[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Proposed Rules]
[Pages 45387-45391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21581]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[CS Docket No. 96-157; FCC 96-316]
Cable Pricing Flexibility
AGENCY: Federal Communications Commission.
ACTION: Proposed Rule,
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SUMMARY: In this Notice of Proposed Rulemaking (``NPRM''), the
Commission proposes to modify its current ratemaking rules in order to
allow operators greater flexibility in pricing their regulated tiers of
cable service while continuing to protect subscribers from unreasonable
rates. Specifically, the Commission proposes to permit a cable operator
that has established rates for its regulated service tiers to decrease
the rate for its basic service tier (``BST''), and then take a
corresponding increase in the rate for its cable programming services
tiers (``CPSTs''), as long as the combined rate for the two tiers does
not generate revenues for the operator that exceed what would otherwise
be permitted under our rules. The Commission tentatively concludes that
this proposal would remove an unnecessary restriction on an operator's
pricing strategy, while maintaining effective constraints on the
overall rates paid by subscribers, thus resulting in pricing which more
nearly simulates that of a competitive market. The Commission seeks
comment on this proposal which was adopted concurrently with a Report
and Order requiring operators to use the same methodology when
calculating rates for their BST and their CPST. That Memorandum Opinion
and Order is summarized elsewhere in this issue of the Federal
Register.
DATES: Comments are due on or before October 6, 1996, and reply
comments are due on or before November 8, 1996.
ADDRESSES: Federal Communications Commission, 1919 M Street, N.W.,
Washington, D.C. 20554.
FOR FURTHER INFORMATION CONTACT: Cable Services Bureau, (202) 418-7200.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Notice of Proposed Rulemaking, CS Docket No. 99-157 FCC 96-316 adopted
July 25, 1996, and released August 15, 1996. The full text of this
decision is available for inspection and copying during normal business
hours in the FCC Reference Center (room 239), 1919 M Street, NW,
Washington, D.C., 20554, and may be purchased from the Commission's
copy contractor, International Transcription Service, (202) 857-3800,
1919 M Street, NW, Washington, D.C. 20554.
Synopsis of the Notice of Proposed Rulemaking
1. An operator wishing to use the proposed pricing methodology
first would establish rates for its regulated service tiers using the
same methodology for both tiers. The resulting rate for the BST would
be the cap for that tier. The operator then would determine the amount
by which it was willing to decrease the BST rate and calculate the
total revenue loss derived from the reduction. The operator would then
divide this amount by the total number of CPST subscribers in order to
calculate the rate increase for the CPST. The BST rate decrease would
be reflected on the cable bill of every subscriber because subscription
to the BST is required in order to have access to any other tier of
service. Because subscription to CPSTs is optional, the pool of CPST
subscribers is usually smaller than the BST subscriber pool. The total
loss in BST revenue, therefore, when spread over the smaller CPST
subscriber base, would generate a CPST rate increase that exceeded the
amount of the BST rate decrease. As a result, BST-CPST subscribers
(i.e., all CPST subscribers) would see a net increase in rates. This
increase should be minimal if the operator has a high penetration rate
on the CPST. Industry data available to us indicate that, for the most
highly penetrated CPST on a system, the average penetration rate
approaches or exceeds 90% and the median penetration rate exceeds 95%.
The Commission seeks comment on these estimates and, more generally, on
the likely impact on CPST rates if the proposal is implemented.
2. The Commission believes that individual consumers would be
either substantially better off, or subject to only minor rate
increases, were the Commission to adopt the proposal. BST-only
subscribers would be better off because their rates would decrease with
no diminution in service. Although CPST subscribers could experience a
minor rate increase, all CPST subscribers are also BST subscribers for
whom the increase in CPST rates would be substantially offset by the
decrease in BST rates. However, because the Commission seeks to ensure
that increases to CPST subscribers be minimized, the Commission seeks
comment on whether to limit the amount of increase a CPST subscriber
must pay or to otherwise limit the amount by which the BST and CPST
rates may be adjusted. As noted, any increase to CPST subscribers would
be minimal because of the high penetration rate of CPSTs.
