[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Rules and Regulations]
[Pages 35854-35868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16515]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MM Dockets Nos. 92-266 and 93-215; FCC 95-196]
Cable Act of 1992--Small Systems
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: Based on comments filed in response to the Further Notice of
Proposed Rulemaking, 59 FR 51934 (October 13, 1994) and in order to
implement the provisions of the Cable Television Consumer Protection
and Competition Act of 1992, this Sixth Report and Order and Eleventh
Order on Reconsideration amends the Commission's rules regarding rates
for small cable systems in order to ease the burdens of rate regulation
on small systems.
EFFECTIVE DATE: The requirements and regulations established in this
decision shall become effective upon approval by OMB of the new
information collection requirements adopted herein, but no sooner than
August 11, 1995. The Commission will issue a notice indicating the
effective date.
FOR FURTHER INFORMATION CONTACT:
Tom Power or Meryl S. Icove, Cable Services Bureau, (202) 416-0800.
Form 1230 information: Alex Byron, Cable Services Bureau, (202) 416-
0800.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's Sixth
Report and Order and Eleventh Order on Reconsideration in MM Docket
Nos. 92-266 and 93-215, FCC 95-196, adopted May 5, 1995, and released
June 5, 1995. The complete text of this document is available for
inspection and copying during normal business hours in the FCC
Reference Center, 1919 M St., NW., Washington, DC, and also may be
purchased from the Commission's copy contractor, International
Transcription Service, (ITS), at 2100 M St., NW., Washington, DC 20037,
(202) 857-3800.
I. Introduction
In this Sixth Report and Order and Eleventh Order on
Reconsideration we amend our definitions of small cable entities to
encompass a broader range of cable systems that will be eligible for
special rate and administrative treatment. In addition to amending our
definitions, we make available to this expanded category a new
regulatory scheme that will be available immediately for use by certain
small cable companies. This new form of regulation should provide both
rate relief and reduced administrative burdens.
II. Summary
1. The Commission issued the Further Notice of Proposed Rulemaking,
59 FR 51934 (October 13, 1994), seeking to establish a more complete
record for purposes of promulgating final rate rules applicable to
small operators, independent small systems, and small systems owned by
small MSOs by soliciting comment on possible alternative definitions
that we could use for purposes of determining eligibility for special
rate or administrative treatment. We sought comment on whether we
should retain current definitions or use different definitions for
purposes of establishing special rate or administrative treatment for
small systems and small operators. We specifically sought comment on
these issues in light of section 3(a) of the Small Business Act, and on
whether we should employ the current SBA definition of a small cable
company in our cable rules.
2. In amending our definitions and introducing a new, simplified
form of small system rate relief in this Order, the Commission
continues its ongoing efforts to offer small cable companies
administrative relief from rate regulation in furtherance of
congressional intent. In each of the orders that we have adopted in
this rate proceeding, small cable companies have been afforded
flexibility in how they can comply with rate regulations while reducing
burdens on themselves and providing good service to subscribers.
Through our actions today, the Commission expands the category of
systems eligible for such opportunities to include approximately 66% of
all cable systems in the nation serving approximately 12.1% of all
cable subscribers.
3. Specifically, we amend our definitions so that systems serving
15,000 or fewer subscribers that are owned by small cable companies of
400,000 or fewer subscribers are eligible to elect small system cost-
of-service relief, as well as certain other relief previously made
available to small systems and operators. The new cost-of-service
approach will involve a very simple, five element calculation based
upon a system's costs. The calculation will produce a per channel rate
for regulated services that will be presumed reasonable if it is no
higher than $1.24 per channel. If the formula generates a higher rate,
the operator still will be permitted to charge that rate if not
challenged by the franchising authority or, upon being challenged, if
the operator meets its burden of proving that the rate is reasonable.
This new regulation will accord these small substantial flexibility in
establishing the types of costs to be included and in allocating those
costs among services. Our analysis of cost data, when combined with our
understanding of the many unique challenges facing small cable
companies, leads us to conclude that a simplified approach will best
serve a segment of the cable industry that needs assistance in coping
with rate regulation in order to serve subscribers better and to grow
its business. In addition, this approach should facilitate regulation
of cable rates by small local franchising authorities who wish to have
a procedure for doing so that is simpler than existing forms of
regulation.
[[Page 35855]]
III. Discussion
A. The New Category of Systems and Operators Eligible for Relief
4. We acknowledge that a large number of smaller cable operators
face difficult challenges in attempting simultaneously to provide good
service to subscribers, to charge reasonable rates, to upgrade
networks, and to prepare for potential competition. Since passage of
the 1992 Cable Act, the Commission has worked continuously with the
small cable industry to learn more about their legitimate business
needs and how our rate regulations might better enable them to provide
good service to subscribers while charging reasonable rates. Based on
the record in this proceeding and our analysis of the rate
justifications that have been submitted since our revised rate rules
became effective in May 1994, we conclude that our definitions of small
operators and small MSOs need to be changed to encompass the broader
range of operators in need of rate relief. Therefore, we will expand
upon the definition of a small system to include any system that serves
15,000 or fewer subscribers. Furthermore, we significantly expand upon
the definition of a small operator, redefining it and renaming it as a
``small cable company'' serving a total of 400,000 or fewer subscribers
over all of its systems. Finally, we will eliminate the existing
definitions of a small operator and small MSO. We will extend to the
expanded category of small systems owned by small cable companies
certain rate and administrative relief as discussed below, and also the
small system rate relief provisions adopted in the accompanying
Eleventh Order on Reconsideration.
5. In the 1992 Cable Act and its legislative history, Congress made
clear its belief that small systems would be in need of administrative
and rate relief as a consequence of the re-regulation of the cable
industry.\1\ We are convinced, however, that systems of up to 15,000
subscribers are likewise in need of relief and that we have the
authority to extend relief to them. As more fully explained below, the
comments in this proceeding and our review of benchmark and cost-of-
service rate justifications leads us to conclude that these larger
systems generally face many of the same challenges that systems 1,000
or fewer subscribers do in providing cable service. In view of this
finding, we believe the relaxation of certain rate rules that we hereby
order is consistent with the 1992 Cable Act. We note in particular the
Statement of Policy contained in the statute in which Congress
expressed its intent, inter alia, to:
\1\ To the extent we refer herein to systems of up to 15,000
subscribers as ``small systems,'' we do so for purposes of
convenience. We are not using that term to refer to the class of
systems described in section 623(i) of the Communications Act.
---------------------------------------------------------------------------
(1) Promote the availability to the public of a diversity of views
and information through cable television * * *;
(2) Rely on the marketplace, to the maximum extent feasible, to
achieve that availability;
(3) Ensure that cable operators continue to expand, where
economically justified, their capacity and the programs offered over
their cable systems * * *.
Relaxing regulatory burdens should free up resources that affected
operators currently devote to complying with existing regulations and
should enhance those operators' ability to attract capital, thus
enabling them to achieve the goals of Congress cited above. Moreover,
in prescribing rules governing basic service rates, the Communications
Act requires us to ``seek to reduce the administrative burdens on
subscribers, cable operators, franchising authorities, and the
Commission * * *.'' We believe this mandate authorizes us to expand the
category of small systems and provide them with rate and administrative
relief. Section 303(r) of the Communications Act further supports our
decision to take Congress's goals into account in extending relief to
systems with up to 15,000 subscribers. The action we take today should
also ease burdens for local franchising authorities and the Commission,
in furtherance of congressional intent. In particular, as we simplify
matters for smaller cable companies, we do the same for smaller local
franchising authorities, who we understand to be just as concerned as
smaller cable operators with the potential burdens and costs of
regulation.
6. The staff evaluated the 15,000 subscriber standard on the basis
of shared economic, physical, and financial characteristics for systems
above and below this size, in order to determine the significance of
that breakpoint. To evaluate this standard, the staff used data from
Warren Publishing Inc.'s cable services database, which was obtained by
the Commission in the fall of 1994. This database contains detailed
information on most of the country's 11,200 cable systems and 1,500
cable companies. Staff determined that systems with fewer than 15,000
subscribers differ from systems with more than 15,000 subscribers with
respect to the following characteristics:
(a) The average monthly regulated revenue per channel per
subscriber is $0.86 for systems with fewer than 15,000 subscribers and
$0.44 for systems with more than 15,000 subscribers;
(b) The average number of subscribers per mile is 35.3 for systems
with fewer than 15,000 subscribers and 68.7 for systems with more than
15,000 subscribers;
(c) The average annual premium revenue per subscriber is $41.00 for
systems with fewer than 15,000 subscribers and $73.13 for systems with
more than 15,000 subscribers.
This confirms that the use of the 15,000 subscriber standard does
result in two groups of systems that have significant distinctions
between them.
7. As we have observed previously, our relief for smaller cable
entities is aimed at those that do not have access to the financial
resources, purchasing discounts, and other efficiencies of larger
companies. Therefore, relief will be available only to small systems,
as now defined, that are owned by small cable companies serving 400,000
or fewer subscribers over all of its systems. In defining a small cable
company as one serving no more than 400,000 subscribers, we accepted
the recommendations of commenters who urged that we define a small
cable company as one that earns $100 million or less in annual
regulated revenues. As explained below, establishing the company size
in terms of subscribers, rather than dollars, will advance regulatory
simplicity; in the cable context, $100 million in annual regulated
revenues equates to approximately 400,000 subscribers.
8. With respect to the $100 million standard, we note in particular
the recommendation of this measure of company size by SBA's Office of
Advocacy. As it and other commenters point out, in the common carrier
field entities having annual regulated revenues of more than $100
million are subject to much greater regulatory burdens than those
earning less than that amount. For example, for various regulatory
purposes the Common Carrier Bureau has created the Tier 1 category of
local exchange carriers (``LECs''), consisting solely of LECs with at
least $100 million in annual regulated revenues. In expanding LEC
interconnection requirements, we limited the impact of our rules to
Tier 1 LECs, citing the limited resources of smaller LECs, among other
factors. Numerous common carrier reporting
[[Page 35856]]
requirements apply solely to carriers having annual revenues in excess
of $100 million. Likewise, the level of detail required under the
Uniform System of Accounts applicable to telecommunications companies
depends upon whether the regulated entity is a Class A or Class B
company, the former having annual regulated revenues of $100 million or
more and the latter having annual regulated revenues below that amount.
9. As SBA's Office of Advocacy states, the logic underlying these
common carrier rules also can be applied in the cable context. Cable
companies exceeding the $100 million standard are better able to absorb
the costs and burdens of regulation due to their expanded
administrative and technical resources. Further, we have noted in the
telephone context that relaxation of regulatory burdens is justified
for smaller entities even when those entities have significant market
power. Accordingly, we believe that $100 million in annual regulated
revenues is a reasonable standard at which to decrease regulatory
burdens.
10. A cable company with an overall subscriber figure of 400,000 we
have chosen is roughly equivalent to a cable company with $100 million
in annual revenues. To establish this equivalency, the Commission used
a regression methodology to estimate the statistical relationship
between companies' regulated revenue and their subscribership.
(Regression analysis is a statistical technique used to estimate the
value of a random variable (the dependent variable), given that the
value of an associated variable (the independent variable) is known.
The regression equation is the algebraic formula by which the estimated
value of dependent variable (in this case, the number of subscribers
associated with annual regulated revenue) is determined. Generally, the
functional relationship between the independent variable and the
dependent variable is expressed as:
y=f(x)+e (1)
where `y,' the value of the dependent variable (number of subscribers),
is determined by `x,' the independent variable (annual revenue at MSO
level). Random variable `e' is added to the algebraic formula to
account for variables other than `x' that may influence the dependent
variable. In the above functional relationship, since `e' is random,
`y' is also random. It is possible to have different types of
functional relationships between dependent and independent variables,
e.g., linear or non-linear relationship. We assume that the dependent
variable is linearly related to independent variable. Hence we can
rewrite f(x) in equation (1) as:
f(x)=a+bx (2)
Based on the value of f(x) established in equation (1), equation (2)
can be rewritten as:
y=a+bx+e (3)
Equation (3) represents a linear regression equation. In this equation,
both `a' and `b' are ``unknown coefficients'' and are estimated by
fitting a straight line using the `least-squares criterion'. By the
least-squares criterion the best-fitting regression line is that for
which the sum of the squared deviation between the actual and estimated
values of the dependent variables for the sample is minimum. Our
estimation of the relationship between subscribers and regulated
revenues yielded:
y=120.597+(.004137097)*x
where y=company subscribership and x=company regulated revenues.) The
data for this methodology were taken from the Warren Publishing Inc.
cable services database mentioned above. According to this methodology,
$100 million in annual regulated revenue is equivalent to 413,830
subscribers. We have rounded the exact figure to 400,000 subscribers
for the administrative convenience of operators, franchising
authorities, and the Commission. SCBA also equates $100 million in
annual revenues with approximately 400,000 subscribers, based on its
data showing average per subscriber revenues of about $20 per month. In
defining a small cable company, we conclude that it would be better to
continue to rely on the total number of subscribers, rather than to
rely on a revenue figure. A definition based on subscribers is simpler
to apply and will avoid the need to allocate revenues between regulated
and unregulated services. Furthermore, evidence suggests that operating
challenges faced by small cable companies are closely tied to the
number of subscribers served rather than the revenues they generate. In
addition, a subscriber-based standard should provide cable companies
with the maximum flexibility to add new services and new programming,
thereby increasing revenues without losing the benefits of rate relief.
11. At the same time, however, the Commission recognizes that a
company's revenues will affect its ability to comply with significant
regulatory responsibilities. As noted, in the common carrier field we
have repeatedly used the standard of $100 million in annual revenues to
allocate regulatory burdens. We believe that the impact of regulation
on common carriers is similar to that imposed on cable companies. Small
cable companies also must generate a minimum level of revenue in order
to attract financing to upgrade their networks, to provide new
programming to subscribers, and to introduce new services that are now
being developed. Therefore, by targeting rate relief at small cable
companies with 400,000 or fewer subscribers, we believe we will be
assisting those companies earning $100 million or less in annual gross
revenues to obtain financing needed to grow.
12. We expect that 66% of all cable systems will meet the expanded
definitions of a small system owned by a small cable company. These
systems serve only about 12.1% of the nation's subscribers.
Consequently, regulatory relief provided to these eligible systems will
affect a majority of systems in the industry but a relatively small
number of subscribers, thus limiting the overall impact of any rate
changes that these new definitions permit. Nonetheless, we believe that
the new definitions will not result in unreasonable rates for
subscribers. Indeed, the new definitions constitute a needed refinement
to the existing definitions and thereby create a better fit between the
relief we have created for smaller entities and the class of systems
that qualify for that relief.
13. We have chosen to eliminate the existing definitions of a small
operator and a small MSO because data made available to the Commission
since adoption of the Second Order on Reconsideration, 59 FR 17943
April 15, 1994 leads us to conclude that these categories were not
broad enough to include all those operators and systems in need of rate
and administrative relief. For example, SCBA asserts that only 16
companies meet the definition of a small MSO. Moreover, the small cable
industry and local franchising authorities generally state that they
find the small operator and small MSO definitions confusing and
difficult to understand and to implement. Therefore, the system,
operator, and MSO size standards that currently define small operators
and small MSOs will no longer be relevant, except for resolving certain
pending disputes as discussed more particularly below.
14. In urging the expansion of the class of systems eligible for
small system relief, several commenters recommend that we revise the
method by which system size is calculated. A small system is currently
defined based on the number of subscribers served from its principal
headend. A number of
[[Page 35857]]
commenters argue that the Commission should amend the definition of a
small system so that it is defined based upon the number of subscribers
served in a franchise area. Under this approach, a cable company that
served two franchise areas would be treated for rate regulation
purposes as if it operated two separate systems, even if both franchise
areas were in fact served by one set of integrated transmission paths
running from a single headend. The arguments in favor of this change
have been raised before in this proceeding and were rejected by the
Commission as unpersuasive. We continue to believe that determining
small system size based on a system's principal headend, best
harmonizes our small system rate rules with most of our existing
regulations on cable system size. For example, the existing exemptions
for systems with 1,000 or fewer subscribers in the network non-
duplication, public inspection, and technical regulations are based on
a system's headend rather than franchise area. To use a franchise area
definition would result in some segments of a single integrated cable
operation being subject to a different regulatory structure than other
segments of the same operation. Therefore, we again reject commenters'
suggestions and in expanding current definitions to include systems
with 15,000 or fewer subscribers we shall base eligibility on the
number of subscribers served from a system's principal headend.
15. We recognize that establishing a numerical test can exclude
some systems which may also be in need of rate relief. Therefore, we
will entertain petitions for special relief from systems who fail to
meet the new definitions but are able to demonstrate that they share
relevant characteristics with qualifying systems and therefore should
be entitled to the same regulatory treatment. Absent such an avenue,
the regulatory treatment of two smaller, nearly identical systems could
vary significantly merely because, for example, one is just under, and
the other just over, 15,000 subscribers, or because the size of their
respective owners varies by a few hundred subscribers. In considering
such petitions, relevant factors will include the degree by which the
system fails to satisfy either or both definition, whether the systems
recently has been the subject of an acquisition or other transaction
that substantially reduced its size or that of its operator, and
evidence of increased costs (e.g., lack of programming or equipment
discounts) faced by the operator. If the system fails to qualify for
the small system definition because it is affiliated with a cable
company that serves over 400,000 subscribers, we will consider the
degree to which that affiliation exceeds our affiliation standards,\2\
and whether other attributes of the system warrant that it be treated
as a small system notwithstanding the percentage ownership of the
affiliate. Likewise, a qualifying system that seeks to obtain
programming from a neighboring system by way of a fiber optic link, but
that is concerned that interconnection of the two systems will
jeopardize its status as a stand-alone small system, may file a
petition for special relief to ask the Commission to find that it is
eligible for small system relief. This is not an exhaustive list of the
factors we will consider in reviewing petitions for special relief;
operators may support their petitions with whatever information and
arguments they deem relevant.
\2\ A small system will be considered affiliated with a cable
company serving more than 400,000 subscribers if such a company
holds more than a 20 percent equity interest (active or passive) in
the system or exercise du jure control (such as though a general
partnership or majority voting shareholder interest). Where a larger
company is so affiliated with the small system, we believe the
system will have access to the resources it needs to grow as well as
larger systems, and hence should not be in need of the relief we
will accord to small systems that have no such access.
---------------------------------------------------------------------------
B. Application of Existing Rate and Administrative Relief
16. We have summarized above the steps we have taken previously to
ease burdens on smaller systems and operators. We now address the
eligibility of systems that have 15,000 or fewer subscribers and are
owned by small cable companies to take advantage of these measures. We
also initiate the gradual termination of transition relief for all but
low-price systems.
17. To qualify for any existing form of relief, systems and
companies must meet the new size standards as of either the effective
date of this order or on the date thereafter when they file whatever
documentation is necessary to elect the relief they seek, at their
election. In completing and filing that documentation, the system may
use the most recent subscriber data available to it. A system that is
eligible for small system relief on either of the dates described above
shall remain eligible for so long as the system has 15,000 or fewer
subscribers, regardless of a change in the status of the company that
owns the system. Thus, a qualifying system will remain eligible for
relief even if the company owning the system subsequently exceeds the
400,000 subscriber cap. Likewise, a system that qualifies shall remain
eligible for relief even if it is subsequently acquired by a company
that serves a total of more than 400,000 subscribers. The ability to
remain eligible for small system relief even after being acquired by a
larger operator should increase the value of the system in the eyes of
operators and, more importantly, lenders and investors. The enhanced
value of the system thus will strengthen its viability and actually
increase its ability to remain independent if it so chooses.
18. In most instances, eligibility for small system relief will
terminate after the system exceeds 15,000 subscribers. As discussed in
the subsections that follow, the manner in which relief will be
terminated when the system reaches this subscriber threshold will vary
depending upon the type of relief at issue.
1. Transition Relief for Small Operators
19. In the Second Order on Reconsideration, 59 FR 18064, April 15,
1994, we stated that transition relief would be available pending the
adoption of final rate rules. We adopt final rate rules in the
accompanying Eleventh Order on Reconsideration. Therefore, we provide
herein for the termination of transition relief. (This termination of
transition relief shall affect only systems who qualify for that relief
on the basis of size. Low-price systems shall remain eligible for
transition relief as provided under the existing rules.) Systems
currently operating under transition relief may continue to do so until
two years from the effective date of this order. We establish this
period to allow transition systems adequate time to plan for the
conversion to some other form of regulation, rather than requiring an
immediate conversion. Such a sudden shift would be disruptive not only
to operators, but also to subscribers and franchising authorities who
are now accustomed to their operators' regulatory status. Until the
termination of transition relief, transition systems shall continue to
adjust their transition rates in accordance with existing rules.
However, systems need not wait the full two years to convert from
transition relief. Thus, for example, a transition system may convert
at any time by filing the documentation necessary to establish rates in
accordance with our benchmark or cost-of-service rules.
20. Unless the operator terminates its transition status sooner as
described above, such relief shall terminate two years from the
effective date of this item. By that date, a current transition system
must have restructured its rates and satisfied all notice and filing
[[Page 35858]]
requirements pursuant to either our benchmark or cost-of-service rules,
the latter of which include the small system cost-of-service
regulations adopted in the accompanying Eleventh Order on
Reconsideration. However, these requirements will not apply if the
transition system is subject to an alternative rate agreement in
accordance with the Eighth Order on Reconsideration, 60 FR 14373, March
17, 1995 as of the date transition relief ends.
21. Transition relief shall remain available only to small systems
that already are operating pursuant to that form of relief. In
particular, satisfaction of the new system and company size definitions
shall not qualify a system for transition relief. Moreover, no small
system that first becomes subject to regulation hereafter shall be
entitled to transition relief, including systems that satisfy our
existing definition of a small operator. Nothing herein shall affect
the applicability of transition relief to low-price systems.
2. Cost-of-Service
22. Systems of 15,000 or fewer subscribers owned by small cable
companies may now use FCC Form 1225 to justify higher rates through a
cost-of-service showing. This ``short form'' reduces the number of
reporting categories and involves fewer calculations. Qualifying
systems that have not previously established rates in accordance with
Form 1225 may do so on a prospective basis only. Upon exceeding 15,000
subscribers, any system that has established rates based on Form 1225
may continue to charge its then permitted rate and may adjust rates in
accordance with all rules applicable to systems that have more than
15,000 subscribers. We believe it unduly burdensome and disruptive to
require operators to engage in the standard benchmark or cost-of-
service showing immediately upon passing the 15,000 subscriber
threshold. This is particularly true in the case of cost-of-service
systems since their permitted rates reflect their cost of debt,
amortization schedules, and other items that will be established before
the system reaches that threshold and will remain constant thereafter.
Depriving Form 1225 filers of adjustments for inflation, external cost
increases, and channel additions would be inconsistent with the form of
relief elected by the operator. Of course, to make a cost-of-service
showing after exceeding the 15,000 subscriber threshold, a system will
have to use Form 1220.
3. 90-Day ``Grace Period''
23. Systems serving 15,000 or fewer subscribers owned by small
cable companies currently may avail themselves of the 90-day ``grace
period'' after regulation begins in which to complete and file rate
justifications, notify subscribers, and implement restructured rates.
Thus, eligible systems are not required to establish rates and service
offerings that comply with our rules for 90 days after the initial date
of regulation, and they may take up to 60 days from the date of initial
regulation to file necessary rate justification forms with their local
franchising authority, or the Commission where appropriate. Qualifying
systems must continue to give 30 days notice to subscribers prior to
implementing rate and service changes. Additionally, eligible systems
may make their initial basic tier rates, established in accordance with
the Commission's revised rate regulations, effective on 30 days' notice
without prior approval from their local franchising authority. If, upon
subsequent examination of a rate justification, a local franchising
authority or the Commission finds that the system has implemented rates
in excess of the maximum permitted rate, refunds may be ordered in
accordance with our regulations. If a system exceeds the 15,000-
subscriber threshold during a grace period that already is running, or
if the first day of regulation is no more than 90 days after the system
exceeds 15,000 subscribers, the system shall still be entitled to the
full 90-day and 60-day periods described above, beginning with the
initial date of regulation.
4. Streamlined Rate Reductions
24. We will expand the category of systems eligible for streamlined
rate reductions to include those serving 15,000 or fewer subscribers
owned by a small cable company. Thus, eligible systems may choose to
reduce each billed item of regulated cable service as of March 31, 1994
by 14% as adjusted for subsequent changes in inflation, external costs,
and channel additions and deletions. This will enable more systems to
reduce administrative burdens because eligible systems choosing
streamlined rate reductions are not required to complete FCC Forms 1200
and 1205, unbundle equipment and installation charges from programming
service charges, or set equipment and installation charges at actual
cost. Qualifying systems may establish rates in accordance with this
relief upon satisfaction of all notice and filing requirements. After
reaching 15,000 subscribers, these systems will be able to make all
rate adjustments permitted of any system with more than 15,000
subscribers, including increases for inflation and external costs.
Systems that have elected streamlined rate relief have set their
initial permitted rates to reflect the full reduction rate, as adjusted
for inflation. Therefore, these systems should be permitted to adjust
rates hereafter to reflect subsequent increases in inflation and
external costs even after exceeding 15,000 subscribers.
5. Going Forward Rules
25. Systems of any size that are owned by small cable companies and
that incur additional monthly per subscriber headend costs of one full
cent or more for the addition of a channel may recover the flat mark-up
fee for the new channel, plus the actual cost of the headend equipment
necessary to add new channels, not to exceed $5,000 per channel, plus
the channel's licensing fee, if any, for adding not more than seven new
channels to CPS tiers over the next three years, if the monthly per
subscriber cost of the additional headend equipment necessary to
receive an additional channel is one cent or more. (We note that many
of these systems already may have qualified for this small system
going-forward relief even though they have in excess of 1,000
subscribers pursuant to the Seventh Order on Reconsideration, 60 FR
4863 (January 25, 1995), which makes the relief available to a system
with more than 1,000 subscribers if the system is independent or owned
by a MSO meeting the prior definition of a small MSO and if the monthly
per subscriber cost of the additional headend equipment necessary to
receive an additional channel is one cent or more.) The cost of the
headend equipment must be amortized over the useful life of the
equipment and small systems will be allowed an 11.25% return on the
undepreciated investment. Qualifying systems may elect this relief only
with respect to channels added after the effective date of this order.
Of course, these systems also may offer New Product Tiers which they
are permitted to price as they elect, subject to certain conditions. We
note that under the existing rule, small systems owned by small MSOs,
as those terms were originally defined, could take advantage of this
headend upgrade incentive, even if they could not show that the
additional monthly per subscriber headend cost of adding a channel was
at least one cent. Under the new rule, a system must meet the ``one
cent rule'' in order to qualify for this form of relief.
[[Page 35859]]
In theory, our revision of the rule could take away this form of relief
from systems of under 1,000 subscribers who cannot satisfy the one cent
rule. In practice, however, this should not be the case, because the
additional cost of headend equipment, when spread over no more than
1,000 subscribers and depreciated reasonably, will always produce a per
subscriber monthly cost of at least one cent. If we are incorrect in
this conclusion, however, we will entertain petitions for special
relief from systems that currently qualify for this form of relief but
who would not qualify under the new rule.
6. Alternative Rate Regulation Agreements
26. Systems of 15,000 or fewer subscribers owned by small cable
companies will be given the opportunity to work certified local
franchising authorities to create alternative rate regulation
agreements in accordance with the Eighth Order on Reconsideration, 60
FR 14373 (March 17, 1995). In expanding eligibility, we believe the
benefits of alternative rate regulation agreements, i.e., reasonable
rates and reduced regulatory burdens, will flow to a greater number of
subscribers, cable systems, and local franchising authorities. An
agreement made while the system has 15,000 or fewer subscribers shall
be enforceable for the term provided in the agreement. Thus, the
agreement shall not be terminable simply because the system
subsequently exceeds 15,000 subscribers, unless the agreement itself
provides for termination at that time.
7. Other Existing Relief
27. Subject to approval of the franchising authority, any system
meeting the new small system definition shall be permitted to certify
that its rates are reasonable, regardless of the size of the operator.
In addition, an operator of any size that owns more than one system
with 15,000 or fewer subscribers may establish its unbundled charges
for regulated equipment based on the average equipment costs of all
such small systems, or only some of them, rather than a system-by-
system basis.
C. The Small Business Act
28. The Commission does not believe the SBA size standards, to
which federal agencies may be required to adhere under section 3 of the
Small Business Act, are applicable to the Commission's definitions of
small systems and small cable companies under the 1992 Cable Act.
Section 3(a) of the Small Business Act provides that SBA size standards
apply for the purposes of all legislation, unless the legislation
specifically authorizes different size standards. The 1992 Cable Act in
fact suggests one system size definition that the Commission may use as
one with 1,000 or fewer subscribers. The Commission has implemented the
statutory provision regarding small system relief in a more flexible
manner than is explicitly mandated by the Cable Act and is now
extending relief to additional systems. But this does not alter the
fact that the Commission is implementing a statute with an explicit
small business size standard. Therefore, section 3(a) of the Small
Business Act is inapplicable. Section 3(a) is also inapplicable because
the SBA defines a small-business concern as one ``which is not dominant
in its field of operation.'' Cable systems subject to rate regulation
are by definition dominant in their field of operation because they do
not face effective competition.
29. Moreover, even if the SBA rules defining a small cable system
as one with $11 million or less in gross annual revenues were
applicable, the definitions we are adopting today are designed to
provide relief to such companies. This Order extends relief to cable
companies with 400,000 or fewer subscribers, a standard we equate with
$100 million in annual regulated revenues as advocated by SBA's Office
of Advocacy. Thus, we believe that our standards are more protective of
small businesses than is the $11 million dollar standard promulgated by
the SBA. In any event, we are directing the Commission's Secretary to
provide a copy of this order to the SBA.
IV. Eleventh Order on Reconsideration
30. Having redefined the class of systems entitled to relief on the
basis of system size, we here adopt expanded relief for such systems.
Again, the system may establish its initial eligibility with respect to
the system and company size limitations as of the effective date of
this order or as of the date the system files the documentation
necessary to seek the relief.
31. In adopting transition relief, we stated that when cost studies
were completed, we might make permanent, eliminate, or modify such
relief for qualifying systems and operators. We also stated that when
we develop average equipment cost schedules, we could terminate or
modify our provisions for streamlined rate reductions. Finally, we gave
notice that in our final cost proceeding, we may modify our
requirements for cost showings by small systems.
32. The comments received in response to the Further Notice of
Proposed Rulemaking, 58 FR 29736, May 21, 1993, suggest that many
smaller cable operators and companies have an immediate need for
further relief from certain aspects of rate regulation currently
applicable to them. Moreover, we believe that the data we already have
accumulated is sufficient to design additional relief for those systems
most in need. In such circumstances, we see no reason to impose on
smaller systems the burdens and delay that a formal cost study would
entail. Therefore, based on the comments received in this proceeding,
and in light of other pending petitions for reconsideration, we
reconsider on our own motion the Second Reconsideration Order, 58 FR
46718, September 2, 1993, as it relates to rate regulation of smaller
systems, and hereby make certain relief available to systems that have
15,000 or fewer subscribers and that are owned by a small cable
company, as we have now defined that term.
33. As explained more fully below, eligible systems will be able to
establish their permitted rates on the basis of an extremely simple
formula that requires the operator to supply only five items of data:
Total operating expenses, net rate base, rate of return, channel count
and subscribers. These five items will be used in an easy formula that
will generate a per-channel rate that will be presumed reasonable if it
is no more than $1.24 per channel. To disapprove such a rate, the
franchising authority will have the burden of showing that the cable
operator did not reasonably interpret and allocate its cost and expense
data in coming up with the operating expense, net rate base, and rate
of return figures claimed by the operator in calculating its permitted
rate. If the formula-generated rate exceeds $1.24, the burden will be
on the operator to establish the reasonableness of its calculations, if
the franchising authority elects to question the requested rate. The
new optional mechanism will replace most other forms, used to compute
rates, including FCC Form 1205. Equipment rates will be set to comply
with 47 U.S.C. 623(b)(3). This new mechanism can be used by any
qualifying company, regardless of what rate regulation methodology has
been used to justify existing rates or an increase in rates.
34. We adopt these measures partly in response to comments received
pursuant to the Further Notice of Proposed Rulemaking which we have
summarized in the preceding Sixth Report and Order. We will not repeat
that summary here, except to note again that the comments indicate that
smaller cable companies are unduly burdened
[[Page 35860]]
by the current scheme of rate regulation in two ways. First, the
comments suggest that our rate rules do not adequately take into
account the higher costs of doing business, and particularly the higher
costs of capital, faced by smaller companies. Second, many operators
claim that our rules place an inordinate hardship upon them in terms of
the labor and other resources that must be devoted to ensuring
compliance. Such comments suggest that some operators may be facing the
dilemma of desiring to impose rates that our cost-of-service rules may
well permit, but at the same time being averse to risking the resources
that a cost-of-service showing entails since they cannot be guaranteed
that the showing will be successful. In crafting the relief we adopt
today, we have attempted to alleviate both the substantive and the
procedural burdens of which smaller cable companies complain.
35. We are particularly sensitive to the motion that smaller
systems face disproportionately higher costs. In adopting rate rules,
the Commission is required to consider operator-specific cost data.
Thus, any scheme we adopt must take into account the cost data of the
individual operator and give the operator the opportunity to recover
its actual, reasonable costs. To some extent, however, the inclusion of
operator-specific data in our scheme of rate regulation conflicts with
the goal of simplifying the regulatory process. Establishing permitted
rates on the basis of precise and detailed data entails more work for
the operator that must compile that information from its own records
and reproduce it in accordance with whatever forms and formulas we
devise. For example, we have estimated that it takes 60 hours to
complete the simplified cost-of-service form, FCC Form 1225, which
requires operators to provide substantial data regarding the costs
incurred in operating the system. Such regulation also imposes a burden
on regulatory authorities that must review the data. We note that in
many cases small local franchising authorities have scarce resources to
review complicated cost-of-service filings. Yet to the extent we lessen
the regulatory burden on operators and franchising authorities by
reducing the amount of data that must be assembled and reviewed to
calculate permitted rates, we are also concerned that we have
confidence that the operator's rates are reasonable.
36. Having reviewed the criteria identified by Congress as being
relevant to the establishment of rate regulations, we have created a
formula for generating permitted rates that entails as small a burden
as possible while still producing a rate that reflects with reasonable
accuracy the operating costs and capital investments of the operator.
The formula can be expressed as follows:
[GRAPHIC][TIFF OMITTED]TR12JY95.002
This formula is designed to establish the annual per-channel per-
subscriber revenue requirements of the regulated system. The formula
permits a regulated cable company to set a per-channel per-subscriber
rate that will both cover operating expenses and provide a reasonable
return on investments. Such a recovery is necessary to guarantee the
operator the opportunity to attract new capital, promote innovation,
and cover all essential costs of operating a cable system. The new
method can be used to justify existing rates, or establish new rates,
regardless of what rate regulation has been used in the past. Operators
may rely on previously existing information, such as tax forms or
company financial statements, rather than recreating financial
calculations.
37. To ensure that the per-channel revenue requirement is
reasonable, all operating costs must be covered. Therefore, wages,
salaries, programming, advertising, electricity, maintenance,
depreciation, amortization and all other relevant costs are included in
the total operating expenses. This is not an exhaustive list, however,
and operators may recover other reasonable and legitimate costs of
provide service. As under our standard benchmark and cost-of-service
regulations, when calculating operating expenses the operator must take
into account only those expenses related to providing regulated
channels. Congress specifically provided that regulation of rates for
the basic service tier (``BST'') should take into account general
operating costs only to the extent those costs are allocable to basic
service. With respect to regulation of both BST and CPST rates,
inclusion of costs related to unregulated services would distort the
revenue requirement for the regulated channels and equipment, since
there are no restrictions on the discretion of cable operators in
establishing rates for unregulated services. More specifically,
inclusion of costs related to the provision of unregulated services
could result in those services being subsidized by revenues from
regulated channels. Clearly, Congress did not intend such a result.
However, to further our goal of minimizing regulatory burdens, we are
granting small cable systems owned by small cable companies substantial
flexibility to fairly allocate costs between BST, CPST, equipment and
unregulated services. We further stress that, when the requested rate
does not exceed $1.24 per channel, the burden will be on the
franchising authority to show that the operator was unreasonable in
making allocations such as these.
38. The net rate base is included in the formula to reflect net
investment. The net rate base consists of the depreciated value of
property. It provides the proper basis for calculating a fair rate of
return on investment. For the reasons stated in the preceding
paragraph, only assets associated with providing regulated services may
be included in the calculation of the net rate base. However, the
operator shall have substantial flexibility in calculating its net rate
base. The presumptions and restrictions applicable to standard cost-of-
service proceedings shall not apply. Thus, for example, we will not
presume it unreasonable to include in the rate base start-up losses
that exceed the first two years of operating expenses. Having isolated
a category of systems for whom our standard rules need to be relaxed
due to the particular characteristics of those systems, we seek to
ensure that those systems will be permitted to establish rates in
accordance with such characteristics, rather than in accordance with
characteristics of cable systems generally.
39. Likewise, we will not presumptively exclude intangibles such as
acquisition costs from the net rate base. In the Cost Order, 59 FR
17975 (April 15, 1994) we presumptively
[[Page 35861]]
excluded acquisition costs for reasons that, again, were more
applicable to cable systems as a whole than to the subset of systems at
issue in this proceeding. For example, whereas we found that
acquisition costs were attributable in part to the growing number of
programs and channels available only by subscribing to cable service,
the limited channel line-ups of smaller systems means that a greater
portion of their offerings consist of broadcast channels that many
consumers can view for free without subscribing to cable. Thus, the
acquisition costs of a smaller system are less likely to include a
supra-competitive valuation of services over which the system has
exclusive control. Likewise, in the Cost Order, 59 FR 17975 (April 15,
1995), we concluded that excess acquisition costs reflected, in part,
the value of unregulated services, such as premium and pay-per-view
programming, that should not be included in regulated rates. Smaller
systems with more limited channel line-ups are less likely to have such
programming available. As we noted above, the average premium revenue
per subscriber is more than $32.00 less for systems with fewer than
15,000 subscribers than for systems with more than 15,000 subscribers.
Thus, acquisition costs for small systems will reflect more accurately
the value of the regulated services, a value which the operator should
be able to recover.
40. At a minimum, the permitted rate of return shall equal the
operator's actual cost of debt as set forth in any loan agreements with
third parties. However, the operator may make reasonable adjustments to
this rate to reflect other relevant factors such as, but not limited
to, its cost of equity and its capital structure. The operator will
have substantial discretion in determining the precise manner in which
its rate of return is calculated. Thus, the operator will not be
limited to the single methodology for establishing cost of equity that
we identified in the Cost Order. We selected that methodology because
it included a large group of publicly traded companies that we found to
be representative of the universe of nonregulated firms. While such a
sampling is an appropriate source of surrogates for regulated cable
service generally, we believe that small systems owned by small cable
companies should be able to pursue any methodology that is appropriate
based on their individual characteristics. Likewise, operators will not
be limited to the range of debt-to-equity ratios applicable in a
standard cost-of-service showing, but instead may establish a system-
specific or assumed ratio. (Those systems that currently have a
negative equity percentage could not achieve a reasonable rate of
return using its actual debt/equity ratio. Therefore, these companies
may use a reasonable assumed ratio.)
41. Finally, eligible systems shall not face the heavy burden
imposed on operators seeking rates of return higher than 11.25% in
standard cost-of-service proceedings. On the basis of the comments in
this proceeding, we now recognize that, of all cable companies, smaller
systems and operators are the ones for whom this rate is most likely to
be inadequate to compensate them for the risks they encounter in
providing service. Therefore, for operators seeking to establish rates
no higher than $1.24 per channel, the rate of return claimed by the
operator will be subject to the same strong presumption of
reasonableness that will apply to all other aspects of the operator's
calculation of its permitted rate.
42. Because it takes into account all operating expenses and the
net rate base, the formula will generate a rate that covers the cost of
providing all regulated services and all equipment necessary to receive
those services. Thus, eligible systems will not be required to make a
separate showing with respect to equipment. Operators may establish
equipment rates in the manner they choose, so long as this results in
equipment rates that comply with the 1992 Cable Act.
43. To implement this scheme of rate regulation, we have created
FCC Form 1230, a one-page form on which the system inserts its expense,
rate base, rate of return, channel count and subscriber count figures
and then calculates its permitted rate. The system can set rates at any
level up to the rate generated by FCC Form 1230. Before increasing
rates, the system must comply with the 30-day notice requirement
applicable whenever a system takes a rate increase. In giving notice to
the certified local franchising authority of its first rate increase
taken pursuant to this procedure, the operator shall include the
completed FCC Form 1230 showing the maximum permitted rate, although
the system need not raise rates to the maximum permitted level. As
noted above, when filing the form the system shall not be required to
file documentation or calculations underlying the expense and rate base
figures included on the form. Upon filing of the form, however, our
existing rules, permitting a certified local franchising authority to
review the proposed rates, to request additional information, and to
toll the effective date of the proposed rates, will then apply, subject
to certain conditions set forth below. Because Form 1230 is a modified
cost-of-service showing, the franchising authority may toll the rate
for up to 150 days.
44. In view of our intent to minimize burdens upon operators, local
franchising authorities, and the Commission, we urge franchising
authorities to carefully limit their requests for information, should
they deem it necessary to request further information upon the filing
of Form 1230. We recognize that certified franchise authorities have a
responsibility to protect consumers from the exercise of market power
by cable operators and may have a legitimate need to request
information to verify operators' rate requests. We believe that,
particularly since operators have been given wide discretion in
choosing methods of calculating operating costs, rate base, and rate of
return, franchise authorities should have access to the information
necessary for judging the validity of methods used for calculating
these costs. With respect to requested rates not exceeding $1.24 per
channel, a reasonable request for information, if deemed necessary at
all, should seek only existing, relevant documents or other data
compilations and should not require the operator to create documents,
although the operator should replicate responsive documents that are
missing or destroyed. Where the requested rate exceeds $1.24 per
channel, a broader request for supporting documentation, and greater
scrutiny of that documentation, will be permitted.
45. In order to guard against burdensome and unnecessary data
requests from franchising authorities, cable operators will be
permitted to seek relief from the Commission. If a request for
information by the franchising authority exceeds a reasonable scope as
described above, or if the franchising authority tolls a rate
request,\3\ the operator may file an interlocutory appeal requesting
the Commission to quash the request. The appeal of a
[[Page 35862]]
request for information or a rate suspension may be by an informal
letter to the chief of the Cable Services Bureau rather than by way of
a formal pleading. The appeal will be handled pursuant to the following
expedited procedure. The franchising authority is required to respond
to an interlocutory appeal in seven days; the cable operator's optional
reply date is four days thereafter. The operator will not be required
to respond to a franchising authority's request for information while
an appeal is pending at the Commission. The Commission will resolve
those appeals expeditiously.
\3\ As noted above, small systems owned by small cable companies
may make their initial basic tier rates, established in accordance
with the Commission's rate regulations, effective on 30 days' notice
without prior approval from their local franchising authority,
subject to refund liability if the rates are found later to be
unreasonable. Therefore, with respect to small systems owned by
small cable companies, the tolling provision of our rules applies
when a system seeks to increase rates above a level previously
established pursuant to one of our regulatory schemes, but does not
apply when a system establishes rates after first becoming subject
to regulation.
---------------------------------------------------------------------------
46. The operator may appeal a request for information or a tolling
order even if its requested rate exceeds $1.24 per channel. However,
where the requested rate is no more than $1.24 per channel, our review
of the appeal will be guided by the presumption of reasonableness that
will attach to rates not exceeding that amount and by our conception of
what constitutes a reasonable request for information, as described
above. A decision by the Commission to sustain an operator's
interlocutory appeal will be accompanied by an order directing the
franchising authority to issue the appropriate order based upon the
documentation previously supplied by the operator. When appropriate, we
will make informal attempts at mediation of such disputes.
47. We have adopted the rate of $1.24 per channel for the purposes
set forth above based on the 35 FCC Form 1220 cost-of-service filings
that have been submitted by systems with 15,000 or fewer subscribers
owned by what we have defined here as small cable companies. We expect
to adjust this figure in the future to account for changes in the
relevant economic data, such as inflation. Using the rate-setting
formula that we hereby adopt, staff found that the subscriber-weighted
average cost per channel for eligible systems that had filed FCC Form
1220 amounted to $.93. Because this is an average figure, we know that,
according to the data provided on the forms, a fair number of these
Form 1220 filers would be entitled to rates exceeding $.93 per channel,
presumably because of higher costs or recent capital improvements that
justified a higher than average rate. Using the $.93 figure for
purposes of establishing presumptions of reasonableness would have
imposed an unfair burden on many systems for whom a higher rate is well
justified. Therefore, one standard deviation was added to the $.93 per
channel rate, producing a per channel rate of $1.24.\4\ We therefore
believe that a strong presumption of reasonableness should attach to a
rate at or below this level when established by an eligible operator.
As noted above, to disapprove a rate that does not exceed $1.24 per
channel, the burden will be upon the franchising authority to show that
the cable operator did not reasonably interpret and allocate its cost
and expense data in coming up with the operating expense, net rate
base, and rate of return figures claimed by the operator in calculating
its permitted rate.
\4\ Standard deviation is a commonly used measure of
variability. It measures the amount of variance from the average in
a sample. The amount of variance is usually expressed in terms of
one or more standard deviations from the average. One standard
deviation, when applied to the average, generally will capture about
two-thirds of the sample, e.g., in this case, two-thirds of eligible
cable systems. Two standard deviations generally will capture about
95% of the sample. In this case we selected one standard deviation
as the appropriate measure. Thus, about one-third of eligible
systems who file for this form of relief should have rates above the
$1.24 threshold and will have the burden of justifying their rates.
48. Once the operator has established rates at a level permitted by
Form 1230, it may increase rates thereafter at its discretion until it
reaches the maximum level permitted by the form, subject only to the 30
days' notice requirement. Even though the operator is charging less
than the maximum rate permitted by Form 1230, the operator may adjust
that maximum rate. For example, an operator may adjust its maximum
permitted rate to take account of inflation and increases in external
costs. Likewise, when adding channels an operator may use the going-
forward methodology to adjust its maximum permitted rate. While making
these adjustments to the maximum permitted rate, the operator
simultaneously may, but need not, increase the actual rate charged.
Thus, adjustments to the actual rate charged may be made independent of
adjustments to the maximum rate permitted. As long as the actual rate
does not exceed the maximum permitted rate, the operator may adjust its
actual rate as and when it desires, subject to the notice requirement.
In addition, at any time an operator may adjust its maximum permitted
rate simply by filing a new Form 1230.
49. Once the operator has established rates at the maximum level
permitted by Form 1230, the operator will be able to increase its
actual rate by adjusting its maximum permitted rate in accordance with
our normal rules to reflect increases in inflation and external costs.
When adding channels, an operator may establish its new rate by filing
a new Form 1230 or by complying with the going forward rules.\5\ In
determining the number of channels for which a small system owned by a
small cable company may claim the alternative going-forward treatment
that we adopted in the Sixth Reconsideration Order, 59 FR 62614
(December 6, 1994) only those channels added after the system files its
first Form 1230 shall be counted. Therefore, if an operator added
channels under the alternative going-forward rules before filing its
initial Form 1230, the previously added channels will not be counted
against the maximum of seven channels that an operator may add for
purposes of those rules. However, the filing of a second or subsequent
Form 1230 shall not increase the number of channel additions qualifying
for the alternative going-forward treatment.
\5\ The operator must elect between the two forms of relief.
Therefore, upon adding a channel, an operator may file a new Form
1230 reflecting that channel addition, or elect going-forward
treatment with respect to the new channel, but it cannot do both.
---------------------------------------------------------------------------
50. The cable system and any other participant in the rate making
proceeding at the franchising authority level may appeal to the
Commission for review of the final decision of the franchising
authority under our normal appellate procedure. If the rate decision is
appealed by the operator, we first will review any challenged request
for information that was not the subject of an interlocutory appeal by
the operator. If, under the standards outlined above, we find no proper
grounds for the request for information, we will have the ability to
permit the operator to charge the requested rate without proceeding
further. Thus, where the requested rate does not exceed $1.24, if a
franchising authority denies the request on the basis of information
that goes beyond the reasonable scope described above, we will reverse
the rate decision. If the scope of information requested by the
franchising authority is not at issue up on appeal of the final rate
decision, the franchising authority will have the burden of proving the
reasonableness of its decision to deny any requested rate that does not
exceed $1.24, and the operator will have the burden of establishing the
reasonableness of the requested rate if it exceeds that amount. Thus,
we will look more closely at rates exceeding $1.24 per channel and, as
noted above, will be less restrictive with respect to the permissible
scope of information which the franchising authority may request and
rely upon in determining the reasonableness of the rate. If we uphold a
franchising authority decision to request further information, we will
[[Page 35863]]
permit an operator to present its arguments as to why its rate is
reasonable.
51. Complaints regarding CPST rates will be resolved by the
Commission, as required by the 1992 Cable Act. In reviewing CPST rates
pursuant to a complaint, we will apply the same standard that is to be
applied by a certified franchising authority when an operator files its
Form 1230.
52. A system's initial and continued eligibility for this new form
of relief shall be determined in the same manner as any other relief
now available to them. Thus, if a system qualifies for relief under
this approach as of the effective date of this order or as of the date
it files Form 1230, it shall remain eligible for so long as it serves
15,000 or fewer subscribers, regardless of whether it, or the cable
operator that owns the system, is subsequently acquired by a company
that exceeds the 400,000 subscriber limit, or if its current operator
subsequently exceeds 400,000 subscribers due to the normal growth of
its systems. When a system that has established rates in accordance
with Form 1230 exceeds 15,000 subscribers, the system may maintain its
then existing rates. However, any further adjustments shall not reflect
increases in external costs, inflation or channel additions until the
system has re-established initial permitted rates in accordance with
our benchmark or cost-of-service rules. Such a system may file a
petition for special relief seeking continued treatment as a small
system.
53. Finally, we must address the applicability of this new form of
relief to pending matters. We have little reason to question those
commenters who contend that our existing rules have significantly
burdened small systems. Accordingly, we will direct franchising
authorities to permit systems to use the small system cost-of-service
approach to justify rates in any proceeding that is pending as of the
date this item is released, using data that was accurate as of the time
the rates were charged. To apply the small cable system cost-of-service
relief to a pending case, the system must show that it met the new
definitions of a small system owned by a small cable company as of the
date this item is released and as of the period during which the
disputed rates were in effect. Our adoption of this new form of relief
shall not affect the validity of a final rate decision made by a
franchising authority before the release date of this item. If such a
decision is appealed to the Commission, we will review the decision in
accordance with the rules that were in effect at the time the rates
were charged and the decision was made. We believe that the interests
of administrative finality warrant this treatment of cases already
decided by a final decision of the franchising authority.
54. In any proceeding before the Commission involving a CPST
complaint in which a final decision had not been issued as of the
release date of this item, a small system owned by a small cable
company may elect the form of rate regulation set forth in this section
to justify rates charged prior to the adoption of this rule and to
establish new rates. This approach will apply regardless of the current
phase of the proceedings. Thus, a small system owned by a small cable
company may file its Form 1230 to oppose a CPST rate complaint, to
support a timely petition for reconsideration of a previous Bureau or
Commission decision regarding a CPST complaint, or to support a
petition for Commission review of a Bureau decision regarding a CPST
complaint. As with cases pending before franchising authorities, to
apply the small cable system cost-of-service relief to a case currently
pending before the Commission, the system must show that it met the new
definitions of a small system owned by a small cable company as of the
date this item is released and as of the period during which the
disputed rates were in effect.
V. Regulatory Flexibility Analysis
55. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.
601-12, the Commission's final analysis with respect to the Sixth
Report and Order and Eleventh Order on Reconsideration is as follows:
56. Need and purpose of this action: The Commission, in compliance
with section 3(i) of the Cable Television Consumer Protection and
Competition Act of 1992 pertaining to rate regulation, adopts rules and
procedures intended to ensure cable subscribers of reasonable rates for
cable services with minimum regulatory and administrative burden on
cable entities.
57. Summary of issues raised by the public comments in response to
the Initial Regulatory Flexibility Analysis: There were no comments
submitted in response to the Initial Regulatory Flexibility Analysis
contained in the Further Notice of Proposed Rulemaking. The Chief
Counsel for Advocacy of the United States Small Business Administration
filed comments in the original rulemaking order. The Commission
addressed these comments in the Rate Order. The Chief Counsel for
Advocacy of the United States Small Business Administration also filed
comments in response to the Further Notice of Proposed Rulemaking.
Those comments are addressed herein.
58. Significant alternatives considered and rejected. Petitioners
representing cable interests and franchising authorities submitted
several alternatives aimed at minimizing administrative burdens. The
Commission responded to these comments in this order which will
significantly reduce the burdens on small cable systems and small cable
companies.
VI. Paperwork Reduction Act
59. The requirements adopted herein have been analyzed with respect
to the Paperwork Reduction Act of 1980 and found to impose new or
modified information collection requirements on the public.
Implementation of any new or modified requirement will be subject to
approval by the Office of Management and Budget as prescribed by the
Act.
VII. Ordering Clauses
60. Accordingly, it is ordered that, pursuant to sections 4(i),
4(j), 303(r), 612, and 623 of the Communications Act of 1934, as
amended, 47 U.S.C. 154(i), 154(j), 303(r), 532, and 543 the rules,
requirements and policies discussed in this Sixth Report and Order and
Eleventh Order on Reconsideration are adopted and Sec. 76.934 of the
Commission's rules, 47 CFR 76.934, is amended as set forth below.
61. It is further ordered that the Secretary shall send a copy of
this Order to the Chief Counsel for Advocacy of the United States Small
Business Administration.
62. It is further ordered that, the requirements and regulations
established in this decision shall become effective upon approval by
the Office of Management and Budget of the new information collection
requirements adopted herein, but no sooner than thirty (30) days after
publication in the Federal Register.
List of Subjects in 47 CFR Part 76
Cable television.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Amendatory Text
PART 76--CABLE TELEVISION SERVICE
Part 76 of Title 47 of the Code of Federal Regulations is amended
as follows:
[[Page 35864]]
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, 1083, 1084, 1085, 1101; 47 U.S.C.
152, 153, 154, 301, 303, 307, 308, 309; secs. 612, 614-15, 623, 632
as amended, 106 Stat. 1460, 47 U.S.C. 532; sec. 623, as amended, 106
Stat. 1460; 47 U.S.C. 532, 533, 535, 543, 552.
2. Section 76.901 is amended by revising paragraphs (c) and adding
paragraph (e) to read as follows:
Sec. 76.901 Definitions.
* * * * *
(c) Small System. A small system is a cable television system that
serves 15,000 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.
* * * * *
(e) Small cable company. A small cable company is a cable
television operator that serves a total of 400,000 or fewer subscribers
over one or more cable systems.
3. Section 76.922 is amended by revising paragraphs (b)(4),
(b)(4)(i), (b)(4)(ii), (b)(5)(i)(A), (b)(5)(i)(B), (b)(5)(i)(C) and
(e)(7) to read as follows:
Sec. 76.922 Rates for the basic service tier and cable programming
services tiers.
* * * * *
(b) * * *
(4) Transition rates.--(i) Termination of transition relief for
systems other than low price systems. Systems other than low-price
systems that already have established a transition rate as of the
effective date of this rule may maintain their current rates, as
adjusted under the price cap requirements of Sec. 76.922(d), until two
years from the effective date of this rule. These systems must begin
charging reasonable rates in accordance with applicable rules, other
than transition relief, no later than that date.
(ii) Low-price systems. Low price systems shall be eligible to
establish a transition rate for a tier, pending a further order of the
Commission.
(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 Sec. 76.922(b)(2), above.
(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
Sec. 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 Sec. 76.923 if such rates have not already been
established.
* * * * * *
(5) * * *
(i) * * *
(A) Small systems that are owned by small cable companies and 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 systems
owned by small cable companies 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 has a
20 percent or greater equity interest in the small system.
(B) 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:
(1) Adoption of a further order by the Commission establishing a
schedule of average equipment costs;
(2) The system increases its rates using the calculations and time
periods set forth in FCC Form 1211; or
(3) The system elects to establish permitted rates under another
available option set forth in paragraph (b)(1) of this section.
(C) 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:
(1) Within 60 days from the date it receives the initial notice of
regulation from the franchising authority or the Commission, the small
system must provide written notice to subscribers and the franchising
authority, or to the Commission if the Commission is regulating the
basic tier, that it is electing to set its regulated rates by the
streamlined rate reduction process. 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 or Commission.
(2) If a cable programming services complaint is filed against the
system, the system must provide the required written notice, described
in paragraph (b)(5)(iii)(C)(1) of this section, to subscribers, the
local franchising authority or the Commission within 60 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.
(3) 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.
* * * * *
(e) * * *
(7) Headend upgrades. When adding channels to CPSTs and single-tier
systems, cable systems that are owned by a small cable company and
incur additional monthly per subscriber headend costs of one full cent
or more for an additional channel may choose among the methodologies
set forth in paragraphs (e)(2) and (e)(3) of this section. In addition,
such systems may increase rates to recover the actual cost of the
headend equipment required to
[[Page 35865]]
add up to seven such channels to CPSTs and single-tier systems, not to
exceed $5,000 per additional channel. Rate increases pursuant to this
paragraph may occur between January 1, 1995, and December 31, 1997, as
a result of additional channels offered on those tiers after May 14,
1994. Headend costs shall be depreciated over the useful life of the
equipment. The rate of return on this investment shall not exceed 11.25
percent. In order to recover costs for headend equipment pursuant to
this paragraph, systems must certify to the Commission their
eligibility to use this paragraph, and the level of costs they have
actually incurred for adding the headend equipment and the depreciation
schedule for the equipment.
* * * * *
3. Section 76.924 is amended by revising paragraph (d) to read as
follows:
Sec. 76.924 Cost accounting and cost allocation requirements.
* * * * *
(d) Summary accounts. (1) Cable operators filing for cost-of-
service regulation, other than small systems owned by small cable
companies, shall report all investments, expenses, and revenue and
income adjustments accounted for at the franchise, system, regional
and/or company level(s) to the summary accounts listed below.
Ratebase
Net Working Capital
Headend
Trunk and Distribution Facilities
Drops
Customer Premises Equipment
Construction/Maintenance Facilities and Equipment
Programming Production Facilities and Equipment
Business Offices Facilities and Equipment
Other Tangible Assets
Accumulated Depreciation
Plant Under Construction
Organization and Franchise Costs
Subscriber Lists
Capitalized Start-up Losses
Goodwill
Other Intangibles
Accumulated Amortization
Deferred Taxes
Operating Expenses
Cable Plant Employee Payroll
Cable Plant Power Expense
Pole Rental, Duct, Other Rental for Cable Plant
Cable Plant Depreciation Expense
Cable Plant Expenses--Other
Plant Support Employee Payroll Expense
Plant Support Depreciation Expense
Plant Support Expense--Other
Programming Activities Employee Payroll
Programming Acquisition Expense
Programming Activities Depreciation Expense
Programming Expense--Other
Customer Services Expense
Advertising Activities Expense
Management Fees
General and Administrative Expenses
Selling General and Administrative Depreciation Expenses
Selling General and Administrative Expenses--Other
Amortization Expense--Franchise and Organizational Costs
Amortization Expense--Customer Lists
Amortization Expense--Capitalized Start-up Loss
Amortization Expense--Goodwill
Amortization Expense--Other Intangibles
Operating Taxes
Other Expenses (Excluding Franchise Fees)
Franchise Fees
Interest on Funded Debt
Interest on Capital Leases
Other Interest Expenses
Revenue and Income Adjustments
Advertising Revenues
Other Cable Revenue Offsets
Gains and Losses on Sale of Assets
Extraordinary Items
Other Adjustments
(2) Except as provided in Sec. 76.934(h), small systems owned by
small cable companies that file for cost-of-service regulation shall
report all investments, expenses, and revenue and income adjustments
accounted for at the franchise, system, regional and/or company
level(s) to the following summary accounts:
Ratebase
Net Working Capital
Headend, Trunk and Distribution System and Support Facilities and
Equipment
Drops
Customer Premises Equipment
Production and Office Facilities, Furniture and Equipment
Other Tangible Assets
Accumulated Depreciation
Plant Under Construction
Goodwill
Other Intangibles
Accumulated Amortization
Deferred Taxes
Operating Expenses
Cable Plant Maintenance, Support and Operations Expense
Programming Production and Acquisition Expense
Customer Services Expense
Advertising Activities Expense
Management Fees
Selling, General and Administrative Expenses
Depreciation Expense
Amortization Expense--Goodwill
Amortization Expense--Other Intangibles
Other Operating Expense (Excluding Franchise Fees)
Franchise Fees
Interest Expense
Revenue and Income Adjustments
Advertising Revenues
Other Cable Revenue Offsets
Gains and Losses on Sale of Assets
Extraordinary Items
Other Adjustments
* * * * *
4. Section 76.934 is revised to read as follows:
Sec. 76.934 Small systems and small cable companies.
(a) For purposes of rules governing the reasonableness of rates
charged by small systems, the size of a system or company shall be
determined by reference to its size as of the date the system files
with its franchising authority or the Commission the documentation
necessary to qualify for the relief sought or, at the option of the
company, by reference to system or company size as of the effective
date of this paragraph. Where relief is dependent upon the size of both
the system and the company, the operator must measure the size of both
the system and the company as of the same date. A small system shall be
considered affiliated with a cable company if the company holds a 20
percent or greater equity interest in the system or exercises de jure
control over the system.
(b) A franchising authority that has been certified, pursuant to
Sec. 76.910, to regulate rates for basic service and associated
equipment may permit a small system as defined in Sec. 76.901 to
certify that the small system's rates for basic service and associated
equipment comply with Sec. 76.922, the Commission's substantive rate
regulations.
(c) 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.
(d) Statutory period for filing initial complaint: A complaint
concerning a
[[Page 35866]]
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.
(e) 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.
(f) Small systems owned by small cable companies: Small systems
owned by small cable companies shall have 90 days from their initial
date of regulation on a tier to bring their rates for that tier into
compliance with the requirements of Secs. 76.922 and 76.923. Such
systems shall have sixty days from the initial date of regulation to
file FCC Forms 1200, 1205, 1210, 1211, 1215, 1220, 1225, and 1230 and
any similar forms as appropriate. Rates established during the 90-day
period shall not be subject to prior approval by franchising
authorities or the Commission, but shall be subject to refund pursuant
to Secs. 76.942 and 76.961.
(g) Alternative rate regulation agreements:
(1) Local franchising authorities, certified pursuant to
Sec. 76.910, and small systems owned by small cable companies may enter
into alternative rate regulation agreements affecting the basic service
tier and the cable programming service tier.
(i) Small systems must file with the Commission a copy of the
operative alternative rate regulation agreement within 30 days after
its effective date.
(ii) [Reserved]
(2) Alternative rate regulation agreements affecting the basic
service tier shall take into account the following:
(i) The rates for cable systems that are subject to effective
competition;
(ii) The direct costs of obtaining, transmitting, and otherwise
providing signals carried on the basic service tier, including signals
and services carried on the basic service tier, pursuant to Secs. 76.56
and 76.64 of this subpart, and changes in such costs;
(iii) Only such portion of the joint and common costs of obtaining,
transmitting, and otherwise providing such signals as is determined to
be reasonably and properly allocable to the basic service tier, and
changes in such costs;
(iv) The revenues received by a cable operator from advertising
from programming that is carried as part of the basic service tier or
from other consideration obtained in connection with the basic service
tier;
(v) The reasonably and properly allocable portion of any amount
assessed as a franchise fee, tax, or charge of any kind imposed by any
State or local authority on the transactions between cable operators
and cable subscribers or any other fee, tax, or assessment of general
applicability imposed by a governmental entity applied against cable
operators or cable subscribers;
(vi) Any amount required to satisfy franchise requirements to
support public, educational, or governmental channels or the use of
such channels or any other services required under the franchise; and
(vii) A reasonable profit. The rate agreed to in such an
alternative rate regulation agreement shall be deemed to be a
reasonable rate.
(3) Alternative rate regulation agreements affecting the cable
programming service tier shall take into account, among other factors,
the following:
(i) The rates for similarly situated cable systems offering
comparable cable programming services, taking into account similarities
in facilities, regulatory and governmental costs, the number of
subscribers, and other relevant factors;
(ii) The rates for cable systems, if any, that are subject to
effective competition;
(iii) The history of the rates for cable programming services of
the system, including the relationship of such rates to changes in
general consumer prices;
(iv) The rates, as a whole, for all the cable programming, cable
equipment, and cable services provided by the system, other than
programming provided on a per channel or per program basis;
(v) Capital and operating costs of the cable system, including the
quality and costs of the customer service provided by the cable system;
and
(vi) The revenues received by a cable operator from advertising
from programming that is carried as part of the service for which a
rate is being established, and changes in such revenues, or from other
considerations obtained in connection with the cable programming
services concerned. The rate agreed to in such an alternative rate
regulation agreement shall be deemed to be a reasonable rate.
(4) Certified local franchising authorities shall provide a
reasonable opportunity for consideration of the views of interested
parties prior to finally entering into an alternative rate regulation
agreement.
(5) A basic service rate decision by a certified local franchising
authority made pursuant to an alternative rate regulation agreement may
be appealed by an interested party to the Commission pursuant to
Sec. 76.944 as if the decision were made according to Secs. 76.922 and
76.923.
(h) Small system cost-of-service showings:
(1) At any time, a small system owned by a small cable company may
establish new rates, or justify existing rates, for regulated program
services in accordance with the small cable company cost-of-service
methodology described below.
(2) The maximum annual per subscriber rate permitted initially by
the small cable company cost-of-service methodology shall be calculated
by adding
(i) The system's annual operating expenses to
(ii) The product of its net rate base and its rate of return, and
then dividing that sum by (iii) the product of
(A) The total number of channels carried on the system's basic and
cable programming service tiers and
(B) The number of subscribers. The annual rate so calculated must
then be divided by 12 to arrive at a monthly rate.
(3) The system shall calculate its maximum permitted rate as
described in paragraph (b) of this section by completing Form 1230. The
system shall file Form 1230 as follows:
(i) Where the franchising authority has been certified by the
Commission to regulate the system's basic service tier rates, the
system shall file Form 1230 with the franchising authority.
(ii) Where the Commission is regulating the system's basic service
tier rates, the system shall file Form 1230 with the Commission.
(iii) Where a complaint about the system's cable programming
service rates is filed with the Commission, the system shall file Form
1230 with the Commission.
(4) In completing Form 1230:
(i) The annual operating expenses reported by the system shall
equal the system's operating expenses allocable to its basic and cable
programming service tiers for the most recent 12 month
[[Page 35867]]
period for which the system has the relevant data readily available,
adjusted for known and measurable changes occurring between the end of
the 12 month period and the effective date of the rate. Expenses shall
include all regular expenses normally incurred by a cable operator in
the provision of regulated cable service, but shall not include any
lobbying expense, charitable contributions, penalties and fines paid
one account of statutes or rules, or membership fees in social service,
recreational or athletic clubs or associations.
(ii) The net rate base of a system is the value of all of the
system's assets, less depreciation.
(iii) The rate of return claimed by the system shall reflect the
operator's actual cost of debt, its cost of equity, or an assumed cost
of equity, and its capital structure, or an assumed capital structure.
(iv) The number of subscribers reported by the system shall be
calculated according to the most recent reliable data maintained by the
system.
(v) The number of channels reported by the system shall be the
number of channels it has on its basic and cable programming service
tiers on the day it files Form 1230.
(vi) In establishing its operating expenses, net rate base, and
reasonable rate of return, a system may rely on previously existing
information such as tax forms or company financial statements, rather
than create or recreate financial calculations. To the extent existing
information is incomplete or otherwise insufficient to make exact
calculations, the system may establish its operating expenses, net rate
base, and reasonable rate of return on the basis of reasonable, good
faith estimates.
(5) After the system files Form 1230, review by the franchising
authority, or the Commission when appropriate, shall be governed by
Sec. 76.933, subject to the following conditions.
(i) If the maximum rate established on Form 1230 does not exceed
$1.24 per channel, the rate shall be rebuttably presumed reasonable. To
disallow such a rate, the franchising authority shall bear the burden
of showing that the operator did not reasonably interpret and allocate
its cost and expense data in deriving its annual operating expenses,
its net rate base, and a reasonable rate of return.
(ii) In the course of reviewing Form 1230, a franchising authority
shall be permitted to obtain from the cable operator the information
necessary for judging the validity of methods used for calculating its
operating costs, rate base, and rate of return. If the maximum rate
established in Form 1230 does not exceed $1.24 per channel, any request
for information by the franchising authority shall be limited to
existing relevant documents or other data compilations and should not
require the operator to create documents, although the operator should
replicate responsive documents that are missing or destroyed.
(iii) A system may file with the Cable Services Bureau an
interlocutory appeal from any decision by the franchising authority
requesting information from the system or tolling the effective date of
a system's proposed rates. The appeal may be made by an informal letter
to the Chief of the Cable Services Bureau, served on the franchising
authority. The franchising authority must respond within seven days of
its receipt of the appeal and shall serve the operator with its
response. The operator shall have four days from its receipt of the
response in which to file a reply, if desired. If the maximum rate
established on Form 1230 does not exceed $1.24 per channel, the burden
shall be on the franchising authority to show the reasonableness of its
order. If the maximum rate established on Form 1230 exceeds $1.24 per
channel, the burden shall be on the operator to show the
unreasonableness of the order.
(iv) In reviewing Form 1230 and issuing a decision, the franchising
authority shall determine the reasonableness of the maximum rate
permitted by the form, not simply the rate which the operator intends
to establish.
(v) A final decision of the franchising authority with respect to
the requested rate shall be subject to appeal pursuant to Sec. 76.944.
The filing of an appeal shall stay the effectiveness of the final
decision pending the disposition of the appeal by the Commission. An
operator may bifurcate its appeal of a final rate decision by initially
limiting the scope of the appeal to the reasonableness of any request
for information made by the franchising authority. The operator may
defer addressing the substantive rate-setting decision of the
franchising authority until after the Commission has ruled on the
reasonableness of the request for information. At its option, the
operator may forego the bifurcated appeal and address both the request
for documentation and the substantive rate-setting decision in a single
appeal. When filing an appeal from a final rate-setting decision by the
franchising authority, the operator may raise as an issue the scope of
the request for information only if that request was not approved by
the Commission on a previous interlocutory appeal by the operator.
(6) Complaints concerning the rates charged for a cable programming
services tier by a system that has elected the small cable company
cost-of-service methodology may be filed pursuant to Sec. 76.957. Upon
receipt of a complaint, the Commission shall review the system's rates
in accordance with the standards set forth above with respect to basic
tier rates.
(7) Unless otherwise ordered by the franchising authority or the
Commission, the system may establish its per channel rate at any level
that does not exceed the maximum rate permitted by Form 1230, provided
that the system has given the required written notice to subscribers.
If the system establishes its per channel rate at a level that is less
than the maximum amount permitted by the form, it may increase rates at
any time thereafter to the maximum amount upon providing the required
written notice to subscribers.
(8) After determining the maximum rate permitted by Form 1230, the
system may adjust that rate in accordance with this paragraph. Electing
to adjust rates pursuant to one of the options set forth below shall
not prohibit the system from electing a different option when adjusting
rates thereafter. The system may adjust its maximum permitted rate
without adjusting the actual rate it charges subscribers.
(i) The system may adjust its maximum permitted rate in accordance
with the price cap requirements set forth in Sec. 76.922(d).
(ii) The system may adjust its maximum permitted rate in accordance
with the requirements set forth in Sec. 76.922(e) for changes in the
number of channels on regulated tiers. For any system that files Form
1230, no rate adjustments made prior to the effective date of this rule
shall be charged against the system's Operator's Cap and License
Reserve Fee described in Sec. 76.922(e)(3).
(iii) The system may adjust its maximum permitted rate by filing a
new Form 1230 that permits a higher rate.
(iv) The system may adjust its maximum permitted rate by complying
with any of the options set forth in Sec. 76.922(b)(1) for which it
qualifies or under an alternative rate agreement as provided in
paragraph (g) of this section.
(9) In any rate proceeding before a franchising authority in which
a final decision had not been issued as of June 5, 1995, a small system
owned by a small cable company may elect the form of rate regulation
set forth in this section to justify the rates that are the subject of
[[Page 35868]]
the proceeding, if the system and affiliated company were a small
system and small company respectively as of the effective date of this
rule and as of the period during which the disputed rates were in
effect. This rule shall not affect the validity of a final rate
decision made by a franchising authority before June 5, 1995.
(10) In any proceeding before the Commission involving a cable
programming services tier complaint in which a final decision had not
been issued as of June 5, 1995, a small system owned by a small cable
company may elect the form of rate regulation set forth in this section
to justify rates charged prior to the adoption of this rule and to
establish new rates. For purposes of this paragraph, a decision shall
not be deemed final until the operator has exhausted or is time-barred
from pursuing any avenue of appeal, review, or reconsideration.
Sec. 76.953 [Amended]
5. Section 76.953 is amended by removing paragraph (a) and
redesignating paragraphs (b) and (c) as paragraphs (a) and (b)
respectively.
[FR Doc. 95-16515 Filed 7-11-95; 8:45 am]
BILLING CODE 6712-01-M
