[Federal Register Volume 59, Number 73 (Friday, April 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8998]
[[Page Unknown]]
[Federal Register: April 15, 1994]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MM Docket No. 92-266, FCC 94-38]
Cable Television Act of 1992
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Commission has adopted a Second Order on Reconsideration
and Fourth Report and Order to revise, clarify, and in certain
instances, adopt further, Commission cable rate regulations. The Second
Order on Reconsideration primarily (1) adopts a revised ``competitive
differential''--the average difference that exists between the rates of
competitive and non-competitive cable systems--of 17 percent; (2)
requires all regulated cable systems to establish rates based on the
revised competitive differential unless they justify other rates
through a cost-of-service showing; and (3) establishes special
transition rules that relieve ``low-priced'' systems (as measured by a
revised benchmark that incorporates the 17 percent competitive
differential) and cable systems owned by small operators from reducing
their rates by the full competitive differential pending completion of
an industry cost study to be conducted by the Commission. The Fourth
Report and Order establishes a ``going-forward'' mechanism to govern
future rate adjustments resulting from channel additions or deletions,
or system upgrades. The rules and procedures adopted in this decision
are intended to ensure that subscribers pay reasonable rates for
regulated cable services while encouraging the continued expansion of
cable service offerings.
The Commission has also adopted a Fifth Notice of Proposed Rule
Making, which may be found elsewhere in this Federal Register.
EFFECTIVE DATE: May 15, 1994, except the amendments to Sec. 76.964 will
become effective April 15, 1994.
FOR FURTHER INFORMATION CONTACT:
Joel Kaufman, (202) 416-1164, Aliza Katz (202) 416-0939, Edward Hearst,
(202) 416-0862, or Kathy Franco (202) 416-0956.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Second Order on
Reconsideration and Fourth Report and Order portions of the
Commission's Second Order on Reconsideration, Fourth Report and Order,
and Fifth Notice of Proposed Rulemaking in MM Docket No. 92-266, FCC
94-38, adopted February 22, 1994, and released March 30, 1994.
The complete text of this Second Order on Reconsideration, Fourth
Report and Order, and Fifth Notice of Proposed Rulemaking 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 Second Report and Order on Reconsideration
A. Introduction
In the Report and Order and Further Notice of Proposed Rulemaking
(``Rate Order'') in MM Docket No. 92-266, 58 FR 29736, May 21, 1993,
the Commission adopted cable rate regulation rules and policies
implementing the Cable Television Consumer Protection and Competition
Act of 1992. The Commission's September 1992 Competitive Survey of
cable rates supported Congress' findings that the rates for cable
systems not subject to effective competition reflect pervasive market
power. Congress had defined three types of cable systems subject to
``effective competition'': (1) Cable systems that face head-to-head
competition (``overbuilds''); (2) cable systems operated by
municipalities (``municipal''); and (3) cable systems with low
penetration (``low penetration''). Using the results of its Competitive
Survey, the Commission adopted a ``benchmark'' approach for setting
initial rates for regulated cable service. Under the benchmark
approach, regulated cable systems were required to use a formula
established in the Rate Order to calculate an applicable benchmark--an
estimate of the rate that a cable system subject to effective
competition with similar characteristics would charge. Rates of cable
systems at or below the benchmark were presumed to be reasonable; rates
above the benchmark were presumed to be unreasonable. Cable systems
whose rates exceeded the applicable benchmark were required to set
rates based on September 30, 1992 rate levels reduced either to the
benchmark or by ten percent, the ``competitive differential,''
whichever reduction was less. Alternatively, they could justify their
higher rates with a cost-of-service showing. In our First
Reconsideration Order, the Commission affirmed its decision to use a
benchmark approach, based on rates charged by systems subject to
effective competition, as the primary method for determining the
reasonableness of regulated cable rates.
The petitions for reconsideration filed in this proceeding allowed
the Commission to undertake a comprehensive review of its rate
regulation scheme for cable service. The Second Order on
Reconsideration, which modifies the benchmark approach in several key
respects, amends the Commission's cable rate regulations to ensure both
that the rates consumers pay for regulated cable services are
reasonable and that the Commission's rules continue to promote economic
growth in the cable industry. The specific changes made on
reconsideration are described below.
B. Regulation Governing Rates of Basic and Cable Programming Service
Tiers
1. Impact on the National Economy
The Second Reconsideration Order analyzes the impact of the revised
rate regulations on the Nation's economy, and more specifically, the
effect on innovation, investment, and growth in the cable industry. The
Second Reconsideration Order concludes that the Commission's refined
approach is expected to increase demand for cable services, increase
operators' motivation to invest in advanced technology and to introduce
new services that are not subject to rate regulation, and to protect
subscribers from the burdens of financing new, unregulated offerings
through potential cross-subsidization by the cable industry.
2. Estimating the Competitive Differential
The Second Reconsideration Order strengthens the Commission's
statistical and economic model for estimating the difference between
the rates charged by competitive and noncompetitive cable systems. In
the April 1993 Rate Order, the Commission estimated the competitive
differential to be approximately ten percent. Numerous petitioners
challenged the methodology for deriving that figure on a variety of
grounds. In response to those challenges, the Commission reviewed and
refined its methodology.
Addressing statistical issues identified by commenters and
Commission staff, the Commission used a corrected data set and revised
the treatment of equipment and installation revenues. In calculating
the new competitive differential the Commission also utilized a more
refined economic analysis that reflects more accurate assessments of
the three types of systems that Congress defined as being subject to
``effective competition''--low penetration systems, overbuilds, and
municipals. The Commission also considered other statutory factors, the
facts of record, and the comments of interested parties.
Statistical analysis reveals that each of the three types of
systems has its own competitive differential. Because the three classes
of systems differ from each other, the Commission concluded that it is
more appropriate to consider the competitive differential for each type
of system individually than it is to average the data relating to all
three system types as the Commission previously did. The Commission
also concluded that the statute does not require the Commission to
compute the competitive differential simply by averaging, without
evaluation, the rates charged by the three different types of systems.
Rather, the Act requires the Commission to ``take into account'' or
``consider'' the rates charged by each type in determining reasonable
rates.
The Commission conducted an economic analysis that considered the
competitive differential for each of the three categories of systems
that Congress defined as facing ``effective competition.'' This
analysis revealed that the rates of low penetration systems are not
statistically different as a group from the rates of systems subject to
rate regulation. The Commission concluded that there may be a variety
of reasons other than competitive pressures that account for low
penetration rates, and thus that low penetration systems may not
provide the best basis for determining the competitive differential
that should apply to noncompetitive systems.
The Commission further concluded that systems in the overbuild
sample provide the most informative data with regard to estimating
reasonable rates. The Commission's best estimate of the difference
between the rates charged by overbuilds and noncompetitive systems is
16 percent. That figure takes into account the fact that cable
operators generally do not compete head-to-head in the entire franchise
area they serve. The data revealed that rates decrease as the extent of
competition increases. The Commission corrected for the lack of full
competition throughout an entire franchise area when computing the
competitive differential for overbuild systems.
The Commission also adjusted upward the 16 percent figure to take
into account the fact that because cable operators serving the same
area may adopt parallel or coordinated pricing practices, prices
observed in an overbuild situation may be above the purely competitive
level. The data indicated that the rates charged by overbuild systems
are lowest at the outset of competition and then rise over time. This
is consistent with parallel pricing behavior and strengthens the
conclusion that the best estimate of the overall competitive
differential is greater than the overbuild differential of 16 percent.
The largest differential, 37 percent, arose in the comparison of
the rates charged by noncompetitive systems with the rates charged by
municipal systems and the privately owned systems that compete with
them. While this differential may be the most accurate measure of the
competitive differential because government-operated entities may be
presumed to charge reasonable rates and have no incentive to engage in
parallel or tacitly coordinated pricing practices, municipal systems
may not be earning a profit. The record evidence on this point is
inconclusive. Because of these concerns, the Commission separately
examined the rates charged by the privately-owned cable systems in the
sample of ``municipal'' systems. The competitive differential is
equally large for these private systems, which suggests that the rates
charged by the public and private systems in our municipal sample are
reasonable. However, in view of the small number of systems in the
municipal category (only eleven), the Commission did not rely as
heavily on municipals as it otherwise might have in estimating the
overall competitive differential.
After reviewing the data from all three types of non-regulated
systems, but giving the most emphasis to the data relating to
overbuilds, the Commission selected 17 percent as the revised
competitive differential. The Commission was guided by the 16 percent
competitive differential between noncompetitive systems and overbuilds
accounting for full head-to-head competition. The Commission moved
upward from 16 percent to reflect the conclusion that cable operators
in an overbuild situation are likely over time to develop a tacit
understanding of rate levels that may limit the intensity of rate
competition. However, the Commission did not depart upward as far as it
might have, despite the evidence relating to municipal systems, on
account of concerns about the interpretation of the data in the
municipal subsample, on account of its consideration of low penetration
systems, and its belief that consumer welfare is best served by
financially sound cable operators.
This 17 percent rate reduction is not in addition to the prior ten
percent rate reduction that some operators already have applied.
Rather, those operators that have already established rates based on a
ten percent competitive differential will only be required to adjust
rates by approximately seven percent, according to the methodology
specified by the Commission.
3. Applying the Competitive Differential
The April 1993 Rate Order required some, but not all,
noncompetitive cable operators to lower their rates to avoid refund
liability. Only those regulated operators with rates ten percent or
more above the benchmark were required to come down ten percent.
Operators with rates less than ten percent above the benchmark were
required to reduce their rates only to the benchmark which was the
average per-channel rate charged by similar effectively competitive
systems. Those cable operators with rates below the benchmark were not
required to reduce their rates at all. This approach implicitly assumed
that all cable operators' costs are similar, so that only high
subscriber rates reflect the exercise of market power.
Based on its refined statistical analysis, and as confirmed by
numerous economic studies, the Commission, on reconsideration,
concluded that generally noncompetitive cable systems, not just systems
charging relatively higher rates, exercise market power. Given the
absence of industry-wide data, however, the Commission has not been
able to identify the underlying cost and demand factors with sufficient
precision to allow constructing an estimate of market power on a
system-by-system basis.
The Second Reconsideration Order applies the same 17 percent
adjustment to all regulated cable systems rather than assigning
different adjustments to different systems. To avoid refund liability,
regulated cable systems, that are not eligible for transition relief as
discussed below, are required by May 15, 1994 either (1) to set their
rates so that their regulated revenues per subscriber do not exceed
September 30, 1992 levels reduced by the revised competitive
differential of 17 percent (with certain adjustments described below),
or (2) to submit a cost-of-service showing supporting higher rates. Two
limited classes of noncompetitive cable systems, small operators
(defined as cable companies serving 15,000 or fewer subscribers) and
systems charging relatively low prices (as measured by a revised
benchmark) are not required to adjust their rates in this manner until
the Commission completes an industry cost study. These two categories
of systems are entitled to ``transition relief.'' The specific
calculations a regulated cable system will need to use to apply the
revised benchmark system are set forth in new FCC Form 1200.
For all cable systems subject to regulation, the rates permitted
for the period from September 1, 1993 until May 15, 1994 (the effective
date of these new rules), and refund liability with respect to such
rates, will be determined by our initial rate regulations adopted on
April 1, 1993. The lawfulness of rates in effect on or after May 15,
1994, and refund liability with respect to such rates, will be
determined in accordance with the new rules adopted in the Second
Reconsideration Order.
Systems not entitled to transition relief. Regulated cable systems
that are not entitled to transition relief are those systems (1) owned
by an operator serving more than 15,000 total subscribers or affiliated
with a larger operator, and (2) whose rates, after applying the full 17
percent competitive differential, with certain adjustments, are above
the revised benchmark. These systems will be required to set their
rates at a level that equals their September 30, 1992 regulated
revenues per subscriber reduced by the revised 17 percent competitive
differential and adjusted forward as described below. Regulated systems
wishing to support higher rate levels must submit a cost-of-service
showing.
After reducing its regulated September 30, 1992 rate levels by the
17 percent competitive differential, regulated systems are allowed to
include in their permitted regulated rates: (1) The inflation occurring
between October 1, 1992 and September 30, 1993; (2) changes in external
costs that have occurred since the system became subject to initial
regulation at either the local or federal level (or February 28, 1994,
whichever was earlier); and (3) changes that have resulted from the
addition or deletion of program channels to regulated service tiers
since September 30, 1992. The resulting rate is referred to as the
``full reduction rate.''
A system whose rate level being justified is above its full
reduction rate level must reduce its rate to the full reduction rate
level, (measured by the system's average regulated revenue per
subscriber) unless it qualifies for transition treatment, as discussed
below. By contrast, a system whose rate level being justified is below
the full reduction rate will be permitted to raise its rate level up to
the full reduction rate level. This is because the full reduction level
establishes the reasonable rate level for that system under our rate
regulations. Any cable system that sets its rates at the full reduction
rate level will be entitled to adjust those rates in the future for
annual inflation, changes in external costs, and changes in the number
of regulated channels. Operators will use FCC Form 1210 to make these
adjustments. Relevant dates for calculating these adjustments are
discussed below.
(i) Inflation adjustment. Cable systems are eligible to file for an
inflation adjustment for the period beginning October 1, 1993 and
ending June 30, 1994 once the final Gross National Product Fixed Weight
Price Index (GNP-PI) for the quarter ending June 30, 1994 is released.
The Commission uses the June 30 cycle for inflation because the final
GNP-PI is generally released 90 days after the end of each quarter.
Thus, operators will have the final GNP-PI figure for June 30, 1994 by
September 30, 1994, the time for the first annual rate adjustment.
(ii) Changes in external costs. To simplify operators' external
cost calculations and to enable regulators to better monitor future
rate increases, the Commission modifies its rules on its own motion to
provide for a single start date for the accrual of permitted external
costs. That date will be the earliest of (1) the date of initial
regulation for the basic service tier, (2) the date of initial
regulation for cable programming services, or (3) February 28, 1994.
(iii) Changes resulting from the addition or deletion of channels.
Permitted changes in rate to reflect changes in the number of channels
on regulated tiers are governed as follows: Channels added to or
deleted from regulated tiers between September 30, 1992 and the date of
initial regulation (or February 28, 1994, whichever occurs earlier) are
handled through application of the old benchmark methodology pursuant
to the calculations set forth in FCC Form 393. Channel changes that
occur between the date of initial regulation (or February 28, 1994,
where applicable) and the effective date of the new rules are accorded
external cost treatment only (to reflect changes in programming costs),
since going-forward rules to govern those changes had not yet been
adopted. Channel changes occurring after the effective date of the new
rules will be governed by the going-forward methodology adopted in The
Fourth Report and Order, discussed below.
System entitled to transition relief. Systems eligible for
transition relief will not be required to make the full reduction
otherwise required until the Commission has conducted an industry
price/cost study, and determined whether such a reduction is not
inappropriate. The relevant price/cost data will be aggregated and
analyzed so that it can be applied on an industry-wide, rather than a
system-by-system, basis. Systems entitled to transition relief may
elect to make a cost-of-service showing to justify higher rates at the
end of the transition period. At the conclusion of the Commission's
analysis, systems eligible for transition relief will be required to
make the full 17 percent reduction unless the analysis reveals that the
17 percent differential is inappropriate for these systems.
(i) Systems owned by small operators. The first category of system
eligible for transition relief consists of systems owned by ``small
operators,'' defined as cable operators that have a total subscriber
base of 15,000 or fewer customers and that are not affiliated with a
larger operator. Systems owned by ``small operators'' will not be
required to reduce rates to the full reduction level immediately.
Instead, they will be allowed to cap their rates at their March 31,
1994 levels until completion of the Commission's price/cost study.
As with other operators subject to transition relief, systems owned
by small operators will be required to apply the full 17 percent
competitive differential unless the price/cost data the Commission
collects demonstrates that a smaller competitive differential should be
applied to them. Systems owned by small operators will not be required
to apply more than the full 17 percent competitive differential,
regardless of the results of the Commission's price/costs analysis.
For purposes of determining eligibility for transition relief,
systems owned by ``small operators'' are defined as systems that are
owned by operators with a total subscriber base of 15,000 or less as of
March 31, 1994, and that are not affiliated with or controlled by
larger operators. For purposes of determining whether a larger company
has a sufficiently significant interest in, or control over, a small
operator, transition treatment is withheld from small operators in
which a larger company holds more than a 20 percent equity interest
(active or passive) or over which a larger company exercises de jure
control (such as through a general partnership or majority voting
shareholder interest).
If a small operator subsequently purchases, or is purchased by,
another cable operator so that the combined subscriber base of the two
operators exceeds 15,000, the small operator will not be required to
forfeit its transition treatment simply because an acquisition has
occurred. The Commission will grandfather the rate treatment of the
small operator pending completion of its cost analysis. The
grandfathered treatment will apply only to the systems originally owned
by the small operator, and will not extend to the new systems it has
acquired (or with which it has been merged).
A system owned by a small operator on March 31, 1994 entitled to
transition treatment will not lose its eligibility simply because the
operator's business grows above the 15,000 subscriber limit prior to
completion of the price/costs analysis. Similarly, an operator that
exceeds the 15,000 subscriber cut-off on March 31, 1994 will not gain
eligibility for transition relief if it subsequently loses sufficient
subscribers to bring it below the 15,000 subscriber limit.
Operators whose subscriber base exceeds 15,000 total subscribers by
no more than 1,000 subscribers may petition the Commission for
emergency relief entitling them to transition treatment. Such petitions
should be based on a showing that not treating the operator as a
``small operator'' will cause substantial hardship. A major factor in
making this determination will be evidence regarding the operator's
price/cost margin.
(ii) Low-price systems. The second class of regulated cable systems
entitled to transition treatment are (1) those whose March 31, 1994
rates are below the revised benchmark, and (2) those whose March 31,
1994 rates are above the revised benchmark but whose full reduction
rates are below the revised benchmark. These systems are charging
comparatively low prices when measured against other noncompetitive
systems, as indicated by their position relative to the new benchmark.
Because their prices are significantly lower than those charged by
most noncompetitive systems, systems in this second class may face
unusual demand, costs or other factors that have not been captured in
our analysis to date. Accordingly, to study this issue further, the
Commission will grant transition treatment to the above described cable
systems with relatively low prices. However, the record evidence to
date is insufficient to conclude that these systems should ultimately
be exempted from the requirement to apply the full revised competitive
differential. Thus, as with small operators subject to transition
relief, systems with relatively low prices will be required to apply
the full 17 percent competitive differential if additional analysis of
their costs fails to demonstrate that a smaller competitive
differential should be applied to them. Low-priced systems will not be
required to apply more than the 17 percent competitive differential at
the conclusion of the price/cost analysis.
In order to determine whether they are ``low-price'' systems
entitled to transition relief, all systems that do not qualify for
transition treatment under the ``small operator'' definition will be
required to compare their March 31, 1994 rates to the new benchmark and
to their full reduction rates using FCC Form 1200. Systems whose March
31, 1994 rates are below the revised benchmark, or whose March 31, 1994
rates are above the revised benchmark but whose full reduction rate is
below the revised benchmark, will be eligible for transition treatment.
To compare its rates to the new benchmark, a cable system will
first calculate its ``regulated revenue per subscriber'' for the
franchise area at issue as of March 31, 1994. The ``regulated revenue
per subscriber'' is the cable system's revenue from its basic and cable
programming service tiers, plus its regulated equipment revenue,
divided by its number of subscribers. The cable system will then
calculate its ``benchmark regulated revenue per subscriber'' using the
revised benchmark formula. FCC Forms 1200 (Setting Maximum Initial
Rates) and 1205 (costs of regulated cable equipment and installation)
will be available on a computer disk. The benchmark rate will be based
on the system's characteristics as of March 31, 1994. The benchmark
rate will incorporate the 17 percent competitive differential and will
be adjusted for inflation to enable the cable system to make a proper
comparison between its March 31, 1994 rates and the benchmark. This
inflation adjustment is necessary because the benchmark formula is
based on data reflecting industry rates as of September 30, 1992.
Application of transition relief. Regulated cable systems eligible
for transition relief, either because they are owned by small operators
or because they are low-price systems, will not be required to adjust
their rates to the full reduction rate level pending completion of the
Commission's price/cost analysis. Rather, systems that are owned by
small operators and systems whose March 31, 1994 rates are below the
revised benchmark will not have to make any reductions at this time.
Systems whose March 31, 1994 rates are above the revised benchmark but
whose full reduction rates are below the revised benchmark will only be
required to reduce those rate levels to, and not below, the revised
benchmark during the transition period.
For purposes of applying the new rate rules, a system's March 31,
1994 rate is the rate that the system was permitted to charge under the
old benchmark system, which in turn would consist of its initial
permitted rate plus any external costs that it is permitted to accrue
up to March 31, 1994. Some systems have already become subject to
regulation at the local or federal level, and some have not. If, on
March 31, 1994, a system is involved in a pending rate proceeding
before either its local franchising authority or the FCC, its March 31,
1994 rate will be the rate that the regulator ultimately decides is
reasonable. This reasonable rate must include the external costs to
which the system was entitled between the date of initial regulation
for any tier (or February 28, 1994, whichever is earlier) and March 31,
1994. If the March 31, 1994 rates used by the operator on FCC Form 1200
are subsequently found not to be lawful by a local or federal
regulator, the operator will be required to update the rates submitted
in the form to reflect the proper rates.
The operator also will be subject to refund liability for the
period during which its March 31, 1994 rate may have been unlawfully
high as measured under the Commission's current rules. The system's
refund liability will cover any period during which it had such
liability under application of the Commission's initial benchmark
regulations. It will also, however, exist after May 15, 1994 under the
revised rules and will be measured by the difference between the
system's actual March 31, 1994 rate and the rate that the regulator
ultimately determines was reasonable under the old benchmark rules. Any
refund liability under the revised regulations will terminate when the
system adjusts its rates to reflect the regulator's determination.
Systems entitled to transition treatment from immediate application
of the full competitive differential are not relieved of other
requirements concerning the restructuring of equipment and program
service offerings. Thus, all regulated systems except those excused by
specific provisions in the Commission's rules remain required to (1)
set equipment rates at cost (including a reasonable profit), (2)
unbundle equipment charges from programming rates, and (3) apply an
average rate per channel when setting program tier charges. These
requirements will not apply, however, to small systems serving 1,000 or
fewer subscribers that are eligible for, and elect to implement,
streamlined rate reductions, as long as they implement a 14 percent
line-item reduction for each regulated rate component that appears on
subscribers' bills.
Systems eligible for transition relief will be subject to a
modified price cap pending completion of the Commission's price/cost
analysis. These systems will have to compute their full reduction rate
and their transition rate. For systems owned by small operators and
systems with below-benchmark rates, their ``transition rate'' will be
their March 31, 1994 rate, as appropriately updated since that date.
For systems whose March 31, 1994 rate is above the benchmark, but whose
full reduction rate is below the benchmark, their ``transition rate''
will be the benchmark rate, as appropriately updated. Systems entitled
to transition treatment may increase their rates to reflect increases
in external costs and increases caused by channel changes that accrue
after March 31, 1994. Such systems may not increase their transition
rates due to increases in inflation until the transition rate equals
their full reduction rate. Under the revised rules, a system's full
reduction rate--which, unlike its transition rate, rises with inflation
as well as with changes in external cost and channel changes--may
eventually exceed the transition rate. At the point when the transition
rate and the full reduction rate become equal (if such a point occurs
during the transition period), the system will be entitled to adjust
its rate upward to take advantage of all future inflation adjustments.
Regulated rates at the end of the transition period. In the near
future, the Commission will initiate an industry cost study pursuant to
its cost-of-service rulemaking proceeding. Information about the prices
and costs of small operators and low-price systems will be collected as
part of that effort. In addition, the Commission will shortly issue a
further notice in this proceeding to enable these systems to submit
additional evidence to us concerning their prices and costs.
Based on this information, the Commission will determine what
competitive differentials ultimately are most appropriate for the two
classes of systems eligible for transition relief. The Commission will
apply the differentials for each category on a classwide basis, unless
operators elect to make cost-of-service showings. Neither class will be
subject to a competitive differential greater than 17 percent. Subject
to that limitation, the Commission will apply the largest competitive
differential that is consistent with the average operator in each class
earning no more than 11.25 percent rate of return.
Once the appropriate competitive differential has been applied to a
system, that system will be entitled to an ``aggregate inflation
adjustment'' equal to all GNP-PI inflation adjustments for the period
beginning October 1, 1992 through the most recent June 30. To the
extent a system has already received some inflation adjustment for that
period, the system will receive the net of the aggregate inflation
adjustment minus any inflation adjustment already received. In either
case, after the end of the transition period, a system will be eligible
for additional inflation adjustments on an annual basis, but no earlier
than September 30 of each year, when the final GNP-PI through June 30
of each year is released.
Calculation of refund liability. In general, regulated systems who
select the benchmark approach to setting rates will be required to
comply with the revised rules by May 15, 1994 in order to avoid refund
liability. However, to reduce the burden on cable systems that cannot
conform their regulated rates to the new benchmark approach by the
effective date of the revised rules, the Commission will not impose
refund liability on such systems for an additional 60 days after May
15, 1994 (i.e., until July 14, 1994), as along as certain conditions
are met. First, systems wishing to take advantage of this deferral of
refund liability may not change any rate for regulated service or
equipment, or restructure any regulated service or equipment offering
(by, for example, removing program channels from what would be
regulated service tiers and placing them into an ``a la carte''
package), during the period that runs from March 30, 1994, the release
date of this Order, to July 14, 1994. Moreover, a cable system that
does restructure its rates and service offerings, even in compliance
with the Commission's rules, before July 14, 1994 will have its refund
liability triggered on the date the restructuring occurs.