3. In addition to lowering rates for current BST-only subscribers,
this proposal should make the BST more affordable for some consumers
who currently do not subscribe to cable at all. The Commission believes
that its proposal presents other benefits as well. This proposal would
provide cable operators with a rate structure flexibility enjoyed by
providers of video services that are, or soon will be, attempting to
compete with traditional cable operators in the video marketplace,
including providers of direct broadcast satellite (``DBS'') service,
multichannel multipoint distribution service, and
[[Page 45388]]
open video systems. These video competitors offer, or will offer,
consumers an alternative to conventional cable service. Because these
competitors are not subject to the type of rate regulation imposed upon
cable operators by the Communications Act, they have greater
flexibility to restructure their pricing as well as the services they
offer consumers. The Commission tentatively concludes that the proposed
rate adjustment mechanism may enhance a cable operator's ability to
compete with these alternative providers. For example, while currently
a cable operator can attempt to become more competitive by simply
dropping the rate of its BST, this proposal gives the operator an
additional incentive to do so in that BST revenues that otherwise would
be lost due to the rate decrease can be recovered on the CPST, even
though no subscriber would see a significant rate increase.
4. The Commission further concludes that a less expensive BST
service might assist system operators in increasing customer access and
penetration, in preparation for the developing marketplace in which
access to nonvideo services, such as telephony or enhanced services, is
becoming increasingly important.
5. To ensure that these goals can be accomplished while continuing
to protect consumers, the Commission believes that the proposed
mechanism must be subject to several conditions. As stated, an operator
electing this approach first would set rates for its regulated tiers in
accordance with our existing rules. After lowering its BST rate and
increasing its CPST rate in the manner described, the operator would
have a continuing obligation to keep track of what its maximum
permitted rate would be for each tier had it not made the adjustment.
An operator would continue to maintain records of these ``underlying
rates'' so that an LFA, or the Commission, could verify that the
operator had made the adjustment properly. In particular, the LFA must
be able to ensure that the operator prices its BST rate at no more than
what our rules otherwise permit. The Commission invites comment on this
aspect of its proposal.
6. Further, the Commission proposes that systems offering more than
one CPST would be able to allocate the amount deducted from the BST
rate among the CPSTs in any manner, so long as the combined rate
increases for the CPSTs is revenue neutral to the cable operator. As
noted above, to ensure that any CPST rate increase is minimized, the
Commission seeks comment on whether to limit the amount of such
increase.
7. With respect to timing issues, the Commission believes that an
operator should be permitted to use the proposed adjustment mechanism
only when it has the opportunity to adjust rates under our existing
rules. Thus, if an operator has chosen to adjust rates on annual basis,
it would be able to implement the adjustment mechanism proposed herein
only at the time of, and as part of, an annual rate adjustment. This
restriction would ensure that our proposal does not increase the number
of times subscribers experience rate adjustments. The Commission does
not intend to require that the operator make a standard rate adjustment
at the time it uses the proposed mechanism (unless it is otherwise
required to do so), only that it have the choice to make such an
adjustment
8. For LFAs, this proposal should generate no additional burdens.
An LFA will engage in the same rate review process as before. The
Commission seeks comment on how to simplify further the rate review
process.
9. The proposal would add another step to the Commission's review
of a CPST complaint. This is because an operator that elects the
proposed option may have a CPST rate that exceeds what normally would
be permitted by our rules. To determine whether the CPST rate is
nonetheless reasonable, the Commission will have to consider not just
the CPST rate, but also the combined BST-CPST rate. Our consideration
of the combined BST-CPST rate under this proposal will be for the sole
purpose of determining whether the CPST rate is reasonable. BST rate
review will remain the province of LFAs. The Commission invites comment
as to the interaction of this extra step in the Commission's review of
CPST rates and the Commission's statutory mandate to ensure that CPST
rates are not unreasonable.
10. The Commission also seeks comment regarding how this proposed
adjustment should work in cases where the cable operator is subject
only to CPST rate regulation, such as where the LFA has not exercised
authority to regulate the BST. Upon submission of a complaint invoking
its jurisdiction, the Commission is obligated to determine whether the
new CPST rate is not unreasonable. One option in this circumstance
would be to analyze the operator's rates as if its BST were regulated
and to permit the operator to increase its CPST rate by the amount
necessary to recover revenue lost due to a rate decrease on the
unregulated BST. The Commission seeks comment on the extent of these
circumstances and the merits of this suggestion, and invite commenters
to recommend means by which a rate review should be conducted. In
addition, the Commission solicits comment on an operator's ability to
rescind a recently implemented rate adjustment, and whether this would
cause subscriber confusion, particularly if reversing the adjustment
reflects rates the operator intended to charge absent this alternative.
11. As indicated above, when the Commission initially proposed
approaches to rate regulation under the 1992 Cable Act, it considered a
pricing mechanism somewhat similar to that which the Commission
proposes here, the object of which was to encourage or require a low-
cost ``bare bones'' BST. In the Report and Order and Further Notice of
Proposed Rulemaking in MM Docket No. 92-266, 58 FR 29736, (``Rate
Order''), the Commission rejected this idea and adopted the ``tier
neutrality'' requirement. The Commission determined that the public
interest would best be served by basing rates for all rate-regulated
channels of cable services on common principles, rather than forcing
BST rates down through a rate-setting approach applicable only to that
tier. The Commission was concerned that suppressing BST rates in this
manner would result in operators simply moving channels off the BST to
other tiers that would generate more revenues. The Commission concluded
that it was preferable to adopt a framework that resulted in a slightly
higher-cost BST that had more programming. In addition, the Commission
determined that applying a single methodology to all regulated tiers
reduced administrative burdens and confusion for operators, LFAs, and
the Commission.
The current proposal differs from the proposal the Commission
rejected in the Rate Order in two fundamental respects. First, the
current proposal is not a forced reduction in the price of the BST.
Rather, it simply permits operators to reduce the price of the BST as
part of an overall marketing strategy. Second, it does not require any
reduction in the number of channels on the BST. The current proposal
preserves the benefits of the tier neutrality approach since the
operator can make the adjustment proposed above only after establishing
rates for its tiers in accordance with the tier neutrality principle.
The current proposal also preserves the ability of the operator to move
channels in order to accommodate market changes. The Commission
believes this adjustment is
[[Page 45389]]
consistent with our approach to modify and improve the existing rules
continually as the market changes and more information becomes
available, while protecting consumers from more than a minimal rate
increase.
Initial Regulatory Flexibility Analysis for the Notice of Proposed
Rulemaking
13. Pursuant to Section 603 of the Regulatory Flexibility Act, the
Commission has prepared the following initial regulatory flexibility
analysis (``IRFA'') of the expected impact of these proposed policies
and rules on small entities. Written public comments are requested on
the IRFA. These comments must be filed in accordance with the same
filing deadlines as comments on the rest of the NPRM but they must be
have a separate and distinct heading designating them as responses to
the regulatory flexibility analysis. The Secretary shall cause a copy
of this NPRM to be sent to the Chief Counsel for Advocacy of the Small
Business Administration in accordance with Section 603(a) of the
Regulatory Flexibility Act, Public Law No. 96-354, 94 Stat. 1164, 5
U.S.C. Section 601 et seq. (1981).
14. Reason for Action and Objectives of the Proposed Rule. The
Commission has determined that our cable rules do not permit cable
operators to lower rates for the BST and to then recover lost revenues
on the CPST. The proposal contained in this NPRM will allow operators
to offer a better price to BST subscribers while continuing to protect
all subscribers from unreasonable rates. The proposal contained in this
NPRM, if adopted, would be an optional step for a cable operator in
ratemaking, offering rate regulated operators more flexibility in cable
pricing. This proposal will provide a cable operator with the ability
to price services in a manner which duplicates market driven rates
while continuing to offer consumers protections in the absence of
effective competition.
15. Legal Basis. The authority for the action as proposed for this
rulemaking is contained in Section 623 of the Communications Act of
1934, as amended, 47 U.S.C. Sec. 543, and Section 303(r) of the
Communications Act of 1934, as amended, 47 U.S.C. Sec. 303.
Description and Number of Small Entities Affected
16. Small Cable Entities: The Communications Act contains a
definition of a small cable system operator, which is ``a cable
operator that, directly or through an affiliate, serves in the
aggregate fewer than 1 percent of all subscribers in the United States
and is not affiliated with any entity or entities whose gross annual
revenues in the aggregate exceed $250,000,000.'' (47 U.S.C.
Sec. 543(m)(2)). The Commission has determined that there are
61,700,000 subscribers in the United States. Therefore, the Commission
found that an operator serving fewer than 617,000 subscribers is deemed
a small operator, if its annual revenues, when combined with the total
annual revenues of all of its affiliates, do not exceed $250 million in
the aggregate (47 CFR Sec. 76.1403(b)). Based on available data, the
Commission finds that the number of cable operators serving 617,000
subscribers or less totals 1,450. Although it seems certain that some
of these cable system operators are affiliated with entities whose
gross annual revenues exceed $250,000,000, the Commission is unable at
this time to estimate with greater precision the number of cable system
operators that would qualify as small cable operators under the
definition in the Communications Act. The Commission is likewise unable
to estimate the number of these small cable operators that serve 50,000
or fewer subscribers in a franchise area.
17. The Commission has developed its own definition of a small
cable system operator for the purposes of rate regulation. Under the
Commission's rules, a ``small cable company,'' is one serving fewer
than 400,000 subscribers nationwide (47 CFR Sec. 76.901(e)). Based on
our most recent information, the Commission estimates that there were
1,439 cable operators that qualified as small cable system operators at
the end of 1995. Since then, some of those companies may have grown to
serve over 400,000 subscribers, and others may have been involved in
transactions that caused them to be combined with other cable
operators. Consequently, the Commission estimates that there are fewer
than 1,439 small entity cable system operators that may be affected by
the proposal adopted in this NPRM. Under the Commission's rules, a
small cable system is a cable system with 15,000 or fewer subscribers
owned by a cable company serving 400,000 or fewer subscribers over all
of its cable systems. The Commission is unable to estimate the number
of small cable systems nationwide, and the Commission seeks comment on
the number of small cable systems.
18. SBA has developed a definition of small entities for cable and
other pay television services, which includes all such companies
generating less than $11 million in revenue annually. This definition
includes cable systems operators, closed circuit television services,
direct broadcast satellite services, multipoint distribution systems,
satellite master antenna systems and subscription television services.
According to the Census Bureau, there were 1,323 such cable and other
pay television services generating less than $11 million in revenue
that were in operation for at least one year at the end of 1992.
19. Municipalities: The term ``small governmental jurisdiction'' is
defined as ``governments of . . . districts, with a population of less
than fifty thousand.''(5 U.S.C. Sec. 601(5)). Based on most recent
census data, there are 85,006 governmental entities in the United
States. This number includes such entities as states, counties, cities,
utility districts and school districts. The Commission notes that any
official actions with respect to cable operators' BST will typically be
undertaken by LFAs, which primarily consist of counties, cities and
towns. Of the 85,006 governmental entities, 38,978 are counties, cities
and towns. The remainder are primarily utility districts, school
districts, and States, which typically are not LFAs. Of the 38,978
counties, cities and towns, 37,566 or 96%, have populations of fewer
than 50,000.
Steps taken to Minimize Significant Economic Impact on Small Entities
and Significant Alternatives Rejected
20. Small Cable Entities: The Communications Act contains a
definition of a small cable system operator, which is ``a cable
operator that, directly or through an affiliate, serves in the
aggregate fewer than 1 percent of all subscribers in the United States
and is not affiliated with any entity or entities whose gross annual
revenues in the aggregate exceed $250,000,000.'' (47 U.S.C.
Sec. 543(m)(2)). Under the Communications Act, at 47 U.S.C. 543(m) (1),
a small cable operator is not subject to the rate regulation
requirements of Sections 543 (a), (b) and (c) on CPSTs in any franchise
area in which it serves 50,000 or fewer subscribers. The proposed rule
adopted in this NPRM would give a rate regulated operator the option to
lower rates on its BST and to raise rates on its CPST in order to
recover lost revenues from the BST reduction. The CPST rate increase
would be reviewed by the Commission. Because this proposed rule would
not affect operators that are not rate regulated on CPSTs, there would
be no impact on small cable operators that, according to the
Communications Act, are not subject to rate regulation on CPSTs.
[[Page 45390]]
21. The Commission has developed its own definition of a small
cable system operator for the purposes of rate regulation. Under the
Commission's rules, a ``small cable company,'' is one serving fewer
than 400,000 subscribers nationwide, and a small cable system is a
cable system with 15,000 or fewer subscribers owned by a cable company
serving 400,000 or fewer subscribers over all of its cable systems (47
C.F.R. Sec. 76.901(e)). SBA has developed a definition of small
entities for cable and other pay television services, which includes
all such companies generating less than $11 million in revenue
annually.
22. To the extent that any of these operators are rate regulated on
CPSTs, the Commission emphasizes that the proposal would provide an
optional rate adjustment methodology for rate regulated operators in
order to provide for greater flexibility in cable pricing, and would
not impose a mandatory requirement on cable operators. If the
Commission did not modify its rules, a regulated cable operator would
not be able to recover, on its CPST, lost revenues for rate decreases
to the BST. The Commission believes that allowing for such an
adjustment could give operators more flexibility to respond to
competition in the marketplace.
23. Municipalities: The term ``small governmental jurisdiction'' is
defined as ``governments of . . . districts, with a population of less
than fifty thousand.'' (5 U.S.C. Sec. 601(5)). The Commission does not
believe that the proposal contained in this NPRM will have a
significant economic impact on a substantial number of these small
governmental jurisdictions. A small governmental jurisdiction that
regulates the BST would continue its current practice of reviewing an
operator's maximum permitted per channel rate on the BST. Any rate
increase by an operator opting to use the proposal contained in this
NPRM would occur on the CPST and would therefore be reviewed by the
Commission.
24. Reporting, Recordkeeping and other Compliance Requirements. Our
current methodology for calculating maximum permissible rates will need
to be amended to account for the additional optional rate calculation
step proposed in this NPRM. The proposed rule is optional, and would
not be a requirement for any cable operator that does not want to
utilize the proposed option. An operator wishing to use the proposed
pricing methodology first would establish rates for its regulated
service tiers using the same methodology for both tiers. The resulting
rate for the BST would be the cap for that tier. The operator then
would determine the amount by which it was willing to decrease the BST
rate and calculate the total revenue loss derived from the reduction.
The operator would then divide this amount by the total number of CPST
subscribers in order to calculate the rate increase for the CPST. After
lowering its BST rate and increasing its CPST rate in the manner
described, the operator would have a continuing obligation to keep
track of what its maximum permitted rate would be for each tier had it
not made the adjustment. An operator would continue to maintain records
of these ``underlying rates'' so that an LFA, or the Commission, could
verify that the operator had made the adjustment properly. In the NPRM,
the Commission seeks comment on the specific method of implementation
of the proposal. The rule as proposed would not require any additional
special skills beyond any which are already needed in the cable rate
regulatory context.
25. Significant Alternatives to Proposed Rule Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives. In the NPRM, the Commission examines the current rule that
prohibits a rate-regulated cable operator from justifying an increase
in its CPST rate on the basis of a corresponding decrease in the BST
rate. The Commission tentatively concludes that eliminating this aspect
of our current rules would give cable operators greater pricing
flexibility to respond to their growing competition while continuing to
protect consumers. If, in the alternative, the Commission did not
modify its rules, a regulated cable operator would not be able to
recover, on its CPST, lost revenues for rate decreases to the BST. The
Commission believes that allowing for such an adjustment could give
operators more flexibility to respond to competition in the
marketplace. This is consistent with the issues raised in the body of
the NPRM. As explained above, the Commission does not believe the
proposal creates any significant burden for small entities. The
proposed rule change would be purely optional for cable operators, and
local franchising authorities would not be subject to additional rate
regulatory burdens as a result of adoption of the proposal.
Federal Rules which Overlap, Duplicate or Conflict with these Rules--
None
26. Ex parte Rules--Non-Restricted Proceeding. This is a non-
restricted notice and comment rulemaking proceeding. Ex parte
presentations are permitted, except during the Sunshine Agenda period,
provided that they are disclosed as provided in the Commission's rules.
See generally, 47 C.F.R. Sections 1.1202, 1.1203, and 1.1206(a).
27. Pursuant to applicable procedures set forth in Sections 1.415
and 1.419 of the Commission's rules, interested parties may file
comments on or before October 6, 1996, and reply comments on or before
November 8, 1996. To file formally in this proceeding, you must file an
original plus four copies of all comments, reply comments, and
supporting comments. If you would like each Commissioner to receive a
personal copy of your comments and reply comments, you must file an
original plus nine copies. You should send comments and reply comments
to the Office of the Secretary, Federal Communications Commission, 1919
M Street, N.W. Washington, D.C. 20554. Comments and reply comments will
be available for public inspection during regular business hours in the
FCC Reference Center, Room 239, Federal Communications Commission, 1919
M Street N.W., Washington D.C. 20554.
Ordering Clauses
28. It is ordered that, pursuant to Sections 4(i), 4(j), 623(a),
623(b), and 623(c), of the Communications Act of 1934, as amended, 47
U.S.C. Secs. 154(i), 154(j), 543(a), 543(b), and 543(c), NOTICE IS
HEREBY GIVEN of proposed amendments to Part 76, in accordance with the
proposals, discussions, and statement of issues in this NPRM of
Proposed Rulemaking, and that COMMENT IS SOUGHT regarding such
proposals, discussion, and statement of issues.
29. It is further ordered that, the Secretary shall send a copy of
this NPRM, including the Initial Regulatory Flexibility Analysis, to
the Chief Counsel for Advocacy of the Small Business Administration in
accordance with paragraph 603(a) of the Regulatory Flexibility Act.
Public Law No. 96-354, 94 Stat. 1164, 5 U.S.C. Secs. 601 et seq.
(1981).
Paperwork Reduction Act
This NPRM may contain either proposed or modified information
collections. The Commission, as part of its continuing effort to reduce
paperwork burdens, invites the general public to comment on the
information collections contained in this NPRM, as required by the
Paperwork Reduction Act of 1995, Public Law No. 104-13. Public and
agency comments are due at the same time as other comments on this
NPRM. Comments should address: (a) whether the proposed collection of
[[Page 45391]]
information is necessary for the proper performance of the functions of
the Commission, including whether the information shall have practical
utility; (b) ways to enhance the quality, utility, and clarity of the
information collected; and (c) ways to minimize the burden of the
collection of information on the respondents, including the use of
automated collection techniques or other forms of information
technology.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-21581 Filed 8-28-96; 8:45 am]
BILLING CODE 6712-01-U
