XIV. Antidiscrimination and Build-Out Requirements

The Legislature intended for DIVCA to "[p]romote the widespread access to the most technologically advanced . . . video services to all California communities in a nondiscriminatory manner regardless of socioeconomic status."571 To effect this worthy goal, the Legislature enacted two types of provisions in Public Utilities Code § 5890. First, the Legislature prohibited state video franchise holders from "discriminat[ing] against or deny[ing] access to service to any group of potential residential subscribers" on the basis of "income of the residents in the local area in which the group resides."572 Second, the Legislature required certain state video franchise holders to offer video service to California consumers within predetermined time periods (build-out requirements). Commission enforcement of these build-out requirements ensures that state video franchise holders abide by the Legislature's antidiscrimination prohibition.

Multiple parties request that we describe how we intend to interpret and enforce the antidiscrimination and build-out provisions. In response to these parties, this section clarifies how we intend to impose antidiscrimination and build-out requirements on state video franchise holders. Section XV then describes how we will enforce these requirements imposed by DIVCA.

A. Position of Parties

CCTPG/LIF calls for the Commission to "propose processes that institute Sec. 5890."573 Although some build-out requirements need not be met until multiple years pass after a state video franchise holder begins offering service, CCTPG/LIF argues that it would be useful for the Commission to "monitor the progress of or assist franchise holders toward meeting the Section's requirement."574 It also contends that the Commission may need to address some build-out issues - such as whether a state video franchise holder drew its proposed video service area in a discriminatory manner - at the outset of the state video franchise program.575

CCTPG/LIF urges the Commission to make several specific proposals at this juncture. First, CCTPG/LIF asks the Commission to define what action the Commission "will take if an application makes an initial service territory definition that is discriminatory."576 CCTPG/LIF encourages the Commission to reject such applications.577 Second, CCTPG/LIF states that "the Commission should discuss how community centers will receive free service, which is also a strategy for build-out."578 CCTPG/LIF calls for a public participation hearing so that the Commission can receive input on this topic.579 Third, CCTPG/LIF calls upon the Commission to establish a process for review of build-out data.580

Commenting on the draft decision, CCTPG/LIF voices special concerns regarding the "implementation of build-out requirements on franchisees with less than a million telephone customers (under § 5890(c)), which are much less clear-cut than those franchisees with more than a million telephone customers."581 CCTPG/LIF asks the Commission to initiate a "second phase of this proceeding, or a separate proceeding, . . . in order to establish the regulations that will implement § 5890(c), as well as any other provisions of § 5890 that require more specific Commission guidelines."582 According to CCTPG, the "'reasonableness' standard of § 5890(c) is simply too vague to provide initial guidance. . . . It is in the best interests of all involved to have further guidance on this issue."583

Greenlining argues that that the Commission should monitor and ensure enforcement of build-out requirements.584 It urges the Commission to develop "a plan to ensure that service providers maximize build-out in a nondiscriminatory way (not targeting specific areas or seeking franchise areas based on socioeconomic makeup)."585

TURN contends that "the application process should require applicants to present how they intend to meet the statute's build-out and anti-discrimination requirements."586 According to TURN, the "application process should provide an opportunity for the Commission as well as interested parties to assess whether an applicant is fit and meets the requirements established by the statute including the specific concerns clearly identified by the Legislature."587

"To the extent that franchise holders are required to provide services at community centers in underserved areas," TURN asks the Commission to "require that those community centers be accessible to people with disabilities."588 Specifically, TURN states that "the Commission should require that all community centers be compliant with the access standards of Title 24 of the California Code of Regulations . . . and the Americans with Disabilities Act Access Guidelines. . . .589" "In the event that some aspects of the community centers are not fully compliant with those standards," TURN contends that "[t]he Commission should ensure, at the very least, that people with disabilities can safely access the services provided at such centers."590

In contrast to the consumer organizations, Verizon argues that it is unnecessary to create process to monitor or assist video franchise holders in meeting statutory build-out requirements.591 Verizon reasons that "these requirements are spelled out very clearly in the Act, and consist of submission of specific information by holders."592

Commenting on the draft decision, CCTA contends that the requirement in § 5890(c) is a "nondiscrimination requirement," not a "buildout requirement."593 It asserts that "§ 5890(e) specifies . . . [that] holders with fewer than 1 million telephone customers do not have buildout requirements under the state franchise. This is because applicants with fewer than 1 million telephone customers are generally comprised of incumbent cable operators that have already built out their video service networks to their entire franchise area, pursuant to their existing local franchise requirements."594 Given this analysis, CCTA asks the Commission "to provide that where the applicant . . . has fewer than 1 million telephone customers the applicant may include in its application a statement that its telephone customers have access to its video service to meet the nondiscrimination requirement."595

SureWest maintains that "Section 5890(c) was written to provide a reduced level of oversight for video system build-out within the service areas of incumbent local exchange carriers with fewer than one million telephone customers."596 Consistent with that interpretation, SureWest argues that "providers should have the option to demonstrate what qualifies as a `reasonable time' on a case-by-case basis, not pursuant to generic rules."597 It asserts that a state video franchise holder that "wishes to seek some sort of advance `reasonableness' analysis of the build-out plans of smaller providers" should be able to do so through a "streamlined and expedited process."598 It adds that the "Commission could establish `safe harbor' standards for smaller providers in Phase II of this rulemaking, by which smaller providers could demonstrate compliance with the `reasonableness' requirement . . . ."599

Small LECs contends that "the Commission should simply rely on the general `reasonableness' standard for build-out set forth in DIVCA":

Smaller providers should be given the discretion to build out their networks in a flexible and organic manner in accordance with what is reasonable under the circumstances. Given the many dynamic factors that can influence providers' build-out strategies, it would be inappropriate and unnecessary for the Commission to attempt to micromanage build-out plans in advance. To the extent that the Commission or an interested party perceives that a company's build-out plan is `unreasonable,' it will have ample opportunity to address the situation through an investigation, a complaint procedure, or another appropriate procedure.600

Alternatively, "at a minimum," Small LECs states that the "anticipated procedure associated with build-out requirements" should be "carefully specified."601

B. Discussion

While we find that many build-out requirements "are spelled out very clearly in the Act," we disagree with Verizon's assessment that "[n]o further Commission process or detail is required."602 The substance of some of the antidiscrimination and build-out requirements is subject to disputes among the parties, while other build-out provisions explicitly require further Commission action.603 Thus, this section and Section XIII (Reporting Requirements) clarify the Act's antidiscrimination and build-out requirements.604

1. Build-Out Requirements Imposed on State Video Franchise Holders that Alone, or in Conjunction with Their Affiliates, Have More than One Million California Telephone Customers

Many of the build-out requirements imposed on state video franchise holders that alone, or in conjunction with their affiliates, have more than one million California telephone customers need little interpretation, because these requirements are clear on their face. In particular, build-out provisions in subsections (b)(1)-(2) and (e) of Public Utilities Code § 5890, which apply to the entire video service area, clearly require these state video franchise holders to (i) offer service to a certain percentage of households in their telephone service areas in a designated time period, depending on the technology used and (ii) ensure that a certain percentage of households offered video access are "low-income households." Public Utilities Code § 5890(j)(2) defines a low-income household as a household with an annual income of less than $35,000.605

Yet a number of parties commented on one build-out provision imposed on state video franchise holders that alone, or in conjunction with their affiliates, have more than one million California telephone customers. Multiple parties requested that we address the provision that requires these state video franchise holders to provide free service to community centers in underserved areas. As mentioned, CCTPG/LIF requests that we discuss how community centers will receive free service, while TURN urges us to impose disability accessibility requirements on community centers receiving free service.

Public Utilities Code § 5890(b)(3) describes the number of community centers eligible for free service, qualifications of eligible community centers, and the specific type of service that will be provided to a center pursuant to this section. Accordingly, we find that the statute is clear on its face and requires no further interpretation. Should disputes arise, any party may file a petition to modify or clarify this decision based on the facts of a particular dispute, and to request a public participation hearing on a particular disputed issue.

In response to CCTPG/LIF, we agree that clarification is warranted as to the type of "free service" that must be offered to community centers. This guidance is not provided by DIVCA. Yet the Legislature gives us related direction in its statement of the principles on which DIVCA is based. According to Public Utilities Code § 5810(a)(2), DIVCA was intended to both (i) "promote the widespread access to the most technologically advanced cable and video services" and (ii) "complement efforts to increase investment in broadband infrastructure and close the digital divide." We seek to interpret the statute in a manner that is most consistent with these express legislative intentions. Thus, we hold that "free service" provided to community centers must include both broadband and video services.

Regarding TURN's recommendation, we decline to impose any further eligibility requirements on community centers able to receive free service. Public Utilities Code § 5890(b)(3) fully establishes the requirements for a community center eligible for a video franchise holder's free broadband and video service: The community center must be a facility that (i) qualifies for the California Teleconnect Fund, (ii) makes the state video franchise holder's service available to the community, and (iii) only receives service from one state video franchise holder at a time.606 Since the statute explicitly lists these conditions on eligibility, we find that community center eligibility requirements should not extend beyond those expressly delineated by the Legislature.607

2. Build-Out Requirements Imposed on State Video Franchise Holders that Alone, or in Conjunction with Their Affiliates, Have Fewer than One Million California Telephone Customers

Next we turn to build-out requirements imposed on state video franchise holders that alone, or in conjunction with their affiliates, have fewer than one million California telephone customers. Public Utilities Code § 5890(c) states that these holders will satisfy the antidiscrimination and build-out section if they "offer video service to all customers within their telephone service area within a reasonable time, as determined by the Commission. However, the commission shall not require the holder to offer video service when the cost to provide video service is substantially above the average cost of providing video service in that telephone service area." This section discusses the import of this statute for both incumbent cable companies and smaller telecommunications companies.

We find that Public Utilities Code § 5890(c) imposes build-out requirements on all state video franchise holders that alone, or in conjunction with their affiliates, have fewer than one million California telephone customers. The statute, contrary to the claims of CCTA,608 does not merely reiterate the general prohibition against discrimination found in Public Utilities Code § 5890(a). Instead, Public Utilities Code § 5890(c) instructs the Commission to "determine[]" what is "a reasonable time" for certain state video franchise holders to build out their networks. The only reasonable interpretation of this provision is that we are required to establish build-out requirements.

Despite its general applicability, we, nevertheless, clarify that we expect that this requirement will have little or no impact on incumbent cable operators. We interpret Public Utilities Code § 5890(c) to call for build-out requirements only to the extent that a state video franchise holder does not "offer video service" to all of its telephone customers within its "telephone service area." If all of a state video franchise holder's telephone customers have access to its video service (as is typically the case for incumbent cable operators), then we need not impose any further obligation on the holder. Such a state video franchise holder shall establish this condition in an affidavit submitted to the Commission within 30 days of issuance of its state video franchise.

For all other state video franchise holders subject to Public Utilities Code § 5890(c), the Commission will establish additional "safe harbor" standards in Phase II of this rulemaking. SureWest rightly recognizes that our establishing safe harbor provisions may help smaller video service providers to more readily demonstrate compliance with the "reasonableness requirement."609

We also will give state video franchise holders the option of demonstrating "what qualifies as a `reasonable time' on a case-by-case basis. . . ."610 If it does not meet any of our safe harbor conditions, a state video franchise holder subject to Public Utilities Code § 5890(c) shall file an application with the Commission that proposes "reasonable" build-out requirements. The application shall be filed any time in the calendar year in which a communications company with fewer than one million California telephone customers applies for a state video franchise. The application will lead to a proceeding that will consider the proposed build-out requirements. Any interested party may protest the proposed standards. A vote of the full Commission will conclude the proceeding. We find that these build-out procedures are "carefully specified," as Small LECs requests.611

As indicated by requirements found in DIVCA, the design of build-out requirements is a fact-specific endeavor. The statutorily imposed build-out requirements are conditioned upon (i) the type of technology predominantly used by the state video franchise holder, (ii) the number of customers in the state video franchise holder's existing telephone service area, and (iii) the date when the state video franchise holder begins providing video service pursuant to DIVCA. Further, we can envision special circumstances (e.g., challenging terrain, long distances to potential subscribers' homes, and rights-of-way issues) that make it difficult for us to set uniform "reasonable" time frames.

Our design of any build-out requirements will take into account policies and facts relevant to whether video service will be offered to customers "within a reasonable time." The design process will consider, among others, those policies and facts considered by the Legislature in its design of build-out requirements. Thus, our build-out requirements will be conditioned upon (i) the type of technology predominantly used by the state video franchise holder, (ii) the number of customers in the state video franchise holder's existing telephone service area, and (iii) the date when the state video franchise holder will begin providing video service pursuant to DIVCA. We also will consider whether it is prudent to include build-out safety valves, similar to those afforded to other state video franchise holders in Public Utilities Code § 5890(e)(3)-(4).

In establishing requirements, we will remain cognizant of the Legislature's guidance regarding provision of video service in high-cost areas. Pursuant to Public Utilities Code § 5890(c), we will not design any build-out provision that requires a state video service holder to offer video service when the cost of doing so is substantially above the average cost of providing video service in that telephone service area. We envision that application of this statute will require fact-specific inquiries as to costs of video service provision in areas where the state video service holder alleges that providing service is uneconomic.

3. Rebuttable Presumption that Discrimination in Providing Video Service Has Not Occurred

Public Utilities Code § 5890(d) establishes that when "a holder provides video service outside of its telephone service area, is not a telephone corporation, or offers video service in an area where no other video service is being offered, other than direct-to home satellite service, there is a rebuttable presumption that discrimination in providing service has not occurred within those areas." Thus, if not rebutted, the existence of any one of these three factors is sufficient to prove that a state video franchise holder is not discriminating in its provision of video service.

If a party contests this presumption, the statute provides that the Commission "may review the holder's proposed video service area to ensure that the area is not drawn in a discriminatory manner."612 The Legislature's decision to apply this provision to a "holder" rather than an "applicant" is significant. The statute effectively provides that the Commission may conduct its review of a proposed video service area after a state video franchise is awarded.

Seeking to accelerate this review, CCTPG/LIF asks that we examine a state video franchise holder's video service area for evidence of discrimination during the application process. We, however, find that there is no statutory basis for CCTPG/LIF's request. First, Public Utilities Code § 5890(d) only gives us express authority to review whether a "holder's" proposed video service area is not drawn in a discriminatory manner.613 The statute provides no such authority with respect to applicants. Second, Public Utilities Code § 5840(h)(1) affords the Commission just thirty calendar days to review an application to determine whether it is complete. This strict time constraint on the application process is ill-suited for reviewing a proposed video service area. Assessing how a proposed video service area is drawn would extend well beyond merely reviewing whether an application is complete, and may require more than thirty calendar days to finish.

We find that review of a proposed video service area at the time of application is not necessary for proper enforcement of DIVCA. If a state video franchise holder's service area is drawn in a discriminatory manner, Public Utilities Code § 5890(g) permits local governments to bring complaints concerning discrimination to the Commission. Furthermore, we can open our own investigations on discrimination matters.

4. Extension of Time for Meeting Build-Out Requirements

We conclude by noting that DIVCA provides two types of extensions for state video franchise holders that are unable to meet the schedule for the build-out requirements. First, Public Utilities Code § 5890(e)(2)-(3) establishes automatic extensions for build-out requirements imposed by Public Utilities Code § 5890(e)(1)-(2). These extensions go into effect if a significant percentage of households fail to subscribe to a state video franchise holder's service. Second, Public Utilities Code § 5890(f) affords the Commission discretionary authority to grant an extension for the build-out requirements imposed in subsections (b), (c), and (e). The statute states that we may grant this extension only if "the holder has made substantial and continuous effort to meet the requirements of the subsections."614 In determining whether this effort was made, the statute directs us to conduct public hearings and consider a number of factors outside of the state video franchise holder's control.615 We must establish a new compliance deadline if we grant an extension.616

571 Cal. Pub. Util. Code § 5810(a)(2)(B).

572 Id. at § 5890(a).

573 CCTPG/LIF Opening Comments at 10.

574 Id.

575 Id. at 3.

576 Id.

577 Id.

578 Id. at 10.

579 Id.

580 Id. at 11.

581 CCTPG/LIF Opening Comments on the PD at 7.

582 Id.

583 CCTPG/LIF Reply Comments on the PD at 2.

584 Greenlining Reply Comments at 9.

585 Id. at 10.

586 TURN Reply Comments at 7.

587 Id.

588 TURN Opening Comments at 16.

589 Id.

590 Id.

591 Verizon Reply Comments at 7.

592 Id.

593 CCTA Opening Comments on the PD at 5.

594 Id. at 6.

595 Id. at 7.

596 SureWest Opening Comments on the PD at 5.

597 Id. at 6.

598 Id. at 7.

599 Id.

600 Id. at 8.

601 Small LECS Opening Comments on the PD at 9.

602 Verizon Reply Comments at 7.

603 See, e.g., Cal. Pub. Util. Code § 5890(c) (stating that the Commission will determine whether a state video franchise holder with less than one million California telephone customers offers video service to customers within their telephone service area within a reasonable amount of time).

604 Additional issues related to the definition of a "state video franchise holder" are addressed in Section V.

605 Cal. Pub. Util. Code § 5890(j)(2). This annual household income is based on U.S. Census Bureau estimates adjusted annually to reflect rates of change and distribution through January 1, 2007. Id.

606 Id. at § 5890(b)(3).

607 While we cannot require disability accessibility, we nonetheless find that the request for this accessibility is laudable. We expect that community center operators will do their best to make their facilities accessible to the disability community.

608 CCTA Opening Comments on the PD at 5 (claiming that the statute merely reiterated the "nondiscrimination requirement").

609 See SureWest Opening Comments on the PD at 7 (recognizing that safe harbor standards may be of assistance to smaller video service providers).

610 Id. at 6.

611 Small LECS Opening Comments on the PD at 9.

612 Cal. Pub. Util. Code § 5890(d).

613 Our explicit authority to review the boundaries of a video service area for signs of discrimination only applies in the presence of one of three conditions: (i) a state video franchise holder is providing video service outside of its telephone service area, (ii) a state video franchise holder is not a telephone corporation, or (iii) a state video franchise holder is offering video service in an area where no other video service is being offered, other than direct-to home satellite service. Id.

614 Id. at § 5890(f)(4).

615 Id. at § 5890(f)(2)-(3).

616 Id. at § 5890(f)(4).

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