Second, cable systems taking advantage of the refund deferral
period must still give at least 30 days notice to subscribers of any
rate or service changes they ultimately make in response to the new
rules, as required under the Commission's revised notification
provisions, discussed below.\1\ Also, if the operator elects to take
advantage of the deferral of refund liability period, it must notify
the local franchising authority by June 14, 1994 (the date on which its
rate justification is due) that it is electing that option. The system
will then have 30 days from the date on which it ultimately
restructures its rates to submit the relevant FCC forms, although in no
event will such forms be filed more than 30 days after July 14, 1994,
the last date of the refund liability deferral period.
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\1\The Commission is preempting any local and state requirements
that require cable systems to give more than 30 days notice of rate
and service changes to subscribers where application of the local
and state provisions would serve to prevent a system from bringing
its rates into compliance with the new benchmark rules by the end of
the refund deferral period.
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Third, all rate and service restructuring must be completed by July
14, 1994 (the end of the 60-day deferral period) in order to avoid
refund liability. Restructuring is considered to be completed when
bills reflecting the rate and service changes have been issued to
subscribers. If an operator has a staggered billing cycle, the relevant
date will be the date on which the first cycle of bills is mailed, as
long as the billing cycle is completed within 30 days from that date.
An additional two months beyond the effective date of the Commission's
new rules provides cable systems adequate time in which to familiarize
themselves with the regulations and take the necessary actions to
comply.
Notice to Subscribers. The Second Reconsideration Order modifies
current rate regulations to require that cable systems give 30 days
notice to both subscribers and franchising authorities before
implementing any rate or service changes. Cable systems will have to
identify on subscriber bills to precise amount of any rate change and
briefly explain its cause (e.g., inflation, changes in external costs
or the addition/deletion of channels (identified by name)). This
information must be presented in a way that enables the average
subscriber to understand readily why his or her rates have increased or
decreased.
In addition, systems are required to notify subscribers of their
right to file complaints with the Commission about rate changes for
cable programming services and associated equipment. This notice shall
(1) indicate that subscribers may file such complaints within 45 days
of the change being reflected in their bill, and (2) provide the
address and phone number of the local franchising authority and the
Commission.\2\
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\2\The address of the Commission is Federal Communications
Commission, Cable Services Bureau, Consumer Protection Division, 191
M Street, NW., Washington, DC 20554. The phone number is 202-416-
0856.
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These notice requirements are effective immediately upon
publication of the revised rules in the Federal Register. The
Commission finds good cause to make these requirements effective on
less than 30 days notice in the Federal Register. See 5 U.S.C. Section
553(d)(3). Good cause exists because it is important that the notice
provisions set forth above apply to rate changes made pursuant to this
Order. Were the normal 30-day period to apply, it would be possible for
cable operators to revise their rates pursuant to this Order without
complying with the notice provisions. For example, a cable operator
would send a notice of rate changes pursuant to this Order on May 13,
1994, complying only with the notice requirements previously in effect
and not providing, for example, the address and phone number of the
Commission.
In addition, the Commission is requiring that all cable system
bills to subscribers contain the address and phone number of the local
franchising authority and the Commission.
Procedural issues for franchising authorities. With one exception,
franchising authorities and cable operators shall follow timeframes
already established in Secs. 76.930 and 76.933 of the Commission's
Rules for proceedings that were initiated before the effective date of
this Order. Adoption of this Order generally does not affect the basic
deadlines to which local authorities and operators must adhere for
resolving pending rate cases under the Commission's initial benchmark
regulations. Moreover, as detailed below, all operators involved in a
pending case will be required to submit a rate justification on the
required FCC Forms within 30 days after the revised rules take effect
on May 15, 1994.
There are generally five points in the rate-setting process that a
local franchising authority and cable operator may be on May 15, 1994.
The first is where the franchising authority has not certified to
regulate basic rates by that date, or has certified but has not yet
notified the operator that it is commencing basic rate regulation. In
this case, the cable system will be required to file both an FCC Form
393 and new FCC Form 1200 30 days after the local authority notifies it
that the authority is initiating rate regulation of the basic service
tier. It will be not be necessary to file an FCC Form 393, however, if
the one-year time limit on the operator's refund liability precludes
any possibility of refund for the period before the effective date of
the revised rules. FCC Form 393 will be used to determine the
operator's permitted rates from September 1, 1993 until May 15, 1994,
and FCC Form 1200 will be used to determine its permitted rates after
May 15, 1994. The franchising authority will then be expected to
examine both filings within the timeframes established in section
76.933 of the Commission's Rules.
Second, if, by May 15, 1994, a franchising authority has notified
the cable operator that it has become certified, but the operator has
not yet submitted the required FCC form (e.g., because the 30 day
response period has not lapsed), the Commission will require the cable
operator to file both FCC Form 393 and new FCC Form 1200 within 30 days
after May 15, 1994. This limited deviation from Sec. 76.930 of the
Commission's rules, which requires the cable operator to file its
schedule of rates within 30 days of the date of a written request from
the franchising authority, is justified because it will allow the
operator to complete both forms simultaneously, with minimal disruption
to the franchising authority. The franchising authority will be
expected to examine both filings within the time periods established in
Sec. 76.933. There is one exception to this rule. In the Commission's
Third Reconsideration Order in this docket, the Commission makes clear
that franchising authorities have the power to impose sanctions,
including findings of default, on cable operators who fail to file
documents relevant to a rate determination in response to requests from
the franchising authority. The Commission will permit any cable
operator who has not filed a requested FCC Form 393 within the 30 day
time period established in Sec. 76.930 to do so by the effective date
of these rules. If the operator fails to do so, the franchising
authority will be permitted to apply the sanctions outlined in the
Commission's Third Reconsideration Order in this docket.
Third, if, by May 15, 1994, a franchising authority has received
the cable operator's filing for justifying rates under the old
benchmark system but has not reached a final decision pursuant to
Secs. 76.933 or 76.936 of the Commission's rules, the Commission
expects the franchising authority to follow all existing timeframes
with respect to that part of the proceeding.\3\ The cable operator in
this situation will also be required to file new FCC Form 1200 with the
franchising authority within 30 days of May 15, 1994. The franchising
authority will then resolve the second portion of the proceeding, in
which it will evaluate the cable operator's rates under the revised
rules, within the timeframes established in Sec. 76.933.
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\3\Franchising authorities are reminded that they may issue an
accounting order requesting that the cable operator keep a record of
its rates if the authority is unable to reach a rate determination
within the prescribed time period. See 47 CFR 76.933(c). If the
authority later determines that the operator's basic rates were
unlawfully high, the operator's refund liability will extend from
the date the accounting order was issued up to the date on which the
operator eventually adjusts its rate in response to the franchising
authority's decision, and then back for a period not to exceed one
year. See 47 CFR 76.942(c); Rate Order at para. 142, n. 376.
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Fourth, if, by May 15, 1994, a franchising authority has reached a
final decision about the lawfulness of an operator's basic rates under
the Commission's initial rate rules, the Commission will require the
cable operator to file new FCC Form 1200 within thirty days of May 15,
1994. The franchising authority will then examine the form pursuant to
the time frames established in Sec. 76.933.
Finally, if a franchising authority has reached a final decision on
the cable operator's rates, and a rate increase request is pending as
of May 15, 1994, the cable operator will be required to file new FCC
Form 1200 within thirty days of May 15, 1994. The rate increase request
will then be evaluated pursuant to the data submitted on the FCC Form
1200, rather than by any data that had already been submitted by the
operator in support of its rate increase request. Operators will be
able to file rate justifications after June 30, 1994 to reflect
external costs incurred during the second quarter of 1994.
Pending complaints before the commission. Unless the Commission has
issued a decision on a pending complaint before May 15, 1994, the
operator about whom the complaint was made must file an FCC Form 1200
in addition to the FCC Form 393 it either has filed or must file. Such
operators will be subject to refund liability calculated under the
Commission's initial regulations for rates that were in effect from
September 1, 1993 until May 15, 1994 (although any refund liability
will not start until the complaint was filed). Refund liability with
respect to rates charged on and after May 15, 1994 will be calculated
pursuant to the revised rules adopted in this Order. As with basic tier
regulation, if the operator elects to take advantage of the deferral of
refund liability period, it must notify the Commission by the date on
which its rate justification on an FCC Form is due that it is electing
that option. The system will then have 30 days from the date on which
it ultimately restructures its rates to submit the relevant FCC forms,
although in no event will such forms be filed more than 30 days after
July 14, 1994, the last date of the refund liability deferral period.
To the extent there is a complaint regarding cable programming
service tier rates pending before the Commission, the Commission will
continue to require the cable operator in question to file notice of
any changes in rates with the Commission. This notice must be filed at
least 30 days before such rates are proposed to be effective. This
notice is necessary to allow the Commission to ensure that the cable
service tier rate is not unreasonable.
4. Commission Authority to Adopt the Modified Ratemaking Approach
The Second Reconsideration Order concludes that the modified
ratemaking approach the Commission adopts is consistent with its
statutory authority under the Cable Act of 1992. Section 623(b)(1) of
the Communications Act, 47 U.S.C. section 543(b)(1), mandates that the
Commission ensure that rates for the basic service tier are
``reasonable.'' In addition, regulated upper tier rates may not be
``unreasonable.'' Section 623(c)(1), 47 U.S.C. section 543(c)(1). The
Cable Act does not compel the use of a specific ratemaking model to
ensure that rates are reasonable; while setting forth various factors
the Commission must consider in establishing its ratemaking approach,
the statute leaves to the Commission the way in which these factors
should be taken into account. Congress specifically rejected mandating
use of a formulaic approach to cable rate regulation.
Affording wide latitude to the Commission in discharging its
ratemaking functions is consistent with legal precedent. The courts
recognize that regulatory agencies generally have broad discretion to
choose methods and procedures in ratemaking determinations, provided
the rates are within a ``zone of reasonableness.''\4\ By choosing to
require that basic rates be ``reasonable'' and that upper tier rates
not be ``unreasonable,'' Congress has invoked this general body of law
for application under the Cable Act. The Commission was instructed to
consider the factors enumerated in the Cable Act and to its expertise
to achieve Congress's overall goal of ensuring ``reasonable'' rates for
subscribers.
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\4\See Permian Basin, 390 U.S. at 800; FTC V. Natural Gas
Pipeline Co., 315 U.S. 575, 586 (1942); United States v. FCC, 707 F.
2d at 618.
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In response to NYNEX's petition for reconsideration, the Commission
revisited and refined its approach to analyzing the competitive sample
for purposes of estimating the competitive differential. While
rejecting NYNEX's recommendation to exclude the rates of low
penetration systems from the competitive samples, the Commission's
revised approach more appropriately considers the rates charged by all
three categories of systems (low penetration systems, overbuilds, and
municipals) that are deemed to be subject to effective competition
under section 623(1)(1) of the Act, 47 U.S.C. section 543(l)(l).
The revised competitive differential of 17 percent is a more
accurate reflection of the overall competitive differential, and based
on a sounder methodology, than the previous figure of ten percent. The
previous approach simply averaged the data from all systems subject to
effective competition. The Second Reconsideration Order more closely
analyzes the data from all three types of systems, and uses a
qualitative, rather than arithmetic, analysis to determine the
differential whose application best approximates the ``reasonable''
rate that would be charged by a system that faces effective
competition. The revised competitive differential of 17 percent also
reflects the Commission's analysis of the various factors that Congress
instructed the Commission to take into account.
While modifying the way in which the three statutory classes of
systems deemed to be subject to effective competition are taken into
account in arriving at the competitive differential, the Commission
continued to consider all three categories to accomplish the goal of
setting ``reasonable'' rates that are no higher than the rates of
systems subject to ``effective competition'' as defined by Congress.
The modified competitive differential establishes ``reasonable'' rates,
that is, rates approximating what would be charges if cable systems
faced effective competition.
The refined approach is consistent with the previous determination
that ``cable systems with less than 30 percent penetration should
continue to be included in the sample of systems subject to effective
competition.'' While the Commission determined that it may not exclude
from the competitive sample the rates of one of the category of systems
that Congress deemed to be subject to ``effective competition,''
nothing in the Cable Act of 1992 mandates estimating a competitive
differential simply by averaging the per-channel rates charged by all
of the systems included in the competitive sample and comparing that
average to the average per-channel rate charged by the systems in the
noncompetitive sample. In addition, giving more weight to the data
relating to overbuild systems--systems that actually compete against
one another to some extent--is consistent with Congress's finding that
``[w]ithout the presence of another multi-channel video programming
distributor, a cable system faces no local competition,'' and ``[t]he
result is undue market power for the cable operator as compared to that
of consumers.''\5\
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\5\That finding was set out in section 2(a)(2) of the Cable Act
of 1992, 106 Stat. 1460, which was not codified.
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The Cable Act requires the Commission to take into account several
factors in prescribing its rate regulations for the basic and cable
tiers, many of which are cost based. Because the Commission recognizes
that application of the competitive differential would not result in a
reasonable rate for every cable system, but would instead set the rates
of some systems below the amount that a cable operator without market
power would charge, the Commission, in a separate proceeding, also
adopts revised ``cost-of-service'' regulations that will permit cable
operators to choose not to apply the competitive differential, but
instead to have their rates set according to procedure analogous to
those used to set the rates of public utilities. The optional ``cost-
of-service'' rules are based largely on the costs and revenues of cable
companies. The existence of the cost-of-service ``safety valve''
affects the Commission's determination of the competitive differential
by allowing us to estimate it most accurately, secure in the knowledge
that those operators for whom the Commission's competitive differential
is inaccurate may choose not to use it.
In certain respects, the revised approach is analogous to the
judicially approved manner in which the Commission prescribes a rate of
return for telephone companies. In the telephone context, the
Commission selects a prescribed rate of return from within a broad
``zone of reasonableness'' that is bounded generally on the upper end
by rates that would be unreasonably high from the perspective of
consumers and on the lower end by rates that would not sufficiently
protect the interests of investors in the regulated enterprise. In
selecting the prescribed rate of return within this broad range of
permissible rates, the Commission considers numerous factors that go
into the ratemaking decision, according greater or lesser weight to
individual factors on the basis of the record and in the exercise of
its judgment and expertise. This is what the Commission did in
selecting the revised competitive differential.
In addition to adjusting the competitive differential, the other
key change made with respect to rate calculations in this Order is the
decision to apply the competitive differential to all non-competitive
cable systems, although the full 17 percent rate reduction will not be
required for operators with relatively low rates or for small operators
while the Commission studies the prices and costs these operators
experience. This decision reflects a reasonable balancing of various
policy and legal considerations. Nothing in the statute suggests that
the Commission was required to use a benchmark approach. Nor does
anything in the current record suggest that the competitive
differential should not be applied to all regulated operators, and
economic theory suggests that cable operators with market power will
exercise it. However, cable operators with relatively low rates may not
be exercising market power to the same degree as those with higher
rates, and small operators may be more vulnerable to harm than larger
operators by the application of the competitive differential. Absent
cost data, the Commission cannot determine whether a revision of the
competitive differential for cable operators with relatively low rates
and small operators is warranted. In those circumstances, it is
reasonable ultimately to apply the competitive differential to all
regulated operators unless cost data indicates otherwise.
5. The Price Cap Governing Cable Service Rates
Calculation of external costs. The April 1993 Rate Order determined
that rates for regulated cable services would be governed by a price
cap once initial regulated rates were set, and that cable operators
could adjust capped rates annually for inflation based on the gross
national product fixed weight price index (GNP-PI). The Rate Order also
provided that cable operators could pass through to subscribers
increases in certain categories of external costs, including new
retransmission consent fees incurred after October 6, 1994, other
programming cost increases, taxes, franchise fees, and the costs of
other franchise requirements. External cost recovery (except for
franchise fees)\6\ was permitted only to the extent that the increases
exceed the rate of inflation. Cable operators could pass through to
subscribers any changes in external costs that accrued after the
earlier of the initial date of regulation of the tier at issue or 180
days after the effective date of the Commission's initial regulations.
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\6\Changes in franchise fees were allowed to result in an
adjustment to permitted charges, but were to be calculated
separately as part of the maximum monthly charge per subscriber for
a tier of regulated programming service. See 47 CFR 76.922(d)(2)(v).
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The Commission subsequently decided that operators could file rate
increases no more than quarterly on account of external cost increases,
and that operators must reduce permitted rates to reflect any decreases
in external costs. Such decreases must be reflected in any filings the
operator makes for inflation or increases in external costs and, in any
event, all decreases must be reflected in the operator's rates within
one year from when they occurred. The Commission established special
rules for adjusting quarterly external cost increases for annual
inflation. Thus, operators may adjust their regulated rates annually by
inflation and up to quarterly by the net change in external costs, but
any change in external costs must also be measured against inflation
and adjusted for the corrected inflation rate.
In order to simplify making these rate adjustments, the Second
Reconsideration Order reconsiders the rules in this area. First, the
Second Reconsideration Order separates the inflation adjustment from
the external cost adjustment. Under the new approach, an operator will
determine the actual level of its external costs, and then remove this
amount from the total charge for the affected service tier, leaving a
``residual.'' The ``residual'' will be adjusted for inflation on an
annual basis, but no earlier than September 30 of each year, when the
final GNP-PI through June 30 of each year is released, and no later
than December 31 of each year.\7\ By contrast, the external cost
component that does not include the ``residual'' may be adjusted
quarterly for net changes in external costs.
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\7\An operator must make its inflation adjustment by the end of
the calendar year if it wishes to change its rates for the changes
in inflation that have occurred.
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Because the residual rate that is adjusted for inflation does not
reflect the operator's external costs, there is no possibility of
double recovery of external cost increases. Therefore, operators need
not compare changes in external costs to inflation, as under the
Commission's initial approach, nor later adjust external cost increases
based on the annual inflation rate. The Commission adopts this approach
because it will produce the same rates as that specified in the Rate
Order, but should be simpler to apply.
In the absence of a showing that a rate increase is necessary to
avoid confiscation, operators may file rate increases no more
frequently than quarterly to reflect increases in external costs.
However, to simplify the filing procedures, all systems are required to
use calendar year quarters, rather than quarters that begin on the date
the tier at issue became subject to regulation. This change is
reflected in the new forms operators are required to support their
rates under the revised rules. The forms also ensure that operators are
compensated for all changes in external costs that have occurred since
the relevant starting date. The Commission also modifies its rules to
permit operators to accrue external costs for any program service tier
from the date on which the first of the operator's tiers became subject
to regulation (or February 28, 1994, whichever was earlier). Operators
may file for a rate increase on account of changes in external costs as
soon as the information necessary to make the change is available. The
Second Reconsideration Order retains the requirement that any filing to
reflect increases in external costs or the annual inflation adjustment
must also reflect any decreases in such costs that have occurred over
the same period, and will continue to require operators to file revised
rates to reflect decreases in external costs that are reflected in
other rate filings no later than one year from when such decreases
occur. Operators that wish to adjust rates for external costs that
occurred during a particular period also must include any rate
adjustments needed to reflect changes that have occurred in the number
of channels on regulated tiers and, if an annual change, inflation. FCC
Form 1210 and associated instructions set forth the specific steps for
making these calculations.
Copyright fees. Several petitioners request treatment of copyright
fees incurred by the carriage of distant broadcast signals as external
costs, and that the Commission allow systems to recover copyright fees
from September 30, 1992, forward, separate and apart from the
operators' permitted rates. They make a variety of arguments in support
of this request, including that these fees constitute taxes. While the
Commission is unpersuaded by petitioners' argument that copyright fees
are ``taxes'' that should be given external cost treatment, to the
extent that petitioners' argument is that increases in compulsory
copyright fees incurred by carrying distant broadcast signals should be
treated in a fashion parallel to increases in the contractual costs for
nonbroadcast programming, the argument has merit. Section 76.922(d)(2)
of the Commission's regulations, subject to specified limitations,
permits subscriber rates to be adjusted to take into account changes in
certain ``external costs,'' including ``programming costs.'' Copyright
fee increases, whether they result from the addition of new broadcast
signals to a tier, adjustments to the fee levels by the arbitration
panels under the aegis of the Copyright Office, or from adjustments in
tier structures, appear to fit logically within the programming costs
category.
Pole attachment fees. Some cable operators argue that costs
associated with pole attachment fees should be treated as external
costs, for such reasons as the costs are beyond operators' control.
Although pole attachment fees are to some extent beyond the control of
system operators, they are not sufficiently unique to warrant external
treatment. Unlike increases in franchise fees or taxes, pole attachment
fees are not imposed by the government nor are they, like programming
expenses, an area with respect to which the legislative history of the
1992 Cable Act expresses explicit concern. In addition, some pole
attachment fees are regulated under the 1978 Pole Attachment Act, which
should provide operators some recourse against unreasonable pole
attachment fee increases. Operators may not treat pole attachment fees
as external costs. The Commission, however, will consider waivers in
instances of significant hardship resulting from unusually large pole
attachment fee increases imposed by pole providers not subject to
regulation under the Pole Attachment Act. Such showings may include
both the magnitude of the increases in pole attachment fees and the
impact of the increases on the operator.
6. Other Rate Issues
Commercial rates. The Second Reconsideration Order rejects some
petitioners' requests to establish provisions authorizing special,
presumably higher, rates for regulated cable services provided to
commercial establishments. The Commission will consider, on a case-by-
case basis, however, specific proposals that cable operators may want
to make that would produce savings for consumers. In addition, the
Commission is further exploring this issue in a Further Notice of
Proposed Rulemaking found elsewhere in this Federal Register.
Rate relief for Alaska and Hawaii. Some petitioners request that
the Commission establish special higher rates for cable systems located
in Alaska and Hawaii. Petitioners have failed to present any evidence,
however, showing that rates for cable service provided by operators
subject to regulation in Alaska and Hawaii do not reflect their market
power. The Commission was unable, in any event under the present
record, to fashion adjustments to rates to address allegedly higher
costs of providing cable service in Alaska and Hawaii. The Second
Reconsideration Order rejects petitioners' requests on this issue.
Basic tier access charge. The Second Reconsideration Order rejects
a petitioner's request that the Commission adopt a ``subscriber line
charge'' that would be paid by subscribers who purchase only the basic
tier.
``A La Carte'' packages. Under the 1992 Cable Act, video
programming offered on a per channel or per program (``a la carte'')
basis is not subject to rate regulation. In the Rate Order, the
Commission held that it would not regulate collective offerings of
otherwise exempt per channel or per program services so long as: (1)
The price for the combined package does not exceed the sum of the
individual charges for each component of service, and (2) the cable
operator continues to provide the component parts of the package to
subscribers separately. The second condition would be met only when the
per channel offering provides subscribers with a realistic service
choice. The Commission stated that it would retain jurisdiction to
review individual offerings of ``a la carte'' channels to determine
whether the attempted offering constituted an evasion of rate
regulation.
However, since the adoption of the Rate Order, a number of
operators have restructured service offerings so that channels that
could have been subject to regulation have been removed from a
regulated tier and are now offered on an ``a la carte'' basis as well
as on a package basis.\8\ Since the rates of the collective offerings
of the ``a la carte'' channels are unregulated, operators may raise
their overall rates for the same service by removing channels from
regulated tiers and offering them on a package and an ``a la carte''
basis. This practice may not be consistent with the purposes of the
1992 Cable Act. Numerous complaints have been filed by local
franchising authorities and subscribers concerning the terms and
conditions of ``a la carte'' offerings of channels. Some of these
offerings may not comply with the Commission's requirement that
subscribers must have a realistic option to purchase channels that are
not subject to regulation on an ``a la carte'' basis. Some of the
repackagings of channels may also constitute prohibited evasions of
rate regulation.
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\8\On November 17, 1993, the Commission issued 16 letters of
inquiry to various cable operators, and on December 13, 1993, it
issued another 35 letters of inquiry, most of which addressed the
issue of removal and repackaging of channels. More recently, on
February 22, 1994, the Commission issued 11 letters of inquiry to
cable operators, which, among other things, asked operators to
justify ``a la carte'' offerings that may be inconsistent with the
Commission's rate regulations.
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On reconsideration, the Second Reconsideration Order finds that the
public interest will be served by generally permitting nonregulated
treatment of collective offerings of ``a la carte'' channels if the
offering enhances consumer choice and does not constitute an evasion of
rate regulation. These objectives will be achieved if operators comply
with the safeguards of the Commission's initial rules. However, to
address the concerns discussed above, the Second Reconsideration Order
provides interpretive guidelines for determining whether an operator's
collective offering of ``a la carte'' channels should be accorded
regulated or unregulated treatment. These guidelines will enable
operators to better determine what collective offerings of ``a la
carte'' channels will be considered an evasion of rate regulation and/
or a realistic service offering, and will help local authorities and
the Commission to assess expeditiously the appropriate regulatory
status of individual offerings. In evaluating offerings in individual
cases, the Commission will consider whether consumers are being offered
a greater variety of programming choices and options and whether the
price for those choices is generally increasing or decreasing from
previous levels. In addition, packages of `'a la carte'' channels
offered prior to April 1, 1993, the date the Commission adopted the
Rate Order, will be accorded nonregulated treatment. This limited
``grandfathering'' of packages available on April 1, 1993 will avoid
elimination of discounts that were available to consumers at that time
and that may continue to be available.
The Second Reconsideration Order identifies factors that local
authorities and the Commission should consider in assessing in an
individual case whether an ``a la carte'' package enhances consumer
choice and does not constitute an evasion of rate regulation. If
present, several of the following factors would suggest that the rates
for the offering should be unregulated. These factors are: (1) The
operator had offered (or begun to explore offering) ``a la carte''
packages consisting of non-premium channels prior to rate regulation;
(2) the operator has conducted market research that suggests
introducing an ``a la carte'' package'' would be profitable, other than
as a means of evading rate regulation; (3) the subscriber is free to
select which channels will be included in the package; (4) subscribers
are given notice that fully discloses their options, as well as fully
discloses the total price (including related equipment charges)
associated with exercising any of these options; and (5) an
insignificant percentage or number of channels in the package (as
determined on a case-by-case basis) has been removed from regulated
tiers.
On the other hand, the following factors would weigh against
allowing unregulated treatment of collective offerings of ``a la
carte'' channels: (1) The introduction of the ``a la carte'' package
results in avoiding rate reductions that otherwise would have been
required under the Commission's rules; (2) a significant percentage or
number of channels in the package were removed from regulated tiers
(considering whether including some previously regulated channels may
have been necessary for the successful marketing of the new package);
(3) the package price is so deeply discounted when compared to the
price of an individual channel or the sum of the prices of the
individual channels (and considering traditional discounting practices)
that it does not constitute a realistic set of service choice because
subscribers will not have any realistic options other than subscribing
to the package; (4) the channels taken from regulated tiers have not
traditionally been marketed ``a la carte''; (5) an entire regulated
tier has been eliminated and turned into an ``a la carte'' package; (6)
the subscriber must pay a significant equipment charge to purchase an
individual channel in the package; (7) the subscriber must pay a
``downgrade charge'' (an additional charge) to purchase an individual
channel in the package; (8) the ``a la carte'' package includes
channels that were removed from lower tiers of channels, so that
subscribers to those lower tiers are required to buy one or more
intermediate tiers in order to receive the same channels; (9)
subscribers are automatically subscribed to the ``a la carte'' package
through, for example, such means as negative option billing; and (10)
the affected programmers object to the restructuring of their services
into ``a la carte'' packages. No single factor will necessarily be
dispositive in any case. Rather, the Commission will assess the
totality of the circumstances, analyze whether one or more of the
foregoing factors is present, and determine whether the offering
intentionally, or in effect, constitutes an evasion of rate regulation.
To assess initial rates and future rate adjustments, local
authorities will need to determine the total number of regulated
channels offered by a cable operator. This will require a determination
of whether any collective offerings of ``a la carte'' channels should
be considered a regulated tier. FCC Form 1215 requires that operators
fully describe any collective offerings of ``a la carte'' channels
offered in the franchise area. FCC Form 1215 must be filed along with
each Form 1200 setting initial rates and Form 1210 updating rates.
Local authorities are permitted to make initial determination as to
whether a collective offering of ``a la carte'' channels should be
considered a regulated tier, even if the collective offering would be a
cable programming service tier if it were regulated. Local authorities
may, at their option, make an initial decision addressing only the
regulatory status of any ``a la carte'' package at issue. The
franchising authority must make this initial decision within the 30 day
period for reviewing basic cable rates and equipment costs, or within
the first 60 days of an extended 120 day period (if the franchising
authority has requested an additional 90 days). The franchising
authority shall provide public notice of its initial decision within
seven days pursuant to local procedural rules for public notice.
Operators or consumers may make an interlocutory appeal of this initial
decision to the Commission within 14 days of the initial decision.
(Within 14 days of the initial ruling, an operator shall provide notice
to the franchising authority whether it will, or will not, make such an
appeal.) The Commission will rule expeditiously on these appeals, and
the local authority may then proceed with its local rate case in light
of the Commission's decision on the interlocutory appeal.
A limited initial decision by a franchising authority will toll the
periods under the Commission's rules within which local authorities
must decide rate cases. The time period will then begin running again
seven days after the Commission rules on the interlocutory appeal, or
seven days following the expiration of the period in which an
interlocutory appeal may be filed.
Alternatively, local authorities may make any necessary ``a la
carte'' determination as part of their final decision setting rates for
the basic service tier. That decision may then be appealed to the
Commission as provided under current rules concerning appeals of local
decisions to the Commission. In any appeal of a local decision, the
Commission will defer to the local authority's findings of fact if
there is a reasonable basis for the local findings. The Commission will
then apply FCC rules and precedent to those facts to determine the
appropriate regulatory status of the tier in question. Local
authorities may also request that the Commission make the initial ``a
la carte'' decision by means of a petition for declaratory ruling.
Filing such a request for declaratory ruling will also toll the time
periods in which the local authority must make its decisions.
These provisions for local determination of ``a la carte'' issues
will facilitate local authorities setting rates for the basic service
tier while providing for Commission oversight of local decisions that
could affect the regulatory status of cable programming services tiers.
In addition, the Commission will monitor treatment of collective
offerings of ``a la carte'' channels.
Small system administrative relief. The Cable Act of 1992 requires
the Commission to develop and prescribe cable rate regulations designed
``to reduce the administrative burdens and cost of compliance for cable
systems with 1,000 or fewer subscribers.''
The Rate Order authorizes franchising authorities to permit small
systems to certify that their rates for basic service and equipment are
reasonable under the Commission's rate standards, and permits (and
encourages) franchising authorities regulating the same small system to
file joint certifications. The Commission subsequently stayed rate
regulation for small systems pending a review of the regulatory
requirements applicable to them.
For a variety of reasons, petitioners argued that the Commission
did not take sufficient steps to ease the burdens of complying with
rate regulation for small systems.
The Second Reconsideration Order adopts rules in addition to those
established in the Rate Order that will provide administrative relief
for small systems but that will also, as described below, achieve
substantial compliance with rate regulation requirements.
(i) Streamlined rate reductions. The Second Reconsideration Order
permits eligible small systems, as defined below, to reduce their rates
under a streamlined approach instead of using the benchmark methodology
set forth in FCC Form 1200. Specifically, small systems owned by
eligible operators may elect to make rate reductions by reducing each
billed item of regulated cable service by the competitive differential.
Thus, eligible operators may reduce the billed charge for each tier of
regulated service by the competitive differential. The reduction will
be from charges in effect as of March 31, 1994. The amount of the
reduction will be 14 percent. This percentage reduction roughly
approximates what the required rate reduction would be if the small
system were required to reduce its September 30, 1992 rates by the full
competitive differential of 17 percent and those rates had then been
adjusted forward by the roughly three percent inflation that occurred
between September, 1992 and September, 1993. Small systems electing to
reduce rates in this manner must apply the 14 percent reduction to each
regulated equipment charge appearing on subscribers' bills. Under this
approach, eligible small systems are not required to unbundle equipment
and installation charges from their programming service charges, or to
set equipment and installation charges at actual cost.
Small systems ultimately can and should establish regulated rates
on the same basis as other operators. Thus, this streamlined
alternative to implementing rate reductions will be a temporary
approach to setting rates prior to full compliance. In the Cost of
Service Report and Order, discussed elsewhere in this Federal Register,
the Commission examines whether it should establish average cost
schedules for the provision of equipment, as well as average cost
schedules generally for provision of regulated program service. These
schedules could be used by small systems to set rates instead of
requiring them to identify and evaluate their own costs or make the
calculations required under the benchmark rules. When average cost
schedules for equipment are developed, small systems that have elected
to make streamlined rate reductions should be required to develop rates
based on September 30, 1992 rates with specified adjustments as
required of cable systems generally.
If a small system elects streamlined rate reductions, the permitted
rate for a tier will be the rate for the tier in effect on March 31,
1994 minus 14 percent. However, a small system that has violated the
rate freeze and subsequently makes a 14 percent streamlined rate
reduction from rates established in violation of the freeze, will be
required to later adjust rates to account for any overcharges that
resulted from the freeze violation. A small system's lawful initial
rate will be subject to the price cap requirements applicable to cable
systems generally. Thus, capped rates may be adjusted annually for
inflation, quarterly for external costs, and quarterly for additions
and deletions of channels. Small systems must use FCC Form 1210 when
justifying such rate changes to local or federal regulators. While
rates set under the streamlined rate reduction approach will not be
based on average rates across all regulated tiers as is the case for
setting initial regulated rates for cable operators generally, the
price cap requirements, including adjustments for inflation, external
costs, and adjustments for changes in regulated channels, will
nonetheless be applied to the resulting tier charge.
Streamlined rate reductions will only be available to independent
small systems (i.e., those that are not owned by or affiliated with
other cable systems) and to small systems owned by those MSOs that have
250,000 or fewer total subscribers, own only systems with less than
10,000 subscribers each, and have an average system size of 1,000 or
fewer subscribers. For purposes of measuring affiliation, the
Commission employs the same criteria used for determining eligibility
for transition relief. Streamlined rate reductions are not permitted by
companies in which a larger company holds more than a 20 percent equity
interest (active or passive) or over which a larger company exercises
de jure control (such as through a general partnership or majority
voting shareholder interest). Eligibility for streamlined rate
reductions will be determined by application of the Commission's
eligibility criteria to the company as it existed on March 31, 1994.
This will eliminate incentives for operators to change affiliation in
order to become eligible for streamlined rate reductions. Streamlined
rate reductions will not be available to any system that has already
restructured its rates in an effort to comply with Commission rules,
since such a system has demonstrated that it does not need the
administrative relief that the streamlined rates reduction process is
intended to provide.
Small systems electing to implement streamlined rate reductions
must provide written notice to that effect to their subscribers, as
well as to the local franchising authority with respect to the basic
service tier and the Commission with respect to a cable programming
service tier. This notice must be provided within 30 days after the
small system becomes subject to regulation. The small system must then
implement the streamlined rate reductions within 30 days after the
notification has been provided.
(ii) Company-wide averaging of equipment. Under the Commission's
existing rules, operators are required to aggregate expenses and
revenues, including equipment and installation costs, at the franchise,
system, regional or company level in accordance with the operator's
practices as of April 3, 1993. In order to reduce administrative
burdens associated with setting unbundled rates for equipment based on
actual costs, operators of small systems are permitted to average the
equipment costs of its small systems at any level, or combination of
levels, regardless of the operator's practices as of April 3, 1993,
subject to safeguards designed to protect subscribers from unusual rate
changes.
Setting equipment charges at a different level of cost averaging
than the operator was employing on April 3, 1993 could involve rate
changes both for equipment and programming service charges, since
permitted rates for equipment and programming service charges are based
on aggregate programming service and equipment charges as of September
30, 1992. In order to prevent sudden rate changes that could harm
subscribers, the Second Reconsideration Order establishes several
safeguards that operators of small systems must follow when developing
average equipment costs for those systems. First, the flexibility in
averaging equipment costs will apply only to the operator's small
systems, rather than the larger systems it owns. Second, it will only
be permitted for equipment, as opposed to installation charges. Third,
operators may establish average charges only for similar types of
equipment. Thus for example, average charges may be established only
for similar types of remotes or converters. Finally, when justifying
equipment charges averaged across the operator's small systems, the
operator must present a general description of the averaging
methodology employed and a justification that it produces reasonable
equipment rates. Based on the showing, local franchising authorities
and the Commission may, for good cause, require that the operator set
equipment rates in accordance with existing rules. The Commission will
additionally monitor the impact of this action to assure that it does
not harm subscribers.
The Communications Act requires that equipment charges be based on
actual cost. Permitting operators to set equipment charges based on
average costs comports with the statutory mandate that equipment
charges be based on actual costs. As such, it will be available to all
cable operators owning small systems. There is no reason to limit the
eligibility for this small system relief to operators of a certain
size. Moreover, this relief is not intended as an interim measure.
Rather, operators may set equipment rates based on company-wide average
costs subject, as indicated, to any decision on cost averaging the
Commission may establish in the Cost Proceeding.
The Second Reconsideration Order finds that the 1992 Cable Act
affords the Commission sufficient discretion to adopt the dual approach
described above, which is designed to ``reduce administrative burdens
and costs of compliance'' for all systems that have 1,000 or fewer
subscribers.
(iii) Other proposals for administrative relief. The Second
Reconsideration Order rejects several proposals for administrative
relief, including exempting from rate regulation all systems classified
as small systems; the ``reasonable net revenue'' test, which would
exempt systems with a net income margin of less than 15.5% from rate
regulation; delaying small system rate regulation pending a study of
the effects of the benchmark; and permitting small systems to charge a
rate within some percentage of the average national charge.
Headend vs. Franchise area definition of small systems. The Second
Reconsideration Order rejects commenters arguments that the definition
of a small system should be changed from a ``headend'' to a ``franchise
area'' basis. The Commission reinstates its belief that determining
small system size based on a system's principal headend, including any
other headends or microwave receive sites that are technically
integrated to the system's principal headend, best harmonizes the small
system rule with most of the Commission's existing regulations on cable
system size.
Termination of rate regulation stay for small systems. The Second
Reconsideration Order terminates the stay for small systems as of May
15, 1994, the effective date of the rules adopted herein. Local
authorities may provide initial notices of regulation to small systems
as of that date, and the Commission will accept newly filed complaints
concerning cable programming services tiers provided by small systems
as of that date. Local authorities may have provided initial notices of
regulation to operators during the stay and the Commission has accepted
complaints for cable programming services tiers provided by small
system since September 1, 1993. These notices and complaints will be
considered as having been made or filed, respectively, as of May 15,
1994, the effective date of the Commission's new rules. Small systems
must then submit a rate justification (or otherwise file a permitted
response, such as a written notification that it intends to use the
streamlined rate reduction process) within the 30 days prescribed in
the Commission's rules. In addition, the statutory 180-day window for
filing complaints concerning rates for cable programming services tiers
in effect on May 15, 1994 will commence running on that date for small
systems.
Small system operators previously subject to the stay may obtain an
extension of time to establish compliance with rate regulations if they
can show that timely compliance would result in severe economic
hardship. Requests for extension of time should be addressed to the
local franchising authority concerning rates for the basic service
rates and to the Commission concerning rates for a cable programming
services tier. Possible circumstances showing severe economic harm
might be based on prior commitments with regard to programming
contracts or actual plans in progress for significant improvements to
its plant and equipment, or an unusually severe impact on the financial
condition of the company that could be caused by rate reductions.
However, an extension of time to comply will not toll the effective
date of rate regulation for small systems or eliminate refund liability
for rates that exceed permitted levels after the effective date of the
Commission's rules.
Synopsis of the Fourth Report and Order
A. Introduction
The Fourth Report and Order adopts a methodology for adjusting
capped rates when channels are added to, or deleted from, a tier of
regulated cable service. The Commission also declines to modify its
benchmark requirements to account for system upgrades initiated or
completed shortly before the onset of rate regulation of cable service.
Adjustments to capped rates for addition and deletion of channels.
In the Third Further NPRM, the Commission sought comment on what
methodology should be adopted for applying the benchmark system to
adjust capped rates when channels are added or deleted from regulated
tiers. Specifically, the Commission sought comment on regulatory goals
and three possible methodologies for adjusting capped rates when adding
or deleting channels from a particular regulated tier.
Under the first proposed method for adjusting capped rates when
adding or deleting channels from a particular regulated tier, the new
charge for the tier would consist of the sum of: (1) The current
permitted charge for the tier, and (2) a charge calculated by
multiplying the benchmark rate by the number of new channels on the
tier. Under this approach, the declining rate per channel reflected in
the benchmark would be applied only to additional channels. The per
channel charge for existing channels would not be adjusted downward to
reflect the benchmark curve. The Commission tentatively concluded that
this approach should not be adopted for a variety of reasons, including
that it would permit significantly higher rates.
Under the second methodology, the new permitted rate for a
regulated tier when channels are added or deleted would be the
benchmark per-channel rate multiplied by the new number of channels on
the tier. The Commission tentatively concluded that this approach
should not be adopted because it would create substantial disincentives
for cable operators with rates above the benchmark to add channels and
because it could create undue incentives for systems with below
benchmark rates to add channels, permitting substantially increased
rates for such operators.
Under the third methodology, the ``parallel track'' approach,
programming costs would be removed from an operator's permitted charge
per tier. The remaining charge would then be adjusted to reflect the
proportionate increase or decrease observed in the benchmark curve
based on the new number of channels offered across all regulated tiers.
The new level of programming expense for the tier would then be added
back to the adjusted tier charge to obtain the new charge for the tier.
The goals adopted for the going-forward methodology adopted
include: Preserving the competitive rates produced by the Commission's
requirements for setting initial regulated rates, encouraging the cable
industry to continue to grow and provide new and additional services to
subscribers, and to further the statutory goal of reducing
administrative burdens on subscribers, operators, and regulators.
In addition to revealing a significant competitive differential
that the Commission will use to implement its revised benchmark
approach, the Competitive Survey of industry rates as of September 30,
1992, established that, on average, charges per channel decreases as
the number of channels offered by a system increases. This downward
``curve'' in per-channel rates may well reflect economies of scope and
scale in the provision of regulated cable service. Accordingly, the
Fourth Report and Order adopts a methodology for adjusting capped rates
that incorporates the downward curve of per-channel rates observed in
the Commission's Competitive Survey. Operators who believe that the
rates determined under the new benchmark approach and the going-forward
methodology are inadequate when channels are added may make a cost-of-
service showing in order to attempt to justify a higher rate.
The Fourth Report and Order finds the third alternative methodology
proposed in the Third Further NPRM are adjusting capped rates for
channel adjustments most compatible with the revised benchmark formula
and approach for setting regulated rates. In this Fourth Report and
Order, operators are required to first remove all external costs from
the tier charge and then adjust the residual component of the tier
charge by a specified amount per channel when the total number of
regulated channels increases. Should the total number of regulated
channels decrease, the residual component of tier charge will be
reduced by a specified amount. The per-channel adjustment factors used
to calculate changes in permitted tier charges are derived from the
Commission's benchmark equation.
This approach is consistent with the requirements that were adopted
in the Second Reconsideration Order for calculating all external costs
and inflation adjustments. This treatment will achieve identical
results as the method specified in the Rate Order but will be simpler
to administer. At the same time, the operator will be able to fully
recover in going-forward rate calculations the actual level of
programming expense incurred. This approach will assure that operators
may respond to demand for programming and recover their costs when
adding channels.
To help promote the growth and diversity of cable programming
services, operators are permitted a mark-up on new programming expense
of 7.5%, which may be revised based on on-going experience. The mark-up
will apply only to any additional programming cost for a tier, measured
on a per subscriber basis, occurring after May 15, 1994. Programming
costs for purposes of external costs include any new or additional
retransmission consent fees incurred after October 6, 1994 or
compulsory copyright fees paid for carriage of distant broadcast
signals. Operators must also reduce rates by any decreases in
programming expense plus an additional 7.5% after that date. This will
reduce incentives for operators to delete programming in order to
replace it with new programming to which the mark-up could then be
applied.
When a cable system changes the number of regulated channels
offered, it must average the initial and final number of channels and
find the adjustment factor in the table corresponding to that average.
For any service tier, the total permitted adjustment is the product of
the per channel adjustment factor and the change in the number of
regulated channels on that tier. The adjustment is positive if the
number of regulated channels has increased and negative if the total
number of regulated channels has decreased. If a cable operator is
merely restructuring tiers and there is no change in the total number
of regulated channels, then the operator would find its total number of
regulated channels in the table, note the corresponding per channel
adjustment factor, and calculate adjustments in network costs per tier
as explained earlier in this paragraph. After the residual component of
the tier charge is adjusted in this fashion, all external costs,
including programming expenses, will be combined with the adjusted
residual to determine the final tier charge. As stated, any increased
level of programming expense will be entitled to a 7.5 percent mark-up.
The foregoing methodology for adjusting capped rates when channels
are added or deleted from a regulated tier is set forth in detail in
the Commission's new rule Sec. 76.922(e). FCC Form 1210 and associated
instructions also sets forth in detail this methodology for adjusting
capped rates when channels are added to, or deleted from, a regulated
tier, as well as for external cost and inflation adjustments generally.
Upgrades initiated shortly before rate regulation. The Third
Further NPRM sought comment on (1) whether operators with rates below
benchmark levels which initiated or completed system upgrades shortly
before rate regulation should be permitted to raise rates to benchmark
levels without any cost showing; and (2) alternatives to full cost-of-
service showings that could permit recovery of such upgrade costs, such
as whether the streamlined cost-of-service showing proposed in the
Cost-of-Service NPRM should be applied to these situations.
Because the Second Reconsideration Order, with certain exceptions,
requires that all rates be reduced by the competitive differential to
avoid refund liability, it is no longer necessary or appropriate to
address these issues. The Fourth Report and Order does not permit
operators to raise rates above otherwise permitted levels on account of
upgrades initiated or completed before regulation without any cost
showings, and additionally does not establish special streamlined cost-
of-service showings for past upgrades. Operators for whom the general
rate regulations do not permit adequate recovery of upgrades initiated
or completed shortly before rate regulation took effect may file cost-
of-service showings.
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 Fourth Report
and Order and Second 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 cable subscribers of
reasonable rates for cable services within minimum regulatory and
administrative burden on cable entities.
Summary of issues raised by the public in response to the Initial
Regulatory Flexibility Analysis. There were 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 the Office of Advocacy in the Rate
Order.
Significant alternatives considered and rejected. Petitioners
representing cable interests and franchising authorities submitted
several alternatives aimed at minimizing administrative burdens. In the
present Order on Reconsideration, the Commission has attempted to
accommodate the concerns addressed by these suggestions. For example,
the Commission has chosen a more sophisticated economic model from
among a number of statistical options to recalculate the competitive
differential, and has reconsidered the benchmark approach such that all
regulated cable systems will be required to establish rates based on
the revised competitive differential. However, the Commission has
determined that certain systems will not have to reduce rates by the
full competitive differential immediately. Rather, the Commission will
conduct cost studies of cable operators to allow systems with
relatively low rates and operators with 15,000 or fewer subscribers to
present evidence that the new competitive differential should not apply
in full to them. These decisions will better ensure that regulated
cable service rates are reasonable while reducing administrative
burdens. In addition, the Commission provides administrative relief in
the rate-setting process, and adopts simplified procedures concerning
the requirements for calculating equipment costs and revenues for cable
systems of 1,000 of fewer subscribers.
The Third Further NPRM in this proceeding presented three
alternative methodologies for the adjustment of capped rates when
channels are added or deleted from regulated service tiers. Many
commenters supported, with some suggesting modifications, the approach
the Commission tentatively endorsed in the Third Further NPRM. The
Commission considered alternative methodologies and found on the basis
of the record that the ``parallel track'' approach adopted in this
Order, as well as the variety of revisions to its rate rules adopted
here, will best achieve the goals of ensuring reasonable rates for
consumers, promoting the growth and diversity of cable programming
services, and facilitating ease of administration.
Paperwork Reduction Act
The requirements adopted herein have been analyzed with respect to
the Paperwork Reduction Act of 1980 and found to impose a new or
modified information collection requirement 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 sections 4(i), 4(j),
303(r), 612, 622(c) and 623 of the Communications Act of 1934, as
amended, 47 U.S.C. 154(i), 154(j), 303(r), 532, 542(c) and 543 the
rules, requirements and policies discussed in this Second Order on
Reconsideration and Fourth Report and Order, are adopted and part 76 of
the Commission's rules, 47 CFR part 76 is amended as set forth below.
It is further ordered That, the Secretary shall send a copy of this
Report and Order, including the Initial Regulatory Flexibility
Analysis, to the Chief Counsel for Advocacy of the Small Business
Administration in accordance with paragraph 603(a) of the Regulatory
Flexibility Act. Public Law 96-354, 94 Stat. 1164, 5 U.S.C. 601 et seq.
(1981).
It is further ordered That, the requirements and regulations
established in this decision shall become effective May 15, 1994 with
the exception of the 30 day notice requirement for rate changes\9\ to
be codified at 47 CFR 76.964 which shall be effective upon publication
in the Federal Register.
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\9\As discussed above, the Commission finds good cause for
making these notice provisions effective on less than 30 days notice
in the Federal Register. See 5 U.S.C. section 533(d)(3).
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List of Subjects in 47 CFR Part 76
Cable television.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Changes
Part 76 of title 47 of the Code of Federal Regulations is amended
as follows:
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, 535, 542,
543, 552 as amended, 106 Stat. 1460.
2. Section 76.901 is amended to revise paragraph (c) to read as
follows:
Sec. 76.901 Definitions.
* * * * *
(c) Small system. A small system is a cable television system that
serves 1,000 or fewer subscribers. The service area of a small system
shall be determined by the number of subscribers that are served by the
system's principal headend, including any other headends or microwave
receive sites that are technically integrated to the principal headend.
3. Section 76.922 is amended to revise paragraphs (b), (c) and (d),
and to add new paragraphs (e) and (f) to read as follows:
Sec. 76.922 Rates for the basic service tier and cable programming
services tiers.
* * * * *
(b) Permitted charge on May 15, 1994. (1) The permitted charge for
a tier of regulated program service shall be, at the election of the
cable system, either:
(i) A rate determined pursuant to a cost-of-service showing;
(ii) The full reduction rate;
(iii) The transition rate, if the system is eligible for transition
relief; or
(iv) A rate based on a streamlined rate reduction, if the system is
eligible to implement such a rate reduction. Except where noted, the
term ``rate'' in this subsection means a rate measured on an average
regulated revenue per subscriber basis.
(2) Full reduction rate. The ``full reduction rate'' on May 15,
1994 is the system's September 30, 1992 rate, measured on an average
regulated revenue per subscriber basis, reduced by 17 percent, and then
adjusted for the following:
(i) The establishment of permitted equipment rates as required by
Sec. 76.923;
(ii) Inflation measured by the GNP-PI between October 1, 1992 and
September 30, 1993;
(iii) Changes in the number of program channels subject to
regulation that are offered on the system's program tiers between
September 30, 1992 and the earlier of the initial date of regulation
for any tier or February 28, 1994; and
(iv) Changes in external costs that have occurred between the
earlier of the initial date of regulation for any tier or February 28,
1994, and March 31, 1994.
(3) March 31, 1994 benchmark rate. The ``March 31, 1994 benchmark
rate'' is the rate so designated using the calculations in Form 1200.
(4) Transition rates. Systems owned by small operators and systems
with low prices shall be eligible to establish a transition rate for a
tier, pending a further order of the Commission.
(i) System owned by small operators. (A) For purposes of
determining eligibility to establish a transition rate, a system owned
by a small operator is a system owned by an operator that has a total
subscriber base of 15,000 or fewer subscribers as of March 31, 1994.
Systems owned by cable operators with between 15,000 and 16,000
subscribers may, upon a showing of substantial hardship, obtain a
waiver from the Commission of the foregoing 15,000 subscriber limit.
(B) A system owned by a small operator shall not be eligible to
establish a transition rate if the operator is owned or controlled by,
or is under common control or affiliated with, a cable operator serving
more than 15,000 subscribers. For purposes of this rule, a small cable
operator will be considered affiliated with an operator serving more
than 15,000 subscribers if such an operator holds a 20 percent or
greater equity interest in the small operator.
(C) The transition rate for systems owned by small operators on May
15, 1994 shall be the system's March 31, 1994 rate, adjusted:
(1) To establish permitted rates for equipment as required by
Sec. 76.923 if such equipment rates have not already been established;
and
(2) For changes in external costs incurred between the earlier of
the initial date of regulation for any tier or February 28, 1994, and
March 31, 1994, to the extent such external cost changes are not
already reflected in the system's March 31, 1994 rate.
(ii) Low-price systems. (A) A low-price system is a system. (1)
Whose March 31, 1994 rate is below its March 31, 1994 benchmark rate,
or
(2) Whose March 31, 1994 rate is above its March 31, 1994 benchmark
rate, but whose March 31, 1994 full reduction rate is below its March
31, 1994 benchmark rate, as defined in paragraph (b)(2) of this
section.
(B) The transition rate on May 15, 1994 for a system whose March
31, 1994 rate is below its March 31, 1994 benchmark rate is the
system's March 31, 1994 rate. The March 31, 1994 rate is in both cases
adjusted:
(1) To establish permitted rates for equipment as required by
Section 76.923 if such rates have not already been established; and
(2) For changes in external costs incurred between the earlier of
initial date of regulation of any tier or February 28, 1994, and March
31, 1994, to the extent changes in such costs are not already reflected
in the system's March 31, 1994 rate. The transition rate on May 15,
1994 for a system whose March 31, 1994 adjusted rate is above its March
31, 1994 benchmark rate, but whose March 31, 1994 full reduction rate
is below its March 31, 1994 benchmark rate, is the March 31, 1994
benchmark rate, adjusted to establish permitted rates for equipment as
required by Section 76.923 if such rates have not already been
established.
(iii) Notwithstanding the foregoing, the transition rate for a tier
shall be adjusted to reflect any determination by a local franchising
authority and/or the Commission that the rate in effect on March 31,
1994 was higher (or lower) than that permitted under applicable
Commission regulations. A filing reflecting the adjusted rate shall be
submitted to all relevant authorities within 30 days after issuance of
the local franchising authority and/or Commission determination. A
system whose March 31, 1994 rate is determined by a local franchising
authority or the Commission to be too high under the Commission's rate
regulations in effect before May 15, 1994 will be subject to any refund
liability that may accrue under those rules. In addition, the system
will be liable for refund liability under the rules in effect on and
after May 15, 1994. Such refund liability will be measured by the
difference in the system's March 31, 1994 rate and its permitted March
31, 1994 rate as calculated under the Commission's rate regulations in
effect before May 15, 1994. The refund liability will accrue according
to the time periods set forth in Secs. 76.942, and 76.961 of the
Commission's rules.
(5) Streamlined rate reductions. (i) Small systems that are not
owned by or affiliated with any other system (``independent systems''),
and small systems owned by small multiple system operators (``small
MSOs''), that have not already restructured their rates to comply with
the Commission's rules may establish rates for regulated program
services and equipment by making a streamlined rate reduction. ``Small
MSOs'' are those multiple system operators that:
(A) Serve 250,000 or fewer total subscribers,
(B) Own only systems with less than 10,000 subscribers each, and
(C) Have an average system size of 1,000 or fewer subscribers.
Independent small systems and small systems owned by small MSOs shall
not be eligible for streamlined rate reductions if they are owned or
controlled by, or are under common control or affiliated with, a cable
operator that exceeds these subscriber limits. For purposes of this
rule, a small system will be considered ``affiliated with'' such an
operator if the operator holds a 20 percent or greater equity interest
in the small system.
(ii) The streamlined rate for a tier on May 15, 1994 shall be the
system's March 31, 1994 rate for the tier, reduced by 14 percent. A
small system that elects to establish its rate for a tier by
implementing this streamlined rate reduction must also reduce, at the
same time, each billed item of regulated cable service, including
equipment, by 14 percent. Regulated rates established using the
streamlined rate reduction process shall remain in effect until:
(A) Adoption of a further order by the Commission establishing a
schedule of average equipment costs;
(B) The system increases its rates using the calculations and time
periods set forth in FCC Form 1211; or
(C) The system elects to establish permitted rates under another
available option set forth in paragraph (b)(1) of this section.
(iii) Implementation and notification. An eligible small system
that elects to use the streamlined rate reduction process must
implement the required rate reductions and provide written notice of
such reductions to subscribers, the local franchising authority and the
Commission according to the following schedule:
(A) Where the franchising authority has been certified by the
Commission to regulate the small system's basic service tier rates as
of May 15, 1994, the system must notify the franchising authority and
its subscribers in writing that it is electing to set its regulated
rates by the streamline rate reduction process. Such notice must be
given by June 15, 1994, and must also describe the new rates that will
result from the streamlined rate reduction process. Those rates must
then be implemented within 30 days after the written notification has
been provided to subscribers and the local franchising authority.
(B) Where the franchising authority has not been certified to
regulate basic service tier rates by May 15, 1994, the small system
must provide the written notice to subscribers and the franchising
authority, described in paragraph (b)(5)(iii)(A) of this section,
within 30 days from the date it receives the initial notice of
regulation from the franchising authority. The system must then
implement the streamlined rate reductions within 30 days after the
written notification has been provided to subscribers and the local
franchise authority.
(C) Where the Commission is regulating the small system's basic
service tier rates as of May 15, 1994, the system must notify the
Commission and its subscribers in writing that it is electing to set
its regulated rates by the streamlined rate reduction process. Such
notice must be given by June 15, 1994, and must also describe the new
rates that will result from the streamlined rate reduction process.
Those rates must then be implemented within 30 days after the written
notification has been provided to subscribers and the Commission.
(D) Where the Commission begins regulating basic service rates
after May 15, 1994, the small system must provide the written notice to
subscribers and the Commission, described in paragraph (b)(5)(iii)(C)
of this section, within 30 days from the date it receives an initial
notice of regulation. The system must then implement the streamlined
rate reductions within 30 days after the written notification has been
provided to subscribers and the Commission.
(E) If a complaint about its cable programming service rates has
been filed with the Commission on or before May 15, 1994, the small
system must provide the written notice described in paragraph
(b)(5)(iii)(A) of this section, to subscribers, the local franchising
authority and the Commission by June 15, 1994. If a cable programming
services complaint is filed against the system after May 15, 1994, the
system must provide the required written notice to subscribers, the
local franchising authority or the Commission within 30 days after the
complaint is filed. The system must then implement the streamlined rate
reductions within 30 days after the written notification has been
provided.
(F) A small system is required to give written notice of, and to
implement, the rates that are produced by the streamlined rate
reduction process only once. If a system has already provided notice
of, and implemented, the streamlined rate reductions when a given tier
becomes subject to regulation, it must report to the relevant regulator
(either the franchising authority or the Commission) in writing within
30 days of becoming subject to regulation that it has already provided
the required notice and implemented the required rate reductions.
(6) Establishment of initial regulated rates. (i) Cable systems,
other than those eligible for streamlined rate reductions, shall file
FCC Forms 1200, 1205, and 1215 for a tier that is regulated on May 15,
1994 by June 15, 1994, or thirty days after the initial date of
regulation for the tier. A system that becomes subject to regulation
for the first time on or after July 1, 1994 shall also file FCC Form
1210 at the time it files FCC Forms 1200, 1205 and 1215.
(ii) A cable system will not incur refund liability under the
Commission's rules governing regulated cable rates on and after May 15,
1994 if:
(A) Between March 31, 1994 and July 14, 1994, the system does not
change the rate for, or restructure in any fashion, any program service
or equipment offering that is subject to regulation under the 1992
Cable Act; and
(B) The system establishes a permitted rate defined in paragraph
(b) of this section by July 14, 1994. The deferral of refund liability
permitted by this subsection will terminate if, after March 31, 1994,
the system changes any rate for, or restructures, any program service
or equipment offering subject to regulation, and in all events will
expire on July 14, 1994. Moreover, the deferral of refund liability
permitted by this paragraph does not apply to refund liability that
occurs because the system's March 31, 1994 rates for program services
and equipment subject to regulation are higher than the levels
permitted under the Commission's rules in effect before May 15, 1994.
(7) For purposes of this section, the initial date of regulation
for the basic service tier shall be the date on which notice is given
pursuant to Sec. 76.910, that the provision of the basic service tier
is subject to regulation. For a cable programming services tier, the
initial date of regulation shall be the first date on which a complaint
on the appropriate form is filed with the Commission concerning rates
charged for the cable programming services tier.
(8) For purposes of this section, rates in effect on the initial
date of regulation or on September 30, 1992 shall be the rates charged
to subscribers for service received on that date.
(c) Subsequent permitted charge. The permitted charge for a tier
after May 15, 1994 shall be, at the election of the cable system,
either:
(1) A rate determined pursuant to a cost-of-service showing, or
(2) A rate determined by application of the Commission's price cap
requirements set forth in paragraph (d) of this section to a permitted
rate determined in accordance with paragraph (b) of this section.
(d) Price cap requirements. The Commission's price cap requirements
allow a system to adjust its permitted charges for inflation and
changes in external costs. After May 15, 1994, adjustments for changes
in external costs shall be calculated by subtracting external costs
from the system's permitted charge and making changes to that
``external cost component'' as necessary. The remaining charge,
referred to as the ``residual component,'' will be adjusted annually
for inflation. Cable systems shall use FCC Form 1210 (or FCC Form 1211,
where applicable) to justify changes in permitted rates made pursuant
to the price cap requirements.
(1) Calendar year quarters. All systems must use a calendar year
quarter when adjusting rates under the price cap requirements. The
first quarter shall run from January 1 through March 31 of the relevant
year; the second quarter shall run from April 1 through June 30; the
third quarter shall run from July 1 through September 30; and the
fourth quarter shall run from October 1 through December 31.
(2) Inflation adjustments. The residual component of a system's
permitted charge may be adjusted annually for inflation. The annual
inflation adjustment shall be based on inflation occurring from June 30
of the previous year to June 30 of the year in which the inflation
adjustment is made, except that the first annual inflation adjustment
shall cover inflation from September 30, 1993 until June 30 of the year
in which the inflation adjustment is made. The adjustment may be made
after September 30, but no later than August 31 of the next calendar
year. Adjustments shall be based on changes in the Gross National
Product Price Index as published by the Bureau of Economic Analysis of
the United States Department of Commerce. Cable systems that establish
a transition rate pursuant to paragraph(b)(4) of this section shall not
be permitted to adjust rates on account of inflation until the
transition rate adjusted for external costs and changes in numbers of
regulated channels is less than, or equal to, the system's full
reduction rate adjusted for inflation, external costs and changes in
numbers of regulated channels.
(3) External costs. (i) Permitted changes for a tier may be
adjusted up to quarterly to reflect changes in external costs
experienced by the cable system. In all events, the system must adjust
its rates annually to reflect any decreases in external costs that have
not previously been accounted for in the system's rates. A system must
also adjust its rates annually to reflect any changes in external
costs, inflation and the number of channels on regulated tiers that
occurred during the year if the system wishes to have such changes
reflected in its regulated rates. A system that does not adjust its
permitted rates annually to account for these changes will not be
permitted to increase its rates subsequently to reflect the changes.
(ii) A system must adjust its rates in the next calendar year
quarter for any decrease in programming costs that results from the
deletion of a channel or channels from a regulated tier.
(iii) Any rate increase made to reflect an increase in external
costs must also fully account for all other changes in external costs,
inflation and the number of channels on regulated tiers that occurred
during the same period. Rate adjustments made to reflect changes in
external costs shall be based on any changes in those external costs
that occurred from the end of the last quarter for which an adjustment
was previously made through the end of the quarter that has most
recently closed preceding the filing of the FCC Form 1210 (or FCC Form
1211, where applicable). A system may adjust its rates after the close
of a quarter to reflect changes in external costs that occurred during
that quarter as soon as it has sufficient information to calculate the
rate change.
(iv) External costs shall consist of costs in the following
categories:
(A) State and local taxes applicable to the provision of cable
television service;
(B) Franchise fees;
(C) Costs of complying with franchise requirements, including costs
of providing public, educational, and governmental access channels as
required by the franchising authority;
(D) Retransmission consent fees and copyright fees incurred for the
carriage of broadcast signals; and
(E) Other programming costs.
(v) The permitted charge for a regulated tier shall be adjusted on
account of programming costs, copyright fees and retransmission consent
fees only for the program channels or broadcast signals offered on that
tier.
(vi) The permitted charge shall not be adjusted for costs of
retransmission consent fees or changes in those fees incurred prior to
October 6, 1994.
(vii) The starting date for adjustments on account of external
costs for a tier of regulated programming service shall be the earlier
of the initial date of regulation for any basic or cable service tier
or February 28, 1994.
(viii) Changes in franchise fees shall not result in an adjustment
to permitted charges, but rather shall be calculated separately as part
of the maximum monthly charge per subscriber for a tier of regulated
programming service.
(ix) Adjustments to permitted charges to reflect changes in the
costs of programming purchased from affiliated programmers, as defined
in Sec. 76.901, shall be permitted as long as the price charged to the
affiliated system reflects either prevailing company prices offered in
the marketplace to third parties (where the affiliated program supplier
has established such prices) or the fair market value of the
programming.
(x) Adjustments to permitted charges on account of increases in
costs of programming shall be further adjusted to reflect any revenues
received by the operator from the programmer.
(xi) In calculating programming expense, operators may add a mark-
up of 7.5% for new programming added after May 15, 1994 and shall
reduce rates by decreases in programming expense plus an additional
7.5% for decreases occurring after May 15, 1994.
(e) Changes in the number of channels on regulated tiers. (1) A
system may adjust the residual component of its permitted rate for a
tier to reflect changes in the number of channels offered on the tier
on a quarterly basis. Cable systems shall use FCC Form 1210 (or FCC
Form 1211, where applicable) to justify rate changes made on account on
changes in the number of channels on a regulated tier. Such rate
adjustments shall be based on any changes in the number of regulated
channels that occurred from the end of the last quarter for which an
adjustment was previously made through the end of the quarter that has
most recently closed preceding the filing of the FCC Form 1210 (or FCC
Form 1211, where applicable). However, when it deletes channels in a
calendar quarter, a system must adjust the residual component of the
tier charge in the next calendar quarter to reflect that deletion. The
following table shall be used to adjust permitted rates for a tier for
changes in the number of channels offered on the tier. The entries in
the table provide the cents per channel per subscriber per month by
which cable operators will adjust the residual component using FCC Form
1210 (or FCC Form 1211, where applicable).
------------------------------------------------------------------------
Per-channel
Average number of regulated channels adjustment
factor
------------------------------------------------------------------------
7....................................................... $0.52
7.5..................................................... 0.45
8....................................................... 0.40
8.5..................................................... 0.36
9....................................................... 0.33
9.5..................................................... 0.29
10...................................................... 0.27
10.5.................................................... 0.24
11...................................................... 0.22
11.5.................................................... 0.20
12...................................................... 0.19
12.5.................................................... 0.17
13...................................................... 0.16
13.5.................................................... 0.15
14...................................................... 0.14
14.5.................................................... 0.13
15-15.5................................................. 0.12
16...................................................... 0.11
16.5-17................................................. 0.10
17.5-18................................................. 0.09
18.5-19................................................. 0.08
19.5-21.5............................................... 0.07
22-23.5................................................. 0.06
24-26................................................... 0.05
26.5-29.5............................................... 0.04
30-35.5................................................. 0.03
36-46................................................... 0.02
46.5 and above.......................................... 0.01
------------------------------------------------------------------------
(2) In order to adjust the residual component of the tier charge
when there is a change in the number of channels on a tier, the
operator shall perform the following calculations:
(i) Take the sum of the old total number of channels on tiers
subject to regulation (i.e., tiers that are, or could be, regulated)
and the new total number of channels and divide the resulting number by
two;
(ii) Consult the table in paragraph (e)(1) of this section to find
the applicable per channel adjustment factor for the number of channels
produced by the calculations in paragraph (e)(2)(i) of this section.
For each tier for which there has been a change in the number of
channels multiply the per-channel adjustment factor times the change in
the number of channels on that tier. The result is the total adjustment
for that tier. It is positive if the number of channels on the tier has
increased and negative if the number of channels has decreased.
(f) Permitted charges for a tier shall be determined in accordance
with forms and associated instructions established by the Commission.
4. Section 76.923 is amended by adding paragraph (l) to read as
follows:
Sec. 76.923 Rates for equipment and installation used to receive the
basic service tier.
* * * * *
(l) Company-wide averaging of equipment costs. For the purpose of
developing unbundled equipment charges as required by paragraph (b) of
this section, a cable operator may average the equipment costs of its
small systems at any level, or several levels, within its operations.
This company-wide averaging applies only to an operator's small systems
as defined in Sec. 76.901(c); is permitted only for equipment charges,
not installation charges; and may be established only for similar types
of equipment. When submitting its equipment costs based on average
charges to the local franchising authority or the Commission, an
operator that elects company-wide averaging of equipment costs must
provide a general description of the averaging methodology employed and
a justification that its averaging methodology produces reasonable
equipment rates. The local authority or the Commission may require the
operator to set equipment rates based on the operator's level of
averaging in effect on April 3, 1993, as required by Sec. 76.924(d).
5. Section 76.934 is amended by redesignating the existing text as
paragraph (a) and by adding new paragraphs (b), (c) and (d) to read as
follows:
Sec. 76.934 Small Systems.
* * * * *
(b) Initial regulation of small systems. (1) If certified by the
Commission, a local franchising authority may provide an initial notice
of regulation to a small system, as defined by Sec. 76.901(c), on May
15, 1994. Any initial notice of regulation issued by a certified local
franchising authority prior to May 15, 1994 shall be considered as
having been issued on May 15, 1994.
(2) The Commission will accept complaints concerning the rates for
cable programming service tiers provided by small systems on or after
May 15, 1994. Any complaints filed with the Commission about the rates
for a cable programming service tier provided by a small system prior
to May 15, 1994 shall be considered as having been filed on May 15,
1994.
(3) A small system that receives an initial notice of regulation
from its local franchising authority, or a complaint filed with the
Commission for its cable programming service tier, must respond within
the time periods prescribed in Secs. 76.930 and 76.956.
(c) Statutory period for filing initial complaint. A complaint
concerning a rate for cable programming service or associated equipment
provided by a small system that was in effect on May 15, 1994 must be
filed within 180 days from May 15, 1994.
(d) Petitions for extension of time. Small systems may obtain an
extension of time to establish compliance with rate regulations
provided they can demonstrate that timely compliance would result in
severe economic hardship. Requests for extension of time should be
addressed to the local franchising authority concerning basic service
and equipment rates and to the Commission concerning rates for a cable
programming service tier and associated equipment. The filing of a
request for an extension of time to comply with the rate regulations
will not toll the effective date of rate regulation for small systems
or alter refund liability for rates that exceed permitted levels after
May 15, 1994.
6. Section 76.952 is amended by revising paragraph (a) to read as
follows:
Sec. 76.952 Information to be provided by cable operator on monthly
subscriber bills.
(a) The name, mailing address and phone number of the local
franchising authority and the Cable Services Bureau of this Commission.
* * * * *
7. Section 76.953 is amended by revising paragraph (a) to read as
follows:
Sec. 76.953 Limitation on filing a complaint.
(a) Complaint regarding a rate in effect on September 1, 1993.
Notwithstanding paragraph (b) of this section, a complaint regarding a
rate for cable programming service or associated equipment in effect on
September 1, 1993, must be filed by February 28, 1994, except as
provided in Sec. 76.934(c) with respect to small systems.
* * * * *
8. Section. 76.958 is added to Subpart N to read as follows:
Sec. 76.958 Notice to Commission of rate change while complaint
pending.
A regulated cable operator that proposes to change any rate while a
cable service tier complaint is pending before the Commission shall
provide the Commission at least 30 days notice of the proposed change.
9. Section 76.964 is amended by revising the section heading,
redesignating the existing text as paragraph (a) and adding new
paragraphs (b) and (c) to read as follows:
Sec. 76.964 Notices to subscribers.
* * * * *
(b) Cable systems shall give 30 days written notice to both
subscribers and local franchising authorities before implementing any
rate or service change. Such notice shall state the precise amount of
any rate change and briefly explain in readily understandable fashion
the cause of the rate change (e.g., inflation, changes in external
costs or the addition/deletion of channels). When the change involves
the addition or deletion of channels, each channel added or deleted
must be separately identified. Notices to subscribers shall inform them
of their right to file complaints about changes in cable programming
service tier rates and services with this Commission within 45 days of
the rate or service change being reflected in their bill, and shall
provide the address and phone number of both the local franchising
authority and the Cable Services Bureau of this Commission.
(c) Cable systems shall provide written notice to subscribers of
subscribers' right to file with the Commission complaints concerning
rate changes for cable programming service or associated equipment.
This notice shall be provided at the same time as the notice required
under paragraph (b) and additionally with the first bill reflecting the
rate change. The notice shall state that the subscriber may file the
complaint within forty-five days of the date the complainant receives
the bill that reflects the rate change, and shall provide the address
and phone number of the local franchising authority and the Commission.
For rate changes becoming effective before July 15, 1994, operators may
provide this notice by any reasonable and feasible means (such as on
screen programming or newspaper publication) rather than the written
notice otherwise required by this paragraph.
10. A new Sec. 76.986 is added to Subpart N to read as follows:
Sec. 76.986 ``A la carte'' offerings.
(a) Collective offerings of unregulated per-channel or per-program
(``a la carte'') video programming shall not be regulated if:
(1) The price for the combined package does not exceed the sum of
the individual charges for each component of service, and
(2) The cable operator continues to provide the component parts of
the package to subscribers separately in addition to the collective
offering. The second condition will be met only when the per channel
offering provides consumers with a realistic service choice. Collective
offerings available on April 1, 1993 shall not be regulated if
subsequently offered on the same terms and conditions as were in effect
on that date.
(b) In reviewing a basic service rate filing, local franchising
authorities may make an initial decision addressing whether a
collective offering of ``a la carte'' channels will be treated as an
unregulated service or a regulated tier. The franchising authority must
make this initial decision within the 30 day period established for
review of basic cable rates and equipment costs in Sec. 76.933(a), or
within the first 60 days of an extended 120 day period (if the
franchise authority has requested an additional 90 days) pursuant to
Sec. 76.933(b). The franchising authority shall provide notice of its
decision to the cable system and shall provide public notice of its
initial decision within seven days pursuant to local procedural rules
for public notice. Operators or consumers may make an interlocutory
appeal of the initial decision to the Commission within 14 days of the
initial decision. Operators shall provide notice to franchise
authorities of their decision whether or not to appeal to the
Commission within this period. Consumers shall provide notice to
franchise authorities of their decision to appeal to the Commission
within this period.
(c) A limited initial decision under paragraph (b) of this section
shall toll the time periods under Sec. 76.933 within which local
authorities must decide local rate cases. The time period shall resume
running seven days after the Commission decides the interlocutory
appeal, or seven days following the expiration of the period in which
an interlocutory appeal pursuant to paragraph (b) of this section may
be filed.
(d) A local franchising authority alternatively may decide whether
a collective offering of ``a la carte'' channels will be treated as an
unregulated service or a cable programming services tier as part of its
final decision setting rates for the basic service tier. That decision
may then be appealed to the Commission as provided for under
Sec. 76.945.
[FR Doc. 94-8998 Filed 4-14-94; 8:45 am]
BILLING CODE 6712-01-M
