FOR FCC RECORD ONLY $//Time Warner Cable of New York, Inc. and Queens Unity Cable Systems, Inc. New York,/$ $/New York, MO&O, DA95-429/$ $/76.922 Rates for Cable Programming Service tier/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-429 In the matter of ) ) CUID Nos. Time Warner Cable of New York, Inc. and) NY1280, NY1281, NY1340 and Queens Inner Unity Cable Systems, Inc.) NY1402 ) Benchmark Filing To Support ) Cable Programming Service Prices ) Memorandum Opinion and Order Adopted: March 6, 1995 Released: March 7, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the price Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc. (collectively "Time Warner") were charging for their cable programming service ("CPS") tier in New York, New York (CUID Nos. NY1280, NY1281, NY1340, NY1402). Time Warner has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of Time Warner's price only through May 14, 1994. At a later time we will issue a separate order addressing the reasonableness of the price 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 were completed and served on Time Warner by the City of New York before September 1, 1993. The Commission received the complaints on September 2, 1993. 5. Time Warner attempted to justify its CPS price through an FCC Form 393 filed on November 15, 1993. Time Warner amended its justification on May 29, 1994 in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally, and again on December 22, 1994 and January 11, 1995 in response to Commission letters which requested further clarification of Time Warner's amended showing. Time Warner further amended and supplemented its 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. Time Warner asserts that its monthly CPS tier price of $9.32 per subscriber for CUID Nos. NY1280, NY1281, NY1402 and NY1340 is justified by its May 29, 1994 benchmark filing because its price is less than the maximum permitted charge of $9.33 as calculated in the filing. Upon review of Time Warner's FCC Form 393, as amended, we have found the following errors that require a recalculation of Time Warner's maximum permitted CPS price: a. In its initial filing, Time Warner improperly combined in a single FCC Form 393 filing areas in which it offered subscribers different numbers of rate- regulated and satellite channels. According to information supplied by Time Warner, subscribers in CUID No. NY1340 received a different channel line-up from subscribers in CUID Nos. NY1280, NY1281, and NY1402. The instructions to Form 393 clearly state that separate community units may be combined in a single filing only if "all relevant factors (including program service and equipment rates, channel line-ups and franchise fees) are identical." Time Warner therefore should have completed and filed separate Forms 393 for these two areas. In its February 7, 1995 amendment, Time Warner provided us with the necessary data to calculate separately the maximum permitted price for each area covered by this Order. b. In all of the franchise areas addressed herein, Time Warner's calculations for its rate-regulated package as of the initial date of regulation (Form 393, Part II, Worksheet 1) count channels 49 and 25 as one-half of a satellite channel each. However, according to Time Warner's December 22, 1994 amendment, channel 49 carried rate-regulated satellite services (National Jewish Television and Silent Network) only 26 hours per week, with the rest of the time divided between a rate- regulated non-satellite service (Cable Information Channel) for 63.50 hours per week and a pay-per-channel service that is not subject to rate regulation (Bravo) for 78.50 hours per week. Similarly, channel 25 carried Mind Extension University (a satellite service) 7 hours per day and WNYE (a non-satellite service) 17 hours per day. Thus, neither of these channels carried rate-regulated satellite programming during the majority of programming hours. c. Our policy on "split" channels is to categorize them according to their preponderance of use. This policy is based on the fact that the 1992 price survey underlying the benchmark system was analyzed based on whole, not fractional, channel counts. Under the benchmark system in effect prior to May 15, 1994, all channels must be characterized as either rate-regulated or not subject to rate regulation and as either satellite or non-satellite. A "channel" is defined as a "unit of cable service identified and selected by a channel number or similar designation." FCC Form 393, p. 10. The preponderance-of-use test is the only one consistent with this conceptual framework. We therefore adjust the number of rate-regulated satellite channels as of September 1, 1993 from 37 to 36. This adjustment reduces the benchmark channel rate entered on Line 121 of Worksheet 1. d. In reporting its capital costs of service installation and maintenance of equipment on Part III, Schedule A, Time Warner overdepreciated its vehicles, exceeding the net book value of the asset. This is in violation of Generally Accepted Accounting Principles. The remaining book value prior to applying the annual depreciation expense ($52,142) was less than the annual depreciation expense ($230,509). Therefore, the depreciation expense was decreased to $52,142 in order to match the remaining book value. e. In calculating the percentage of its maintenance and installation costs (excluding the purchase cost of customer equipment) attributable to customer equipment and installations on Form 393, Part III, Line 2, Time Warner allocated none of its capital costs from Form 393, Part III, Schedule A to customer equipment and installations. This allocation indicates that none of Time Warner's vehicles, tools, and maintenance facilities were used for installing service or maintaining customer equipment. Despite the Commission's specific request, Time Warner failed either to justify this implausible assertion or to offer an alternative allocation of these costs. By failing to allocate capital costs to customer equipment and installations, an operator could increase its CPS price. We therefore substitute a reasonable allocation of these costs based on the record before us. In its December 22, 1994 amendment, Time Warner states that it allocated 58.19% of its expenses on Form 393, Part III, Schedule B to customer equipment and installations. We will apply the same percentage allocation to the capital costs in Schedule A (as adjusted pursuant to para. 6d, supra). This adjustment increases Time Warner's total customer equipment maintenance and installation costs (excluding the cost of leased equipment) on Form 393, Part III, Line 3 from $9,356,126 to $11,107,968. f. In its amended Form 393 filing, Time Warner calculated the Inflation Adjustment Factor (line 127, Worksheet 1, Part II) as of the end of October 1993 using data released by the U.S. Department of Commerce on August 31, 1993. However, Time Warner's use of October 1993 as the ending date through which it calculated the inflation adjustment is impermissible. Time Warner was served with a complaint prior to September 1, 1993. The instructions to FCC Form 393, page 11, require that the Inflation Adjustment Factor be calculated using "the number of whole months from September 30, 1993 to the date you will submit this form." In general, a cable operator must submit a justification of its rates no more than 30 days after service of the earliest valid complaint. Time Warner cannot be permitted to claim an additional inflation adjustment simply because it did not file its Form 393 within this 30-day period. We must therefore recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the latest date contemplated by the Form 393 instructions. 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 third quarter of 1993. Using these GNP-PI figures, we calculate 1.028 as the Inflation Adjustment Factor through September 1993, the base date Time Warner should have used in justifying its rates. 7. Because of these errors, we conclude that Time Warner has failed to demonstrate that its price for the CPS tier was not unreasonable. We will therefore set prices for this tier, incorporating the adjustments discussed above. For CUID Nos. NY1280, NY1281 and NY1402, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $9.20 (as Time Warner calculated in its February 7, 1995 filing) to $8.54. For CUID No. NY1340, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $8.91 (as Time Warner calculated in its February 7, 1995 filing) to $8.25. Conclusions 8. Upon review of the record herein, we conclude that for CUID Nos. NY1280, NY1281 and NY1402, Time Warner's showing supports a maximum reasonable CPS tier price of $8.54 per month (plus franchise fee) for the period September 2, 1993 to May 14, 1994. We conclude that for CUID No. NY1340, Time Warner's showing supports a maximum reasonable CPS tier price of $8.25 per month (plus franchise fee) for the period September 2, 1993 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. 9. We further conclude that Time Warner must reflect in its FCC Form 1200 rate filings for the period after May 14, 1994 the fact that Time Warner's price during the earlier period was unreasonable. We reserve the right to make further adjustments to Time Warner's prices for the period after May 14, 1994 upon completion of our review of Time Warner's FCC Form 1200 rate filings. 10. We further conclude that Time Warner has submitted in good faith timely optional supplemental filings in response to our Public Notice. As provided in the Public Notice, we will relieve Comcast of its obligations to obtain advance Commission approval of adjustments to its CPS prices for one year following the release of this Order. 11. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the August 31, 1993 complaints against the cable programming service price charged by Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc., New York, New York, CUID Nos. NY1280, NY1281, NY1340, and NY1402, and all other complaints relating to the same price, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 12. IT IS FURTHER ORDERED that the benchmark filing submitted by Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc. with respect to New York, New York for the period of September 2, 1993 to May 14, 1994, justifies maximum prices of $8.54 per month (plus franchise fee) for CUID Nos. NY1280, NY1281, and NY1402 and $8.25 per month (plus franchise fee) for CUID No. NY1340 for Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc.'s cable programming service tier. 13. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R. 76.961, that Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc. shall refund to subscribers that portion of the amounts paid for cable programming service from September 2, 1993 to May 14, 1994, that exceeded $8.54 (plus franchise fee) per month for CUID Nos. NY1280, NY1281 and NY1402 and $8.25 (plus franchise fee) per month for CUID No. NY1340 and were thus unreasonable, plus interest to the date of the refund. 14. IT IS FURTHER ORDERED that Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc. shall promptly determine the overcharges to CPS subscribers 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 amount so determined (including franchise fees and interest), describing the calculation thereof, and describing their plan to implement the refund within 60 days of Commission approval thereof. 15. 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 Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc. shall, within 30 days of the release of this Order, revise their Form 1200 filings with respect to the City of New York, CUID Nos. NY1280, NY1281, NY1340, and NY1402 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 permitted rate (plus franchise fee) in each franchise area. 16. IT IS FURTHER ORDERED that Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc. shall place into effect, within 30 days after their submission of the revised Form 1200 filings required above, CPS tier prices that reflect the reductions in the CPS rate determined in this Order. 17. IT IS FURTHER ORDERED, pursuant to Section 76.960 of the Commission's rules, 47 C.F.R.  76.960, that Time Warner Cable of New York, Inc. and Queens Inner Unity Cable Systems, Inc. shall not be required to obtain advance approval of adjustments to their CPS prices in the franchise areas addressed herein for one year following the release of this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau