FOR FCC RECORD ONLY $//MO&O, HORRY TELEPHONE COOP, INC., DA 95-68//$ $/UPGRADE INCENTIVE PLAN/$ Before the FEDERAL COMMUNICATIONS COMMISSION DA 95-68 Washington, D.C. 20554 In the Matter of) ) Horry Telephone Cooperative, Inc. and ) C294-PP0002-UP Horry County, South Carolina ) ) Petition for Approval of ) Upgrade Incentive Plan) MEMORANDUM OPINION AND ORDER Adopted: January 20 , 1995 Released: January 20 , 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. In this Order we grant the Upgrade Incentive Plan of Horry Telephone Cooperative, Inc. (HTC) and Horry County, South Carolina (Horry County). HTC and Horry County (hereinafter referred to jointly as the "Parties") filed a joint petition for approval of their Upgrade Incentive Plan Agreement on August 9, 1994; the joint petition was placed on public notice, and a pleading cycle established. No comments were received. At the Bureau staff's request, HTC provided supplemental information including estimated costs of the proposed upgrade, and a cost recovery plan on October 31, 1994. II. BACKGROUND 2. In its March 1994 Order (Cost Order) establishing interim regulations for cost of service filings, the Commission adopted on an experimental case-by-case basis an Upgrade Incentive Plan to provide an opportunity for developing a type of "social contract" between customers and operators under which rates for existing services are frozen or limited to changes permitted by the benchmark/price cap approach, while the quality of service is at least maintained if not increased. Operators are then allowed substantial pricing flexibility for new services and capabilities. Such plans are to remain in effect for a fixed period, and offer the operator an opportunity to earn higher profits as an incentive and reward for successful innovations. The Commission intended that such plans would provide greater assurance of reasonable, stable rates to customers for existing services, while also generating profit incentives to operators to upgrade their systems in cost-effective ways that would benefit subscribers. III. DISCUSSION 3. HTC is a non-profit, cooperative that provides cable television to approximately 14,800 member/subscribers in unincorporated areas within the cable franchising jurisdiction of Horry County. Since February 13, 1994, Horry County has been certified to regulate the basic tier rates of HTC. On August 8, 1994, HTC and Horry County entered into the Upgrade Incentive Plan Agreement and filed a joint petition for approval of the Upgrade Incentive Plan Agreement with the Commission. 4. In their joint Petition the Parties state that over an approximately two-year period, HTC will invest more than $8 million to install approximately 200 miles of fiber optic plant throughout its existing Horry County cable system and to increase the bandwidth of these systems from 220 MHz to 550 MHz. HTC and Horry County state that the upgrades will substantially improve the signal quality available to member/subscribers and will increase the number of available premium and non-premium program services from 22 to 47. 5. The Parties indicate that the upgraded 550 MHz system will offer member/subscribers a 14-channel basic service tier at a monthly charge of $10.00, a 26 channel cable programming service tier at a monthly charge of $12.50, five non-regulated premium channels, and two non-regulated pay per view channels. HTC and Horry County state that the system upgrade will replace the existing 220 MHZ system which offers member/subscribers a single 19 channel basic service tier at a monthly charge of $15.50, plus three non-regulated premium channels. The Parties stated that a smaller basic service tier (14 channels rather than 19 channels) will be offered on the upgraded 550 MHz system in response to request by member/subscribers for a limited, low-cost basic tier similar to those provided by neighboring cable systems. The Parties further submit that HTC's Board of Directors, which is elected by the member/subscribers to represent their interests, have unanimously approved the upgrade plan. 6. The Parties state that customers' rates set for the 220 MHz system basic service tier ($15.50) will be frozen until such time as the upgrade is completed in their area and they are cut over to the 550 MHz system. The rates for the 550 MHz system 14 channel basic service tier ($10.00) and the 26 channel cable programming service tier ($12.50) will be frozen until such time as the entire upgrade is completed and all member/subscribers have been transferred to the 550 MHz system. Thereafter, the Upgrade Incentive Agreement provides that after the upgrade is completed, and all member/subscribers have been transferred to the 550 MHz system, HTC will be permitted to modify its basic service tier and cable programming service tier rates in accordance with the Commission's cable television price cap mechanism, subject to appropriate Horry County and Commission review. Furthermore, the Parties stated that HTC's installation and lease charges for equipment used by member/subscribers to receive regulated services will be unbundled and based upon actual cost in accordance with the calculations set forth in FCC Form 1205. Finally, the Parties indicate that the Upgrade Incentive Plan will remain in effect for four years, until August 8, 1998. 7. HTC supplemental filing of its cost and cost recovery plan for the proposed upgrade estimated that its revenue requirement for recovery of total system cost, upon completion of the upgrade project, will be $4,800,000 and that these costs will be allocated among the basic tier ($1,888,043), the cable programming service tier ($2,329,891) and the non-regulated services ($582,065). In its supplemental filing HTC did not disclose its method of allocation; however, the Commission sees no reason to suspect it is not reasonable, given the fact that HTC is a non-profit organization, that the Board of Directors is comprised of subscribers who are elected by subscribers, and that the system is subscriber owned. In addition, the fact that Horry County, the local franchising authority, joined in the petition for upgrade approval lends additional credence to the fact that HTC's estimates are reasonable. We will not second guess these judgments here. 8. Based on the pleadings in this proceeding, we find that the Parties' petition for approval of their Upgrade Incentive Plan complies with the objectives set forth in the Cost Order. The upgrades will directly benefit member/subscribers by improving the signal quality available and by increasing the number of available premium and non-premium program services from 22 to 47; the composition and price of HTC's current basic service tier will be frozen for the duration of the upgrade; upgrade rate increase will not be assessed on member/subscribers until the upgrade is complete and providing benefits to customers of the regulated services. In addition, the Upgrade Incentive Plan has the full support of the local franchising authority, Horry County. 9. It is our belief that by approving this Upgrade Incentive Plan we encourage upgrades that provide additional service tiers that are economically justified and that best meet customers' needs. In addition, approval of this plan will reduce regulatory burdens on all parties. Therefore, we find this plan to be in the public interest and approve it. IV. CONCLUSION 10. Accordingly, IT IS ORDERED that the Upgrade Incentive Plan between Horry Telephone Cooperative, Inc., and Horry County, South Carolina, IS APPROVED. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau