National Telecommunications and Information Administration
U.S. Department of Commerce
Washington DC 20230
In the Matter of )
Request for Comments on Deployment of )
Broadband Networks and Advanced ) Docket No. 011109273-
Telecommunications ) 1273-01
) RIN 0660-XX13
COMMENTS OF SEREN INNOVATIONS, INC.
Seren Innovations, Inc.(“Seren”), submits its Comments on deployment of
Broadband Networks and advance telecommunications services.
Seren Innovations, Inc., is a Minnesota corporation headquartered in Minneapolis, Minnesota. Seren is a wholly owned, non-regulated subsidiary of Xcel Energy. Seren was formed in 1996 to provide high-speed Internet, cable television and local and long distance telephone service to residential and business customers through state-of-the-art hybrid fiber coaxial broadband networks. Seren’s goal is to fulfill the pro-competitive purpose of the Telecommunications Act of 1996 through facilities-based entry into markets dominated by entrenched cable and telephone incumbents.
Seren’s products, marketed through its “Astound” brand, are now available in ten (10) franchises in the St. Cloud, Minnesota area and two (2) franchises in the East Bay area of San Francisco, California. Seren has plans to file additional franchise applications in adjacent communities in the coming months.
Contact: John Goodman, V/P
Seren Innovations, Inc.
15 S. 5th Street
Minneapolis, Minnesota, 55402
Seren Innovations, Inc. (“Seren”) is a relatively new entrant into the multichannel video programming distribution (MVPD”) marketplace, with cable franchises in California and Minnesota. Seren is dedicated to bringing competition to the entrenched cable monopolists in its areas of operation as part of its integrated Internet, video and telephone broadband network.
Seren competes directly with cable operators and other multichannel video programming distributors (“MVPDs”), as well as incumbent and competitive local exchange carriers, and Internet service providers. With over 120 thousand households already under franchise, over 20,000 current subscribers, and more than 1,000 miles of constructed broadband network, Seren represents one of the best opportunities to satisfy expanding demand for competitive residential broadband services in it’s geographic areas of operation.
The deployment of competitive broadband infrastructure has become the central communications policy objective today, and emerged as the fundamental priority. Direct, head-to-head competition from advanced networks leads to significant competitive responses from incumbent providers. This brings to the market place the effects of decreasing prices, increased channel offerings, improved customer service, and offering new innovative services. Incumbent providers typically respond by upgrading and investing in their own networks to provide advanced services that are competitive with those of the new entrant. Competitive entry therefore brings a second key benefit – the substantial investment dollars associated with the construction of multiple, competing true broadband networks.
One factor that continues to slow Broadband competitive entry is ongoing impediments to acquiring programming content that subscribers deem important to multichannel video offerings, despite the program access provision of the Communications Act.
In enacting Section 628, Congress expressed its concern that competitors to incumbent cable operators often face insurmountable hurdles in seeking access to critical programming required to compete. Congress found that cable-affiliated programmers have the “incentive and ability” to favor incumbent cable operators over new MVPDs. Through Section 628, Congress sought to break the cable industry’s “stranglehold” over programming, which had historically been enforced through exclusivity arrangements and other market power abuses exercised by cable operators and their affiliated programming suppliers that denied programming to competitive technologies, or made programming available on discriminatory terms and conditions.
Even though competitors have made some in-roads, local programming distribution markets remain highly concentrated, and the vertical relationships that dominated the market in 1992 have become further entrenched. Competitors are often denied access to programming services that are unaffiliated with incumbent cable operators, which are not covered by the program access rules. And notwithstanding the program access rules, cable operators still withhold programming that is within the ambit of the rules. Resumption of the “cable-friendly” exclusive arrangements that dominated the industry before the 1992 Cable Act was passed would add to this mix, critical cable-affiliated programming services, which would absolutely stifle new facilities-based entry from the competitive broadband industry.
We therefore request that the exclusivity prohibition continues to be necessary to preserve competition and diversity in the distribution of video programming, and continue the prohibition in effect. The Department should also take this opportunity to address competitive concerns regarding discriminatory and exclusionary conduct involving cable-affiliated, terrestrially-delivered regional sports programming and other such services, access to which is necessary for new providers to compete effectively.
Seren Innovations, Inc., dba. Astound Broadband, is a five year old company that began the delivery of facilities based local and long distance telephone, High Speed Internet and multichannel video services in late 1998, initially to St. Cloud, Minnesota and three surrounding communities. Since then, Seren has expanded its service territory to five townships and the community of St. Joseph. Seren also has been active in the East Bay area of San Francisco, and in 1999 signed franchises in Concord and Walnut, California. Seren has over the 20,000 cable subscribers in these markets and is looking to expand into other adjacent communities.
Your actions are of significant importance to us. Fair access to competitive programming remains absolutely essential to our vitality. Advanced technology and stellar customer service would not afford us the ability to compete with the incumbent cable operator unless we also offer competitive programming content. Without competitive content we would be doomed to failure.
The Department must therefore find that the exclusivity prohibition continues to be necessary for Seren and Seren like MVPDs’.
FCC Chairman Powell has recognized that in the broadband world “content is king.” (See,e.g. Telecommunications Reports, November 19, 2001 at page 5) Key among the content question was the program access provision – Section 628 of the Communications Act. In enacting the program access provisions of the 1992 Cable Act, Congress expressed its concern that MVPD’s face insurmountable hurdles in seeking access to critical programming required to compete. Congress also has found that “vertically integrated program suppliers have the incentive and ability to favor their affiliated cable operators over programming distributors using other technologies.” (See 1992 Cable Act, 2(a)(5). Through Section 628, Congress sought to break the cable industry’s “stranglehold” over programming, which had been enforced through exclusivity arrangements exercised by cable operators and their affiliated programming suppliers. Thus, through the program access provisions, Congress directed the Department to “address and resolve the problems of unreasonable cable industry practices, including restricting the availability of programming and charging discriminatory prices to non-cable technologies.”
(See House Comm. On Energy and Commerce, H.R. Rep. No. 102-862,102 Con.,2d /sess, at 93(1992).
Seren has been held in an exclusive programming “stranglehold” as witnessed in our October 29, 1998, Petition to Deny The Applications of Tele-Communications, Inc. and AT&T Corporation, in CS Docket No. 98-178. When a very popular regional sports network, Midwest Sports Channel (MSC) was held out of our channel line up by an exclusive agreement with the incumbent cable operator. To illustrate our concern, prior to our launch of MSC in March 2000, we had 2,431 cable subscribers, and two months after informing the residents that we now had MSC on our channel line up, our May 1,2000, subscribers increased to 3159, a 30% increase. This historic increase was attributed to the fact that the residents knew of our intent to sign a contract with MSC by having a channel on our system labeled, “future site of MSC” and were willing to switch to our company when we received the contract to begin providing the MSC programming.
The issue of carriage was resolved in our favor along with other “like” cable operators when MSC was sold to Fox Sports Network, a vertically intergraded programming network. This example is offered only to show that when the incumbent cable operator can “lock out” competition, it will do so. In our situation, the incumbent was originally a Bresnan Cable operation; the system was later sold to TCI, and then sold to Charter, with all three companies opting to retain the exclusive programming contact with MSC.
Direct, head to head facilities-based competition, is the key to providing consumers with the choice of bundled broadband services at the most competitive price. Without access to programming content, required to compete effectively with the incumbent, no amount of new services such as ITV or VOD can make up the difference.
Section 628 was created to promote fair competition and to stimulate the development of new technologies. Seren Innovations, Inc. has spent millions of dollars to deploy last mile, facilities based broadband networks that are serving consumers with these new, state-of-the-art, broadband technologies. New entrants, such as Seren, are forced to market our services against incumbent cable operators who have substantial advantages in the competitive battle: name recognition, embedded customer base, strong economies of scale, and a corporate presence in the community.
To succeed in spite of these formidable obstacles, new entrants must be able to attract a substantial share of existing cable operator’s subscribers. To do so requires the ability to offer the basic product desired by subscribers and currently available through the incumbent provider. Without the ability to secure and offer the most popular and the most variety of programming, no consumer will be willing to migrate from the incumbent– no matter how otherwise attractive and cost effective the offering might be.
Simply put, the general public cares more about content than it does about technology, corporate structure, or abstract theories of competition. Therefore, access to programming is a major key to successful implementation of competitive services. Accordingly, allowing the exclusivity prohibition to sunset will have dire consequences for competition and diversity in the national programming marketplace, and its retention is absolutely vital if broadband, facilities-based competition like Seren is to succeed.
Since as early as 1994, competitive MVPDs, the cable industry, and the Federal Communication Commission have had an ongoing debate regarding the extent to which Section 628 reaches conduct involving cable-affiliated programming services delivered by terrestrial technologies, rather than by satellite. This issue, particularly with respect to cable-affiliated regional sports programming services, is critically important to the Seren Innovations, Inc. as witnessed by our episode with Midwest Sports Channel, and one that is directly relevant to the Department’s consideration of the sunset of the exclusivity prohibition required by Section 628(c)(2)(D). As discussed more fully below, rather than eliminating the exclusivity prohibition, the Department should instead take this opportunity to adopt regulations prohibiting discriminatory conduct and exclusive dealing arrangements involving terrestrially delivered, cable affiliated sports programming services.
Regional sports programming services that telecast local professional league games is such an essential programming service. In the 1998 Cable Report, the FCC observed “Sports programming warrants special attention because of its widespread appeal and strategic significance for MVPDs.” And in last year’s report, the FCC noted that “Regional sports programming continues to be an important segment of programming for video distributors.” In a report released last year, GAO likewise characterized sports programming as “marquee programming” because of its attractiveness to cable viewers
In enacting the program access provision in the 1992 Act, Congress recognized that access to existing programming services was an effective barrier to entry to new competition, in part given the sheer cost for new competitors to vertically integrate upstream into program supply to create new programming services. In the case of regional sports programming, the issue is even more extreme. Sports programming, and in particular local sports programming is unique. It cannot be duplicated by competing MVPDs or acquired from alternative sources, even if the cost of doing so were not an issue. The denial of regional sports programming to
Seren would be a roadblock of our ability to survive.
As was the case with satellite-delivered programming generally, prior to passage of the 1992 Cable Act, cable MSOs in markets throughout the country, have now acquired a “stranglehold” over regional sports programming – programming that is absolutely essential to continued competitive entry in what continue to be highly concentrated local markets for programming distribution. MSOs also operate significant regional clusters that compete with competitive broadband providers. As Congress found in 1992 in enacting program access with respect to cable-affiliated programming services generally, such cable affiliated sports programming services have the same “incentive” to favor their affiliated cable operators over programming distributors using other technologies.”(1992 Cable Act 2(a)(5) There is little question that in the absence of the program access prohibitions contained in Section 628, they would also have the “ability” to do so, thereby thwarting entry by competitive broadband providers.
Given the Department’s existing program access rules adopted pursuant to 628(c)(1) and its construction of Section 628(b), cable operators have significant freedom, with the thinnest of justifications, to move affiliated satellite programming services to terrestrial delivery, and thereby avoid application of the rules’ prohibition on discrimination and exclusive contracts. Given the absence of the program access limitations, cable operators now have, not only the incentive, but the ability to use their control over regional sports programming to foreclose competitive entry from competing distributors. The threat here is far from insignificant or illusory, but is palpable and real.
In New York, Philadelphia and D.C., the incumbent cable operator has established a strong local cluster, has acquired a controlling interest in the regional sports network with distribution rights to local professional sports, and has moved distribution of sports programming previously distributed by satellite, to a terrestrial network. Fiber-based networks now deliver local cable programming in other markets across the country, including Chicago, Boston, Indianapolis, Minneapolis, Orlando, Columbus, and Kansas City.
The FCCt’s ruling in Comcast essentially suggests that aggregating all of the transmission rights to virtually every local professional sport event in a metro area with the clear intent of eliminating DBS access to previously satellite-delivered regional sports programming is not an unfair practice. The FCC and the Bureau have made much of Comcast’s representations, that apart from its refusal to distribute SportsNet to DBS providers, it still deals with all other competing MVPDs in the area. At the same time, the FCC is silent as to what claim or remedy competing providers might have, should Comcast decide at some future point, for whatever reason, to discontinue providing this critical service to competitors, or to do so on discriminatory terms and conditions. As one analyst has noted, “If you want to see these teams on the tube in Philly, you need Comcast.”
In its most recent Cable Report, the FCC recognized the potential adverse impact from terrestrial distribution of sports programming, and its removal from the ambit of the program access rules:
We recognize that the terrestrial distribution of programming, including in particular regional sports programming, could eventually have a substantial impact on the ability of alternative MVPDs to compete in the video marketplace. We will continue to monitor this issue and its impact on the competitive marketplace.
Seren Innovations, Inc. respectfully submits that no further monitoring is required. Critically important regional sports programming is today being distributed terrestrially in key markets. There is no question regarding the incentive and ability today of cable operators to use their control over this programming to engage in predatory conduct; they already have. There is a problem that needs to be fixed, and rather than continuing to merely monitor the issue, the time is to act now.
Given the foregoing, there should be making it clear that discriminatory conduct and exclusive contracts involving cable-affiliated regional sports networks are within the prohibition of Section 628(b). While the movement of satellite programming to terrestrial distribution to evade the program access rules may continue to be actionable under 628(b), the migration of programming should not be the touchstone of the 628(b) violation. Rather the harm to competition is caused by the refusal to deal, or other discriminatory term or condition. Seren Innovations, Inc. believes that given the undisputed record on the importance of regional sports programming to our viability, a rule which prohibits discrimination and exclusive contracts for such programming is well within the the jurisdiction under Section 628.
As discussed above, 628(b) makes it unlawful for a cable operator or a cable-affiliated satellite programmer “to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any MVPD from providing satellite cable programming . . . to subscribers or consumers.” Section 628(c)(1) directs the FCC to prescribe regulations specifying the particular conduct that is prohibited under Section 628(b). The limits of those regulations may be drawn, in the first instance, from the language of 628(b) itself (as well as statements in 628(a) as to the purpose of the section, and in 628(c)(1) as to the purpose of the regulations).
As the FCC recognized in its Second OVS Report and Order, in extending the program access regime to cable affiliated OVS program providers,
We believe that Section 628(b) authorizes the Department to adopt additional rules to accomplish the program access statutory objectives ‘should additional types of conduct emerge as barriers to competition and obstacles to the broader distribution of satellite cable and broadcast programming.
In addition, the FCC made clear in its Third OVS Report and Order, in rejecting the NCTA’s challenge to the Department’s extension of its program access rules, in the event that such additional obstacles do emerge, Section 628(b) is:
a “clear repository of Department jurisdiction” to address those obstacles. By entitling Section 628(c) “Minimum Contents of Regulations,” Congress gave the Department authority to adopt additional rules that will advance the purposes of Section 628; it did not limit the Department to adopting rules only as set forth in that statutory provision.
We think that the language and intent of 628(b) would permit a regulation prohibiting refusals to deal and other discriminatory conduct involving essential or critical programming owned by cable operator, whether or not such programming is distributed by satellite. There is no dispute that refusals to deal and other discriminatory conduct can constitute unfair competition or unfair acts or practices for purposes of Section 628(b). In addition, given the importance of such programming, there is similarly no question that refusals to deal and other discriminatory conduct with respect to such programming can hinder significantly or prevent an MVPD from entering and providing satellite programming to subscribers.
Finally, even if the FCC were to conclude that it did not have direct authority under Section 628(b) to prevent cable operators from refusing to provide terrestrial delivered sports programming to competing MVPDs, the Department has ancillary authority to prohibit such conduct under Sections 4(i) and 303(r) of the Communications Act. Indeed, the Department has explicit authority to adopt the provision here under another provision of the Communications Act added by the 1992 Cable Act – Section 613(f)(1) relating to horizontal ownership limitations. That provision requires that to “prescribe rules establishing reasonable limits on the number of cable subscribers a person may reach” and consider the necessity and appropriateness of imposing limitations on the degree to which MVPDs may engage in the creation or production of video programming.” In proscribing such rules, the FCC is directed to ensure, inter alia, that no cable operator because of its size can “unfairly impede the flow of video programming from the video programmer to the consumer” and that cable operators affiliated with video programmers do not “unreasonably restrict the flow of the video programming of such programmers to other video distributors.”
 See Ameritech at 71.
 See WCA Comments at 4 in Docket No. 01-129.
 In this regard, RCN has provided in its comments for the 2002 Cable Report examples of anticompetitive strategic conduct, short of an actual refusal to deal by Comcast, involving its control over SportsNet. According to RCN, Comcast was initially unwilling to provide it with access to SportsNet to distribute on a an overbuilt system competing with Comcast, and eventually only agreed to a short term agreement. Comcast has since refused to enter into a multi-year industry-standard contract for local sports programming in Philadelphia typical for the industry, but keeps RCN on a revolving three-month renewal. This leaves RCN in a tenuous position as it seeks to persuade existing Comcast subscribers to try the newcomer: while RCN currently has the SportsNet programming, it cannot provide assurances that it will continue to have such programming over the long run. Cite.
 Business Week Online, June 1, 2001 Friday, Why Comcast Leads the Pack (available at http://www.businessweek.com/bwdaily/dnflash/may2001/nf2001061_141.htm)
 2001 Cable Report at ¶ 15.
 Second OVS Report and Order,
 Third OVS Report and Order,
 In the Program Access Report and Order¸ the Commission recognized that among the types of discrimination covered by Section 628(c)(2)(B), are forms of non-price discrimination such as a vendor’s “‘unreasonable refusal to sell’ or refusing to initiate discussions with a particular distributor when the vendor has sold is programming to that distributor’s competitor” 8 FCC Rcd 3359, (1993). Since 628(c) sets forth the “minimum contents of regulations” that are to “specify particular conduct that is prohibited by subsection (b)” unreasonable refusals to deal can obviously be “unfair methods of competition or unfair or deceptive acts or practices” within Section 628(b).
 In its comments on Ameritech New Media’s program access rulemaking petition, NCTA essentially urged the same construction of Section 628(b). See Ameritech Report and Order at 67 (“NCTA asserts that the test under Section 628(b) is not whether the denial of a particular programming service to an MVPD significantly hinders or prevents the MVPD from providing that programming to service. The test is whether the unavailability of a service has a significant adverse effect on the ability to compete in the provision of video programming to subscribers or consumers.”).
 47 U.S.C. §§ 154(i), 303(r). See also City of Dallas v. FCC, 165 F.3d 341, 352 (5th Cir. 1999)(“If FCC had ancillary authority to adopt an entire regulatory regime for cable television, it surely has ancillary authority to extend” a regulatory regime to a class of providers not explicitly included in the statute).
 Communications Act, § 613(f)(1)(A), (C). As indicated in the NPRM (at ¶ 9), the Commission recently initiated a proceeding to resolve the D.C. Circuit’s remand of its horizontal ownership rules adopted pursuant to Section 613(f). The Commission notes that the remand proceeding “will directly address the effect of consolidation and vertical integration on the market for video programming production and packaging” and asks for comment on the impact of the remand proceeding here.