Before the Federal Communications Commission Washington, D.C. DA 95-525 In the matter of ) ) Century Southwest Cable Television III ) Marina Del Rey, California ) CUID No. CA0550 ) Benchmark Filing To Support ) Cable Programming Service Prices ) Memorandum Opinion and Order Adopted: March 17, 1995 Released: March 20, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider a complaint about the prices Century Southwest Cable Television III ("Century") was charging for its cable programming service ("CPS") tiers in Marina Del Rey, California, CUID No. CA0550. 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 complaint was served on Century on October 8, 1993. The Commission received the complaint on October 12, 1993. 5. Century states that it restructured its service offerings on September 1, 1993. In addition to its basic service tier and a CPS tier called the Satellite 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 Marina Del Rey 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 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 complaint pending in Marina Del Rey since the same a la carte issues on appeal for Beverly Hills and Los Angeles apply to Marina Del Rey as well. Discussion 7. In its benchmark filing of February 2, 1995, Century calculated a maximum permitted rate for the Satellite Tier of $3.30 per month (plus franchise fee) and a maximum permitted rate for the Century Select 12 tier of $5.66 per month (plus franchise fee). Century did not, however, attempt to justify its monthly price of $4.00 for the Century Select 6A and 6B tiers. Upon review, we have determined that Century has 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 60 regulated channels and 44 satellite channels. A review of Century's channel line-up card, effective September 1, 1993, verified a total of 60 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 34 satellite channels instead of 44. This adjustment reduces the benchmark channel rate entered on Line 121 of Worksheet 1. 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 46 regulated channels and 34 satellite channels. According to the channel line-up card, effective September 30, 1992, C-Span II was shown on both channels 15 and 52. Since the same programming service was shown on both channels, Century could not charge subscribers for these channels as separate units of cable service. Similarly, channel 16 was a split channel carrying QVC and Bravo programming. Both QVC and Bravo were also carried separately on channels 37 and 46, respectively. Therefore, channel 16 appears to have duplicated part of the same services provided on other channels full time and should not be counted as an additional channel. Accordingly, we reduced the total number of rate-regulated channels from 46 to 44. c. In addition, the September 30, 1992 channel line-up card does not verify Century's count of 34 satellite channels. Although identified as satellite channels on the channel line-up card, channels 3 (Public Access) and 10 (KWHY Los Angeles/Local Origination) are local broadcast or local origination channels. 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. Furthermore, the duplicate channels identified in paragraph 7b, supra, should not have been counted as two satellite channels. We therefore reduced the number of satellite channels from 34 to 30. This adjustment increases the benchmark channel rate entered on Line 220 of Worksheet 2. d. 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. 8. These adjustments have the cumulative effect of decreasing the maximum permitted monthly price for the Satellite Tier to $3.28 per month (plus franchise fee). Century's actual monthly charge for the Satellite Tier was $3.82 (plus franchise fee). These same adjustments result in a maximum permitted rate for the Century Select 12 tier of $5.62 per month (plus franchise fee). Century's actual monthly charge for the Century Select 12 tier was $6.00 (plus franchise fee). In addition, we find that the maximum permitted rate for the Century Select 6A and 6B tiers was $2.81 per month (plus franchise fee). Century's actual monthly charge for the Century Select 6A and 6B tiers was $4.00 (plus franchise fee). Thus, Century has failed to demonstrate that its actual charges for these four tiers were at or below the maximum permitted rates. 9. Since the Commission's resolution of the issues pending in Century's Application for Review of the Bureau's LOI decision regarding Beverly Hills and Los Angeles 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 Marina Del Rey will not be adversely affected. Conclusions 10. Upon review of the record herein, we conclude that, for the period of October 12, 1993 to May 14, 1994, Century's showing supports maximum reasonable CPS tier prices of $3.28 per month (plus franchise fee) for the Satellite Tier, $5.62 per month (plus franchise fee) for the Century Select 12 tier, and $2.81 per month (plus franchise fee) for the Century Select 6A and 6B tiers. 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 the CPS tiers. 11. 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 as of March 31, 1994 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. 12. 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 effective date of this Order. 13. We further conclude that the effective date of this Order will be stayed until the Commission 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. 14. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the October 8, 1993 complaint against the cable programming service prices charged by Century Southwest Cable Television III in Marina Del Rey, California, CUID No. CA0550, IS GRANTED TO THE EXTENT INDICATED HEREIN. 15. IT IS FURTHER ORDERED that the benchmark filing submitted by Century Southwest Cable Television III with respect to Marina Del Rey, California, CUID No. CA0550, for the period of October 12, 1993 to May 14, 1994, justifies maximum prices of $3.28 per month (plus franchise fee) for the Satellite Tier, $5.62 per month (plus franchise fee) for the Century Select 12 tier, and $2.81 per month (plus franchise fee) for the Century Select 6A and 6B tiers. 16. 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 of October 12, 1993 to May 14, 1994, that portion of the amounts paid for cable programming service that exceeded $3.28 per month (plus franchise fee) for the Satellite Tier, $5.62 per month (plus franchise fee) for the Century Select 12 tier, and $2.81 per month (plus franchise fee) for the Century Select 6A and 6B tiers and were thus unreasonable, plus interest to the date of the refund. 17. IT IS FURTHER ORDERED that Century Southwest Cable Television III shall promptly determine the overcharges to CPS subscribers for the stated period, 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. 18. 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 effective date of this Order. 19. IT IS FURTHER ORDERED that Century's request to defer action on the complaint against its cable programming service prices in Marina Del Rey, California, CUID No. CA0550, is resolved as indicated herein. 20. IT IS FURTHER ORDERED that the effective date of this Order is stayed until the Commission releases a decision on Century's Application for Review of the Bureau's LOI decision regarding the treatment of its a la carte packages in Beverly Hills and Los Angeles. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau