOJ Antitrust Division, the 1996 Act expressed a clear preference for facilities-based competition between cable operators and telephone companies, and allowing an open video system operator generally to limit the ability of a competing, in-region cable operator to obtain capacity on its system would encourage cable operators to develop and upgrade their own wireline systems. n147 In addition, as the Staff of the FTC and DOJ Antitrust Division argue, cable operators possess substantial market power, and because these markets have been protected by high entry barriers, cable operators have been able to maintain prices above the level that would prevail if the market were competitive. n148 Because of this market power, cable operators may have different incentives for seeking open video system capacity than would MVPDs that do not have such market power, such as DBS and wireless cable providers. For instance, a cable operator may have an incentive to see that the open video system is not [*57] successful, and thus may seek to obtain capacity merely to protect and continue to exploit its market power. n147 Id. at para. 52. n148 FTC and DOJ Antitrust Division Opposition at 5 (citing First Report and Order in the Matter of Annual Assessment of the Status of Competition in Video Programming, 9 FCC Rcd 7442, 7545 (1994)). 50. As the Staff of the FTC and DOJ Antitrust Division also point out, enabling a cable operator to obtain open video system capacity means that less capacity will be available for use by the system operator and for other entities. n149 The open video system therefore could become a less attractive alternative for consumers, which would help preserve the cable operator's market power. We believe that these rationales currently do not apply to DBS or wireless cable providers because these MVPDs do not enjoy substantial market power. We therefore reaffirm our conclusion in the Second Report and Order. However, at such time that DBS or wireless cable providers possess sufficient market power to raise concerns similar to those associated with existing in-region, competing cable operators, we will reexamine this conclusion. n149 Id. at 8. 51. We [*58] also disagree with NCTA's argument that the Commission impermissibly delegated to open video system operators the discretion to preclude cable operators from obtaining capacity on the system. In determining that Section 653(a)(1) allows the Commission to determine when a cable operator may access an open video system, we merely interpreted the statute to allow the Commission to prescribe regulations to govern this situation. As aptly characterized by Tele-TV, we adopted regulations that set forth the parameters for where a competing, in-region cable operator's access to an open video system may be limited, and for where access may not be limited. In any case, we will modify our regulations to emphasize our decision that, pursuant to the second sentence of Section 653(a)(1), the public interest, convenience and necessity is served by generally prohibiting a competing, in-region cable operator from obtaining capacity on an open video system. As described in the Second Report and Order, we believe that this approach will foster facilities-based competition and encourage competing, in-region cable operators to develop its own system rather than occupy open video system capacity that [*59] could be used by another entity. 52. We clarify that there are two exceptions to this general rule. First, a competing, in-region cable operator may access an open video system when the open video system operator determines that it is in its interests to grant access. For example, as the Staff of the FTC and Antitrust Division state, an open video system operator may have less incentive to exclude a cable operator that is the most efficient provider of programming in part of the open video system's service area. n150 Moreover, an open video system operator may determine that the viability of its system is enhanced by carriage of video programming that is offered by the competing, in-region cable operator. We believe that it is not appropriate for the Commission to deny an open video system operator the independent business discretion to decide that a cable operator's presence on its system may be beneficial. This business discretion may prove critical to the success of the open video system, and we believe that because such success will foster competition in the video delivery marketplace, this exception will serve the public interest. Second, a competing, in-region cable operator [*60] will be granted access to an open video system when such access will not significantly impede facilities-based competition. As previously determined, one situation in which facilities-based competition will be deemed not to be significantly impeded is where: (a) the competing, in-region cable operator and affiliated systems offer service to less than 20% of the households passed by the open video system; and (b) the competing, in-region cable operator and affiliated systems provide cable service to a total of less than 17,000 subscribers within the open video system's service area. We believe that this slightly modified approach continues to provide broad flexibility to administer the open video system and to allow market forces to emerge as determinatives, thereby encouraging entities to deploy open video systems. n150 Id. 53. Finally, in response to the Telephone Joint Petitioners' petition, we clarify the specific exception under which a competing, in-region cable operator may access an open video system. These parties argue that the exception may require an open video system operator whose system overlaps with a small portion of a cable system to allow that cable system [*61] to obtain capacity on the open video system even though the cable system might be owned by a large MSO that also operates the cable system covering a majority of the open video system's service area. We believe that the Telephone Joint Petitioners misunderstand when the exception will apply. We reiterate that, in order for a competing, in-region cable operator to fit within the exception, such a cable operator and its affiliated systems must serve a total of less than 17,000 subscribers within the open video system's service area, regardless of whether the systems are owned by or affiliated with one of the 50 largest MSOs. Under the scenario posited by the Telephone Joint Petitioners, the cable system that overlaps the open video system service area only to a small degree would not have to be granted carriage on the open video system because that cable operator's subscribership, when combined with the subscribership of the affiliated cable system serving a majority of the open video system's service area, presumably would exceed 17,000. 3. Allocation of Open Video System Channel Capacity to Unaffiliated Video Programming Providers a. General Approach (1) Background 54. In the [*62] Second Report and Order, we permitted an open video system operator to implement its own method for allocating channel capacity to unaffiliated video programming providers, so long as capacity is allocated in an open, fair, non-discriminatory manner. We stated that the process must be verifiable and insulated from any bias by the system operator. n151 n151 Id. at para. 72. 55. On reconsideration, NCTA reiterates arguments contained in its earlier comments that the Commission should adopt uniform rules for the allocation of open video system capacity because this approach will allow video programming providers to avoid an increase in their costs of doing business by having to learn the allocation procedures in each jurisdiction where they seek access. n152 NCTA adds that uniform rules also will relieve aggrieved programmers of the "dual burdens" of initiating the complaint process and suffering any competitive imbalance while such a complaint is pending. n153 n152 NCTA Petition at 17 (citing NCTA Comments (filed April 1, 1996) at 13-14). n153 Id. at 18. 56. NYNEX rejects NCTA's approach as unsupported by any evidence that it would benefit any party. NYNEX states that, [*63] even under NCTA's approach, parties still would have many issues to discuss, and that a "real and substantial loss" would result from the delay required for the Commission to determine national standards. NYNEX believes that NCTA would have the Commission stifle creativity among new entrants. n154 n154 NYNEX Opposition at 5. 57. The Telephone Joint. Petitioners also refute NCTA's argument that uniform allocation rules will decrease video programming providers' costs of doing business. They argue that the existing primary outlet for video programming are cable systems, all of which have varying practices for obtaining programming. The Telephone Joint Petitioners thus assert that programming vendors already incur the costs of accommodating multiplicity in pursuing access to multichannel video programming distribution systems, and that there is no reason to believe that dealing with open video system operators will be any more costly than dealing with cable operators. n155 n155 Telephone Joint Petitioners Opposition at 2-3. On July 16, 1996, the Telephone Joint Petitioners filed a Motion to Accept Late-Filed Opposition, stating that despite a good faith effort, they were unable to file their opposition to petitions for reconsideration filed in response to the Second Report and Order by the July 15, 1996 deadline. Pursuant to 47 C.F.R. @@ 1.3 and 1.45, we hereby grant the Telephone Joint Petitioners' motion and will consider their opposition herein. We find good cause for accepting the pleading and that the public interest is served because accepting the pleading will allow the Commission to consider the issues raised on reconsideration on a more complete record. [*64] (2) Discussion 58. NCTA's arguments were fully considered and addressed in the Second Report and Order. NCTA offers no additional facts or arguments to support their position. Accordingly, we decline to reconsider our previous conclusion. b. Reallocation of Channel Capacity (1) Background 59. In the Second Report and Order, we required open video system operators to allocate open capacity, if any is available, at least once every three years. n156 On reconsideration, the Joint Telephone Petitioners urge the Commission to increase this period to at least once every five years. They state that it typically takes at least five years for a new programming service to become viable, and that such new services thus have sought carriage arrangements on cable systems of between five and ten years in duration. The Joint Telephone Petitioners state that, if an open video system operator knows it may have to reduce the number of channels it controls on its system in three years in order to accommodate additional demand for carriage from other video programming providers, it will be unlikely to offer these new, independent channels a carriage agreement of longer than three years. n157 n156 Second Report and Order at para. 92. [*65] n157 Joint Telephone Petitioners Petition at 12. (2) Discussion 60. Other parties urged the Commission to adopt a five-year period in the record for the Second Report and Order. n158 In requiring that an open video system operator reallocate open capacity at least every three years, we stated that requiring reallocation every three years will permit an open video system operator to sufficiently accommodate subsequent requests for carriage by video programming providers, while not causing unreasonable disruption to the system. n159 The Telephone Joint Petitioners do not provide evidence that would compel the Commission to reconsider that conclusion. We note in this regard that no new programming service, which the Telephone Joint Petitioners assert would favor a longer reallocation period, have filed for reconsideration in this proceeding. n158 See HBO Comments (in CS Docket No. 96-46) at 7-8; NYNEX Comments (same) at 8-9. n159 Second Report and Order at paras. 96-97. c. Channel Positioning (1) Background 61. In the Second Report and Order, we permitted an open video system operator to assign channel positions, subject to Section 653's non-discrimination requirements. [*66] n160 On reconsideration, the Alliance for Community Media, et al. state that an open video system operator still may discriminate against an unaffiliated video programming provider by offering a provider an unattractive channel or block of channels. They urge the Commission to reconsider its decision to allow an open video system operator to assign channel positions and require the involvement of an independent office or board to impartially assign channel positions. n161 n160 Id. at para. 99. n161 Alliance for Community Media, et al. Petition at 20. (2) Discussion 62. In the Second Report and Order we determined that the statute and our implementing regulations will prevent discrimination against unaffiliated video programming providers, notwithstanding an open video system operator's participation in the channel allocation process. We specifically rejected the assertions of commenters that an open video system operator should be required to delegate responsibility for channel capacity allocation to an independent entity. n162 The Alliance for Community Media, et al. do not present new facts or arguments to support the mandatory involvement of an independent entity. Accordingly, [*67] we decline the Alliance for Community Media's request for reconsideration. n162 Second Report and Order at para. 41. 4. Channel Sharing a. Background 63. In the Second Report and Order, we found that the statute permits an open video system operator to administer channel sharing on its system, and to determine whether to create shared channels for some or all of the duplicative programming on the system. We further clarified that each video programming provider offering a programming service that is placed on a shared channel must reach its own agreement with the programming service to offer that service to subscribers. We stated that, once the programming service has reached agreements with all of the relevant providers, additional consent of the programming service is not necessary for the open video system operator to place the programming service on a shared channel. n163 n163 Id. at paras. 102-104. 64. On reconsideration, Alliance for Community Media, et al. argue that our channel sharing rules, taken in combination with our regulations governing carriage rates charged by an open video system operator, will allow an open video system operator to exercise unreasonable [*68] control over the programming on the platform. They assert that our rules will permit a system operator to refuse to place a programming service carried by an unaffiliated video programming provider on a shared channel, thereby requiring that provider to lease a full channel instead of only a pro-rata share of a channel if the programming was placed on a shared channel. The Alliance for Community Media, et al. believe that this could make it impossible for unaffiliated video programming providers to compete, and urges the Commission to modify its rules to ensure that an unaffiliated provider can avail itself of the benefits of channel sharing at its own request. n164 n164 Alliance for Community Media, et al. Petition at 19. 65. ESPN argues on reconsideration that the Commission erred in not conditioning the placement of a programming service on a shared channel upon the consent of the programming service. ESPN believes that all video programming providers must have the explicit permission of a programming service in order to participate in a channel sharing arrangement with an open video system operator. If each provider has obtained such consent from the programming service, [*69] ESPN states that it would be unnecessary for the system operator to obtain additional consent from the programming service in order to place the service on a shared channel. n165 n165 ESPN Petition at 2-3. 66. NCTA urges the Commission to state that any advertising availabilities ("ad avails") be shared on a proportional basis among all video programming providers carrying that programming service. n166 NCTA states that the revenue from the sale of these time slots is an increasingly important source of income for cable operators, and that if an open video system operator or its affiliates are able to receive all such revenues they will have a significant financial advantage over other video programming providers offering that programming service. n167 n166 NCTA Petition at 19-20. By "ad avails," we mean the time slots to be made available by a programming service carried on a shared channel to video programming providers offering that service for local advertising. n167 Id. 67. Both USTA and the Telephone Joint Petitioners reject ESPN's argument that programming services should be allowed to approve channel sharing arrangements. While USTA believes that a video programming [*70] vendor should have the protections provided for in law, USTA believes that an open video system operator would not be the appropriate party "to become enmeshed in any potential dispute" between a programming vendor and a video programming provider. USTA states, that in practice, an open video system operator will need to be able to rely on the representations of a video programming provider that it may enter into channel sharing arrangements. n168 The Telephone Joint Petitioners state that ESPN's approach would give programming services veto power over an open video system operator's decision to use shared channels, which would contravene the plain language of Section 653(b)(1)(C). n169 n168 USTA Opposition at 12-13. n169 Telephone Joint Petitioners Opposition at 14. b. Discussion 68. In response to the Alliance for Community Media, et al.'s petition, we first clarify that there is no requirement that a system operator charge a video programming provider a pro-rata fee because a programming service carried by that provider is placed on a shared channel. n170 Thus, even if a video programming provider's programming service is placed on a shared channel, the video programming [*71] provider may be required to pay the same rate as if the programming service was placed on a non-shared channel. We think this clarification addresses the Alliance for Community Media, et al.'s concern that an open video system operator will engage in rate discrimination by placing favored video programming providers' programming services on shared channels. We decline the Alliance for Community Media's request for reconsideration on this issue. n170 See Section III.D., below. 69. Second, ESPN argued that channel sharing should be conditioned on the approval of programming services in its reply comments to the Notice. We fully considered those views in the Second Report and Order, where we stated that so long as each video programming provider has the contractual right to offer a particular program service to subscribers, it is unnecessary for the open video system operator to obtain the consent of the programming service in order to place that service on a shared channel. n171 In addition, we note that a programming service will be placed on a shared channel only if more than one video programming provider secures the rights to offer the particular programming service to subscribers [*72] as part of their package of programming. We reiterate that channel sharing is merely a technical method by which an open video system operator may enhance the efficiency of its system by using only one channel to carry programming offered by multiple video programming providers, and again decline to adopt ESPN's proposal. n171 Second Report and Order at para. 103. 70. We agree with NCTA that ad avails associated with a programming service carried by both the open video system operator or its affiliated video programming provider and an unaffiliated provider must be shared in an equitable manner. Examples of acceptable methods of sharing ad avails include apportioning the revenues from such ad avails on a per subscriber basis or apportioning the rights to sell the avails themselves. We will clarify that arrangements with regard to ad avails will be considered a term or condition of carriage, and an open video system operator must comply with Section 653(b)(1)(A) in negotiating their apportionment. n172 n172 Communications Act @ 653(b)(1)(A). 5. Open Video System Operator Co-Packaging of Video Programming Selected by Unaffiliated Video Programming Providers a. Background [*73] 71. In the Second Report and Order we concluded that Section 653(b)(1)(B), which states that nothing in that section should be construed to limit "the number of channels that the carrier and its affiliates may offer to provide directly to subscribers," permits an open video system operator to enter into agreements to co-package the video programming selected by unaffiliated video programming providers with the operator's selected programming, and market the combined offerings as one package to subscribers. n173 In addition, we determined that an unaffiliated video programming provider may enter into such agreements with other unaffiliated providers. n174 We also noted that Congress applied Section 616 of the Communications Act governing the regulation of carriage agreements to open video system operators, and that under this section, an open video system. operator may not generally engage in anti-competitive behavior with respect to unaffiliated video programming providers and programming services. n175 n173 Second Report and Order at para. 108. n174 Id. n175 Id. at para. 109. 72. ESPN argues on reconsideration that the Commission should require that co-packaging arrangements [*74] be conditioned on the consent of any programming services involved. ESPN states that program license agreements frequently contain negotiated terms related to the marketing of a programming service, including packaging parameters and trademark use guidelines. In addition, programming services themselves often are under contractual restraints as to the use of program vendor trademarks and the names or likenesses of persons appearing in programs. ESPN therefore argues that programming services must be able to approve co-packaging arrangements in order to comply with their license agreements. n176 n176 ESPN Petition at 3-4. 73. The Joint Telephone Petitioners respond that the Commission's rules do not, and could not, alter the copyright laws. They argue merely that any programmer wishing to enter into a co-packaging arrangement will have an obligation to ensure that any copyright or trademark restrictions to which it is subject are not violated, regardless of whether the Commission takes action as ESPN requests. n177 n177 Telephone Joint Petitioners Opposition at 13-14. b. Discussion 74. We decline to adopt ESPN's proposal to require the consent of any programming services [*75] involved before a video programming provider may enter into a co-packaging agreement. We recognize ESPN's legitimate concerns that its program license agreements frequently contain negotiated terms related to the marketing of a programming service, including packaging parameters and trademark use guidelines. However, these are contractual matters that we believe are best left to the individual negotiations between the parties involved. If a video programming provider enters into a co-packaging arrangement that breaches its contractual obligations, we believe that ESPN and other such programming services already possess adequate remedies at law. Nothing in our rules should be construed to infringe upon the rights of programming services with respect to their program license obligations. D. Rates, Terms, and Conditions of Carriage 1. Just and Reasonable Carriage Rates a. Background 75. Section 653 (b)(1)(A) requires that rates for carriage on open video systems be just and reasonable and not unjustly or unreasonably discriminatory. In the Second Report and Order we noted that this provision reflects the goal of affording unaffiliated video programming providers access to, [*76] and fair treatment on, open video systems, while at the same time preserving for open video system operators the ability to realize a return on the economic value of their investment. n178 Our rules in this area are intended to preserve the incentive of open video system operators to enter and compete with existing video programming distributors. Consistent with this goal, we eschewed traditional common carrier-style rate regulation approaches in favor of a two-step approach intended to balance the public interest in promoting competition for the provision of video programming services against the statutory requirement that we ensure just and reasonable open video system carriage rates. In general, the approach provides that rates are presumed reasonable where specified conditions are met; and, upon the filing of a complaint where the presumption conditions are not present, the burden is on the open video system operator to demonstrate that the contested carriage rate is no greater than a carriage rate imputed to the operator's affiliated video programming provider under a specified formula. n178 Second Report and Order at paras. 112, 119-120. 76. The just and reasonable presumption [*77] attaches to open video system carriage rates where at least one unaffiliated video programming provider, or unaffiliated programming providers as a group, occupy capacity equal to the lesser of one-third of the system capacity or that occupied by the open video system operator and its affiliates, and where the rate complained of is no higher than the average of the rates paid by unaffiliated programmers receiving carriage from the open video system operator. We further concluded that the mathematical average rate may be adjusted to account for legitimate variances in rates, such as discounts given for volume, contract length, creditworthiness, or the number of subscribers reached. These elements were not intended to be exclusive. 77. Once the open video system operator demonstrates that the presumption conditions are present, the burden shifts to the complainant to demonstrate that the rate is not just and reasonable. This presumption of reasonableness permits the open video system operator to' implement its carriage rates and provide service without prior regulatory rate filings or review. We further concluded that this structure would provide the open video system operator with [*78] flexibility and an incentive to attract unaffiliated programming providers to the system, and would reduce litigation and administrative expenses associated with prior rate review processes. In addition, the Second Report and Order found that these conclusions also apply when a group of unaffiliated programming providers negotiate and obtain capacity equal to that of the open video system operator and its affiliates, if the operator or affiliate occupies less than one-third capacity. n179 n179 Id. at para. 123. 78. Where the presumption conditions are not met, and a potential video programming provider files a complaint with the Commission, the Second Report and Order placed the burden on the open video system operator to demonstrate that the contested carriage rate is no greater than a carriage rate that could be imputed to the operator's affiliated video programming. The Second Report and Order required the operator to show that it charges the unaffiliated programmer no more for carriage than it earns from carrying its own affiliates' programming, and treated analog and digital channel capacity separately for this purpose. n180 It stated that the imputed rate approach provides [*79] a legitimate basis to fulfill the law's requirement that the rate be just and reasonable, and explains that, in principle, the method chosen to arrive at the imputed carriage rate was an application of the efficient component pricing rule ("ECPR") to open video systems. n181 n180 Id. at paras. 114, 125-128. n181 William J. Baumol & J. Gregory Sidak, The Pricing of Inputs Sold to Competitors, 11 Yale J. Reg. 171 (1994); Alfred E. Kahn & William E. Taylor, The Pricing of Inputs Sold to Competitors: A Comment, 11 Yale J. Reg. 225 (1994). 79. A number of parties filed petitions for reconsideration or clarification of these open video system carriage rate requirements. n182 In general, incumbent LECs supported the overall approach, but challenged the use of the imputed rate formula, where the presumption conditions are not met, as too regulatory. n183 In contrast, cable companies, local authorities, and other competitors argue that the procedures established are too cumbersome from a procedural perspective, and fail to protect adequately both unaffiliated programmers and LEC telephone rate payers. n184 n182 See Alliance for Community Media, et al. Petition at 19; Telephone Joint Petitioners Petition at 5-10; City of Indianapolis Petition at 3; National League of Cities, et al. Petition at 20-24; MCI Petition at 2-5; NCTA Petition at 18-19. [*80] n183 See Telephone Joint Petitioners Petition at 5-10. n184 See NCTA Petition at 20-24; City of Indianapolis Petition at 3; National League of Cities, et al. Petition at 20-24; MCI Petition at 2-6. 80. National League of Cities, et al. critique the pricing rules as inadequate to fulfill the statutory requirements of ensuring open access, nondiscrimination, and reasonable rates. It argues that the presumption approach places an undue financial and regulatory burden on the unaffiliated programmer to determine whether the LEC's terms are fair; that the Commission's rules will encourage the routine filing of carriage complaints by all video programmers that will "flood" the Commission; and that the presumption's conditions fail to protect unaffiliated programming providers. National League of Cities, et al. maintain that the criteria related to average rates is largely meaningless since only the LEC has the necessary information to make such a determination and the average may be adjusted in a variety of ways left totally indeterminate under the Commission's rules. n185 n185 National League of Cities, et al. Petition at 20-23. 81. MCI contends that the rules fail to establish [*81] a mechanism that prevents incumbent LECs from pricing open video system carriage rates below incremental cost due to the transfer, by means of improper cost allocation, of video-related costs to their telephone customers. n186 MCI argues further that the Commission has recognized that incumbent LECs have an incentive and opportunity to shift costs from unregulated to regulated services. MCI submits that the likelihood that open video system carriage rates will be set below incremental costs nearly guarantees that one-third of open video system capacity will be occupied by parties not affiliated with the incumbent LECs that are unlikely to complain about the carriage rates, for they will share in the cross-subsidy provided by the incumbent LEC's telephone customers. n187 National League of Cities, et al. also argue that the presumption approach permits a LEC to control effectively two-thirds of the capacity directly, and one-third indirectly, by finding and favoring a single "unaffiliated" programmer so as to meet me presumption conditions. n188 n186 MCI Petition at 2-3. n187 Id. at 3-4. n188 National League of Cities, et al. Petition at 22-23. 82. MCI also contends [*82] that the open video system pricing rules will permit incumbent LECs to charge discriminatory rates once one-third of their open video system capacity is occupied by non-affiliates. MCI argues that the large amount of common telephone and open video system costs will result in a gap between the below-incremental cost rate (resulting from cross-subsidies) offered to existing non-affiliated programmers and a rate equal to incremental cost plus common costs. MCI contends that the Commission has compounded this problem by unilaterally excluding the parties harmed by the possibility of this cross-subsidization from challenging open video system carriage rates by bringing complaints against the presumptive reasonableness of the rates. n189 MCI argues, therefore, that the Commission should: (a) permit any party potentially affected by an open video system carriage rate to file a complaint with the Commission; and (b) require telephone companies seeking open video system status to publicly file incremental and stand alone telephone and video cost studies, along with appropriate subscriber and usage data as part of their open video system applications. n190 n189 MCI Petition at 3-4. n190 Id. at 4-6. [*83] 83. In response, LECs generally urge the Commission to reject requests to reconsider the open video system pricing rules based on allegations of the potential for discriminatory pricing. n191 They state that MCI's request that the Commission reverse many of the key determinations made in crafting a rate regulation scheme suited to open video systems as new entrants without any market share or power, is simply a rehash of MCI's earlier unsuccessful advocacy of Title II-like regulation for open video systems, which should be rejected by the Commission on reconsideration. n192 USTA contends that competition would be disserved by requiring LECs to file incremental and stand-alone telephone and video cost studies with the Commission along with subscriber and usage "data" as MCI requests. USTA claims that the only result of such requirements would be to hamper LEC market entry, delay competition and increase costs for the LECs. n193 Similarly, RCN supports the Commission's goal of avoiding the imposition of barriers to entry similar to those that have hindered the development of competition in the multichannel video distribution market thus far. RCN notes that the Commission has long recognized, [*84] with respect to the non-dominant new entrants in the long distance and local telephone market, and in other telecommunications markets where competition exists, that Title II-type rate and entry regulation is (a) not necessary to protect consumers or to assure just and reasonable rates, and (b) likely to impair the ability of open video system operators to compete effectively in the market by "stifling price competition and service and marketing innovation." n194 n191 See, e.g., USTA Opposition at 5. n192 Telephone Joint Petitioners Opposition at 13; NYNEX Opposition at 11; USTA Opposition at 3-4. n193 USTA Opposition at 6. n194 RCN Opposition at 11 (citing Policy and Rules of Competitive Common Carrier Service and Facilities Authorizations in CC Docket No. 79-252 (Competitive Carrier Proceedings), Second Report and Order, 91 FCC 2d 59 (1982) (Second Report) (subsequent history omitted). 84. The Telephone Joint Petitioners also respond that there is no possibility that an open video system operator who charges one group of programmers below cost rates, and then seeks to charge another programmer a discriminatorily high rate, will escape detection by the Commission [*85] when it compares the latter programmer's rate to the weighted average rate of the first group. They strongly disagree with MCI's request that third-parties be permitted to bring complaints regarding open video system carriage rates, as well as MCI's request that open video system operators be required to produce stand alone cost studies for telephony and video. n195 The Telephone Joint Petitioners also urge the Commission to reject MCI's requests on grounds that such requirements would recreate the type of tariff proceedings that the Commission conducted under the video dialtone regime. n196 NYNEX argues that permitting third-party complaints would lead to the same results that the Commission obtained in the video dialtone process, where most, if not all, challenges against video dialtone were raised by incumbent cable interests and their affiliated programmers, rather than by unaffiliated programmers. NYNEX states that the Commission's open video system rate scheme properly focuses on that latter, rather than the former, group, and that the Commission should not countenance the regulatory tactics of competitors seeking to impede open video system. n197 n195 Telephone Joint Petitioners Opposition at 12-13. [*86] n196 Id. at 13. n197 NYNEX Opposition at 12-13. 85. In their petition, the Telephone Joint Petitioners request that the Commission modify the requirements for applying the presumption. They argue that the Commission's threshold capacity requirement is unrelated to whether carriage rates are just and reasonable and will penalize open video system operators using advanced technologies. For example, the Telephone Joint Petitioners assert, operators of switched-digital open video systems will be unable to show that unaffiliated video programming providers occupy a threshold amount of capacity and will be unable to meet the presumption conditions. n198 The Telephone Joint Petitioners suggest that the Commission remove the minimum capacity requirement and instead find that the presumption applies when two unaffiliated programmers purchase any level of capacity on an open video system. n199 USTA supports the Commission's commitment to flexibility, and urges that it be extended further to permit and encourage the introduction of new technologies by focusing on the presence of unaffiliated programmers, rather than the use of an arbitrary percentage of capacity utilitization before [*87] allowing LECs the safe-harbor of the presumption of just and reasonable rates. n200 n198 Telephone Joint Petitioners Petition at 6; see also USTA Opposition at 5-6. n199 Telephone Joint Petitioners Petition at 7-8. n200 USTA Opposition at 6 n. 15. 86. The Telephone Joint Petitioners further argue that the phrase "unaffiliated programmers as a group" in our presumption conditions could be interpreted as a requirement that the unaffiliated programmers market their programming as a package in competition with the open video system operator and its affiliates to meet the presumption conditions. n201 The Telephone Joint Petitioners suggest that the Commission clarify that the presumption applies whether the unaffiliated programmers market their programming in competition or in cooperation with the open video system operator's programming. n202 n201 Telephone Joint Petitioners Petition at 7. n202 Id. at 8. 87. While the Telephone Joint Petitioners agree as a general matter that the Commission's imputed rate approach is preferable to more overtly regulatory prescriptions for setting prices, they argue that the Commission has not properly applied the ECPR methodology, [*88] and that computing an imputed rate is not necessary for the purpose of establishing just and reasonable open video system carriage rates. n203 The Telephone Joint Petitioners include with their petition a "Declaration of William E. Taylor," one of the authors of an economics article on ECPR cited in the Second Report and Order. n204 Taylor's declaration discusses several ways in which the Second Report and Order allegedly misstates and misapplies the ECPR, including the premise that open video system carriage is an essential input. It generally concludes that the circumstances of the evolving video programming marketplace will not warrant the search for ECPR-based pricing standards, and urges that the marketplace itself should be able to determine the proper rates for open video system carriage. n205 The Telephone Joint Petitioners suggest that if the pricing methodology is retained, the Commission should clarify its use of the imputed rate approach and how ECPR is to apply to open video system carriage rates. The Telephone Joint Petitioners argue that the imputed rate will set an artificially low ceiling on carriage rates because it omits the incremental cost of carriage, and that [*89] a ceiling on carriage rates based on the ECPR is inappropriate because open video system operators are new entrants that will compete with incumbent cable operators and other video programming distributors. n206 They also suggest that the use of the terms "earn" and "profit allowance" require clarification. n207 n203 Id. at 8-10. n204 Second Report and Order at para. 126 n.295. n205 Telephone Joint Petitioners Petition, Declaration of William E. Taylor at 4-8. n206 Telephone Joint Petitioners Petition at 8-10, Declaration of William E. Taylor at 6-8; accord NYNEX Opposition at 12. n207 Declaration of William E. Taylor at 6-8. 88. Other petitioners challenge the methodology as inadequate to protect unaffiliated programmers. The City of Indianapolis and the Alliance for Community Media, et al. object to the imputed rate formula on the ground that it improperly compensates the open video system operator for lost subscribers. They argue that unaffiliated programmers will pay higher carriage rates than affiliated programmers, and this will cause unaffiliated programming provision to be unprofitable. n208 The National League of Cities, et al. interpret the imputed [*90] rate formula as improperly permitting open video system operators to charge unaffiliated programming providers a price for carriage equal to the price they charge subscribers for affiliated programming. n209 n208 City of Indianapolis Petition at 3; Alliance for Community Media, et al. Petition at 19. n209 Nationai League of Cities, et al. Petition at 23. 89. MCI contends that the Commission may not use ECPR as a means of ensuring nondiscriminatory open video system carriage rates, because there is no practical method of determining whether an open video system carriage rate is greater than the rate that would be established by the ECPR. According to MCI, this is due in part to the Commission's inability to determine a carrier's actual opportunity cost. n210 MCI instead proposes that the incumbent LECs be required to charge video carriage rates in excess of the incremental cost of providing video services. n211 In response, USTA urges the Commission to dismiss MCI's efforts to increase LEC regulatory burdens by urging that video carriage rates must be delivered in excess of incremental cost. n212 n210 MCI Petition at 5. n211 Id. at 6. n212 USTA Opposition at 6. [*91] b. Discussion 90. In the Second Report and Order we specifically noted MCI's concerns as to the need for effective cost accounting and auditing procedures to ensure that incumbent LECs do not engage in the allocation of excessive costs to their regulated telephone services. We stated that the substantive cost allocation requirements are being addressed in a separate rulemaking. n213 In its petition, MCI has provided no new facts or arguments to justify reconsideration of these concerns in the instant proceeding. n214 We also decline to impose the other pre-certification and reporting requirements MCI seeks. We believe that these requirements are inconsistent with our flexible regulatory approach to the provision of open video system, and are not necessary to protect either unaffiliated programmers or the public in general. In addition, we decline to require open video system operators to base their carriage rates on detailed studies of incremental and stand alone cost and estimates of actual opportunity cost, as suggested by MCI, n215 because of the 1996 Act's direction that Title II requirements not be applied to open video systems, n216 and the limited time allowed for the review [*92] of certifications and complaints. n217 Instead, as we discuss below, we reaffirm our imputed rate approach for determining whether carriage rates are just and reasonable where the presumption conditions are not present. n213 Second Report and Order at para. 29 n.92. n214 See generally, 47 C.F.R. @ 1.429(b) and (c). n215 MCI Petition at 5. n216 See Communications Act @ 653(c)(3), 47 U.S.C. @ 573(c)(3); Telecommunications Act of 1996 Conference Report, S. Rep. 104-230 at 178 (February 1, 1996) ("Conference Report"). n217 Second Report and Order at para. 120. 91. We also decline to adopt MCI's proposal to allow parties other than potential video programming providers seeking carriage on the open video system to file complaints with the Commission regarding the carriage rates offered by the system operator. We think that such a rule would inevitably result in the filing of numerous complaints by parties with no direct interest in providing programming over open video systems, and thus delay the initiation of open video system service. We therefore reaffirm our decision to allow only potential video programming providers to file complaints regarding open video [*93] system carriage rates. This decision does not leave other parties who claim to be adversely affected by an open video system operator's carriage rate without remedies. For example, a party seeking to challenge a rate it pays for common carrier services provided by that operator on the ground of improper cost-shifting from an open video system, retains its rights under section 208 of the Communications Act to file a complaint. n218 These statutory rights afford adequate protection in the event that third parties believe open video system operators are improperly shifting costs relating to video carriage at the expense of telephone customers. n218 See 47 U.S.C. @ 208. 92. We disagree with the general assertion by the National League of Cities, et al. that our presumption conditions will not provide adequate protection to unaffiliated video programming providers. As we noted in the Second Report and Order, where the presumption conditions are met, there is sufficient reason to conclude that the open video system is accessible and the negotiated carriage rates are just and reasonable. n219 The National League of Cities et al. have presented no new arguments or data to refute this [*94] conclusion. Moreover, we disagree with National League of Cities et al.'s contention that the presumption approach places a undue financial and regulatory burden on the unaffiliated programmer to determine whether the operators' rates are fair. n220 Our presumption approach strikes an appropriate balance between the interests of the open video system operator in establishing service to end users quickly, without undue regulatory intervention by competitors, and the interests of unaffiliated programmers in obtaining just and reasonable carriage rates. To the extent National League of Cities, et al.'s argument is directed at the pre-complaint rate disclosure process, we further clarify the rights of unaffiliated programmers to obtain preliminary rate estimates, and the information these estimates must contain, infra in Section III.H., Dispute Resolution. n219 Second Report and Order at para. 122. n220 National League of Cities, et al. Petition at 21. 93. The National League of Cities, et al. also expressed the specific concern that the presumption conditions will allow the average rate paid by the unaffiliated programming providers receiving carriage to be "weighted" or adjusted, [*95] but that only the open video system operator will possess the information necessary to calculate the average or to "weight" the average. n221 We clarify that, as part of its burden of showing that the presumption conditions are met, an open video system operator will be required to make available to a complainant all information needed to calculate the average rate paid by the unaffiliated programming providers receiving carriage on its system, including the information needed for any weighting of the individual carriage rates that the operator has included in the average rate. The complainant may challenge the weighting methodology used by the open video system operator as part of its case. Requests for confidential treatment of particular information shall be addressed consistent with our rules concerning proprietary information. n222 n221 Id. at 22. n222 See 47 C.F.R. @ 76.1513(j). 94. The Telephone Joint Petitioners have reiterated their original request that carriage rates be presumed just and reasonable even if a small number of unaffiliated video programming providers occupied only one channel each. n223 We again reject their suggestion on the grounds, stated in the [*96] Second Report and Order, that the presence of one or more unaffiliated programmers on a diminutive portion of an open video system's channel capacity is not sufficient to show that its carriage rates are just and reasonable. n224 We agree with the Telephone Joint Petitioners that the one-third threshold capacity requirement may not be appropriate in the future when advanced technologies that are under development, such as switched digital video, may be deployed. Because these technologies have not yet been deployed, however, we will not now modify the requirement. We will consider requests to waive or otherwise modify the threshold capacity requirement to reflect the special circumstances of such advanced systems. n223 Telephone Joint Petitioners Petition at 7-8; see NCTA Opposition at 7-9 (disagreeing). n224 Second Report and Order at para. 124. 95. Moreover, the presumption requirement is met not only when unaffiliated programmers occupy one-third of capacity, but also when unaffiliated programmers occupy the same amount of capacity as the open video system operator or its affiliate. Take, for example, the case of a system that has a theoretical capacity of 1,000 channels, [*97] and assume that the open video system operator and its affiliate choose to occupy 100 of these channels. Under these conditions, it will not be necessary for unaffiliated programmers to occupy 333 channels (one-third of system capacity) to meet the presumption requirements. Rather, the open video system operator will meet the presumption requirements if unaffiliated programmers occupy 100 channels. This factor may eliminate the problems that the Telephone Joint Petitioners foresee. 96. In response to the Telephone Joint Petitioners' request, we clarify that in the Second Report and Order, the phrase "unaffiliated programmers as a group" does not impose a requirement that the programmers market their programming in competition with the operator. n225 Rather, the phrase is used to give open video system operators greater flexibility in meeting the presumption conditions. It allows operators to meet the requirement by providing carriage to several unaffiliated programmers that in total occupy the threshold capacity requirement. n225 Id. at para. 122. 97. We reaffirm our basic imputed rate approach for ensuring just and reasonable open video system carriage rates where the presumption [*98] conditions are not met, but clarify our use of certain terminology. We structured the imputed rate in the Second Report and Order to reflect what the open video system operator, or its affiliate, effectively "pays" for its own carriage of programming over the system by starting with the revenues received from the end user subscriber, and subtracting the costs avoided by the open video system operator by permitting another programming provider to serve that subscriber. n226 No petitioner has convinced us that an imputed rate approach is not suitable to the circumstances of open video system carriage, where a new market entrant (the open video system operator) will, in the majority of areas, face competition from an established incumbent (the cable operator). We continue to believe that, under these circumstances, the imputed rate approach will produce carriage rates that encourage market entry and therefore result in greater competitive choices for video programming customers. n227 Therefore, we reaffirm that the imputed carriage rate established in the Second Report and Order, which equals the revenues received from subscribers for the open video system operator's programming package, [*99] minus the cost to the operator of creating the package, provides a sound basis for comparison to the challenged carriage rate offered the unaffiliated programmer. n226 Id. at para. 127. n227 Second Report and Order at para. 127. 98. Telephone Joint Petitioners have instead urged us to let the market set the rates for carriage. We do not, however, find that market conditions alone are sufficiently competitive to produce just and reasonable carriage rates for unaffiliated programmers. One of the premises of the open video system is that it will be providing independent programmers an alternative video carriage outlet that will encourage multiple programming sources. Today, independent programmers have limited ability to obtain carriage on cable systems on an open basis. Other alternatives to the open video system, e.g., DBS and wireless cable, currently serve approximately 9% of the market. n228 Accordingly, these alternatives similarly appear to offer limited opportunities for carriage on an open basis for unaffiliated programmers. We therefore reject the position of the Joint Telephone Petitioners that the market alone will ensure just and reasonable carriage rates. We [*100] believe that the imputed rate approach will encourage entry by open video systems, while ensuring that video carriage rates are just and reasonable for unaffiliated programmers. n228 See Second Competition Report, 11 FCC Rcd at 2063. 99. As we noted in the Second Report and Order, open video systems are essentially a combination of: (a) the creative development and production of programming, (b) the packaging of various programs for the open video system operator's offering, and (c) the creation and maintenance of infrastructure for the carriage of both the operator's affiliated programming and unaffiliated programming. n229 Our rules are intended to ensure that unaffiliated programming providers pay a rate for carriage that is no more than the carriage price that can be fairly imputed for the carriage of the operator's affiliated programming packages. In so doing we seek to attain an important result of the ECPR, which is that the price the operator charges unaffiliated programming providers for carriage must be no higher than the sum of its incremental cost of carriage and the contribution to fixed infrastructure costs in its retail price of programming. n230 n229 Id. at para. 127. [*101] n230 Declaration of William E. Taylor at 5. 100. We disagree with the assertion by the Telephone Joint Petitioners that the Commission errs by using an ECPR methodology to establish carriage pricing on open video systems, where it is not appropriate, while declining to use ECPR to establish LEC interconnection pricing in situations where they assert it is appropriate. n231 Like ECPR, our imputed rate approach will provide the open video system operator the same return when it carries unaffiliated programming as when it carries its own programming. We believe that in the case of open video systems, application of an ECPR methodology provides full economic incentives for LEC entry into video in competition with incumbent cable providers. n231 Telephone Joint Petitioners Petition, Declaration of William E. Taylor at 5 n. 15, citing Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, Notice of Proposed Rulemaking (1996) (Interconnection Notice) at para. 148. 101. By contrast, in the case of interconnection to the local telephone network, application of ECPR would reduce the incentives for entry into local exchange [*102] services by enabling incumbent LECs to charge higher rates for interconnection than would result from a forward-looking economic cost model. In this latter case, application of the ECPR for network interconnection under sections 251 and 252 of the 1996 Act would be inappropriate, and we have therefore declined to use it. n232 More specifically, the Commission has concluded that the ECPR is not appropriate in the pricing of unbundled local telephone network elements for the purposes of interconnection. n233 There are significant differences in the market circumstances open video systems will face, as compared to the pricing of unbundled local telephone network elements. As we have noted, open video systems, as the new market entrant, will face competition from the established incumbent cable operator. By contrast, existing end user rates in local telecommunications services are not competitively set. In the Commission's interconnection proceeding under section 251, we noted the ECPR's potential to permit higher rates than those established by a forward-looking economic cost model, to limit competitive entry, and to preserve pricing inefficiencies. n232 Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, Report and Order, (adopted August 1, 1996). [*103] n233 Id. 102. We disagree also with the assertion by the Telephone Joint Petitioners that the imputed price omits the incremental cost of carriage. n234 Under normal market conditions, the imputed price of carriage will exceed the open video system operator's incremental cost of carriage (which is greater than zero) and make a contribution to the fixed infrastructure cost of the open video system. For this reason, we reject the Telephone Joint Petitioners' assertion that the imputed rate approach will produce a carriage rate of zero or less. n235 The imputed rate is based in part on the price charged by the open video system operator or its affiliate to end-user subscribers. The price charged the subscriber will generally be greater than the incremental cost of carriage. In addition, the imputed rate subtracts out the costs of developing the programming and creating the package, which removes the costs avoided when unaffiliated programming is carried. After subtracting these costs, the imputed rate will correspond to the carriage rate that the open video system operator "pays" to carry its own programming. The imputed rate approach is designed to give the open video system operator [*104] the same economic return when it sells carriage to unaffiliated programming providers as when it "sells" carriage to its own programming. Consequently, we would expect the use of the ECPR approach to minimize any disincentives the open video system operator may have to carry unaffiliated programming. n234 Declaration of William E. Taylor at 6. n235 Telephone Joint Petitioners Petition for Reconsideration at 9. 103. We believe that this result of the imputed rate app