FOR FCC RECORD ONLY $//TCI Cablevision of Greater Michigan, Inc., MO&O, DA95-316//$ $/76.922 Rates for Cable Programming Service tier/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-316 In the matter of: ) ) TCI Cablevision of Greater Michigan, Inc. ) CUID Nos. MI0167, MI0168, MI0537, Village of Mackinaw City, Michigan ) MI0593, MI0594, MI0685, MI0904, City of Cheboygan, Michigan) MI0952 and MI1535 Township of Thomas, Michigan ) City of Montrose, Michigan ) Township of Montrose, Michigan ) Village of Chesaning, Michigan ) Township of Richland, Michigan ) Township of Jonesfield, Michigan ) Township of Chesaning, Michigan ) ) Benchmark Filings To Support ) Cable Programming Service Prices ) Memorandum Opinion and Order Adopted: February 21, 1995 Released: February 23, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the prices TCI Cablevision of Greater Michigan, Inc. ("TCI") was charging for its cable programming service ("CPS") tier in the Michigan communities designated by the community unit identification ("CUID") numbers referenced above. TCI has chosen to attempt to justify its prices through benchmark showings by filing amended FCC Form 393s for each of these communities. This Order addresses the reasonableness of TCI's CPS tier price for each of these communities only through May 14, 1994. At a later time we will issue a separate order addressing the reasonableness of the price for each of these communities after that date. 2. Under the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), 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 rates 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 in the franchise areas addressed in this Order were completed and served on TCI and received by the Commission on the dates set forth in Appendix A. 5. TCI attempted to justify its CPS price for each franchise area through FCC Form 393s filed on the dates noted in Appendix B. On May 27, 1994, in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally, TCI filed amended FCC Form 393s for each franchise area. Discussion 6. In its amended benchmark filings of May 27, 1994, TCI calculated a maximum permitted price for the CPS tier for the franchise areas in Groups 1, 3 and 4 of $10.54 per month and for the franchise areas in Group 5 of $10.62 per month. However, TCI's actual price for the CPS tier for the franchise area in Group 1 was $11.00 per month, for the franchise area in Group 3 it was $11.49 per month, for the franchise areas in Group 4 it was $10.71 per month and for the franchise areas in Group 5 it was $10.78 per month. Thus, for Groups 1, 3, 4 and 5 TCI has failed to demonstrate that its CPS tier prices were not unreasonable. Furthermore, as discussed below, we have found an error in TCI's calculation of its maximum permitted CPS tier prices for the franchise areas in Groups 1, 3, 4, and 5 that requires us to recalculate those prices. 7. For the franchise areas in Group 2, TCI asserts that its monthly CPS tier price of $11.21 per subscriber is justified by its benchmark filings because its price is less than the maximum permitted charge of $11.39 as calculated in its amended filings. Upon review, however, we have determined that TCI has made the same error in calculating its maximum permitted price with respect to the franchise areas in Group 2 as in its calculation of its maximum permitted price with respect to the franchise areas in Groups 1, 3, 4 and 5. It is therefore appropriate to make the following adjustment to TCI's calculations in its amended Form 393s: a. The 1992 Cable Act requires operators to fully unbundle equipment and installation costs from programming costs. The Commission's regulations implement Congress's directive by requiring operators to establish an equipment basket. Section 76.923(c) of the Commission's regulations specifically states that equipment basket costs shall include "the direct and indirect material and labor costs of providing, leasing, installing, repairing, and servicing customer equipment." In its Order adopting rate regulations, the Commission amplified this regulation by stating that "[t]he basket will include an allocation of all those system joint and common costs that service installation, leasing, and equipment repair share with other system activities, excluding general system overhead." When completed correctly Part III of FCC Form 393 unbundles equipment costs from programming costs. b. TCI, however, has not properly completed Part III of its FCC Form 393s and thus has not completely unbundled equipment and installation costs from programming costs as directed by the 1992 Cable Act and the Commission's regulations. Specifically, on Schedule A of Part III TCI has not reported any maintenance facility cost for installations and service of customer leased equipment, and on Schedule B it has not reported any costs for utilities. The lack of maintenance facility and utility costs might be correct if TCI's Schedule B allocations reflected that contract or third-party labor was performing all equipment installations and repairs. The allocations that TCI makes in its Schedule B Analyses, however, indicate that its own employees performed customer equipment installation and maintenance. c. Not only are TCI's Schedule B allocations inconsistent with not having any maintenance facility costs, its allocations are also inconsistent with the argument that the repair of converters and remotes was performed off premises by a third party. If this statement were true, then there should be an allocation for the cost of third-party or contract labor. TCI's Schedule B Analyses, however, do not allocate any contract labor to customer equipment installation and maintenance. d. TCI has included on its Schedule B Analyses entries for "Converter Maintenance." These entries, however, further indicate that TCI has not fully unbundled its equipment costs from its regulated service costs. In its Part III, Step C, Line 9 explanations, TCI sets forth the number of hours it devoted to maintenance and service of remotes and converters. The numbers of hours TCI allocates to maintenance and service of remotes and converters are inconsistent with the converter maintenance costs it reports. Even assuming that its converter maintenance entries are intended to represent only TCI's labor costs, these entries result in per hour labor costs that are clearly implausible. Thus, these converter maintenance entries cannot represent all of TCI's converter maintenance costs, and there must remain costs related to installations and service of customer leased equipment that TCI has not included on Form 393, Part III. e. TCI has not justified its Part III allocations. The Commission has repeatedly stated that where an operator does not provide adequate information to justify its rate, the Commission will set the maximum permitted rate based on the best evidence available to it. Simply put, TCI cannot be permitted to delay subscriber refunds by failing to provide information that is needed to determine a maximum permitted rate. Since TCI has not justified its Part III allocations and has not calculated an acceptable figure for unbundling equipment and installation costs from programming costs, we must impute an estimated equipment cost figure. We have determined based on the best evidence available to us at this time that TCI's Part II, Worksheet 3, Line 303 entry should be $0.060 of installation and customer equipment costs per subscriber per channel. We have derived this figure by analyzing a sample of other operators' FCC Form 393 filings, including both filings as to which we have already issued orders and filings that are currently under review, and we have observed that generally operators have an average unbundling figure of $0.06 per subscriber per channel. We have further determined that in order to yield an unbundling figure of $0.060 per subscriber per channel, TCI must have incurred more installation and customer equipment costs than it reported, and we have therefore revised its entries on Part II, Worksheet 1, Line 104 and Part II, Worksheet 3, Line 301. While we recognize that this is not an ideal way to determine the correct amount of costs to unbundle and thus to derive a maximum permitted CPS rate, it is the only approach available to us where an operator does not supply sufficient information to justify its price. 8. Because of this error, we conclude that TCI has failed to demonstrate that its maximum permitted price for the CPS tier in each of its franchise areas was not unreasonable. We will therefore set a maximum permitted price for this tier in each of the franchise areas, incorporating the adjustment discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheets 1 and 4, on the basis of the most accurate data currently available for the date for which TCI filed. On its amended Form 393s, TCI calculated the Inflation Adjustment Factor as of the end of October 1993 using data released on July 31, 1993. 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 125.7 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through October 1993, the base date TCI used in justifying its rates for all the franchise areas under consideration in this Order, of 1.030. 9. For Group 1, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $10.54 (as TCI calculated) to $10.23. For Group 2, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $11.39 (as TCI calculated) to $10.89. For Group 3, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $10.54 (as TCI calculated) to $9.99. For Group 4, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $10.54 (as TCI calculated) to $10.05. For Group 5, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $10.62 (as TCI calculated) to $9.99. Conclusions 10. Upon review of the record herein, we conclude that TCI's showing supports a maximum reasonable CPS tier price per month for each franchise area as set forth in Appendix C (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 with respect to each of the franchise areas discussed in this Order we will order appropriate refunds 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. 11. We further conclude that for the period after May 14, 1994, TCI must reflect in its Form 1200 rate filings for each of the franchise areas addressed in this Order the fact that TCI's prices during the earlier period were unreasonable. We reserve the right to make further adjustments to TCI's prices for the period after May 14, 1994, upon completion of our review of TCI's FCC Form 1200 rate filings. 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 TCI Cablevision of Greater Michigan, Inc. in the franchise areas addressed in this Order, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 13. IT IS FURTHER ORDERED that the benchmark filings submitted by TCI Cablevision of Greater Michigan, Inc. with respect to each of the franchise areas addressed in this Order for the period beginning with the filing of the first valid complaint in each franchise area (as set forth in Appendix A) and ending on May 14, 1994, justify the maximum price per month for each franchise area set forth in Appendix C (plus franchise fee) for TCI Cablevision of Greater Michigan, 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 TCI Cablevision of Greater Michigan, Inc. shall refund to subscribers in each franchise area 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 in Appendix A) to May 14, 1994, that exceeded the maximum permitted price per month set forth in Appendix C (plus franchise fee) and was thus unreasonable, plus interest to the date of the refund. 15. IT IS FURTHER ORDERED that TCI Cablevision of Greater Michigan, Inc. shall promptly determine the overcharges to CPS subscribers in each franchise area for the stated period, and shall within 30 days of the release of this Order file a report with the Chief, Cable Services Bureau, stating the cumulative refund amounts so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refunds 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 TCI Cablevision of Greater Michigan, Inc. shall, within 30 days of the release of this Order, revise its Form 1200 filings with respect to each of its franchise areas addressed in this Order for the period beginning May 15, 1994, to reduce the monthly charge per tier as of March 31, 1994 for Tier 2 (Line A6b) to equal the maximum price for each franchise area (plus franchise fee). 17. IT IS FURTHER ORDERED that TCI Cablevision of Greater Michigan, Inc. shall place into effect, within 30 days after its submission of the revised Form 1200 filings required above, CPS tier prices that reflect the reductions in the CPS rate determined in this Order for each of the franchise areas addressed in 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 Group 1 MI0168 11/29/93 11/23/93 Group 2 MI0685 10/18/93 10/12/93 MI1535 10/20/93 10/11/93 Group 3 MI0167 11/8/93 11/1/93 Group 4 MI0593 10/18/93 10/14/93 MI0594 10/12/93 10/7/93 Group 5 MI0537 12/20/93 12/14/93 MI0904 10/18/93 10/11/93 MI0952 12/27/93 12/21/93 Appendix B CUID No. 393 Filing Dates Prior to May 27, 1994 Group 1 MI0168 11/22/93; 12/3/93 Group 2 MI0685 11/22/93; 1/26/94 MI1535 1/26/94 Group 3 MI0167 12/15/93 Group 4 MI0593 11/22/93; 1/26/94 MI0594 11/15/93; 1/26/94 Group 5 MI0537 11/26/93; 1/26/94 MI0904 11/22/93; 1/26/94 MI0952 1/26/94 Appendix C CUID No. Inflation Adjustment Factor Maximum Permitted Rate Group 1 MI0168 1.030 $10.23 Group 2 MI0685 1.030 $10.89 MI1535 1.030 $10.89 Group 3 MI0167 1.030 $9.99 Group 4 MI0593 1.030 $10.05 MI0594 1.030 $10.05 Group 5 MI0537 1.030 $9.99 MI0904 1.030 $9.99 MI0952 1.030 $9.99