FOR FCC RECORD ONLY $//Cable Regulation; 5th Reconsideration, etc.; FCC 94-234//$ $//Amendment of Part 76, Subpart N, Cable Rate Regulation//$ $/76.934 Small Systems and Small Operators//$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 FCC 94-234 In the Matter of) ) Implementation of Sections of the ) MM Docket No. 93-215 Cable Television Consumer Protection ) and Competition Act of 1992: Rate Regulation ) MM Docket No. 92-266 ) FIFTH ORDER ON RECONSIDERATION AND FURTHER NOTICE OF PROPOSED RULEMAKING Adopted: September 12, 1994 ; Released: September 26, 1994 By the Commission: Comment Date: November 16, 1994 Reply Comment Date: December 16, 1994 I. INTRODUCTION 1. In this Fifth Order on Reconsideration and Further Notice of Proposed Rulemaking we consider whether to establish a ninety-day period after the initial date of regulation in which small operators may restructure rates and service offerings to comply with our rules governing regulated cable services, and whether to permit such rates and service offerings to be implemented without prior regulatory approval. We also seek comment on definitions of small businesses that could be used to define eligibility for any special rate or administrative treatment that could be established for cable operators in final rules in the above-captioned proceedings. II. FIFTH ORDER ON RECONSIDERATION A. Background 2. Pursuant to the Cable Television Consumer Protection and Competition Act of 1992, the Commission has established a comprehensive regulatory framework governing rates for regulated cable services and equipment. Under that framework, all regulated cable systems generally must set rates based on a 17 percent competitive rate reduction from September 30, 1992 levels unless the system (1) is eligible for temporary transition relief, pending the completion of cost studies by the Commission, (2) is eligible for streamlined rate relief pending the completion of our cost studies, or (3) justifies rates based on a cost-of- service showing. 3. The 1992 Cable Act requires the Commission to reduce regulatory burdens on small systems. Small systems are defined in the statute as systems serving 1,000 or fewer subscribers. Pursuant to that mandate, the Commission's regulatory framework governing regulated cable services incorporates several features designed to reduce administrative burdens on independent small systems and small systems owned by small multiple system operators ("small MSOs"). These small systems may elect to make streamlined rate reductions under which they may reduce each billed item of regulated cable service as of March 31, 1994 by 14 percent instead of setting rates based on 17 percent competitive rate reductions from September 30, 1992 levels. This reduces administrative burdens by eliminating the need for these small systems to complete FCC Forms 1200 and 1205, and by eliminating the requirements to unbundle equipment and installation charges from programming service charges, and to set equipment and installation charges at actual cost. The Commission may terminate this administrative relief upon completion of cost studies by the Commission and development of average equipment cost schedules. 4. Independent small systems and small systems owned by any cable operator may also establish unbundled charges for regulated equipment based on the average equipment costs of the small systems. Under this approach, a cable operator of any size generally may average the equipment costs of all its small systems, or only some of them, for purposes of developing unbundled equipment charges for its small systems. Under our interim cost-of-service rules, small systems owned by small MSOs may use simplified forms for purposes of making cost-of-service showings. Small operators, defined as operators serving 15,000 or fewer subscribers and not affiliated with a larger operator, are eligible for transition relief. Instead of setting rates based on a 17 percent competitive reduction, small operators may maintain their March 31, 1994 rates, with certain adjustments as determined under FCC Form 1200. 5. Under the rules adopted in the Rate Order, we required cable operators to file a rate justification or cost-of-service showing for the basic service tier and accompanying equipment, and for the cable programming service tier and accompanying equipment, within 30 days of the initial date of regulation. All cable operators are required to have rates and service offerings that comply with our rules on the initial date of regulation. Operators with equipment or programming service charges that exceed permitted levels are subject to refund liability. Refund liability is calculated based on the difference between the old bundled rates charged prior to regulation and the sum of the new unbundled program service charges and new unbundled equipment charges established after the initial date of regulation. Revenue neutral adjustments of equipment and programming rates to achieve unbundled equipment rates will not by itself trigger refund liability. The Small Cable Business Association ("SCBA") has expressed concern about the deadlines by which small operators must achieve this unbundling. B. Discussion 6. As indicated, the 1992 Cable Act requires the Commission to reduce administrative burdens for small systems. We believe this statutory purpose would be furthered by permitting small operators a brief period of time to restructure and establish rates and service offerings that comply with our rules after a tier becomes regulated, rather than require them to be in compliance with rate rules on the initial date of regulation. This will reduce administrative burdens on small operators by assuring that they will not need to undertake the steps associated with establishing restructured rates and service offerings that comply with our rules, including completion of necessary FCC forms, until they are actually regulated. Moreover, this additional time to comply will not harm cable subscribers because, under transition relief, small operators are not required in any event to make competitive rate reductions pending cost studies, but may set rates based on March 31,1994 levels with some adjustments. And, as indicated, operators will not incur refund liability solely on account of restructuring rates and service offerings to comply with our rules. Accordingly, we conclude that establishing a period of time after regulation begins for small operators to comply will further statutory purposes without injuring consumers. 7. We believe that 90 days after the initial date of regulation is an appropriate period of time for small operators to establish rates and service offerings that comply with our rules. This will afford small operators sufficient time to determine correct rates, complete forms, arrange for billing, and submit forms to regulatory authorities. Accordingly, we will revise our rules to provide that small operators are not required to establish rates and service offerings that comply with our rules for ninety days after the initial date of regulation. In addition, in order to assure that this will reduce administrative burdens, we are changing our rules to provide that small operators do not need to file necessary rate justification forms with the local franchising authority, or the Commission where appropriate, for the basic service tier, or with the Commission for a cable programming service tier, until 60 days after the initial date of regulation. This will provide these operators additional time to complete these forms. However, we are not altering our rules concerning provision of advance notice of rate changes to subscribers. Pursuant to those rules, all operators, including small operators, must give 30 days notice to subscribers prior to implementing rate and service changes. 8. Additionally, small systems and small operators 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 a small operator has implemented rates in excess of the maximum permitted rate, refunds may be ordered in accordance with our regulations III. FURTHER NOTICE OF PROPOSED RULEMAKING A. Background 9. In 1992, Congress amended  3(a) of the Small Business Act to require federal agencies to use small business definitions created by the Small Business Administration ("SBA"), or in the alternative, seek public comment on different definitions and obtain the approval of the Small Business Administrator with regard to any regulation applicable to small businesses, unless other statutory definitions are applicable. SBA rules currently define a small cable company as one with $11 million or less in gross revenues. In this rulemaking, the SBA's Office of Advocacy and the SCBA have expressed concern about the Commission's definitions of small operators eligible for transition relief and our definition of small MSOs. Specifically, the SBA's Office of Advocacy and the SCBA believe the current definitions in our rules defining eligibility for transition and administrative relief are underinclusive and were promulgated in violation of  3(a) of the Small Business Act. They urge us to re-evaluate the definitions and seek public input before deciding on permanent standards. SCBA also has filed an intervenors' brief in a lawsuit challenging the Commission's cable rate regulations. B. Discussion 10. As indicated, in the Second Reconsideration Order, we established transition treatment for small operators pending completion of our cost studies, and have established administrative relief for independent small systems and small systems owned by small MSOs. Under our interim cost-of-service rules, independent small systems and small systems owned by small MSOs also may use special forms for cost-of-service showings. When cost studies are completed, we may make permanent, eliminate, or modify our transition rate treatment of small operators. When we develop average equipment cost schedules, we may terminate or modify our provisions for streamlined rate reductions for independent small systems and small systems owned by small MSOs. In our final cost proceeding, we may modify our requirements for cost showings by independent small systems and small systems owned by small MSOs. 11. We believe that it would 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 if we obtain comment on possible alternative definitions that we could use for purposes of determining eligibility for special rate or administrative treatment provisions that could apply to small businesses. We are initiating the instant Further Notice of Proposed Rulemaking for purposes of obtaining this comment. 12. Accordingly, we solicit comment on whether we should retain current definitions or use different definitions for purposes of establishing special rate or administrative treatment for small operators and small MSOs that could be small businesses. We specifically seek 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. IV. REGULATORY FLEXIBILITY ANALYSIS A. Final Regulatory Flexibility Analysis for the Fifth Order on Reconsideration 13. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.  601-12, the Commission's final analysis with respect to the Fifth Order on Reconsideration is as follows: 14. 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. 15. 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. The Chief Counsel for Advocacy of the United States Small Business Administration filed comments in the original rulemaking order ("SBA"). The Commission addressed the concerns raised by the SBA in the Rate Order. The SBA filed reply comments in MM Docket No. 93-215 and the SCBA filed reply comments in MM Docket No. 92-266. Those comments will be reviewed as part of the instant Further Notice of Proposed Rulemaking. 16. 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 previous Orders in these dockets. Although the Commission is issuing this Fifth Order on Reconsideration on its own motion, the Commission has attempted to accommodate commenters' concerns and to reduce administrative burdens by providing an additional period of time for small cable operators to comply with the rate regulations. B. Initial Regulatory Flexibility Analysis for the Further Notice of Proposed Rulemaking. 17. 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 Notice, but they must have a separate and distinct heading designating them as responses to the regulatory flexibility analysis. The Secretary shall cause a copy of the Notice, including the initial regulatory flexibility analysis, 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, Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. Section 601 et seq. (1981). 18. Reason for action. The Cable Television Consumer Protection and Competition Act of 1992 requires the Commission to prescribe rules and regulations for determining reasonable rates for basic tier cable service and to establish criteria for identifying unreasonable rates for cable programming services. The Commission has adopted rate regulations that require a comparison to the rates of cable systems subject to effective competition, as defined in the Cable Act of 1992 and represented in the revised benchmark formula. This Notice proposes to review and determine appropriate definitions of small systems, small operators, and small MSOs for the purpose of determining rate regulation applicable to these categories of companies. 19. Objectives. To propose rules to implement Section 3 of the Cable Television Consumer Protection and Competition Act of 1992. We also desire to adopt rules that will be easily interpreted and readily applicable and, whenever possible, minimize the regulatory burden on affected parties. 20. Legal Basis. Action as proposed for this rulemaking is contained in Sections 4(i), 4(j), 303(r) and 623 of the Communications Act of 1934, as amended. 21. Description, potential impact and number of small entities affected. We anticipate a possible impact on small entities because the Notice addresses the definitions of small systems, small operators and small MSOs for use in determining rate rules affecting these classes of cable operators. 22. Reporting, record keeping and other compliance requirements. None. 23. Federal rules which overlap, duplicate or conflict with this rule. None. 24. Any significant alternatives minimizing impact on small entities and consistent with stated objectives. None. V. Paperwork Reduction Act 25. The requirements adopted herein have been analyzed with respect to the Paperwork Reduction Act of 1980 and found to impose no new or modified information collection requirements on the public. VI. Procedural Provisions 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 Commission 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, 47 C.F.R. Sections 1.415 and 1.419, interested parties may file comments on or before November 16, 1994 and reply comments on or before December 16, 1994. To file formally in this proceeding, you must file an original plus four copies of all comments, reply comments, and supporting comments. If you want 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 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. VII. Ordering Clauses 28. 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 Fifth Order on Reconsideration and Further Notice of Proposed Rulemaking, ARE ADOPTED and Section 76.934 of the Commission's rules, 47 C.F.R. Section 76.934, IS AMENDED as set forth in Appendix A. 29. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 4(j), 303(r), 612(c), 622(c) and 623 of the Communications Act of 1934, 47 U.S.C.  154 (i), 154 (j), 303(r), 532 (c), 542(c), and 543, NOTICE IS HEREBY GIVEN of proposed amendments to Part 76, in accordance with the proposals, discussions, and statement of issues in this Further Notice of Proposed Rulemaking, and that COMMENT IS SOUGHT regarding such proposals, discussion, and statement of issues. 30 IT IS FURTHER ORDERED that, the Secretary shall send a copy of this Fifth Order on Reconsideration and Further Notice of Proposed Rulemaking 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. Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981). 31. IT IS FURTHER ORDERED that, the requirements and regulations established in this decision shall become effective thirty (30) days after publication in the Federal Register. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A Part 76 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows: PART 76 - CABLE TELEVISION SERVICE 1. The authority citation for Part 76 continues to read as follows: Authority: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat., as amended, 1064, 1065, 1066, 1081, 1082, 1083, 1084, 1085, 1101; 47 U.S.C. Secs. 152, 153, 154, 301, 303, 307, 308, 309, 532, 533, 535, 542, 543, 552, as amended, 106 Stat. 1460. 2. Section 76.934 is retitled Small Systems and Small Operators and is amended to add section (e):  76.934 Small Systems and Small Operators (e) Systems owned by Small Operators. Systems owned by small operators as defined in Section 76.922(b)(4)(A) 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 Sections 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 and/1225 and any similar forms as appropriate. Rates established during the 90-days period shall not be subject to prior approval by franchising authorities or the Commission, but shall be subject to refund pursuant to sections 76.942 and 76.961 of these rules.