FOR RECORD ONLY $//MO&O, Comcast Cablevision, Tallahassee, FL, DA 95-61//$ $/76.981 Negative option billing/$ $/a la carte orders/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-61 In the Matter of: ) ) Comcast Cablevision, ) LOI-93-2 Tallahassee, Florida ) ) Letter of Inquiry - Negative Option ) Billing Issue MEMORANDUM OPINION AND ORDER Adopted: January 19, 1995 Released: January 20, 1995 By the Chief, Cable Services Bureau I. Introduction 1. In a letter dated September 16, 1993, the City of Tallahassee alleged that Comcast Cablevision ("Comcast") violated Commission regulations governing the provision of cable television service arising from Comcast's Tallahassee offerings. In response to this complaint, the Commission issued this Letter of Inquiry 93-2 ("LOI") to Comcast on November 17, 1993. The LOI requested Comcast to provide information concerning, among other issues, compliance with the Communications Act's prohibition on negative option billing. 2. We conclude that Comcast's conduct, during the time period addressed by the LOI, with regard to automatically subscribing its customers to (a) individual a la carte channels or an a la carte package, depending upon their previous level of service, and (b) a wire maintenance service plan, did not violate the negative option billing provisions of federal law. II. Facts 3. Beginning September 1, 1993, Comcast restructured its channel offerings on its cable system in Tallahassee, Florida. Prior to September 1, Comcast offered a 13 channel basic tier and a 20 channel cable programming service tier. After September 1, one channel from the basic tier, WTBS, was offered to subscribers on an optional basis for $.33 per month. In addition, three channels from the cable programming service tier, TNT, The Family Channel and The Nashville Network, were offered on an optional basis for $.33 a month each, with the exception of TNT, which was offered at $.49 per month. These four channels were also available as a package for $.65 called "Value Pac". Subscribers to the basic tier continued to receive the same channels after September 1 that they had received prior to September 1. The same was true for subscribers taking the cable programming service tier. Bills for programming services for subscribers to both the basic and cable programming service tiers that did not affirmatively request elimination of any of the new options did not increase in total price from pre-September 1 rates. Comcast states that subscribers were informed of the prices for its a la carte services in an August 1993 advertisement in The Democrat, a local newspaper. In addition, in its first post-September 1 bill, Comcast included a pamphlet informing subscribers that such services were optional and could be cancelled by telephone. 4. Also beginning on September 1, 1993, Comcast unbundled its programming service rates from equipment charges. Comcast states that prior to September 1, it provided unlimited customer premises visits, regardless of the cause or source of the problem, at no additional charge to its customers. It states that after September 1, it calculated the actual cost for providing these service calls to determine a monthly charge of $.45 for wire maintenance, which was itemized separately on customer bills. Comcast states the subscribers were informed of the wire maintenance plan in August 1993 advertisements in The Tallahassee Democrat, a local newspaper. In addition, Comcast states that subscribers received a pamphlet with their first bill after September 1, 1993, explaining that the wire maintenance plan was optional and would cover in-home service visits for non-company owned equipment and wiring. Comcast further states that the pamphlet informed subscribers that they could cancel the wire maintenance service by telephone but, if they did so, would be charged an hourly service charge of $25.66 for any service calls. III. Background 5. In the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), Congress created a process for regulating cable programming and equipment rates. Section 3(f) of the 1992 Cable Act adds a new provision to the Communications Act which states that "[a] cable operator shall not charge a subscriber for any service or equipment that the subscriber has not affirmatively requested by name." It further specifies that "a subscriber's failure to refuse a cable operator's proposal to provide such service or equipment shall not be deemed to be an affirmative request for such service or equipment." This prohibited billing practice is commonly referred to as negative option billing. 6. In the Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket 92-266, Report and Order and Further Notice of Proposed Rulemaking, ("Rate Order") implementing this Section of the 1992 Cable Act, the Commission explained that the prohibition against negative option billing applies to "additions of a new tier of service or a new single channel of service without the affirmative assent of a subscriber." It added, however, that the negative option billing provision does not apply to "a change in the mix of channels in a tier, including additions or deletions of channels . . . unless they change the fundamental nature of the tier" or to rate increases unless the price change is accompanied by a fundamental change in service, such as the addition of a new tier. Further, it stated that restructuring of tiers and equipment will not bring the prohibition into play if the subscribers continue to receive the same number of channels and the same equipment unless the restructuring effects a fundamental change in the nature of the service. 7. The rule adopted, with subsequent revisions, states: Section 76.981 Negative Option Billing (a) A cable operator shall not charge a subscriber for any service or equipment that the subscriber has not affirmatively requested by name. A subscriber's failure to refuse a cable operator's proposal to provide such service or equipment is not an affirmative request for service or equipment. A subscriber's affirmative request for service or equipment may be made orally or in writing. (b) The requirements of paragraph (a) of this Section shall not preclude the adjustment of rates to reflect inflation, cost of living and other external costs, the addition or deletion of a specific program from a service offering, the addition or deletion of specific channels from an existing tier of service, or the restructuring or division of existing tiers of service, or the adjustment of rates as a result of the addition, deletion or substitution of channels pursuant to Section 76.922 of this Subpart, provided that such changes do not constitute a fundamental change in the nature of an existing service or tier of service and are otherwise consistent with applicable regulations. (c) State and local governments may not enforce state and local consumer protection laws that conflict with or undermine paragraph (a) or (b) of this Section or any other sections of this Subpart that were established pursuant to Section 3 of the 1992 Cable Act, 47 U.S.C. 543. IV. Discussion A. Restructured Services Offerings 8. The 1992 Cable Act provides that "[a] cable operator shall not charge a subscriber for any service or equipment that the subscriber has not affirmatively requested by name." Subscribers to the Comcast system did not receive any channel not affirmatively requested. After the changes in question, subscribers received the same number of channels they had originally ordered and the same programming services. Comcast's bills to subscribers contained a separate itemization for the package of WTBS, TNT, The Family Channel and The Nashville Network separate from the charges for the basic and standard tiers. Thus the issue remains whether the unbundling or subdivision of existing offerings into smaller component parts, each with different names or designations, precludes subscribers from being billed for those parts that were not specifically named when service initially was requested. After careful review, we conclude that Comcast's conduct that is the subject of this LOI does not violate the negative option billing provisions of the statute or the Commission's rules. 9. Comcast asserts that these new packages and individual channels offerings are not new services but are simply part of "restructured" or "retiered" offerings of channels that subscribers were receiving prior to the "restructuring." It argues that it followed Commission rules which do not apply the negative option billing prohibition to restructuring that does not result in a fundamental change in the nature of existing tiers of service. In the Rate Order, in which 47 C.F.R.  76.981 initially was adopted, the Commission specifically considered whether subdivision of services in implementing the rate regulation provisions of the 1992 Cable Act would conflict with the negative option restriction. The rule adopted specifically exempts "the restructuring or division of existing tiers of service, . . . provided that such changes do not constitute a fundamental change in the nature of an existing service or tier of service and are otherwise consistent with applicable regulations." In formulating this rule, the Commission had been asked to hold that splitting an existing basic tier into a new basic and an expanded basic tier in association with a rate increase would conflict with the negative option billing restriction. The Commission determined that, "restructuring of tiers and equipment, including restructuring appropriate for implementing the Cable Act's provisions, will not bring the negative option billing provision into play if subscribers will continue to receive the same number of channels and the same equipment." An objection to this approach based on a concern that revenue-neutral changes might result in programming being switched to a deregulated tier was rejected. These statements are directly applicable to the type of restructuring undertaken by Comcast. 10. The Commission's rule is based on the reasonable interpretation of the statute. Of course, the statute could be read to require affirmative consent prior to any change in service, no matter how minor. But in the Commission's view, such an interpretation would contravene Congressional intent and the underlying purposes of the federal cable rate regulations. The Conference Report on the 1992 Cable Act made clear that the federal negative option billing provision was "not intended to apply to changes in the mix of programming services that are included in various tiers of cable service." Thus, Congress never intended for Section 3(f) -- the negative option billing prohibition -- to apply to every programming change. Moreover, if Section 3(f) were read that broadly, it would thwart a primary purpose of the cable rate rules: "encourag[ing] the provision of new services that subscribers desire at the reasonable rates mandated by Congress." In light of the legislative history and purpose of the 1992 Cable Act, the Commission concluded that Section 3(f) does not apply to minor restructuring of an existing tier. Moreover, and particularly with respect to the retiering that occurred in 1993 upon the initiation of rate regulation pursuant to the 1992 Cable Act, the Commission concluded in 47 C.F.R.  76.981 that affirmative consent is not required prior to restructuring or division of existing tiers of service that do not result in a fundamental change in the nature of an existing service or tier of service. 11. This interpretation of Commission rules, we believe, protects the interests of subscribers in not being billed for services they have not requested and is necessary to reconcile this provision of the 1992 Cable Act with the rate regulation provisions also adopted therein. The language of Section 3(f) is logically read as permitting subscribers to be billed for a bundle of services "affirmatively ordered by name" even if the name of the service has subsequently changed or that package has been unbundled into smaller component parts; the service received remains the service ordered by name. The words of the section are fairly read as meaning that the purchaser receives what was ordered and not that the name of the service delivered remains unchanged. A different reading could well result in the abrupt withdrawal of service, a result that would be inconsistent with the rate regulation and consumer protection objectives of this section. 12. Further, we believe this is one of those situations that the Commission has previously referenced where state and local officials "may not enforce negative option billing rules that would obstruct the accomplishment of the objectives of Congress's cable rate provisions." The Commission specifically contemplated that, as part of the process of complying with the initial introduction of rate regulation, cable operators would have the flexibility and in some cases be required to retier, divide, or unbundle their service offerings on a faster than usual schedule without complying, for example, with notice or other requirements generally applicable. 13. The concern of Section 3(f) as a consumer protection mechanism is that subscribers not be billed for services that they never ordered. The restrictions of this provision protect subscribers from having to take on the burden of identifying and negatively responding to charges for services that appear on a bill that are not desired and for which no request has been made. It protects subscribers both from inadvertent payment of such charges and from becoming contractually bound for them. Thus, when the service received is not altered, but rather is simply unbundled, the above interpretation is consistent with the achievement of this objective. It protects subscribers from receiving what has not been ordered; but it does not mandate cutting off what has been ordered. To cut off service requested offends the contractual relationship between buyer and seller as much as does adding service not requested. This is especially true when the restoration of service that has been terminated imposes an additional expense on the subscriber for termination or resubscription charges. 14. While we conclude that there was no violation of the prohibition against negative option billing here, we note that the restructuring done in this case by Comcast was necessarily done in a situation occasioned by the inception of rate regulation where time was short due to statutory deadlines leading to fundamental industry change. In contrast, creation of new product tiers, (tiers specifically provided for in the Sixth Order on Reconsideration that may be made up of channels that were offered on the basic or cable programming service tiers for a period of time) will come in a more settled environment where operators will be able to take the time necessary to accomplish effective affirmative marketing. Accordingly, Commission rules expressly provide for the affirmative marketing of new product tiers. B. Wire Maintenance Service Plan 15. The Commission's rules under the 1992 Cable Act required a variety of changes in the nature of the services to be marketed by cable operators. One such change is the requirement to unbundle equipment and installation from programming. The Commission stated "unbundling rates for equipment, installation, and additional outlets from the rates for basic service best comports with our Congressional mandate." Because the statute sets out different standards for evaluating equipment and basic cable service rates the Commission required that the rates for each must be unbundled from each other. Section 76.923(b) of the rules states "[a] cable operator shall establish rates for remote control units, converter boxes, other customer equipment, installation, and additional connections separate from rates for basic tier service. In addition, the rates for such equipment and installations shall be unbundled one from the other." 16. While the reasonableness of an operator's equipment and service charges is within the jurisdiction of the local franchise authority, here the issue is solely whether Comcast complied with the negative option billing prohibition when it billed its customers for the wire maintenance plan. Comcast claims that prior to September 1, 1993, wire maintenance service was included in Comcast's charges for the basic service tier. After September 1, 1993, Comcast charged subscribers separately for a wire maintenance service plan priced at $.45 per month. We believe that Comcast's separate itemization of this charge on subscriber bills was simply compliance with Commission rules requiring unbundling. Comcast's subscribers continued to receive the same level of service before and after Comcast unbundled its equipment rates. In light of this and our analysis above of Comcast's tier restructuring, we conclude that Comcast, with respect to its wire maintenance service plan, did not violate the federal negative option billing restrictions, Section 3(f) of the 1992 Cable Act. V. Ordering Clauses 17. Accordingly, IT IS CONCLUDED that Comcast Cablevision of Tallahassee, Florida has not, with respect to its restructured service offering billing practices, violated Section 623(f) of the Communications Act of 1934, as amended, 47 U.S.C.  543(f), or Section 76.981 of the Commission's rules, 47 C.F.R.  76.981. 18. IT IS FURTHER CONCLUDED that Comcast Cablevision of Tallahassee, Florida has not, with respect to its wire maintenance service plan, violated Section 623(f) of the Communications Act of 1934, as amended, 47 U.S.C.  543(f), or Section 76.981 of the Commission's rules, 47 C.F.R.  76.981. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau