FOR FCC RECORD ONLY $//Century Southwest Cable Television III, Santa Monica, California, MO&O, DA-95-500//$ $/76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-500 In the matter of ) ) Century Southwest Cable Television III ) Santa Monica, California ) CUID No. CA0456 ) Benchmark Filing To Support ) Cable Programming Service Prices ) Memorandum Opinion and Order Adopted: March 15, 1995 Released: March 16, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the prices Century Southwest Cable Television III ("Century") was charging for its cable programming service ("CPS") tiers in Santa Monica, California, CUID No. CA0456. Century has chosen to attempt to justify its prices through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of Century's prices only through May 14, 1994. At a later time 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 complete and timely complaint was served on Century on October 23, 1993. The Commission received the complaint on October 28, 1993. 5. Century states that it restructured its service offerings on September 1, 1993. In addition to its basic service tier, Century began offering twelve channels on an individual, or a la carte, basis. These a la carte channels could also be purchased collectively as one twelve-channel package (Century Select 12) or in two packages of six channels each (Century Select 6A and 6B). This same type of restructuring was addressed in our letter of inquiry ("LOI") order released on December 22, 1994, in which we resolved the regulatory status of a la carte packages offered by Century in Beverly Hills and Los Angeles, California. In those two communities, Century also created three Century Select packages consisting of twelve or six a la carte channels. In the LOI order, we found that the retiering in Beverly Hills and Los Angeles constituted an evasion of rate regulation. We concluded that Century's a la carte packages must be treated as rate-regulated cable programming service tiers and that the channels composing them must be counted as rate-regulated channels as of September 1, 1993, for purposes of completing the rate justification forms. Based upon this decision, and in response to our December 29, 1994 Public Notice, Century filed an FCC Form 393 for Santa Monica for the first time on February 2, 1995, in which it treated the twelve-channel package of a la carte channels as a CPS tier. 6. On February 27, 1995, Century submitted documents explaining that Century had further restructured its service offerings on April 1, 1994. Specifically, Century removed the Arts and Entertainment ("A&E") channel and Video Hits 1 ("VH1") channel from the Century Select packages and replaced those services with Court TV and ESPN2. A&E and VH1 were instead offered as a separate, two-channel CPS tier for $1.37 per month (plus franchise fee). This newly-created A&E/VH1 Satellite Tier was provided free of charge to subscribers who purchased seven or more Century Select channels. 7. On January 23, 1995, Century filed an Application for Review which argued that the Commission should reverse the Bureau's LOI decision regarding the treatment of its a la carte packages in Beverly Hills and Los Angeles. Century then filed a motion on January 26, 1995 requesting the Bureau to defer action on the complaints pending against its CPS rates in Beverly Hills and Los Angeles until the Commission rules on the Application for Review. On March 2, 1995, Century submitted a letter to the Bureau asking that its motion to defer action be extended to the complaints pending in Santa Monica since the same a la carte issues on appeal for Beverly Hills and Los Angeles apply to Santa Monica as well. Discussion 8. In its benchmark filing of February 2, 1995, Century calculated a maximum permitted rate for the Century Select 12 tier of $6.92 per month (plus franchise fee). Century did not, however, attempt to justify its monthly price of $4.00 (plus franchise fee) for the Century Select 6A and 6B tiers or its monthly price of $1.37 (plus franchise fee) for the A&E/VH1 Satellite Tier. Upon review, we have determined that Century miscalculated its maximum permitted per-channel rate, and it is therefore appropriate to make the following adjustments to Century's calculations in Form 393: a. According to a supplemental schedule attached to its Form 393, Century's benchmark calculation for its regulated offerings as of September 1, 1993 (Form 393, Part II, Worksheet 1, Line 121) was based upon 43 regulated channels and 23 satellite channels. A review of Century's channel line-up card, effective September 1, 1993, verified a total of 43 regulated channels. However, Century did not identify on the channel line-up card which of the regulated channels were delivered by satellite. Based upon our count, we found that there were 21 satellite channels instead of 23. This adjustment reduces the benchmark channel rate entered on Line 121 of Worksheet 1. Since Worksheet 1 calculates the average base rate per channel on the initial date of regulation, the channels added to the line-up on April 1, 1994 were not included in determining the benchmark calculation. b. Century's benchmark calculation for its regulated offerings as of September 30, 1992 (Form 393, Part II, Worksheet 2, Line 220) was based upon 35 regulated channels and 23 satellite channels. Although we were able to verify the 35 regulated channels used for the benchmark calculation, we could not verify Century's count of 23 satellite channels. Although identified as satellite channels on Century's September 1992 channel line-up card, channels 2 (KCBS), 3 (Public Access), and 16 (Santa Monica City Channel) are local broadcast and local origination channels and channel 15 (Showtime) is a pay channel. These types of channels are not included in the definition of a satellite channel provided in the Form 393 instructions for Part II, Worksheet 1, Line 121. We therefore reduced the number of satellite channels from 23 to 19. This adjustment reduces the benchmark channel rate entered on Line 220 of Worksheet 2. c. Century miscalculated its Inflation Adjustment Factor (Form 393, Part II, Worksheet 1, Line 127). Using the Gross National Product-Price Index figures published by the Department of Commerce on July 29, 1994, we calculate 1.030 as the Inflation Adjustment Factor through October 31, 1993, the latest date through which Century could have claimed inflation if it had filed Form 393 in a timely fashion. 9. These adjustments have the cumulative effect of increasing the maximum permitted monthly price for the Century Select 12 tier to $7.00 per month (plus franchise fee). Century's actual monthly charge for the Century Select 12 tier was $6.00 (plus franchise fee). Therefore, Century has demonstrated that its actual charge for this twelve-channel tier was at or below the maximum permitted rate. 10. The same adjustments result in a maximum permitted rate for the Century Select 6A and 6B tiers of $3.50 per month (plus franchise fee). Century's actual monthly charge for the Century Select 6A and 6B tiers was $4.00 (plus franchise fee). In addition, we find that the maximum permitted monthly price for the A&E/VH1 Satellite Tier was $1.17 (plus franchise fee). Century's actual monthly charge for this tier was $1.37 (plus franchise fee). Thus, Century has failed to demonstrate that its actual charges for these three tiers were at or below the maximum permitted rates. 11. Since the Commission's resolution of the issues pending in Century's Application for Review could require revisions to our analysis, we will stay the effective date of this Order in response to Century's request until the Commission has issued its decision in that proceeding. Because interest charges on any required refunds will continue to accrue during the period of this stay, Century's subscribers in Santa Monica will not be adversely affected. Conclusions 12. Upon review of the record herein, we conclude that, for the period from October 28, 1993 to May 14, 1994, Century's showing supports as reasonable its CPS tier price of $6.00 per month (plus franchise fee) for the Century Select 12 tier. We further conclude that Century's showing supports a maximum reasonable CPS tier price of $3.50 per month (plus franchise fee) for the Century Select 6A and 6B tiers for the period October 28, 1993 to May 14, 1994 and a maximum reasonable CPS tier price of $1.17 per month (plus franchise fee) for the A&E/VH1 Satellite Tier for the period April 1, 1994 to May 14, 1994. We further determine that 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 amounts they paid in excess of a reasonable price for these CPS tiers. 13. We further conclude that Century must file an FCC Form 1200 rate filing for the period after May 14, 1994 which reflects the fact that Century's prices during the earlier period were unreasonable. We reserve the right to make further adjustments to Century's prices for the period after May 14, 1994, upon completion of our review of Century's rate justification for that period. 14. We further conclude that Century 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 Century of its obligation to obtain advance Commission approval of adjustments to its CPS prices for one year following the release of this Order. 15. We further conclude that the effective date of this Order will be stayed until the Commision releases a decision on Century's Application for Review of the Bureau's LOI decision regarding the treatment of Century's a la carte packages in Beverly Hills and Los Angeles. 16. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the October 23, 1993 complaint against the cable programming service prices charged by Century Southwest Cable Television III in Santa Monica, California, CUID No. CA0456, and all other complaints relating to the same prices, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 17. IT IS FURTHER ORDERED that the benchmark filing submitted by Century Southwest Cable Television III with respect to Santa Monica, California, CUID No. CA0456, for the period of October 28, 1993 to May 14, 1994, justifies its price of $6.00 for the Century Select 12 tier. 18. IT IS FURTHER ORDERED that the benchmark filing submitted by Century Southwest Cable Television III with respect to Santa Monica, California, CUID No. CA0456, justifies a maximum price of $3.50 per month (plus franchise fee) for the Century Select 6A and 6B tiers for the period of October 28, 1993 to May 14, 1994 and a maximum price of $1.17 per month (plus franchise fee) for the A&E/VH1 Satellite Tier for the period of April 1, 1994 to May 14, 1994. 19. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R.  76.961, that Century Southwest Cable Television III shall refund to subscribers for the period October 28, 1993 to May 14, 1994 that portion of the amounts paid for cable programming service that exceeded $3.50 per month (plus franchise fee) for the Century Select 6A and 6B tiers and were thus unreasonable, offset by the amounts paid by subscribers during the same period for the Century Select 12 tier which were less than the maximum permitted price, plus interest to the date of the refund. 20. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R.  76.961, that Century Southwest Cable Television III shall refund to subscribers for the period April 1, 1994 to May 14, 1994 that portion of the amounts paid for cable programming service that exceeded $1.17 per month (plus franchise fee) for the A&E/VH1 Satellite Tier and was thus unreasonable, offset by the amounts paid by subscribers during the same period for the Century Select 12 tier which were less than the maximum permitted price, plus interest to the date of the refund. 21. IT IS FURTHER ORDERED that Century Southwest Cable Television III shall determine the overcharges to CPS subscribers for the stated periods, and shall within 30 days of the effective date 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. 22. IT IS FURTHER ORDERED, pursuant to Section 76.960 of the Commission's Rules, 47 C.F.R.  76.960, that Century Southwest Cable Television III shall not be required to obtain advance Commission approval of adjustments to its CPS prices for one year following the release of this Order. 23. IT IS FURTHER ORDERED that Century's request to defer action on the complaints against its cable programming service prices in Santa Monica, California, CUID No. CA0456, is resolved as indicated herein. 24. IT IS FURTHER ORDERED that the effective date of this Order will be stayed until the Commision releases a decision on Century's Application for Review of the Bureau's LOI decision regarding the treatment of Century's a la carte packages in Beverly Hills and Los Angeles. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau