FOR FCC RECORD ONLY $//Vision Cable of Wilmington, Inc., MO&O, DA 95-298//$ $76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-298 In the matter of ) ) Vision Cable of Wilmington, Inc. ) CUID No. NC0016 (Wilmington, NC) FCC Physical System ID No. 007255 ) NC0041 (Wrightsville Beach, NC) ) NC0140 (New Hanover, NC) ) NC0692 (Navassa, 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 Wilmington, Inc. ("Vision Cable") was charging for its Cable Programming Service ("CPS") Tiers in North Carolina, for CUID Nos. NC0016, NC0041, NC0140, and NC0692. 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 through an FCC Form 393 filed on November 19, 1993 in response to the earliest valid complaint filed with the Commission for Wilmington, North Carolina (CUID No. NC0016). Vision Cable supplemented its filings on April 19, 1994 and 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 four 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 four areas. Because there are no significant distinctions among Vision Cable's services and rates in these four areas, we will permit these rates to be justified through a single Form 393 filing. Vision Cable supplemented its Form 393 filings on December 21, 1994, in response to the Commission's letter and telephone call which requested further clarification of its amended showing, and 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 $14.56 per subscriber for the Cable Service Tier is justified by its benchmark filing because its price is equal to the maximum permitted charge of $14.56 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 $12.56 for the Cable Service Tier and $2.17 for the SuperStation Package and 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 eight 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. NC0016, NC0041, NC0140, and NC0692 shows that Vision Cable restructured its cable service offerings in these four 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 four channels in the Preferred Service Package (Sci-Fi, The Comedy Channel, The Cartoon channel, and Country Music TV) were previously offered as 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 created the Preferred Service a la carte package using The Comedy Channel and The Cartoon Channel rather than the Comedy Central Channel and the SportsSouth Channel. 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 eight channels of the SuperStation and Preferred Service Packages as additional CPS tiers, increasing the total rate-regulated channels from 32 to 40 and the total satellite channels from 26 to 34. 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 should have 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, 125.7 for the third quarter of 1993, and 126.5 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate Inflation Adjustment Factors of 1.030 through October 1993 for CUID No. NC0016, 1.032 through November 1993 for CUID No. NC0140, and 1.034 through December 1993 for CUID Nos. NC0041 and NC0692. 8. These adjustments have the cumulative effect of reducing the maximum permitted monthly price for the Cable Service tier from $14.56 (as Vision Cable calculated in its benchmark filing on June 21, 1994) to the amounts set forth in Appendix B. These adjustments further result in the maximum permitted prices set forth in Appendix B for the SuperStation Package and the Preferred Service Package. Conclusions 9. Upon review of the record herein, we conclude that Vision Cable's showing supports the maximum reasonable CPS tier prices set forth in Appendix B (plus franchise fee) for the period from the filing of the earliest complaint in each franchise area (as set forth on Appendix A) 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 Wilmington, Inc. in Wilmington, North Carolina, CUID No. NC0016; Wrightsville, North Carolina, CUID No. NC0041; New Hanover, North Carolina, CUID No. NC0140; and Navassa, North Carolina, CUID No. NC0692, 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 Wilmington, Inc. with respect to Wilmington, North Carolina, CUID No. NC0016; Wrightsville, North Carolina, CUID No. NC0041; New Hanover, North Carolina, CUID No. NC0140; and Navassa, North Carolina, CUID No. NC0692, for the period beginning with the filing of the first valid complaint in each franchise area and ending on May 14, 1994, as set forth on Appendix A, justify the maximum prices in each franchise area set forth in Appendix B (plus franchise fee) for Vision Cable of Wilmington, Inc.'s Cable Programming Service Tiers. 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 Wilmington, Inc. shall refund to subscribers that portion of the amounts paid for cable programming service for the period from the filing of the first valid complaint in each franchise area (as set forth on Appendix A) to May 14, 1994 which exceeded the maximum price for each franchise area set forth in Appendix B (plus franchise fee) per month 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 Wilmington, 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 Wilmington, Inc. shall, within 30 days of the release of this Order, revise its Form 1200 filings with respect to Wilmington, North Carolina, CUID No. NC0016; Wrightsville, North Carolina, CUID No. NC0041; New Hanover, North Carolina, CUID No. NC0140; and Navassa, North Carolina, CUID No. NC0692, 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 prices in each franchise area set forth in Appendix B (plus franchise fee). 17. IT IS FURTHER ORDERED that Vision Cable of Wilmington, 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 Wilmington, 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 NC0016 11/01/93 10/25/93 NC0041 01/03/94 12/30/93 NC0140 11/08/93 11/03/93 NC0692 01/03/94 12/28/93 Appendix B Maximum Permitted Rates Preferred CUID No. Cable Service SuperStationService NC0016 $12.46 $2.17 $2.17 NC0041 $12.51 $2.18 $2.18 NC0140 $12.49 $2.17 $2.17 NC0692 $12.51 $2.18 $2.18