FOR FCC RECORD ONLY $/ORDER remanding local rate order of Litchfield, CT DA 95-378/$ $/76.922 Basic Tier Rates/$ $/76.942 Refunds/$ $/76.944 Commission Review of Franchising Authority Rate Decisions/$ $/76.986 A La Carte Offerings/$ Before the FEDERAL COMMUNICATIONS COMMI SSION Washington, D.C. 20554 DA 95-378 In the Matter of: ) ) TIME WARNER ENTERTAINMENT ) Litchfield, CT COMPANY, L.P., ) Morris, CT d/b/a LAUREL CABLEVISION ) Thomaston, CT ) Torrington, CT Appeal of Local ) Warren, CT Rate Order of State of Connecticut ) Watertown, CT Department of Public Utility Control ) ) ORDER Adopted: February 28, 1995 Released: March 1, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On September 23, 1994, Time Warner Entertainment Company, L.P., d/b/a Laurel Cablevision ("Laurel"), filed with the Commission a Petition for Review of Rate Order ("Petition") adopted by the State of Connecticut Department of Public Utility Control ("the State") on August 24, 1994. On September 23, 1994, Laurel also filed an Emergency Petition for a Stay of Enforcement Pending Review of the local rate order. The State did not file an opposition to the stay petition. On October 6, 1994, the Commission granted Laurel's stay petition which stayed the effectiveness of the local rate order pending the resolution of Laurel's appeal. In its local order, the State established Laurel's rates for basic cable service, equipment, installations and hourly service charges in the Towns of Litchfield, Morris, Thomaston, Torrington, Warren, and Watertown, Connecticut. As part of this decision setting the basic tier rates, the State found Laurel's collective or package offering of certain individually offered ("a la carte") channels to be a regulated tier of service and, therefore, included those channels as regulated channels for purposes of the local order. The State ordered Laurel to make refunds or to credit subscribers for all payments made in excess of the rates set forth in the local order for the period September 1, 1993 to July 14, 1994. 2. In its appeal, Laurel challenges the local order on the grounds that the State did not have the authority to make determinations regarding the status of the a la carte package and that, even if the State did have such authority, the State's decision to treat the channels in the a la carte package as regulated channels is contrary to the Commission's a la carte rules and the objectives of the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"). The State responds that, pursuant to authority granted by the Commission, it properly applied the Commission's guidelines on a la carte packages and concluded that the channels in Laurel's package should be treated as regulated channels. 3. Under our rules, rate orders made by local franchising authorities may be appealed to the Commission. In ruling on appeals of local rate orders, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. Therefore, the Commission will reverse a franchising authority's decision only if it determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering its local rate order. If the Commission reverses a franchising authority's decision, it will not substitute its own decision but instead will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. With respect to a determination made by a franchising authority on the regulatory status of an a la carte package as part of its final decision setting rates for the basic service tier, the Commission has stated that "the Commission will defer to the local authority's findings of fact if there is a reasonable basis for the local findings," and the Commission "will then apply FCC rules and precedent to those facts to determine the appropriate regulatory status of the [a la carte package] in question." II. DISCUSSION 4. Laurel objects to the State's finding in the local order that the channels comprising the Customer Choice a la carte package at issue in this appeal (WTBS and WWOR) must be included as regulated channels. Laurel contends that the State lacks the authority to make determinations regarding the status of the a la carte package. Laurel further argues that its a la carte package complies with the provisions of the 1992 Cable Act, which it contends encourage cable operators to unbundle programming services from regulated tiers and offer them on a per-channel basis. Laurel maintains that its a la carte package fully complies with Commission rules for unregulated treatment existing at the time the package was created. In addition, Laurel contends that the State erred in retroactively applying the 15 guidelines set forth in the Second Reconsideration Order and that, even under the 15 guidelines, the State erred in treating Laurel's a la carte services as regulated channels. 5. The a la carte package at issue was first offered to subscribers on September 1, 1993, when Laurel restructured the service offerings on its system serving the Towns of Litchfield, Morris, Thomaston, Torrington, Warren, and Watertown, Connecticut. Laurel states that its September 1, 1993 restructuring involved offering two channels from its former cable programming service tier on an individual basis and also as a package that Laurel alleges is not subject to rate regulation. 6. The facts presented in this appeal closely resemble the facts presented in one of our recently issued letter of inquiry orders on a la carte packages, Paragon Cable, Irving, Texas, LOI-93-25, DA 94-1315 (Cab. Serv. Bur., released Nov. 25, 1994), in which we resolved the regulatory status of an la carte package offered by Paragon Cable that is essentially the same as the a la carte package at issue in this appeal. Specifically, the a la carte package at issue in the Paragon Cable order was a two-channel package that was offered as part of a restructuring and was created by moving two channels from the basic service tier. In the Paragon Cable case, we found we could not say that it was clear that the a la carte package at issue was not a permissible non-rate regulated offering under our rules. We further concluded that in light of the prior confusion over what constituted a permissible non-rate regulated a la carte offering, it would be inequitable to subject the operator to refund liability or to require the operator to restructure its tiers so as to return the channels offered in the a la carte package to regulated tiers. Instead, we found that the a la carte package at issue may be treated as a new product tier under the Commission's Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, Sixth Order on Reconsideration and Fifth Report and Order, MM Docket Nos. 92-266 and 93-215, FCC 94-286 (released November 18, 1994) ("Going Forward Order"). 7. We find that the State's determination that Laurel's a la carte package is a regulated tier is inconsistent with the action taken in the letter of inquiry orders, and in particular, in Paragon Cable. We further find that, in accordance with Paragon Cable, Laurel's a la carte package should not be treated as a rate regulated tier of service. Accordingly, we are remanding this issue to the State so that it can enter an order consistent with our findings in Paragon Cable. III. ORDERING CLAUSES 8. Accordingly, IT IS ORDERED that the appeal of the local order, with respect to the issue of the regulatory status of Laurel's a la carte package, is REMANDED to the State for resolution in accordance with the terms of this Order. 9. IT IS FURTHER ORDERED that our stay of the local order which was granted pending the resolution of this appeal is hereby VACATED. 10. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by section 0.321 of the Commission's rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau