The FCC’s Media Bureau has issued an order “recertifying” the City of Boston to regulate the rates charged by Comcast for the basic service tier based on the Bureau’s finding that Comcast no longer can demonstrate that it is subject to effective competition from a local exchange carrier (“LEC”) with a service area that “substantially overlaps” Comcast’s service area. While the decision leaves the door open for Comcast to reestablish that it is subject to “competing provider” effective competition, the Bureau’s decision on the LEC test may nevertheless encourage some other local franchising authorities that have been decertified under that test to apply for recertification.
Background. Under the provisions of Section 623 of the Communications Act, local franchising authorities may seek certification from the FCC to regulate a cable system’s rates for basic service, equipment and installation if the system is not subject to “effective competition.” The law places the burden on the cable operator to establish that it is subject to effective competition under one or more tests defined in the Act.
In 2001, Comcast filed a petition arguing that its system serving the City of Boston was subject to effective competition under the “LEC test.” Section 628, as implemented by the FCC, requires a cable operator seeking deregulation based on the LEC test to show that (1) an entity that is a local exchange carrier (or its affiliate) is offering video programming services directly to subscribers in the cable operator’s franchise area; (2) the LEC’s video service area has a “substantial geographic overlap” with the incumbent cable operator’s service area; (3) the LEC has actually begun offering service to consumers and consumers are “reasonably aware” that they purchase video service from the LEC; and (4) the video service offered by the LEC must be “comparable” to the incumbent cable operator’s video service.
Applying this test in 2001, the FCC found that Comcast was subject to effective competition in Boston due to the availability of video service in the City from RCN, an overbuilder that offered both voice and video service. At the time, the FCC found that RCN met all four of the elements of the LEC effective competition test. In particular, the FCC found that RCN met the “substantial overlap” requirement despite the fact that it had only begun providing service in the City. As it had in other cases, the FCC relied on the fact that RCN had entered into a franchise agreement with Boston under which it was obligated to service approximately 90 percent of the City within 3 ½ years of signing the franchise agreement and to the remaining portions of the City within six years. Based on its findings, the FCC revoked the City’s certification to regulate Comcast’s rates.
In May 2011, the City of Boston filed a petition with the FCC asking it to reinstate its certification to regulate Comcast’s basic rates. The City conceded that RCN was providing video service comparable to that provided by Comcast and that the residents of Boston passed by RCN’s service were aware of the service’s availability. However, Boston questioned whether RCN was actually a LEC and, more importantly, disputed whether RCN still met the “substantial overlap” test.
Decision. The Media Bureau quickly disposed of Boston’s contention that RCN was not a LEC, finding that RCN did in fact provide local exchange service. The Bureau then turned to the “substantial overlap” issue. The key to the Bureau’s decision was its finding that RCN, apparently due to a lack of capital, had halted the buildout of its facilities and had been released facilities or any prospect of doing so. The only remaining question was whether the portion of the City that RCN serves was substantial enough to create “effective competition” to Comcast. The FCC found that RCN passes 32.1 percent of the households in Boston. Although the FCC had found that effective competition existed in some cases where the homes passed level was equal to or even less than that established for RCN, the Bureau distinguished those cases because there was an expectation that the buildout would continue and/or evidence that the incumbent operator had cut its rates in response to the LEC’s entry into the market. Not finding similar evidence in this case, the Bureau concluded that the reasons for the earlier revocation of the City’s certification were no longer valid.
Facing the prospect that the City might have its certification reinstated, Comcast argued that, even if it could no longer satisfy the LEC effective competition test, it could establish the presence of effective competition under the “competing provider” test because more than 15 percent of the households in the City subscribe to RCN, DirecTV, or DISH. The Bureau, however, found that its decisions do not allow a cable operator to raise an alternative grounds for decertification in a recertification case. Rather, Comcast will have to file a separate petition challenging the recertification of Boston based on the competing provider standard. The Bureau indicated that Comcast would have 30 days to file such a petition and that, pending its resolution, the recertification order would be stayed.
Conclusion. As a practical matter, because it appears to satisfy the competing provider test, Comcast probably will remain exempt from rate regulation in the City of Boston notwithstanding the fact it no longer can rely on the LEC competition test. However, it would not be surprising to see other communities that have been the subject of a LEC test decertification order to seek recertification, thereby forcing the operator to go through the process of making a separate showing based on the competing provider test.