FOR FCC RECORD ONLY $//Vision Cable of North Carolina, MO&O, DA 95-299//$ $76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-299 In the matter of ) ) Vision Cable of North Carolina, Inc. ) CUID No. NC0405 (Mecklenburg County, NC) FCC Physical System ID No. 010777 ) NC0505 (Pineville, NC) ) NC0691 (Matthews, NC) ) NC0755 (Charlotte, NC) Benchmark Filing To Support ) SC0372 (Lancaster County, SC) 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 North Carolina, Inc. ("Vision Cable") was charging for its Cable Programming Service ("CPS") Tiers for CUID Nos. NC0405, NC0505, NC0691, NC0755, and SC0372. 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 15, 1993 in response to the earliest valid complaint filed with the Commission for Charlotte, NC (CUID No. NC0755). Vision Cable submitted identical benchmark justifications in response to complaints for each of the other franchise areas included in this Order on January 27, 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 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 of these franchise areas, 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. In response to the Public Notice, Vision Cable submitted a revised Part II form 393 for the franchise areas in which a complaint are pending. Discussion 6. In the June 21, 1994 benchmark filing, Vision Cable asserts that its monthly price of $13.31 per subscriber for the Cable Services Tier is justified by its benchmark filing because its price is equal to the maximum permitted charge of $13.31 as calculated in the filing. Vision Cable's amendment to the benchmark filing on February 7, 1995 asserts that is revised monthly price of $11.52 per subscriber for the Cable Service Tier is justified because its price is equal to the maximum permitted charge. Vision Cable did not attempt to justify its monthly prices of $1.27 per subscriber for the SuperStation Package and $3.50 per subscriber for the Preferred Service Package in the benchmark filing on June 21, 1994. 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 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 Vision Cable's benchmark filing made in response to the initial date of regulation, 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. Both of these packages, known as the SuperStation Package and the Preferred Service Package, were created by Vision Cable on September 1, 1993. 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 (Sport South, Sci-Fi, Comedy Central, and Country Music TV) were previously offered as a separate cable service tier. Pursuant to the Memorandum Opinion and Order adopted by the Commission on December 19, 1994 and released December 22, 1994, the SuperStation Package and the Preferred Service Package should have been treated as rate-regulated service tiers. Vision Cable's maximum permitted prices are therefore determined by including the 8 channels of the SuperStation and Preferred Service Packages as additional CPS tiers, increasing the total rate-regulated channels from 39 to 47 and the total satellite channels from 26 to 34. Vision Cable's Public Notice response filed on February 7, 1995, include the a la carte channels of the SuperStation and Preferred Service Packages as rate regulated channels on the Cable Programming Service Tier. c. 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, upon the initial date of regulation, 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 sets 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 an Inflation Adjustment Factor of 1.028 through September 1993 for CUID Nos. NC0755 and NC0405 and 1.034 through December 1993 for CUID Nos. NC0505, NC0691, and SC0372. 8. These adjustments have the cumulative effect of reducing the maximum permitted monthly prices for the cable service tier from $13.31 (as Vision Cable calculated in the benchmark filing on June 21, 1994) and revising the maximum permitted monthly prices for the cable service tier of $11.52 (recalculated by Vision Cable in their amended benchmark filing on February 7, 1995) 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 therefore 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 North Carolina, Inc. in Mecklenburg County, North Carolina, CUID No. NC0405; Pineville, North Carolina, CUID No. NC0505; Matthews, North Carolina, CUID No. NC0691; Charlotte, North Carolina, CUID No. NC0755; and Lancaster County, South Carolina, CUID No. SC0372, 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 North Carolina, Inc. with respect to Mecklenburg County, North Carolina, CUID No. NC0405; Pineville, North Carolina, CUID No. NC0505; Matthews, North Carolina, CUID No. NC0691; Charlotte, North Carolina, CUID No. NC0755; and Lancaster County, South Carolina, CUID No. SC0372, 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 North Carolina, 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 North Carolina, 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, plus interest to the date of the refund. 15. IT IS FURTHER ORDERED that Vision Cable of North Carolina, 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 North Carolina, Inc. shall, within 30 days of the release of this Order, revise its Form 1200 filings with respect to Mecklenburg County, North Carolina, CUID No. NC0405; Pineville, North Carolina, CUID No. NC0505; Matthews, North Carolina, CUID No. NC0691; Charlotte, North Carolina, CUID No. NC0755; and Lancaster County, South Carolina, CUID No. SC0372, 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 North Carolina, 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 North Carolina, 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 NC0405 09/20/93 09/15/93 NC0505 01/06/94 12/28/93 NC0691 12/29/93 12/24/93 NC0755 09/20/93 09/10/93 SC0372 01/03/94 12/28/93 Appendix B Maximum Permitted Rates Preferred CUID No. Cable Service SuperStationService NC0405 $11.50 $1.77 $1.77 NC0505 $11.57 $1.78 $1.78 NC0691 $11.57 $1.78 $1.78 NC0755 $11.50 $1.77 $1.77 SC0372 $11.57 $1.78 $1.78