FOR FCC RECORD ONLY $//TCI Cablevision of Northwest Ohio, Inc., MO&O, DA95-657//$ $/76.922 Rates for Cable Programming Service Tiers/$ $/benchmark cable rates$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-657 In the Matter of ) ) TCI Cablevision of Northwestern ) CUID Nos. OH0207 (Archbold), OH0208 Ohio, Inc. ) (Stryker), OH0354 (Pulaski), OH0387 ) (Center), OH0411 (Montpelier In), ) OH0508 (Edgerton In), OH0781 ) (Montpelier Out), OH0933 (Edgerton Out) ) and OH0779 (Bryan/Evansport) Benchmark Filings to Support ) Cable Programming Service Price ) MEMORANDUM OPINION AND ORDER Adopted: March 30, 1995 Released: April 4, 1995 By the Chief, Cable Services Bureau: 1. Here we consider complaints about the price that the above-captioned operator ("Operator") was charging for its cable programming service ("CPS") tier in the communities designated above. Operator has chosen to attempt to justify its price through benchmark showings on FCC Form 393. This Order addresses the reasonableness of Operator's price only through May 14, 1994. At a later date 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. 4. The first valid CPS complaints in each of the franchise areas which are the subject of this Order were completed and served on Operator and received by the Commission on the dates set forth on Appendix A. Operator filed FCC Form 393 in response; Operator has also filed amended and supplemental Form 393 filings, most recently on May 27, 1994. 5. Operator asserts that its monthly CPS tier price of $10.34 is justified by its benchmark filings because its price is lower than or equal to the maximum permitted charge as calculated in the filings. Upon review of Operator's Form 393 filings, we have found that it has not correctly calculated its maximum permitted price, and it is therefore appropriate to make the following adjustments to Operator's calculations in Form 393: a. The 1992 Cable Act requires operators to fully unbundle equipment and installation costs from programming costs. The Commission's regulations implement Congress's directive by requiring operators to establish an equipment basket. Section 76.923(c) of the Commission's regulations specifically states that equipment basket costs shall include "the direct and indirect material and labor costs of providing, leasing, installing, repairing, and servicing customer equipment." In its Order adopting rate regulations, the Commission amplified this regulation by stating that "[t]he basket will include an allocation of all those system joint and common costs that service installation, leasing, and equipment repair share with other system activities, excluding general system overhead." When completed correctly Part III of FCC Form 393 unbundles equipment costs from programming costs. b. Operator, however, has not properly completed Part III of its FCC Form 393s and thus has not completely unbundled equipment and installation costs from programming costs as directed by the 1992 Cable Act and the Commission's regulations. Specifically, on Schedule A of Part III Operator has not reported any maintenance facility cost for installations and service of customer leased equipment, and on Schedule B it has not reported any costs for utilities. The lack of maintenance facility and utility costs might be correct if Operator's Schedule B allocations reflected that contract or third-party labor was performing all equipment installations and repairs. The allocations that Operator makes in its Schedule B Analysis, however, indicate that its own employees performed customer equipment installation and maintenance. c. Not only are Operator's Schedule B allocations inconsistent with not having any maintenance facility costs, its allocations are also inconsistent with the argument that the repair of converters and remotes was performed off premises by a third party. If this statement were true, then there should be an allocation for the cost of third-party or contract labor. Operator's Schedule B Analyses, however, do not allocate any contract labor to customer equipment installation and maintenance. d. Operator has included on its Schedule B Analysis an entry of $140.50 for "Converter Maintenance." This entry, however, further indicates that Operator has not fully unbundled its equipment costs from its regulated service costs. In its Part III, Step C, Line 9 explanation, Operator states that it devoted 528 hours to maintenance and service of remotes and converters. This number of hours allocated to maintenance and service of remotes and converters is inconsistent with having a converter maintenance cost of $140.50. Even assuming that $140.50 is intended to represent only Operator's labor costs, this would indicate a cost to Operator of only $0.26 per hour, clearly an implausible figure. Thus, $140.50 cannot represent all of Operator's converter maintenance costs, and there must remain costs related to installations and service of customer leased equipment that Operator has not included on Form 393, Part III. e. Operator has not justified its Part III allocations. The Commission has repeatedly stated that where an operator does not provide adequate information to justify its rate, the Commission will set the maximum permitted rate based on the best evidence available to it. Simply put, Operator cannot be permitted to delay subscriber refunds by failing to provide information that is needed to determine a maximum permitted rate. Since Operator has not justified its Part III allocations and has not calculated an acceptable figure for unbundling equipment and installation costs from programming costs, we must impute an estimated equipment cost figure. We have determined based on the best evidence available to us at this time that Operator's Part II, Worksheet 3, Line 303 entry should be $0.060 of installation and customer equipment costs per subscriber per channel. We have derived this figure by analyzing a sample of other operators' FCC Form 393 filings, including both filings as to which we have already issued orders and filings that are currently under review, and we have observed that generally operators have an average unbundling figure of $0.06 per subscriber per channel. We have further determined that in order to yield an unbundling figure of $0.060 per subscriber per channel, Operator must have incurred $13,670.10 of installation and customer equipment costs, and we have therefore entered this figure on Part II, Worksheet 1, Line 104 and Part II, Worksheet 3, Line 301. While we recognize that this is not an ideal way to determine the correct amount of costs to unbundle and thus to derive a maximum permitted CPS rate, it is the only approach available to us where an operator does not supply sufficient information to justify its price. f. Because of this error, we conclude that Operator has failed to demonstrate that its price for the CPS tier was not unreasonable. We will therefore set a maximum permitted price for this tier, incorporating the adjustment discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheets 1 and 4, on the basis of the most accurate data currently available for the date for which Operator filed. On its amended Form 393s, Operator calculated the Inflation Adjustment Factor as of the end of October 1993 using data released on August 31, 1993. 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 an Inflation Adjustment Factor through October 1993, the base date Operator used in justifying its rates for all the franchise areas under consideration in this Order, of 1.030. 6. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operator has failed to justify the rate it was charging during the period in question. Operator's showing justifies a maximum reasonable CPS tier price of $9.73 (plus franchise fee) for the period from the filing of the earliest complaint in each franchise area (as set forth in Appendix A) to May 14, 1994. 7. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaints referred to in Appendix A against the cable programming service price charged by Operator in the areas referenced in the caption and at Appendix A herein, and all other complaints in these franchise areas related to the same price, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 8. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the communities shown in Appendix B that portion of the amounts paid for cable programming service for the period from the filing of the first valid complaint in each franchise area (as set forth on Appendix A) to May 14, 1994 which exceeded $9.73 (plus franchise fee) per month, plus interest to the date of the refund. 9. IT IS FURTHER ORDERED that Operator shall promptly determine the overcharges to CPS subscribers for the stated periods, 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 its plan to implement the refund within 60 days of Commission approval of the plan. 10. 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 Operator shall, within 30 days of the release of this Order, revise its Form 1200 filings with respect to the communities listed herein, 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 price (plus franchise fee). 11. IT IS FURTHER ORDERED that Operator shall place into effect, within 30 days after its submission of the revised Form 1200 filings required above, a price that reflects the reduction in the CPS rate determined in this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau Appendix A CUID No. Date First Complaint Date Complaint Filed with FCC Served OH0207 10/18/93 10/14/93 OH0208 10/18/93 10/14/93 OH0354 10/18/93 10/14/93 OH0387 10/18/93 10/14/93 OH0411 10/18/93 10/14/93 OH0508 11/22/93 10/14/93 OH0781 11/22/93 10/14/93 OH0933 10/18/93 10/14/93 OH0779 10/18/93 10/14/93