[Federal Register Volume 60, Number 52 (Friday, March 17, 1995)]
[Rules and Regulations]
[Pages 14373-14377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6555]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MM Docket Nos. 92-266 and 93-125, FCC 95-42]
Cable Television Act of 1992
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Commission has adopted an Eighth Order on Reconsideration
to revise certain cable regulations affecting small systems and
certified local franchising authorities. Certified local franchising
authorities, independent small systems, and small systems owned by
small multiple system operators (``small MSOs'') will be permitted to
enter into alternative rate regulation agreements that comply with the
Communications Act of 1934, as amended.
EFFECTIVE DATE: April 14, 1995, except for 47 CFR section 76.934(f)(2)
which will become effective upon OMB approval. The Commission will
issue written confirmation of OMB approval at a later date.
FOR FURTHER INFORMATION CONTACT:
Susan Cosentino, (202) 416-0800.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Eighth Order on
Reconsideration in MM Docket No. 92-266 and MM Docket No. 93-215, FCC
95-42, adopted February 3, 1995 and released February 6, 1995.
The complete text of this Eighth Order on Reconsideration is
available for inspection and copying during normal business hours in
the FCC Reference Center (room 239), 1919 M Street, NW., Washington,
DC, and also may be purchased from the Commission's copy contractor,
International Transcription Service at (202) 857-3800, 2100 M Street,
NW., Suite 140, Washington, DC 20037.
Synopsis of the Eighth Order on Reconsideration
The 1992 Cable Act requires the Commission to reduce regulatory
burdens and the cost of compliance for small systems. Small systems are
defined in the statute as systems serving 1,000 or fewer subscribers.
Pursuant to that mandate, the Commission has created different
regulatory approaches that are available to small systems.
The Cable Telecommunications Association (``CATA'') and other
groups generally believe that our efforts have not produced the
intended result of reducing administrative burdens and costs for
smaller systems. Preliminarily, industry associations and individual
operators assert that small systems face higher costs than other cable
operators. In our Fifth Order on Reconsideration and Further Notice of
Proposed Rulemaking (``Fifth Reconsideration Order''), MM Docket No.
92-266 and MM Docket No. 93-215, FCC 94-234, 59 FR 51869 (October 13,
1994), we sought comment on definitions of small businesses that could
be used to define eligibility for any special rate or administrative
treatment. In response, a number of commenters point out that smaller
systems do not qualify for the volume discounts offered by equipment
and program suppliers to larger systems. In addition, commenters
observe that a smaller system serving a large rural area faces
increased construction costs due to the increased amount of cable that
must be installed to reach the entire area and increased operating
costs given the greater amount of facilities that must be maintained.
Moreover, commenters note that the total costs for which a small system
is responsible must be recovered from a small subscriber base. Although
our current rules take into account the number of subscribers a system
has, the commenters are unanimous that the rules do not do so
adequately. CATA further asserts that complexities in our rules, and
the cost of enforcing them, have discouraged local franchising
authorities in smaller communities from seeking certification. While
CATA highlights the fact that, even in these circumstances, the mere
potential of rate regulation hinders small systems in their attempts to
obtain financing and capital, thus increasing their cost of doing
business, we are equally concerned that there are local franchising
authorities which desire to regulate basic rates but which lack the
resources to do so in accordance with our existing rules.
Based on these factors, these groups have urged the Commission to
adopt different and less stringent rules for small cable companies. In
comments and in a letter to Chairman Reed E. Hundt, CATA proposes an
alternative rate regulation scheme that differs significantly from the
present method of rate regulation which CATA, and other commenters,
claim is too complicated and burdensome. CATA's proposal is as
[[Page 14374]] follows: The Commission should permit local franchising
authorities and small systems to create their own alternative rate
regulation plan, not based on the Commission's benchmark/cost-of-
service rules, but still adhering to the regulatory factors of the 1992
Cable Act. CATA states that alternative regulation should be available
to all small systems of 1,000 or fewer subscribers regardless of
whether they are currently subject to regulation and without regard to
system ownership or affiliation with an MSO of any size. CATA envisions
that the parties could agree to regulate rates for the basic service
and cable programming service (``CPS'') tiers, as well as going
forward, inflation, and external cost issues. Rate increases also could
be agreed to in advance. If a small system and a local franchising
authority entered into an alternative regulation plan affecting the CPS
tier, subscribers could still file a rate complaint with the
Commission. Under CATA's proposal, both the small system and the local
franchising authority would have to consent to the alternative
regulatory framework. If the parties could not agree on an alternative
approach, the local franchising authority would regulate rates, if at
all, using Commission rules.
Based on comments received in response to the Fifth Reconsideration
Order, and in light of other pending petitions for reconsideration, we
reconsider on our own motion the Second Order on Reconsideration,
Fourth Report and Order, and Fifth Notice of Proposed Rulemaking, MM
Docket No. 92-266, FCC 94-38, 59 FR 18064 (April 15, 1994) as it
relates to rate regulation of small systems. We believe that, subject
to modifications discussed below, the alternative rate regulation
framework proposed by CATA is consistent with the spirit and the letter
of the Communications Act of 1934, as amended (``Communications Act'').
Accordingly, we will establish an alternative form of rate regulation
for independent small systems and small systems owned by small MSO's
based upon CATA's suggestions. We limit availability of this
alternative process to independent small systems and small systems
owned by small MSOs because we believe that larger systems have the
financial and administrative resources necessary to comply with our
benchmark and cost-of-service rate regulations. A small MSO is an MSO
serving 250,000 or fewer total subscribers that owns only systems with
less than 10,000 subscribers each and has an average system size of
1,000 or fewer subscribers. However, in the future, we may modify our
eligibility standards in response to action we take in our proceeding
on system size definitions.
Congress acknowledged the special circumstances faced by small
systems by specifically directing the Commission to reduce the
administrative burdens and cost of compliance for them. We believe that
this goal can best be achieved by giving certified local franchising
authorities and eligible systems discretion to agree to an alternative
form of rate regulation that will involve a traditional bargaining
process guided by the specific criteria set forth in the Communications
Act as being relevant to the establishment of rates for basic services
and cable programming services. This framework will free both the cable
operator and the local franchising authority from the burdens and costs
of analyzing and applying our benchmark and cost-of-service rules.
While minimizing regulatory burdens, the alternative rate
regulation agreements that the parties may create also will further the
goal of ensuring reasonable rates by requiring local franchising
authorities to take into account specific factors, identified by
Congress, when imposing rate regulations for both the basic service
tier and cable programming service tiers. With respect to basic
service, those criteria are:
[1] The rates for cable systems, if any, that are subject to
effective competition;
[2] The direct costs (if any) of obtaining, transmitting, and
otherwise providing signals carried on the basic service tier,
including signals and services carried on the basic service tier
pursuant to paragraph (7)(B) [Communications Act Sec. 623 (b)(7)(B), 47
U.S.C. 543(b)(7)(B)], and changes in such costs;
[3] Only such portion of the joint and common costs (if any) of
obtaining, transmitting, and otherwise providing such signals as is
determined, in accordance with regulations prescribed by the
Commission, to be reasonably and properly allocable to the basic
service tier, and changes in such costs;
[4] The revenues (if any) received by a cable operator from
advertising from programming that is carried as part of the basic
service tier or from other consideration obtained in connection with
the basic service tier;
[5] The reasonably and properly allocable portion of any amount
assessed as a franchise fee, tax, or charge of any kind imposed by any
State or local authority on the transactions between cable operators
and cable subscribers or any other fee, tax, or assessment of general
applicability imposed by a governmental entity applied against cable
operators or cable subscribers;
[6] Any amount required, in accordance with paragraph (4), to
satisfy franchise requirements to support public, educational, or
governmental channels or the use of such channels or any other services
required under the franchise; and
[7] A reasonable profit, as defined by the Commission consistent
with the Commission's obligations to subscribers under paragraph (1)
[Communications Act Sec. 623 (b)(1), 47 U.S.C. 543(b)(1)].
Among other factors, the criteria to be used in establishing the
rates to be charged for cable programming services are:
[1] The rates for similarly situated cable systems offering
comparable cable programming services, taking into account similarities
in facilities, regulatory and governmental costs, the number of
subscribers, and other relevant factors;
[2] The rates for cable systems, if any, that are subject to
effective competition;
[3] The history of the rates for cable programming services of the
system, including the relationship of such rates to changes in general
consumer prices;
[4] The rates, as a whole, for all the cable programming, cable
equipment, and cable services provided by the system, other than
programming provided on a per channel or per program basis;
[5] Capital and operating costs of the cable system, including the
quality and costs of the customer service provided by the cable system;
and
[6] The revenues (if any) received by a cable operator from
advertising from programming that is carried as part of the service for
which a rate is being established, and changes in such revenues, or
from other consideration obtained in connection with the cable
programming services concerned.
We believe the rules we adopt here properly take into account these
statutory factors. As a preliminary matter, we note that alternative
rate regulation agreements will present an option for local franchising
authorities and small systems. Both parties remain free to insist on
analysis under our existing rules, which we have already determined
take into account the statutory factors. In addition, we believe that
small systems and local franchising authorities in markets where small
systems provide service are likely to be familiar with the facts and
circumstances underlying the factors for their particular markets.
Moreover, the statutory factors must be taken into
[[Page 14375]] account in negotiating alternative rate regulation
agreements.
Given its knowledge of local conditions and its experience with the
cable operator, the local franchising authority often will be in the
best position to assess the relative importance of these criteria and
to gather the relevant facts accordingly. Moreover, since a small
system is likely to be located in an area with a relatively small
population, we expect that the local franchising authority will be
particularly responsive to the needs and desires of cable subscribers.
This circumstance should give the local franchising authority
substantial encouragement and leverage to guard against any attempt by
the cable operator to view the alternative framework as an avenue to
achieve unreasonable rates. Indeed, unless and until an alternative
rate agreement is reached, the local franchising authority will always
be able to rely upon the general benchmark/cost-of-service rules,
further ensuring the reasonableness of the rates permitted under an
alternative rate regulation agreement. Thus, we conclude that rates
subject to alternative rate regulation agreements by small systems will
be reasonable.
Further, we believe that alternative rate regulation agreements
will assist the Commission in ensuring that rates for cable programming
services are not unreasonable. As part of the alternative process,
certified local franchising authorities are required to take into
account relevant statutory factors to ensure that rates for CPS tiers
are not unreasonable before entering into the negotiated agreement. The
Commission, however, shall retain jurisdiction over cable programming
service rates.
As discussed below, the local franchising authority must be
certified in accordance with our standard procedures. Before entering
into an alternative rate regulation agreement, the local franchising
authority must take into account the relevant criteria discussed above
and must provide for public notice and comment. Finally, all
alternative rate regulation agreements will be subject to Commission
review, as mandated by the Communications Act. For data collection
purposes, and to assist the Commission in evaluating complaints,
eligible cable operators must file with the Commission a copy of the
operative alternative rate regulation agreement within 30 days after
its effective date.
As with any local franchising authority seeking to enforce rate
regulations, a local franchising authority that elects to regulate
pursuant to an alternative rate agreement must file the certification
required by Section 623(a)(3) of the Communications Act and our rules.
The certification process shall be governed by our existing rules
applicable to local franchising authorities who wish to regulate cable
operators according to the benchmark and cost-of-service rules. No
alternative rate regulation agreement will be effective until the
effective date of the certification. However, this does not preclude a
local franchising authority that has yet to be certified from entering
into an alternative rate agreement that is conditioned upon the
effectiveness of the local franchising authority's certification.
Alternatively, the parties may wait until after the franchising
authority is certified to begin their negotiations. A local franchising
authority that already is certified by the Commission may enter into an
alternative rate agreement with the cable operator at any time. We note
that the cable operator will be subject to the standard benchmark/cost-
of-service rules upon the expiration of an alternative rate agreement.
Thus, the local franchising authority shall accept as reasonable the
basic service rate in effect at the time the agreement expires and may
apply benchmark/cost-of-service rules on a going-forward basis to
determine the reasonableness of proposed changes to basic service rates
stemming from external costs, inflation, and the addition, deletion, or
substitution of channels.
The alternative approach may be pursued only by agreement of both
the cable operator and the local franchising authority. To ensure
maximum freedom from regulatory constraints, we will not establish any
requirements to control the negotiation process. We note, however, that
the scope of alternative agreements is limited exclusively to the
regulation of rates charged for basic service and CPS tiers and the
equipment used to receive these tiers. Thus, certified local
franchising authorities may not enforce state/local negative option
billing laws that conflict with federal negative option billing rules.
See 47 CFR 76.981. See also Memorandum Opinion & Order, LOI-93-14, DA
95-60 (Cab. Serv. Bur. Jan. 20, 1995); Memorandum Opinion & Order, LOI-
93-2, DA 95-61 (Cab. Serv. Bur. Jan. 20, 1995); Consolidated Memorandum
Opinion & Order, LOI-93-1, et al., DA 95-106 (Cab. Serv. Bur. Jan. 25,
1995). There are numerous provisions of federal law which may not be
waived, even by agreement of the local franchising authority and the
small system, unless waivers are provided for in the Commission's
rules. These provisions include, but are not limited to, geographically
uniform rates structures, tier buy-through prohibitions, technical
standards, must-carry obligations, and retransmission consent. See 47
CFR 76.984, 76.921, 76.605, 76.56, 76.64. Moreover, the intention of
the alternative framework is not only to ease the cost of compliance
with our rules but to ensure that eligible small systems are not
required to reduce rates more than required by those rules. Therefore,
an alternative rate agreement shall be unenforceable if it requires the
cable operator to charge rates lower than would be permitted under the
benchmark or cost-of-service rules.
Section 623(a)(3)(C) of the Communications Act requires a local
franchising authority to ``provide a reasonable opportunity for
consideration of the views of interested parties'' in the course of
rate regulation proceedings. Although this provision is applicable to
rate proceedings regardless of whether the alternative procedure is
followed, we expect this provision to be particularly significant in
the context of alternative rate regulation agreements. Active
involvement by interested parties at an early stage of the proceedings,
i.e., prior to final adoption of an agreement, should reduce the
occurrence of complaints after the alternative agreement is
implemented. Thus, the local franchising authority shall provide a
reasonable opportunity for comment by interested parties, including
subscribers, and, based upon its consideration of such comments, modify
the agreement to the extent it deems appropriate before submitting the
proposal to the cable operator. The local franchising authority need
solicit public comment only once and thus is not precluded from
entering into an alternative agreement that differs from a proposal
that is presented for public comment.
Once a cable operator is subject to rate regulations, the
Communications Act and our rules provide various mechanisms for
resolving disputes regarding rates and the enforcement of regulations
by local franchising authorities. Subscribers and other interested
parties may appeal to the Commission a rate decision made by a
certified local franchising authority concerning the basic service
tier. Our rules also provide for Commission resolution of complaints
regarding rates for CPS tiers. The Commission also may review disputes
between cable operators and certified local franchising authorities
relating to the administration of regulations governing basic service
tier rates. [[Page 14376]]
An appeal of a local franchising authority decision approving an
alternative rate regulation agreement as it applies to basic service
tier rates may be filed with the Commission under our regular
procedures. Since we have determined that the agreed upon rate is by
definition a reasonable rate, the issue before the Commission will be
whether the small system is charging the agreed upon rate and whether
the agreement was entered into consistent with our requirements. We
also believe it would be useful for potential complainants regarding
CPS rates to attempt to resolve their complaints with the local
franchising authority when CPS rates are subject to an alternative rate
regulation agreement. Given the local franchising authority's role as a
party to the agreement, we believe that many CPS rate disputes can be
resolved at that level. Thus, we will require as a prerequisite to a
CPS complaint to the Commission involving an alternative rate
regulation agreement that the complainant provide evidence that he or
she was denied the requested relief from the local franchising
authority. As with basic service rates, in an FCC complaint the
Commission will determine whether the rates are consistent with the
agreement and our requirements.
The Commission will resolve all CPS rate complaints pending at the
time an alternative rate regulation agreement becomes effective under
rules in effect at the time the rates were charged. Parties to an
alternative rate regulation agreement must abide by the Commission's
decision regarding appropriate remedies for unreasonable rates charged
prior to the effective date of an alternative rate regulation
agreement. However, the parties remain at liberty to determine
reasonable CPS rates to be charged upon the effective date of an
alternative rate regulation agreement. We do not believe this will
hinder the negotiation process or implementation of an alternative rate
regulation agreement because both local franchising authorities and
cable operators are served with copies of FCC Form 329 complaints filed
with the Commission by a subscriber and will know the status of any
complaints at the time negotiations commence. In addition, since
entering into an alternative agreement is voluntary, the terms of the
agreement shall be binding as between the cable operator and the local
franchising authority such that neither party shall be permitted to
seek from the Commission relief that is inconsistent with the
agreement. Thus, a local franchising authority may not challenge a rate
permitted under the terms of the agreement and a cable operator may not
seek to increase its rates above what the agreement permits.
We have previously interpreted Section 623(j) of the Communications
Act to preclude grandfathering rate agreements entered into after July
1, 1990, in part because we concluded that grandfathering such
agreements would conflict with the 1992 Cable Act's intent to abrogate
rate agreements entered into after July 1, 1990. The rules we adopt
today, permitting certified local franchising authorities to enter into
agreements with qualifying cable operators with respect to rates, will
be applied in the context of our existing cable rate regulation rules.
These rules will provide a framework consistent with the statute, under
which any such agreements will be negotiated. In addition, our rules
will require local franchising authorities to take into account
specific factors identified by Congress when determining rates for both
basic and CPS tiers. In light of this requirement, we find such
alternative rate agreements, developed in accordance with the statutory
factors Congress identified for establishing rules to ensure that basic
rates were reasonable and that CPS rates were not unreasonable,
consistent with the Communications Act. As such, these agreements do
not pose the kinds of conflicts with the 1992 Cable Act that we
previously identified when we interpreted Section 623(j) as obviating
rate agreements entered into after July 1, 1990.
Administrative Matters
Regulatory Flexibility Act Analysis
Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 601-
612, the Commission's final analysis with respect to the Eighth Order
on Reconsideration is as follows:
Need and Purpose of this Action. The Commission, in compliance with
section 3 of the Cable Television Consumer Protection and Competition
Act of 1992, 47 U.S.C. 543 (1992), pertaining to rate regulation,
adopts revised rules and procedures intended to ensure that cable
services are offered to reasonable rates with minimum regulatory and
administrative burdens on cable entities.
Summary of Issues Raised by the Public in Response to the Initial
Regulatory Flexibility Analysis. There are no comments submitted in
response to the Initial Regulatory Flexibility Analysis. The Chief
Counsel for Advocacy of the United States Small Business Administration
(SBA) filed comments in the original rulemaking order. The Commission
addressed the concerns raised by SBA in the First Report and Order, MM
Docket No. 92-266, FCC 93-177, 58 FR 29736 (May 21, 1993).
Significant Alternatives Considered and Rejected. In the course of
this proceeding, petitioners representing cable interests and
franchising authorities submitted several alternatives aimed at
minimizing administrative burdens. The Commission has attempted to
accommodate the concerns expressed by these parties. In this Order, the
Commission is providing relief to small systems and certified local
franchising authorities by permitting them to enter into alternative
rate regulation agreements that do not require completion of any forms.
Paperwork Reduction Act
The requirements adopted herein have been analyzed with respect to
the Paperwork Reduction Act of 1980 and found to impose new or modified
information collection requirements on the public. Implementation of
any new or modified requirement will be subject to approval by the
Office of Management and Budget as prescribed by the Act.
Ordering Clauses
Accordingly, it is ordered That, pursuant to Section 4(i), 4(j),
303(r), 612, and 623 of the Communications Act of 1934, as amended, 47
U.S.C. 154(i), 154(j), 303(r), 532, and 543 the rules, requirements and
policies discussed in this Eighth Order on Reconsideration, are adopted
and Sections 76.934 and 76.950 of the Commission's rules, 47 CFR
Section 76.934 and are amended as set forth in below.
It is further order That, the requirements and regulations
established in this decision shall become effective April 14, 1995,
with the exception of new reporting requirements which will become
effective on that date or as soon thereafter as they may be approved by
the Office of Management and Budget.
List of Subjects in 47 CFR Part 76
Cable television.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Part 76 of Chapter I of Title 47 of the Code of Federal Regulations
is amended as follows: [[Page 14377]]
PART 76--CABLE TELEVISION SERVICE
1. The authority citation for Part 76 continues to read as follows:
Authority: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat., as
amended, 1064, 1065, 1066, 1081, 1082, 1083, 1084, 1085, 1101; 47
U.S.C. Secs. 152, 153, 154, 301, 303, 307, 308, 309, 532, 533, 535,
542, 543, 552, as amended, 106 Stat. 1460.
2. Section 76.934 is amended by adding paragraph (f) to read as
follows:
Sec. 76.934 Small systems and small operators.
* * * * *
(f) Alternative rate regulation agreements.
(1) Local franchising authorities, certified pursuant to
Sec. 76.910, independent small systems, and small systems owned by
small multiple system operators as defined by Secs. 76.901 and
76.922(b)(5)(A) may enter into alternative rate regulation agreements
affecting the basic service tier and the cable programming service
tier.
(2) Small systems must file with the Commission a copy of the
operative alternative rate regulation agreement within 30 days after
its effective date.
(3) Alternative rate regulation agreements affecting the basic
service tier shall take into account the following:
(i) The rates for cable systems that are subject to effective
competition;
(ii) The direct costs of obtaining, transmitting, and otherwise
providing signals carried on the basic service tier, including signals
and services carried on the basic service tier pursuant to Secs. 76.56
and 76.64, and changes in such costs;
(iii) Only such portion of the joint and common costs of obtaining,
transmitting, and otherwise providing such signals as is determined to
be reasonably and properly allocable to the basic service tier, and
changes in such costs;
(iv) The revenues received by a cable operator from advertising
from programming that is carried as part of the basic service tier or
from other consideration obtained in connection with the basic service
tier;
(v) The reasonably and properly allocable portion of any amount
assessed as a franchise fee, tax, or charge of any kind imposed by any
State or local authority on the transactions between cable operators
and cable subscribers or any other fee, tax, or assessment of general
applicability imposed by a governmental entity applied against cable
operators or cable subscribers;
(vi) Any amount required to satisfy franchise requirements to
support public, educational, or governmental channels or the use of
such channels or any other services required under the franchise; and
(vii) A reasonable profit. The rate agreed to in such an
alternative rate regulation agreement shall be deemed to be a
reasonable rate.
(4) Alternative rate regulation agreements affecting the cable
programming service tier shall take into account, among other factors,
the following:
(i) The rates for similarly situated cable systems offering
comparable cable programming services, taking into account similarities
in facilities, regulatory and governmental costs, the number of
subscribers, and other relevant factors;
(ii) The rates for cable systems, if any, that are subject to
effective competition;
(iii) The history of the rates for cable programming services of
the system, including the relationship of such rates to changes in
general consumer prices;
(iv) The rates, as a whole, for all the cable programming, cable
equipment, and cable services provided by the system, other than
programming provided on a per channel or per program basis;
(v) Capital and operating costs of the cable system, including the
quality and costs of the customer service provided by the cable system;
and
(vi) The revenues received by a cable operator from advertising
from programming that is carried as part of the service for which a
rate is being established, and changes in such revenues, or from other
consideration obtained in connection with the cable programming
services concerned. The rate agreed to in such an alternative rate
regulation agreement shall be deemed to be a reasonable rate.
(5) Certified local franchising authorities shall provide a
reasonable opportunity for consideration of the views of interested
parties prior to finally entering into an alternative rate regulation
agreement.
(6) A basis service rate decision by a certified local franchising
authority made pursuant to an alternative rate regulation agreement may
be appealed by an interested party to the Commission pursuant to
Sec. 76.944 as if the decision were made according to Secs. 76.922 and
76.923.
[FR Doc. 95-6555 Filed 3-16-95; 8:45 am]
BILLING CODE 6712-01-M
