FOR FCC RECORD ONLY $//Vision Cable of Shelby, MO&O, DA 95-297//$ $76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-297 In the matter of ) ) Vision Cable of Shelby, Inc. ) CUID No. NC0279 (Cleveland County, NC) FCC Physical System ID No.003972 ) NC0521 (Polkville, NC) ) NC0522 (Patterson Springs, NC) ) NC0524 (Fallston, NC) ` ) NC0693 (Earl, NC) ) NC0694 (Grover, NC) ) NC0757 (Lattimore, NC) ) NC0816 (Mooresboro, NC) ) NC0839 (Belwood, NC) ) NC0843 (Casar, NC) Benchmark Filing To Support ) Cable Programming Service Price ) Memorandum Opinion and Order Adopted: February 21, 1995 Released: February 22, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the prices Vision Cable of Shelby ("Vision Cable") was charging for its cable programming service ("CPS") tiers in Cleveland County, North Carolina, CUID No. NC0279; Polkville, North Carolina, CUID No. NC0521; Patterson Springs, North Carolina, CUID No. NC0522; Fallston, North Carolina, CUID No. NC0524; Earl, North Carolina, CUID No. NC0693; Grover, North Carolina, CUID No. NC0694; Lattimore, North Carolina, CUID No. NC0757; Mooresboro, North Carolina, CUID No. NC0816; Belwood, North Carolina, CUID No. NC0839; and Casar, North Carolina, CUID No. NC0843. Vision Cable has chosen to attempt to justify its prices through a benchmark showing on FCC Form 393. This order addresses the reasonableness of Vision Cable's prices only through May 14, 1994. As discussed below and based on the entire record before the Commission in this proceeding, we conclude that the CPS prices in effect for the period under review are not justified under the benchmark showing. At a later date we will issue a separate order addressing the reasonableness of the prices after that date. 2. Under the Cable Television Consumer Protection and Competition Act of 1992, and our rules implementing it, 47 C.F.R. Part 76, Subpart N, the Commission must review CPS prices upon the filing of a valid complaint. The filing of a valid complaint triggers an obligation on behalf of the cable operator to file a justification of its CPS prices. Under our rules, an operator may attempt to justify its prices through either a benchmark showing or a cost-of-service showing. In either case, the operator has the burden of demonstrating that its CPS prices are not unreasonable. 3. The Commission's original rate regulations took effect on September 1, 1993. The Commission subsequently revised its rate regulations effective May 15, 1994. Operators with valid CPS complaints filed against them prior to May 15, 1994 must demonstrate that their CPS prices were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that their prices were in compliance with the revised rules from May 15, 1994 forward. Operators attempting to justify their prices for the period prior to May 15, 1994 through a benchmark showing must complete and file FCC Form 393. Generally, to justify their prices for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. Procedural Matters 4. The first valid CPS complaints for the franchise areas addressed in this order were completed and served on Vision Cable and received by the Commission on the dates set forth in Appendix A. 5. Vision Cable submitted its initial CPS price justification for each of the franchise areas addressed in this order through identical FCC Forms 393 filed on January 18, 1994. Vision Cable supplemented its filings on June 21, 1994 in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally by submitting a system-wide filing that included each franchise area in which a complaint was pending. The record indicates that the CUIDs addressed here constitute ten separate franchise areas but are served through a single cable system, that Vision Cable charges the same prices for all rate-regulated cable services and associated equipment in each franchise area, and that Vision Cable offers the same channel line-ups in all ten areas. Because there are no significant distinctions among Vision Cable's services and rates in these ten areas, we will permit these rates to be justified through a single Form 393 filing. Vision Cable supplemented its Form 393 filings on February 7, 1995 in response to a Cable Services Bureau Public Notice offering operators the opportunity to make optional supplemental filings. Discussion 6. Vision Cable asserts that its monthly price of $11.75 per subscriber for the Cable Service Tier is justified by its benchmark filing because its price is equal to the maximum permitted charge of $11.75 as calculated in the benchmark filing made on June 21, 1994. Vision Cable did not attempt to justify its monthly prices of $.60 per subscriber for the SuperStation Package and $3.50 per subscriber for the Preferred Service Package in the benchmark filing of June 21, 1994. In Vision Cable's amended filing of February 7, 1995, Vision Cable calculated maximum permitted prices of $12.83 for the Cable Service Tier and $2.33 for the SuperStation Package and $1.75 for the Preferred Service Package. However, upon review of the entire record, we have determined that Vision Cable has not correctly calculated its maximum permitted prices, and it is therefore appropriate to make the following adjustments to Vision Cable's calculations in its June 21, 1994 Form 393: a. In Column G of Schedules A and C of Part III of its FCC Form 393, Vision Cable did not correctly gross-up its tax entries. By placing entries in these columns, Vision Cable confirms that it is a tax-paying entity (i.e., a "C" corporation). However, Vision Cable incorrectly calculated its income tax by simply applying the corporate tax rate to its return on investment. The Commission has stated that tax- paying business entities must gross-up their tax entries in Column G of Schedules A and C (i.e., calculate the tax as a percentage of return on investment plus tax). By understating its tax entries in Column G, an operator reduces its effective rate of return on equipment and installations and thereby could increase its CPS price. We therefore recalculate Column G of Schedules A and C (and subsequent steps) using correctly adjusted tax entries. b. In its calculations on Form 393, Part I, and Form 393, Part II, Worksheet 1, Vision Cable did not count as rate-regulated or as satellite channels seven channels that it offered as part of two a la carte packages of channels available either as packages or individually. The information before the Commission concerning Vision Cable's a la carte packages for the cable system serving CUID Nos. NC0279, NC0521, NC0522, NC0524, NC0693, NC0694, NC0757, NC0816, NC0839, and NC0843 shows that Vision Cable restructured its cable service offerings in these ten franchise areas in the same manner that it restructured its cable services and prices in the system serving the City of Charlotte and Mecklenburg County, North Carolina, where we have determined that the channels in the SuperStation Package and Preferred Service Package should be treated as rate-regulated service tiers. Prior to September 1, 1993, three of the channels in the SuperStation Package (WTBS, WOR, and WGN) were offered as part of the Basic Tier and one channel (TNT) was part of the Cable Service Tier; the channels in the Preferred Service Package (SportsSouth, Sci-Fi, and Country Music TV) were previously offered as part of a separate Preferred Service Tier. Consistent with the Commission's decision in the Mecklenburg County case, the SuperStation Package and the Preferred Service Package should have been treated as rate-regulated service tiers. Vision Cable's a la carte offerings in this case are identical to the Mecklenburg County case, except in this case Vision Cable's Preferred Service a la carte package contained only three channels rather than four channels. The difference in the packages, however, is inconsequential and the material facts are indistinguishable. Vision Cable's maximum permitted prices are therefore determined by including the seven channels of the SuperStation and Preferred Service Packages as additional CPS tiers, increasing the total rate-regulated channels from 31 to 38 and the total satellite channels from 19 to 26. This adjustment is consistent with the information that Vision Cable included in its amendment on February 7, 1995. c. Vision Cable submitted additional information in response to the Commission's inquiry which revised upward the number of non-addressable converters leased to subscribers as of the initial date of regulation. This change caused corresponding increases in the gross book value of converters and other figures which must be reported on Form 393, Part III, Schedule C. We have recalculated Schedule C (and subsequent steps) to reflect Vision Cable's revised estimate of the number of non-addressable converter units leased to subscribers. d. Vision Cable's Form 393, Worksheet 1, Line 104 entry does not represent its current monthly equipment revenue as of the initial date of regulation. Vision Cable should have entered on line 104 the monthly equipment revenue figure it entered on Line 34 of Step G of Part III. Accordingly, we have recalculated Worksheet 1 using the correct entry. 7. Because of these errors, we conclude that Vision Cable has failed to demonstrate that its prices for the CPS tiers were not unreasonable. We will therefore set prices for these tiers incorporating the adjustments discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheet 1. On its amended Form 393, Vision Cable calculated the Inflation Adjustment Factor using data it relied on when it set its CPS prices. If based on this data Form 393 indicated that Vision Cable's prices were reasonable, then Vision Cable would have successfully justified its prices under paragraph 94 of the Third Order on Reconsideration. However, Vision Cable has not shown that its prices were reasonable, so we must recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date that Vision Cable timely filed Form 393 in each franchise area. On July 29, 1994, the U.S. Department of Commerce released corrected inflation data including Gross National Product Price Index ("GNP-PI") figures of 122.3 for the third quarter of 1992 and 126.5 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor of 1.034 through December 1993. 8. These adjustments have the cumulative effect of reducing the maximum permitted monthly price for the Cable Service Tier from $11.75 (as Vision Cable calculated in the benchmark filing on June 21, 1994) to $10.05. These adjustments further result in maximum permitted prices of $2.23 for the SuperStation Package and $1.68 for the Preferred Service Package. Conclusions 9. Upon review of the record herein, we conclude that Vision Cable's showing supports maximum reasonable CPS tier prices of $10.05 for the Cable Service Tier, $2.23 for the SuperStation Package, and $1.68 for the Preferred Service Package, (plus franchise fees), for the period from January 3, 1994 to May 14, 1994. We further determine that we will order an appropriate refund pursuant to Section 76.957 of the Commission's Rules, 47 C.F.R.  76.957, in order to reimburse subscribers for the amount they paid in excess of a reasonable price. 10. We further conclude that Vision Cable must reflect in its FCC Form 1200 rate filings for the period after May 14, 1994 the fact that Vision Cable's prices during the earlier period were unreasonable. We reserve the right to make further adjustments to Vision Cable's prices for the period after May 14, 1994, upon completion of our review of Vision Cable's FCC Form 1200 rate filings. 11. We further conclude that Vision Cable has submitted in good faith a timely optional supplemental filing in response to our December 29, 1994 Public Notice. As provided in the Public Notice, we will relieve Vision Cable of its obligation to obtain advance Commission approval of adjustments to its CPS prices for one year following the release of this order. 12. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the complaints referred to in Appendix A against the cable programming service prices charged by Vision Cable of Shelby, Inc. in Cleveland County, North Carolina, CUID No. NC0279; Polkville, North Carolina, CUID No. NC0521; Patterson Springs, North Carolina, CUID No. NC0522; Fallston, North Carolina, CUID No. NC0524; Earl, North Carolina, CUID No. NC0693; Grover, North Carolina, CUID No. NC0694; Lattimore, North Carolina, CUID No. NC0757; Mooresboro, North Carolina, CUID No. NC0816; Belwood, North Carolina, CUID No. NC0839; and Casar, North Carolina, CUID No. NC0843, and all other complaints in these franchise areas related to the same prices, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 13. IT IS FURTHER ORDERED that the benchmark filings submitted by Vision Cable of Shelby, Inc. with respect to Cleveland County, North Carolina, CUID No. NC0279; Polkville, North Carolina, CUID No. NC0521; Patterson Springs, North Carolina, CUID No. NC0522; Fallston, North Carolina, CUID No. NC0524; Earl, North Carolina, CUID No. NC0693; Grover, North Carolina, CUID No. NC0694; Lattimore, North Carolina, CUID No. NC0757; Mooresboro, North Carolina, CUID No. NC0816; Belwood, North Carolina, CUID No. NC0839; and Casar, North Carolina, CUID No. NC0843, for the period beginning January 3, 1994 and ending on May 14, 1994 justify maximum monthly prices for Vision Cable of Shelby, Inc.'s Cable Programming Service Tiers of $10.05 (plus franchise fee) for the Cable Service Tier , $2.23 (plus franchise fee) for the SuperStation Package, and $1.68 (plus franchise fee) for the Preferred Service Package. 14. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R.  76.961, that Vision Cable of Shelby, Inc. shall refund to subscribers that portion of the amounts paid for cable programming service for the period from January 3, 1994 to May 14, 1994 which exceeded $10.05 per month (plus franchise fee) for the Cable Service Tier and $2.23 per month (plus franchise fee) for the SuperStation Package and were thus unreasonable, offset in each franchise area by the amounts paid by each subscribers during the same period for cable programming service tiers which were less than the maximum permitted price, plus interest to the date of the refund. 15. IT IS FURTHER ORDERED that Vision Cable of Shelby, Inc. shall promptly determine the overcharges to CPS subscribers for the stated periods, and shall within 30 days of the release of this Order file a report with the Chief, Cable Services Bureau, stating the cumulative refund amount so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refund within 60 days of Commission approval thereof. 16. IT IS FURTHER ORDERED, pursuant to Section 76.922(b)(4)(C) of the Commission's rules, 47 C.F.R.  76.922(b)(4)(C), that Vision Cable of Shelby, Inc. shall, within 30 days of the release of this Order, revise its Form 1200 filings with respect to Cleveland County, North Carolina, CUID No. NC0279; Polkville, North Carolina, CUID No. NC0521; Patterson Springs, North Carolina, CUID No. NC0522; Fallston, North Carolina, CUID No. NC0524; Earl, North Carolina, CUID No. NC0693; Grover, North Carolina, CUID No. NC0694; Lattimore, North Carolina, CUID No. NC0757; Mooresboro, North Carolina, CUID No. NC0816; Belwood, North Carolina, CUID No. NC0839; and Casar, North Carolina, CUID No. NC0843, for the period beginning May 15, 1994, to include the SuperStation Package and the Preferred Service Package as Cable Programming Service tiers and to reduce the monthly charge per tier as of March 31, 1994 for Tier 2 (Line A6b) to equal the maximum price for these franchise areas (plus franchise fee). 17. IT IS FURTHER ORDERED that Vision Cable of Shelby, Inc. shall place into effect, within 30 days after its submission of the revised Form 1200 filings required above, prices that reflect the reductions in the CPS rates determined in this Order. 18. IT IS FURTHER ORDERED, pursuant to Section 76.960 of the Commission's rules, 47 C.F.R.  76.960, that Vision Cable of Shelby, Inc. shall not be required to obtain advance Commission approval of adjustments to its CPS prices for one year following the release of this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau Appendix A CUID No. Date First Complaint Date Complaint Filed with FCC Served NC0279 01/03/94 12/28/93 NC0521 01/03/94 12/28/93 NC0522 01/03/94 12/28/93 NC0524 01/03/94 12/28/93 NC0693 01/03/94 12/30/93 NC0694 01/03/94 12/28/93 NC0757 01/03/94 12/28/93 NC0816 01/03/94 12/28/93 NC0839 01/03/94 12/28/93 NC0843 01/03/94 12/28/93