FOR RECORD ONLY $//MO&O, Paragon Cable, Irving, TX, DA 95-556//$ $/76.981 Negative Option Billing Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-556 In the Matter of: ) ) Paragon Cable ) LOI-93-25 Irving, TX ) ) Letter of Inquiry- Negative Option ) Billing Issues ) MEMORANDUM OPINION AND ORDER Adopted: March 20, 1995 Released: March 21, 1995 By the Chief, Cable Services Bureau: I. Introduction 1. In a letter received by the Commission, dated September, 28, 1994, the City of Irving alleged violations by Paragon Cable ("Paragon") of Commission regulations governing the provision of cable television service. In response to this complaint, the Commission issued Letter of Inquiry 93-25 ("LOI") to Paragon on December 13, 1993. The LOI asked Paragon to provide information concerning, among other issues, its compliance with the Communications Act's prohibition on negative option billing. 2. We conclude that Paragon's conduct, during the time period addressed by the LOI, with regard to eliminating the senior citizen discount and automatically subscribing senior customers to remote control units and monthly programming guides, did not violate the negative option billing provisions of federal law. II. Facts 3. Beginning September 1, 1993, Paragon restructured its service and equipment offerings on its cable system in Irving, Texas. Prior to September 1, 1993, Paragon offered senior citizens a 10% discount in the cost of basic service, a remote control unit and a monthly programming guide. After September 1, Paragon eliminated the discount and began charging senior citizens $.20 per month for remote control units and $1.00 per month for the programming guide. Paragon states that these rates are the same as all other subscribers paid at that time. Those subscribers who previously received the remote and programming guide as part of the senior citizen discount were given four months (until the end of December) to cancel these services and receive a credit to their account. Paragon states that all customers were notified of the service and rate changes by letter dated August, 1993. III. Background 4. In the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), Congress created a process for regulating cable programming and equipment rates. Section 3(f) of the 1992 Cable Act adds a new provision to the Communications Act which states that "[a] cable operator shall not charge a subscriber for any service or equipment that the subscriber has not affirmatively requested by name." It further specifies that "a subscriber's failure to refuse a cable operator's proposal to provide such service or equipment shall not be deemed to be an affirmative request for such service or equipment." This prohibited billing practice is commonly referred to as negative option billing. 5. In the Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket 92-266, Report and Order and Further Notice of Proposed Rulemaking, ("Rate Order") implementing this Section of the 1992 Cable Act, the Commission explained that the prohibition against negative option billing applies to "additions of a new tier of service or a new single channel service without the affirmative assent of a subscriber." It added, however, that the negative option billing provision does not apply to "a change in the mix of channels in a tier, including additions or deletions of channels . . . unless they change the fundamental nature of the tier" or to rate increases unless the price change is accompanied by a fundamental change in service, such as the addition of a new tier. Further, it stated that restructuring of tiers and equipment will not bring the prohibition into play if the subscribers continue to receive the same number of channels and the same equipment unless the restructuring effects a fundamental change in the nature of the service. 6. The Commission rule, with respect to negative option billing practices states, in relevant part: (a) A cable operator shall not charge a subscriber for any service or equipment that the subscriber has not affirmatively requested by name. A subscriber's failure to refuse a cable operator's proposal to provide such service or equipment is not an affirmative request for service or equipment. A subscriber's affirmative request for service or equipment may be made orally or in writing. IV. Discussion A. Senior Citizen Discount 7. The 1992 Cable Act permits but does not require cable operators to provide discounts to subscribers who are senior citizens. A cable operator, therefore, is not prohibited by our rules from eliminating any such discount. However, the elimination of the discount may result in an increase in the price of basic service for senior subscribers. In the Rate Order, the Commission stated "customer service rules require operators to give subscribers 30-days advance notice of any changes in rates" and thus "[w]e do not believe subscribers also need the additional protection of the negative option billing provision for every proposed rate increase, unless a price change accompanies a fundamental change in service, such as the addition of a new tier." Any price change that might result from the elimination of the discount would not constitute a fundamental change in service under our rules. The senior subscribers continued to receive the same level of service they previously requested. Because we find that the elimination of the senior citizen discount does not result in a fundamental change in service, we conclude that the elimination of this discount does not implicate the federal negative option billing prohibition. B. Remote Control Units and Monthly Programming Guides 8. The Commission's rules under the 1992 Cable Act required a variety of changes in the nature of the services to be marketed by cable operators. One such change is the requirement to unbundle equipment and installation from programming. The Commission stated that "unbundling rates for equipment, installation, and additional outlets from the rates for basic service best comports with our Congressional mandate." Because the statute sets out different standards for evaluating equipment rates and basic cable service rates, the Commission required that the rates for each must be unbundled from one another. Section 76.923(b) of the rules states "[a] cable operator shall establish rates for remote control units, converter boxes, other customer equipment, installation, and additional connections separate from rates for basic tier service. In addition, the rates for such equipment and installations shall be unbundled one from the other." 9. While the reasonableness of an operator's equipment and service charges is within the jurisdiction of the local franchise authority, here the issue is solely whether Paragon complied with the negative option billing prohibition when it billed its senior customers for the remote control units. Paragon claims that prior to September 1, 1993, the remote control units were included in the senior citizen discount. After September 1, 1993, Paragon charged its senior subscribers separately to lease their remote control units at $.20 per month. Paragon claims that the remote control units had been previously requested by the senior subscribers. Paragon makes a similar claim with respect to the monthly program guide, that is, that it was simply restructuring in accordance with our rules when it began to charge its senior subscribers for the programming guide. 10. With respect to restructuring equipment, Commission rules require cable operators to unbundle equipment rates from rates for basic service. The Commission has provided guidance on the type of equipment which is subject to the unbundling requirement. In the Rate Order, the Commission determined that the type of equipment subject to unbundling is equipment "used by subscribers to receive basic tier service." It concluded that a "converter box, remote control unit, connections for additional television receivers, and wiring that includes other inside cabling" is the type of equipment used to receive basic service. In addition, the Commission rule with regard to unbundling requires a cable operator to establish separate rates for certain equipment and installations. 11. Without passing on Paragon's claim that the remote control units had been previously requested, we believe that Paragon's separate itemization of this charge on these subscribers' bills was simply compliance with Commission rules requiring unbundling. Paragon's senior subscribers continued to receive the same level of service before and after Paragon unbundled its equipment rates with no change in the nature or legal status of the equipment. In light of this, we conclude that Paragon, with respect to its remote control units, did not violate the federal negative option billing restrictions, Section 3(f) of the 1992 Cable Act. Although a program guide is not an item subject to the equipment or installation rate regulation, its unbundling from the regulated tier charge appears indistinguishable from such charges for purposes of our negative option billing analysis. The programming guide, like the remote control, was previously provided as part of Paragon's discount package for its senior subscribers. After Paragon unbundled and eliminated the discount on programming rates, it continued to provide both programming guide and remote control to its senior subscribers. V. Ordering Clauses 12. Accordingly, IT IS CONCLUDED that Paragon Cable of Irving, Texas has not, with respect to the elimination of its senior citizen discount, violated Section 623(f) of the Communications Act of 1934, as amended, 47 U.S.C.  543(f), and Section 76.981 of the Commission's rules, 47 C.F.R.  76.981. 13. IT IS FURTHER CONCLUDED that Paragon Cable of Irving, Texas has not, with respect to the automatic subscription of its senior citizen customers to their remote control units, violated Section 623(f) of the Communications Act of 1934, as amended, 47 U.S.C.  543(f) or Section 76.981 of the Commission's rules, 47 C.F.R.  76.981. 14. IT IS FURTHER CONCLUDED that Paragon Cable of Irving, Texas has not, with respect to the automatic subscription of its senior citizen customers to a programming guide, violated Section 623(f) of the Communications Act of 1934, as amended, 47 U.S.C.  543(f) and Section 76.981 of the Commission's rules, 47 C.F.R.  76.981. 15. 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