WPCO 2BJZ Courier3|j'>Vx6X@`7X@HP4Si; Rm. 918_1; LPT2HPLAS4SI.PRSx  @\[KX@26 FKP Z3|j'"i~'^:DPddDDDdp4D48dddddddddd88pppX|pDL|pp||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDDDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddzHxxHvppDXd<"dxtldpxxdHP4Si; Rm. 918_1; LPT2HPLAS4SI.PRSXj\  P6G;\[KXP2v'pk kxa8DocumentgDocument Style StyleXX` `  ` a4DocumentgDocument Style Style . a6DocumentgDocument Style Style GX  a5DocumentgDocument Style Style }X(# 2>vt0a2DocumentgDocument Style Style<o   ?  A.  a7DocumentgDocument Style StyleyXX` ` (#` BibliogrphyBibliography:X (# a1Right ParRight-Aligned Paragraph Numbers:`S@ I.  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I.   243a7TechnicalTechnical Document Style(@D i) . a8TechnicalTechnical Document Style(D a) . Doc InitInitialize Document Stylez   0*0*0*  I. A. 1. a.(1)(a) i) a) I. 1. A. a.(1)(a) i) a)DocumentgPleadingHeader for Numbered Pleading PaperE!n    X X` hp x (#%'0*,.8135@8:><q*"xxxxWWxxxWWkkxxx X-ԍ Order (Petition for Stay of Local Rate Order of Montgomery County), DA 94702 (released June 23, 1994).  X_-3.` ` Montgomery County's Rate Order is effectively divided into two parts. The first part addresses an alleged "rate discrimination" violation and is disputed by SBCMV. This part of the order accounts for $10 million in refund liability, all of which is disputed by  X -SBCMV. The second part of the order involves the County's ruling on the FCC Form 393M > X-#Xj\  P6G;yoXP#э The Commission's Form 393 ("Determination of Maximum Initial Permitted Rates for Regulated Cable Programming Services and Equipment") directs a cable operator to determine its maximum permitted rates for regulated service, equipment, and installations.M that SBCMV filed with the County to determine its basic rates. This part of the order accounts for $11 million in refund liability. SBCMV challenges only a portion of this $11 million liability, accounting for approximately $1 million in potential refunds. On June 8, 1994, Montgomery County filed an Opposition to Petition for Review, urging the Commission to reject SBCMV's appeal and to allow Montgomery County's Rate Order to go into effect  X-unchanged.> X-ԍ Mr. William Franklin, a resident of Montgomery County, who has participated in the County's ratemaking process also filed a Petition for Partial Review of the County's Rate Order on May 31, 1994. Both the County and SBCMV have opposed Mr. Franklin's petition in separately filed pleadings. Mr. Franklin filed a Reply to Oppositions to Petition for Partial Review with the Commission on June 30, 1994. Specifically, Montgomery County argues that the disputed portion of the Rate Order covering the rate discrimination issue should not be the subject of the appeal because  Xb-the question of its legality is already before the Commission in a separate proceeding.b > X -#Xj\  P6G;yoXP#э On May 18, 1994, Montgomery County filed with the Commission a Motion for Declaratory Ruling requesting that the Commission rule on the propriety, under federal law, of its prescribed remedy for SBCMV's alleged rate discrimination violation. On June 2, 1994, SBCMV filed an Opposition to the Motion for Declaratory Ruling. Mr. Franklin also filed Comments on the Motion for Declaratory Ruling on June 2, 1994. Montgomery County asserts that the other portions of the Rate Order to which SBCMV  X4-objects have a reasonable basis and do not merit Commission reversal on appeal. h4B> X''-ԍ In his Petition for Partial Review, Mr. Franklin alleges that SBCMV has provided a cable guide publication to subscribers since November 1993 in violation of the 1992 Cable Act's negativeoption billing provision. Because the County did not address this issue in its"(0*0*0*)" Rate Order, this appeal of the County's Rate Order is not the proper forum for the resolution of this issue. Furthermore, under the Commission's rules, the County was not required to resolve and did not choose to resolve this issue in its Rate Order. The negative option billing provision governs the circumstances under which a cable operator may bill a subscriber for a particular service, rather than the reasonableness of the actual rate charged a subscriber for  X-that service. Third Order on Reconsideration in MM Docket 92266 at  128 (released March  X-30, 1994) ("Third Recon. Order"). Mr. Franklin may request that the County or the Commission initiate an inquiry into SBCMV's billing practices, but to ensure the swiftest implementation of reasonable rates, this inquiry should be conducted separately from the ratemaking process. The necessity for a separate inquiry is compounded by the fact that since the County has made no inquiry on the issue, there is no factual record or statement of findings from which the Commission could base a decision on appeal. Therefore, the Commission dismisses this issue from further consideration in this appeal. Mr. Franklin is free to pursue this matter in a separate proceeding brought before his state or local  XR-government or before the Commission. See Id. at  122131. We also note here that Mr. Franklin seeks reconsideration of our decision, released June 23, 1994, granting a partial stay pending review of the County's local Rate Order. That reconsideration petition, which was filed on June 27, 1994, is rendered moot by this decision on the merits. "40*0*0* "Ԍ X-ԙ 4.` ` Under the Commission's rules, appeals of franchising authorities' local rate  X-orders are reviewed by the Commission.g> X-#Xj\  P6G;yoXP#э 47 C.F.R. 76.944.g In ruling on appeals of local rate orders, the  X-Commission will not conduct a de novo review, but instead will sustain the franchising  X-authority's decision as long as there is a reasonable basis for that decision.L> X.-#Xj\  P6G;yoXP#э See Report and Order and Further Notice of Proposed Rulemaking in MM Docket 92 X-266, 8 FCC Rcd 5631,  149 (released May 3, 1993) ("Report and Order"); Third Recon.  X-Order 81.L Therefore, the Commission will reverse a franchising authority's decision only if we determine that the franchising authority acted unreasonably in applying the Commission's rules in rendering its  Xx-local rate order.3 xI> Xr-ԍ Id.3 If the Commission reverses a franchising authority's decision, it will not substitute its own decision, but instead it will remand the issue to the franchising authority  XJ-with instructions for its resolution.3 J> X -ԍ Id.3  X -  X - II.Rate Discrimination  X -A.` ` Background  X -5.` ` The principal dispute arising from Montgomery County's Rate Order involves the County's determination that SBCMV has engaged in rate discrimination in violation of local law and the 1992 Cable Act. To remedy this alleged violation, the County has ordered"{ 0*0*0*i" $10 million in subscriber refunds. SBCMV claims that to prevent its customers who only subscribe to the basic tier from experiencing dramatic rate increases within a ninemonth time span from December 31, 1992 until September 1, 1993, SBCMV capped this class of subscribers' rates at their thenexisting levels, while increasing the basic service rate for all other subscribers. Therefore, basiconly subscribers who became customers on or before December 31, 1992 were grandfathered at the 1992 basic rate of $6.95 per month (exclusive of franchise fees); basiconly subscribers who became customers between January1, 1993 and August 31, 1993 were grandfathered at the rate of $10.00 per month (exclusive of franchise fees); and all subsequent subscribers to SBCMV's services were charged $13.95 per month (exclusive of franchise fees) for basic service. Any grandfathered basiconly subscriber ceased to receive the grandfathered rate for the basic tier if he or she upgraded service. Therefore, the number of grandfathered subscribers could not increase and was continually decreasing as those subscribers upgraded service. Due to the grandfathering, as of September 1, 1993 (the implementation date for the Commission's rate regulations), SBCMV was offering basic tier service to three separate classes of subscribers at three different rates. SBCMV claims that, as of September 1, 1993, less than 4 percent of its subscribers were being charged either the $6.95 rate or the $10.00 rate for the basic service tier, while over 96 percent of its subscribers were charged the highest rate for the basic tier.  Y7-6.` ` In its Rate Order, the County held that this practice of subscriber classification  Y -constituted rate discrimination in violation of its local Cable Communications Lawx  .b Y"-ԍ See Montgomery County Code 1984, as amended, chapter 8A, Cable Communications Law 8A15(a) (nondiscrimination), 8A20(a)(3) (remedies), ("[A] franchisee must not...grant undue preferences or advantages to any subscriber..., must have a uniform rate structure..., [and] must not...discriminate against subscribers...")x and in"  0*(("  Y-violation of two provisions of the 1992 Cable Act. b Yy-ԍ #n*f9 xCrXX#See infra#o\  PCyoXP# footnotes 16 and 17. In the absence of federal legislative or administrative guidance, the County relied on local law to craft its own remedy and, accordingly, ordered SBCMV to refund to its subscribers the difference between the higher basic rate charged to both its multipackage and postSeptember 1, 1993 basiconly subscribers and the lowest rate of $6.95 charged to its grandfathered basiconly subscribers. This portion of the Rate Order totals approximately $10 million in potential subscriber refunds. Under the terms of the County's Rate Order, SBCMV's refund liability would run from September 1, 1993 until the day that it  YH-implemented uniform basic tier rates.E H|b Yu -ԍ SBCMV asserts in its appeal that, upon receipt of the County's Rate Order, it announced on May 18, 1994 the end of its three classes of basic tier rates, effective 30 days therefrom, after which all subscriber classes would be charged the rate of $13.95 for the basic service tier.E SBCMV argues that its decision to grandfather a segment of its basiconly subscribers at their thenexisting rates, during the time that it increased the rates for the rest of its subscribers, was a legitimate business decision that does not violate the requirement that rates be uniform throughout the franchise area or constitute any other type of illegal discrimination prohibited under the 1992 Cable Act. Specifically, SBCMV asserts that this grandfathered rate structure was intended to ameliorate the impact of rate restructuring undertaken to comply with the terms of the 1992 Cable Act. In the alternative, SBCMV argues that even if the grandfathered rates were found to violate the 1992 Cable Act, the appropriate remedy would be a "cease and desist" order, not an order prescribing subscriber refunds. Conversely, the County asserts that an order requiring subscriber refunds is the County's best available remedy because refunds directly impact those subscribers who have been harmed by SBCMV's alleged "rate discrimination" and prevent SBCMV from benefitting from its purportedly illegal actions. The County found that SBCMV offered no reasonable justification for its rate classification scheme. The County argues that, although the appropriate remedy for rate discrimination is uncertain under federal law, the County has the authority under local law to order subscriber refunds  Y-to remedy a finding of rate discrimination.b Yq-ԍ #n*f9 xCrXX#See supra#o\  PCyoXP# footnote 11. The County also urges the Commission to reject SBCMV's appeal with respect to the rate discrimination issue on the grounds that the issue should be resolved in a bifurcated proceeding initiated by the County as a Motion for  Y-Declaratory RulingKb Y"-ԍ See supra footnote 5.K and reviewed separately from the other issues raised in the appeal. The County seeks the Commission's approval of its proposed remedy to impose subscriber refunds, which it argues are authorized under federal law. As explained in detail below, we will remand this portion of the rate order back to the County with the instruction that the County follow the guidelines laid out in this decision in rendering its determination. " O 0*((<"Ԍ X- B.` ` Discussion  Y-7.` ` In the interest of administrative efficiency, the Commission has decided to consolidate the resolution of the rate discrimination issue raised in the County's Motion for Declaratory Ruling with the resolution of this appeal of the County's Rate Order. In so doing, the Commission has been careful to consider all the arguments made on this issue by all sides in the submissions filed in both proceedings before us.  YH-8.` ` The County alleges that SBCMV's rate classification scheme purportedly violates two separate provisions of the 1992 Cable Act. First, under Section 623(d) of the Communications Act and Section 76.984 of the Commission's rules, cable operators must  Y -offer a rate structure that is uniform throughout the franchise area.  b Y| -ԍ This provision of the 1992 Cable Act specifically states that, "A cable operator shall have a rate structure, for the provision of cable service, that is uniform throughout the geographic area in which cable service is provided over its cable system." Cable Television Consumer Protection and Competition Act, Pub. L. No. 102385, 106 Stat. 1460 (1992); Communications Act, 623(d); 47 U.S.C. 543(d). Section 76.984(a) of the Commission's rules states that, "The rates charged by cable operators subject to 76.922 and 76.923 shall be provided pursuant to a rate structure that is uniform throughout each franchise area, in which cable service is provided." Section 76.984(b) goes on to state that, "This section does not prohibit the establishment by cable operators of reasonable categories of service and customers with separate rates and terms and conditions of service, within a franchise area." Secondly, under Section 623(e) of the Communications Act and Section 76.983 of the Commission's rules, regulatory authorities, including franchising authorities, may prohibit cable operators from  Y -engaging in discrimination among subscribers.>1 b Y-ԍ This provision of the 1992 Cable Act specifically states that, "Nothing in this title shall be construed as prohibiting any Federal agency, State, or a franchising authority from (1) prohibiting discrimination among subscribers and potential subscribers to cable service, except that no Federal agency, State, or franchising authority may prohibit a cable operator from offering reasonable discounts to senior citizens or other economically disadvantaged group discounts; or (2) requiring and regulating the installation or rental of equipment which facilitates the reception of cable service by hearing impaired individuals." Cable Television Consumer Protection and Competition Act, Pub. L. No. 102385, 106 Stat. 1460 (1992); Communications Act, 623(e); 47 U.S.C. 543(e).> The 1992 Cable Act seeks to ensure that rates are uniform throughout the franchise area, so that no group of subscribers within a franchise area is required to pay more for the same service than another group. Although the legislative history suggests that Section 623(d), which requires geographic uniformity, is intended, in part, to prevent cable operators from pricing service according to income level and from undercutting potential competitors by offering lower rates only in areas where"K0*(("  Y-competitors seek to offer a competing service,6vb Yy-ԍ Senate Committee on Commerce, Science, and Transportation, S. Rep. No. 92, 102d Cong., 1st Sess. (1991) at 76 (". . . cable operators must offer uniform rates throughout the geographic area in which they provide cable service. This provision is intended to prevent cable operators from having different rate structures in different parts of one cable franchise. This provision is also intended to prevent cable operators from dropping the rates in one portion of a franchise area to undercut a competitor temporarily.")6 the provision must also be given its plain meaning. On its face, the provision requires the same rates for the same service within a geographic area. Therefore, SBCMV's argument that this provision merely prevents rate classification schemes based solely on geography or neighborhood does not give the provision its proper scope. SBCMV's offering of three separate rates for the same basic service tier to three different groups of subscribers in the same geographic area resulted in a basic tier  Yv-rate structure that was not uniform throughout the franchise area.vb Y--ԍ The Commission has interpreted "geographic area" to mean the franchise area. See  Y-47 C.F.R. 76.984; Report and Order at 422.  YH-9.` ` The 1992 Cable Act and the Commission's implementing rules specifically  Y1-contemplate certain exceptions to the fundamental requirement of uniformity.Q1 b Y-ԍ See Report and Order at 423.Q The Commission has noted several specific instances where an operator may be justified in offering different rates for the same service to specific, reasonable categories of subscribers:    The Act specifically mandates a uniform "rate structure." The legislative history does not reveal any congressional intent to mandate a uniform rate for all services and classes of customers. Indeed, Section 623(e) specifically contemplates [that] special categories of customers may receive separate rates. [footnote omitted] Accordingly, we conclude that Section 623(d) does not preclude establishment of reasonable categories of customers and service by  YK-cable operators. Thus, for example, as suggested in the Notice, we do not  Y6-believe that Congress intended a per se prohibition on differences in rates between seasonal and fulltime subscribers. We also find that uniform, nonpredatory bulk discounts to multiple dwelling units, including apartment buildings, hotels, condominium associations, hospitals, universities, and trailer parks, could form a valid basis for distinctions among subscribers. Introductory or promotional rates universally applied at a given time but subsequently discontinued would also not be prohibited. And, as is suggested by Section 623(e), discussed further below, reasonable discounts may be made to senior citizens or other economically disadvantaged groups and charges may be set to facilitate the reception of service by hearing impaired individuals. As we have previously discussed in our tier "buythrough" proceeding, technological differences in the service offered within a geographic area, such";W 0*((=" as might result from the staged rebuilding of a system, would also not conflict  Y-with this provision.36 Yb-ԍ Id.3     Y-10.` ` Though the parties do not address the issue, it is conceivable that SBCMV may have viewed its rate classification scheme as a promotion and, therefore, not subject to the uniformity requirement. As stated above, "[i]ntroductory or promotional rates  Yv-universally applied at a given time but subsequently discontinued [are not] prohibited."3v{b Y -ԍ Id.3 While the evidence before us is not sufficient to permit us to resolve whether the classification scheme constituted a promotion, SBCMV might have sought by its scheme to preserve the subscriptions of a particularly pricesensitive segment of its subscriber base by holding down the rates for this group during a period of rate restructuring that would  Y -otherwise have resulted in significant and immediate higher prices for service.X01Í ÍX01Í Í .b Y-ԍ SBCMV characterizes its rate classification scheme as an effort to "ease the transition from an unregulated to a regulated environment." Petition for a Stay, 5. Whether this effort could be classified as a promotion was not addressed. Therefore,  Y -such a plan, if found to exist, could amount to a promotion. b YN-ԍ The $6.95 rate was "universally applied at a given time," since it was available to all basiconly subscribers who became customers on or before December 31, 1992. The $10.00 rate was similarly "universally applied."  However, some aspects of the scheme do not resemble a promotion. For example, a promotion, by definition, must operate  Y -only for a reasonable, finite period.y 4 b Y-ԍ The #n*f9 xCrXX#Report and Order#o\  PCyoXP# at  423 clarifies this: "Introductory or promotional rates  X-universally applied at a given time but subsequently discontinued (emphasis added) would also  Xz-not be prohibited." y It cannot be determined from the facts before us whether and when the plan, when initiated, was intended to end. SBCMV claims that the number of subscribers affected by its rate classification scheme was continually diminishing as subscribers changed service and that the scheme would have expired, eventually, under its own terms. The intervention of the local rate order caused SBCMV to end the plan. Therefore, even if it is found to have started as an allowable promotion, at some point thereafter the rate classification plan may have ceased to be a promotion and thereby ceased to be an allowable exception to the uniformity requirement. We remand this issue to the County with instructions that it determine, consistent with the analysis here, whether SBCMV's rate classification scheme constituted a promotion at any time and therefore an allowable exception to the uniformity provision of Section 623(d).  Y-11.` ` Even if the County finds that SBCMV's rate classification scheme does not constitute a legitimate exception to the uniformity requirement of Section 623(d) and"0*((" therefore violates Section 623(d), it must apply an appropriate remedy. It did not do so here. Neither the 1992 Cable Act nor the Commission's rules articulate specific remedies that an authorized regulatory body may implement in response to violations of the geographic  Y-uniformity requirement or proven instances of discrimination. Although the County could properly order SBCMV to cease offering the rate classifications, as it did, the County could not order subscriber refunds other than those resulting from a review of a properly completed Form 393, since to do otherwise goes beyond the scope of the County's authority under the  Y_-Act and the Commission's implementing regulations. The County's remedy, if it concludes that SBCMV's rates violate Section 623(d), is to require SBCMV to submit a revised Form 393 that accurately accounts for the number of subscribers receiving each of the three rates that it charged for the basic service tier. SBCMV's Form 393 appears to reflect only the  Y -$13.95 rate and not the grandfathered rates.> b Y| -ԍ We are unable to discern from the materials provided in the pleadings whether or not the County has required SBCMV to make the adjustments in its Form 393. If so, SBCMV will not be required to update its filing and will not face any more potential refund liability. > In other words, SBCMV must adjust the number of subscribers that it lists on Line 103 of Form 393 to reflect the different rates that  Y -it was actually charging for the basic tier.Za Kb Y-ԍ See Public Notice, Questions and Answers Relating to FCC Form 393, Question 5 (July 30, 1993). Although this question and answer specifically dealt with the treatment of bulk discount subscribers, the same reasoning applies to this situation by analogy. Generally, Form 393 seeks to capture a cable operator's actual revenue figures and then derive its maximum permitted rates. If a cable operator does not account for its discounted rates, it would be overstating its revenues and thus deriving its maximum permitted rates from inaccurate data.Z Those subscribers who paid a grandfathered rate for the basic tier should not be counted as full subscribers. Instead, those subscribers should be accounted for on Form 393 by a number that reflects the same proportional relationship that exists between the rate they were paying and the prevailing rate. For instance, a subscriber who received the grandfathered rate of $6.95 would not be included as one subscriber, but instead as 695/1395ths of a subscriber. Parts of SBCMV's Form 393 affected by this weighted average need to be amended to reflect the change. Once it amends its Form 393, SBCMV's revenues will no longer be overstated in the context of determining its maximum rates. The County then would be able to order refunds based on the revised Form 393 from the date the rate classification scheme was terminated by SBCMV back to the date the County finds that the scheme ceased to be a valid promotion. No refunds may be ordered for any period in which the County may find a valid promotion existed, since such promotional rates are inherently temporary and are not to be reflected in SBCMV's  Y-Form 393.t b Y$-ԍ If the County finds that SBCMV's rate classification scheme never constituted a valid promotion, then the County could order refunds back to the initial date of regulation, September 1, 1993. " 0*((}"Ԍ Y-12.` ` No subscriber refund is available under our rules to remedy a violation of the geographic uniformity provision, other than such refunds as would result from review of an amended Form 393. Subscriber refunds, under the Commission's rules, must only be used to return the difference between unreasonable rates and reasonable rates to the subscribers;  Y-they must not be used as de facto penalties or forfeitures._b Y-ԍ See Report and Order at 142145._ Although the County is correct in asserting that it has the authority to impose fines and forfeitures, such remedies are reserved, under the Commission's rules, to cure instances where a cable operator has not complied with the terms of a franchising authority's decision, such as an order rolling back rates or a request for supplemental information, or where an operator has attempted to  Y1-mislead the franchising authority.J1{b Y] -ԍ See 47 C.F.R. 76.943.J  Y -13.` ` SBCMV's attempt to grandfather the basic tier rates for certain classes of subscribers does not appear to violate, and the County has not alleged that it does violate,  Y -any federal antidiscrimination law. v .b Y-ԍ The County has asserted that Section 623(e) is relevant to its determination. This provision simply seeks to ensure that the terms of the Act are not construed to prevent regulatory authorities, including franchising authorities such as the County, from prohibiting various forms of discrimination by cable operators among subscribers, while also ensuring that cable operators are still able to offer special discounted rates to senior citizens and economically disadvantaged groups.  Therefore, to the extent it wishes to seek a further remedy than that set forth in paragraphs 11 and 12 herein or to the degree it finds Section 623(d) was not violated, the County must rely on either state or local law for any finding that SBCMV's rate classification scheme is illegal discrimination, as well as for any remedy for such alleged discrimination. The County has alleged that SBCMV's rate classification scheme violates both a local statute and the local franchise agreement entered into between the County and SBCMV. If local laws have been violated, the proper remedy would also  Y4-have to be found under local law.O x4l b YQ-ԍ See 47 C.F.R. 76.944(a) ("The Commission shall be the sole forum for appeals of decisions by franchising authorities on rates for the basic service tier or associated equipment involving whether or not a franchising authority has acted consistently with the Cable Act or 76.922 and 76.923. Appeals of ratemaking decision by franchising authorities that do not depend upon determining whether a franchising authority has acted consistently with the Cable Act or 76.922 or 76.923, may be heard in state or local courts.")O Because the resolution of this issue must rest with an interpretation of applicable local law and not federal law, a state or local court is the  Y-appropriate forum to hear this matter.!b Yc&-ԍ According to the pleadings filed by SBCMV, SBCMV has asked a local court to rule on the propriety of the County's actions under local law. " F!0*(("Ԍ X-ԙ III.Hourly Service Charge  X- A.` ` Background  Y-14.` ` Upon the recommendation of its cable consultant, the County rejected SBCMV's calculated Hourly Service Charge ("HSC") of $23.59 and prescribed an alternative HSC of $11.25. The County set the rate for SBCMV's HSC after receiving what it believed to be an inadequate or incomplete justification for SBCMV's own derived HSC. SBCMV claims that the rate set by the County is impermissibly low because it falls below the $13.00 hourly rate paid to its service personnel and therefore would not even allow SBCMV to recoup what it pays out to its employees on an hourly basis. It is the County's position that absent proof to the contrary, it was reasonable for the County to assume that SBCMV's hourly payments for contract labor are less than its payments to its own employees and, accordingly, established an average wage of $11.25. Furthermore, the County asserts that SBCMV repeatedly refused to provide it with additional necessary information to verify the basis for SBCMV's own derived HSC, particularly information related to the cost and use of contract labor. SBCMV counters that it has provided all the necessary information to the County to justify its proposed HSC and that this HSC should be accepted by the County. It appears from the pleadings that this is an issue which has perpetuated a continuing disagreement between the two parties that has lasted a number of months and has resulted in the County setting SBCMV's HSC at a rate derived by the County's consultant, rather than at a rate based on the figures supplied on SBCMV's Form 393.  X- B.` ` Discussion  Y-15.` ` Generally, the Commission's rules require us to leave regulation of basic tier service to the sound discretion of the certified local franchising authorities. Although local franchising authorities have broad authority to enforce compliance with their requests for information and may prescribe rates, they must exercise this authority in accordance with the  Ye-Commission's rules."eb Y-ԍ  See Order (Petition for Stay of Local Rate Order by Century Southwest Cable Television Corp. against the City of West Hollywood), DA 94489 at para. 8 (released May13, 1994). However, the cable operator ultimately bears the burden of proving  YN-the reasonableness of all of its regulated rates.J#NMb YL!-ԍ See 47 C.F.R. 76.937.J If SBCMV's claim is accurate that the HSC adopted by the County falls below the hourly wage paid to its employees, it is possible  Y -that the County's HSC was not based upon SBCMV's actual costs.$ b Y$-ԍ Although the County suggests that there is good reason to assume that SBCMV pays its contract labor less than it pays its employees, the County offers no evidence that reasonably leads to this conclusion. Because this outcome would contravene the intent of the 1992 Cable Act and the Commission's rules, the"  $0*((" Commission is unable to conclude the County's HSC is reasonable, based upon the record before us. As a condition of the stay that we granted in this case, we required SBCMV to submit to the County, within 10 days of the release of the stay order, the information  Y-regarding SBCMV's use of contract labor that the County had previously requested.%b X4-#Xj\  P6G;yoXP#э The County requested that SBCMV provide the County with invoices for SBCMV's contract labor and with a justification for the number of labor hours allocated to regulated services.X01Í ÍX01Í Í Because SBCMV has informed us that this information has been provided to the County as  Y-required,&Kb Y -ԍ In order to fulfill the requirements of the stay order, SBCMV submitted a Stay Compliance Report with the Commission on July 22, 1994. This report indicates that SBCMV, as required under the terms of the stay, has provided the County with the requisite contract labor invoices and a justification for its labor hour allocation, established an interestbearing escrow account, and notified subscribers of possible refunds. we will hereby remand to the County the proper determination of SBCMV's HSC with the instruction to the County to render a decision based on the best information available. In this instance, as in most, the best information available should be that information contained on and offered in support of a cable operator's FCC Form 393. However, because the burden to justify its rates is borne by the cable operator, it is the cable operator's duty to make sure that it complies with a franchising authority's request to provide documentation and supporting evidence to prove the reasonableness of its rates. In the event that the information submitted by SBCMV does not fully comply with the terms of our stay order, the County is not required under either the terms of this order or under the Commission's rules to withhold a final decision on SBCMV's HSC until the information is presented. Instead, the County may set SBCMV's HSC based on the best information  Y-available at the time.X' b Y-ԍ See Third Recon. Order at  84.X  Xb- IV.A/B Switches  X4- A.` ` Background  Y-16.` ` The County set a rate of $3.00 per switch for the sale of A/B switches to subscribers by SBCMV. SBCMV had previously been charging $10.00 for each switch. SBCMV claims that A/B switches are not items properly subject to regulation by the County because they are used by subscribers only to receive offtheair broadcast signals and not used for the reception of basic tier service. The County contends, however, that SBCMV has not borne its burden of proving that A/B switches are not used for the reception of basic tier service. The County also asserts that the price it has set for A/B switches is in line with the market price for A/B switches offered by other vendors in the community.  X7- B.` ` Discussion "7 S '0*((="Ԍ Y-ԙ17.` ` Under the Commission's rules, rates for equipment that is used to receive  Y-basic tier service and that is offered for sale by cable operators are regulated.j(b Xb-#Xj\  P6G;yoXP#э 47 C.F.R. 76.923(i).j Regulated equipment "... consists of all the equipment in a subscriber's home that is used to receive the basic tier.... Such equipment shall include, but is not limited to: (1) converter boxes; (2) remote control units; (3) connections for additional television receivers; and (4) other  Y-cable home wiring."j)yb X-#Xj\  P6G;yoXP#э 47 C.F.R. 76.932(a).j This list of equipment is not intended to be an exhaustive list of all possible types of regulated equipment, but all such equipment, at a minimum, "must be used to receive the basic service tier." While the Commission has interpreted the phrase "equipment used to receive the basic service tier" broadly so as to comport with  Y1-Congressional intent,W*1*b Y -ԍ See Report and Order at 283.W the switches at issue are simply not used to receive cable service. A/B switches are used by subscribers to switch off cable service and to receive, instead, offtheair broadcast signals. The switches are used only by cable subscribers who choose not to watch cable programming. We note also that the switches are available from other sources in the County. In fact, the County prescribed a rate for sale of A/B switches by SBCMV that was representative of the prices offered for such switches by other vendors in the community. So, not only are the A/B switches not "used to receive the basic service tier," but competitive sources for such switches exist in the community through which subscribers may obtain them. Accordingly, we conclude the County's determination that A/B switches constitute regulated equipment is unreasonable and we remand the County's decision regarding the regulation of A/B switches for further proceedings consistent with this ruling.  X- V.PEG Access Fee  X- A.` ` Background  Y-18.` ` Under the terms of its franchise agreement, SBCMV is required to charge an additional fee to subscribers that is used to support channels designated for public, educational and governmental purposes (i.e., PEG channels). According to SBCMV, SBCMV's 1.5 percent PEG access fee was not accounted for as an internal cost (i.e., included in the per channel rates derived in Worksheets 1 and 2 of FCC Form 393) in deriving its maximum permitted rate for basic tier service. SBCMV claims that it did not include the PEG access fee in its basic rate calculations because this fee had traditionally been treated as an external cost added onto and itemized on a subscriber's bill in the same manner as the franchise fee. The County claims that it was unable to determine from the face of SBCMV's FCC Form 393 whether the PEG access fee had been accounted for or not and that SBCMV had declined to provide further clarification of the problem upon request by the County. The County's Rate Order also did not explicitly account for the inclusion of this fee"! *0*(("" as either an internal cost or as an allowable external cost. It is the County's position that if SBCMV can demonstrate that it did not include the PEG access fee in the per channel rates derived in Worksheets 1 and 2 of FCC Form 393, then the County will recalculate SBCMV's permitted rate based on the corrected numbers and extend SBCMV's time for compliance accordingly, assuming this can be done without affecting the oneyear limit on subscriber refunds.  XH- B.` ` Discussion  Y -19.` ` A cable operator's permitted per channel charges for regulated programming  Y -services may be adjusted for changes in external costs.m+ b X| -#Xj\  P6G;yoXP#э 47 C.F.R.  76.922(d)(3).m Our regulations provide that the operator may adjust its charges to the extent that certain external cost increases exceed the rate of inflation. However, except in the case of franchise fees, the operator should include these external costs in its initial rate calculations on FCC Form 393. Franchise fees are the only external costs that should not be included in programming revenue when calculating an operator's initial permitted rates. PEG access fees and external costs other than franchise fees should be included in the per channel rates calculated in Worksheets 1 and 2 of a cable  Yb-operator's FCC Form 393.t,byb X-#Xj\  P6G;yoXP#э 47 C.F.R.  76.922(d)(3)(iv)(C).t Thereafter, any future changes in external costs greater than the rate of inflation should be allowed as adjustments to an operator's permitted charges. Adjustments to SBCMV's permitted charges should be made according to the Commission's  Y-rules for the treatment of external costs.M-*b Y-ԍ See 47 C.F.R. 76.922(d).M Therefore, SBCMV should be allowed to account for its PEG access fee as an internal cost in setting its initial regulated programming rates. The County has explicitly offered to allow SBCMV to resubmit for approval a revised FCC Form 393 that includes a PEG access fee allocation. Because the County will allow this resubmission, we remand this issue to the County for final resolution on the condition that SBCMV make every effort to provide this revised filing to the County as expeditiously as possible.  Xe- VI.Bulk Basic Rates  X7- A.` ` Background  Y -20.` ` The County has ordered SBCMV to justify all of the various bulk basic rates  Y-that it charges in the area..b X&-#Xj\  P6G;yoXP#э Bulk basic rates are discounted service rates offered to multiple dwelling units, such as apartment buildings and condominiums. The County has forewarned SBCMV that in the event that the"w.0*(( " County finds any of these rates to be unreasonable it will reduce the unreasonable rates to the lowest bulk rate offered. The County claims that it has simply prescribed an appropriate and lawful remedy that it may take in the event that SBCMV is unable to demonstrate that its current bulk rates are either grandfathered or otherwise justified under the Commission's rules. If SBCMV can demonstrate that its bulk rates are lawful, the County will release SBCMV from refund liability for these bulk rates. It is SBCMV's position that this review is unnecessary, for, irrespective of grandfathered rates already in place, it may negotiate new bulk rates as long as these new rates are uniform among Multiple Dwelling Units ("MDUs") of similar size and for contracts of similar duration.  X - B.` ` Discussion  Y -21.` ` Franchising authorities have the authority to regulate bulk basic rates to ensure  Y -compliance with the uniform rate provisions of the 1992 Cable Act.t/ b XN-#Xj\  P6G;yoXP#э Report and Order at  425.t In its Rate Order, the County informed SBCMV of its intention to regulate its bulk basic rates, the standards of review it will use, and the prospective remedy for nonconformance. The County has asked SBCMV to provide it with information that would allow the County to make a determination regarding the reasonableness of SBCMV's bulk rates, but it has not ordered SBCMV to modify any those rates. Although the County has not yet acted on SBCMV's various bulk  YK-discounts, any action the County does take must comport with our rules.0K{b Yw-ԍ 47 C.F.R.  76.984.  See also Report and Order at  421425; Third Recon. Order at  1824. Under our rules, cable operators may offer different bulk rates to MDUs of different sizes and may vary bulk rates based on the duration of the contracts, provided the operator can justify the rate  Y-differences based on relative cost savings.21b Y-ԍ Id.2 Operators must, however, offer the same rates  Y-to MDUs of the same size with contracts of similar duration.22b Yj-ԍ Id.2 Accordingly, the County may order the rates of an MDU reduced to a lower rate established by the operator for an MDU of the same size under the same conditions. The County may not, however, simply reduce all bulk rates offered by SBCMV to the lowest bulk rate. In the event the County renders a particular decision regarding SBCMV's bulk discounts that SBCMV believes is unreasonable, SBCMV will have the opportunity to appeal that decision to the Commission at the proper time. Therefore, since a decision by the Commission on this issue at this time would be premature, we remand this issue to the County for further disposition.  Y - 22.` ` Accordingly, IT IS ORDERED that all of the issues raised in the following proceedings: (1) the appeal by SBC Media Ventures, Inc. of the local Rate Order adopted by Montgomery County, Maryland; (2) the Motion for Declaratory Ruling filed by"}20*(( " Montgomery County; and (3) the pleadings regarding the County's Rate Order filed by Mr. William J. Franklin, a resident of Montgomery County, a subscriber to SBCMV's cable television service and a participant in the local ratemaking process, are consolidated into one proceeding.  Y-23.` ` IT IS FURTHER ORDERED that the appeal filed by SBC Media Ventures,  Yw-Inc. IS REMANDED .  YJ- 24.` ` IT IS FURTHER ORDERED that the provision of Montgomery County's  Y4-Rate Order governing rate discrimination IS REMANDED to the local franchising authority  Y -for further proceedings consistent with this opinion. IT IS FURTHER ORDERED that the provision of Montgomery County's Rate Order governing SBC Media Ventures' regulated  Y -hourly service charge IS REMANDED to the local franchising authority for further  Y -proceedings consistent with this opinion. IT IS FURTHER ORDERED that the provision  Y -of Montgomery County's Rate Order regarding A/B switches IS REMANDED to the local  Y -franchising authority for further proceedings consistent with this opinion. IT IS FURTHER  Y-ORDERED that Montgomery County's Rate Order regarding PEG access fees IS  Y-REMANDED to the local franchising authority for further proceedings consistent with this  Ym-opinion. IT IS FURTHER ORDERED that Montgomery County's Rate Order regarding  YW-bulk rate discounts IS REMANDED to the local franchising authority for further proceedings  YA-consistent with this opinion.  Y-25.` ` IT IS FURTHER ORDERED that the Franklin Petition for Partial Review  Y-with regard to the negativeoption billing issue IS DENIED . IT IS FURTHER ORDERED  Y-that the Franklin Petition for Partial Review with regard to the rate discrimination issue IS  Y-DENIED .  Y-26.` ` This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by Section 0.321 of the Commission's rules. 47 C.F.R. 0.321. ` `  hhCFEDERAL COMMUNICATIONS COMMISSION ` `  hhCMeredith J. Jones ` `  hhCChief, Cable Services Bureau