FOR FCC RECORD ONLY $//Monmouth Cablevision Associates, MO&O, DA 95-682//$ $76.922 Rates for cable programming service tiers/$ $/benchmark cable rates/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-682 In the Matter of ) ) Monmouth Cablevision Associates ) CUID No. NJ0346 (Jackson) ) Benchmark Filing to Support ) Cable Programming Service Price ) MEMORANDUM OPINION AND ORDER Adopted: March 30, 1995 Released: April 5, 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 community designated above. Operator has chosen to attempt to justify its price through a benchmark showing 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 complaint was completed and served on Operator on October 12, 1993 and received by the Commission on October 18, 1993. Operator filed FCC Form 393 in response; Operator has also filed amended and supplemental Form 393 filings, most recently on February 7, 1995. Operator filed additional information on March 27, 1995, in response to an inquiry by Commission staff. 5. On November 18, 1993, Operator filed a motion to dismiss the October 12, 1993 complaint. Operator argues that the complaint should be dismissed because the complainant (1) included rates and channel offerings on the basic tier, as well as CPS rates and programming, in response to questions 8 and 9 of FCC Form 329 as it then existed; (2) incorrectly indicated in response to question 6 that he was complaining about a rate increase after September 1, 1993, rather than the rate in effect on September 1, 1993; and (3) incorrectly identified the local franchising authority in response to question 2. Operator's assertions do not persuade us that the complaint is invalid or should be dismissed. In general, we will find valid any complaint that states a claim on which relief can be granted and provides adequate information to allow us to process the complaint, despite minor flaws or inaccuracies. We believe this approach best implements the mandate of the 1992 Cable Act. Because the complainant's response to question number 9 includes channels contained on the CPS tier and because the rates listed in answer number 8 and on the attached bill indicate that the complainant received the CPS tier, we find it reasonable to conclude that the complainant objected to the CPS rate in effect on September 1, 1993 and that he believed that rate was unreasonable. Furthermore, even if complainant incorrectly identified the local franchising authority, that fact has not materially impeded our processing of the complaint. We therefore find the complaint valid and deny Operator's motion to dismiss the complaint. 6. In its February 7, 1995 amended filing, Operator calculated a maximum permitted price for the CPS tier of $10.78 per month. However, Operator's actual price for the CPS tier was $11.04 per month. Thus, Operator has failed to demonstrate that its price for the CPS tier was not unreasonable. Furthermore, 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' directive by requiring operators to establish an equipment basket which includes "all costs associated with providing customer equipment and installation." In Part III of FCC Form 393, an operator calculates its total customer equipment and installation costs which constitute the equipment basket. Form 393, Part II, Worksheet 3 unbundles these costs from the operator's total permitted regulated revenues in order to establish its maximum service rates. b. In reporting its capital costs of leased customer equipment on Form 393, Part III, Schedule C, Operator did not include any costs for remotes. Operator's rate cards indicate that as of September 30, 1992 it leased remotes to customers for a monthly fee, and as of the initial date of regulation it provided remotes at "no fee" per month. Thus, Operator's monthly equipment revenue as of September 30, 1992 on Form 393, Part II, Worksheet 2, Line 204 includes revenue derived from the rental of remotes, but its unbundling figure on Part II, Worksheet 3, Line 301 does not include any costs associated with remotes. Because Operator calculates its permitted programming rates based on its September 30, 1992 regulated revenues and is not subtracting its costs for remotes from these revenues, Operator is recovering the costs associated with its rental of remotes through its charges for the basic and CPS tiers. Such a result is contrary to the statutory and regulatory unbundling requirement. Under our rules, an operator may choose not to charge customers for premises equipment, but it may not recover its costs associated with customer equipment through its programming rates. c. Because Operator has not reported its equipment costs for remotes, we must calculate a cost based on the best evidence available to us. In order to do so, we examined the Form 393 filings made by Operator's affiliates in the State of New Jersey, and we observed that the reported gross book cost per unit of remotes ranged from $8.01 to $9.20. We then imputed to Operator a gross book cost per remote at the midpoint of this range, or $8.61. We further assumed, consistent with the filings of Operator's affiliates, that the number of remotes in service equalled the number of converters in service, and that Operator's remotes were depreciated according to the same schedule as its converters. Based on these assumptions, we calculated Operator's total annual capital costs for remotes to be $9,758. We therefore increased Operator's annual customer equipment and installation costs on Part III, Step G, Line 32 by $9,758, and made corresponding adjustments to Part III, Step G, Line 34 and Part II, Worksheet 3, Line 301. d. In its most recent amended filing, Operator entered $13.27 for the basic service tier and $10.78 for the CPS tier as its current monthly rates as of the initial date of regulation on Form 393, Part II, Worksheet 1, Line 101. However, Operator's rate card indicates that its actual monthly rates, exclusive of franchise fees, were $13.58 for the basic tier and $11.04 for the CPS tier. These figures are consistent with Operator's entries on Form 393, Part I and with Operator's Line 101 entries in its earlier Form 393 filings. The instructions to Form 393 require the operator to enter on Line 101 its actual current monthly charges. We have therefore corrected Line 101 to match the figures on Operator's rate card. e. Operator's Form 393, Part II, Worksheet 1, Line 104 entry does not represent its current monthly equipment revenue as of the initial date of regulation. Instead of entering its current monthly equipment revenue, as required by the Form 393 instructions, Operator entered a figure based on its prior equipment rates. This observation is confirmed by the fact that Operator's Worksheet 2, Line 204 entry is the same as its Worksheet 1, Line 104 entry. As a result, Operator's Line 104 entry must be revised to reflect its current monthly equipment revenue. Since Operator restructured its rates, including its equipment rates, on September 1, 1993 in an attempt to comply with the Commission's regulations, the monthly equipment cost figure it entered on Line 34 of Step G of Part III should have been close or identical to its Line 104 revenue entry. Accordingly, we correct Operator's Line 104 entry to equal Line 34, as adjusted pursuant to paragraph 6c, supra. f. In its most recent amended Form 393 filing, Operator calculated the Inflation Adjustment Factor (Line 127, Worksheet 1, Part II) as of the end of January 1994 using data released by the U.S. Department of Commerce on December 1, 1993. However, Operator's use of January 1994 as the base date through which it calculated the inflation adjustment is impermissible. Based on the date that the earliest valid complaint was served, the instructions to Form 393 permitted Operator an inflation adjustment only through October 1993. Operator cannot be permitted to claim an additional inflation adjustment simply because it later amended its Form 393 filing. We must therefore recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date that Operator timely filed Form 393. On July 29, 1994, the 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 1.030 as the Inflation Adjustment Factor through October 1993, the base date Operator should have used in justifying its rates. 7. 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 $10.64 (plus franchise fee) for the period from the filing of the earliest complaint to May 14, 1994. 8. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's motion to dismiss the October 12, 1993 complaint IS DENIED. 9. IT IS FURTHER ORDERED that the October 12, 1993 complaint against the cable programming service price charged by Operator in the area referenced in the caption, and all other complaints in this franchise area related to the same price, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 10. 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 community shown in the caption that portion of the amounts paid for cable programming service for the period from October 18, 1993 to May 14, 1994 which exceeded $10.64 (plus franchise fee) per month, plus interest to the date of the refund. 11. IT IS FURTHER ORDERED that Operator 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 its plan to implement the refund within 60 days of Commission approval of the plan. 12. 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 filing with respect to the community addressed 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). 13. IT IS FURTHER ORDERED that Operator shall place into effect, within 30 days after its submission of the revised Form 1200 filing required above, a price that reflects the reduction in the CPS rate determined in this Order. 14. IT IS FURTHER ORDERED, pursuant to Section 76.960 of the Commission's rules, 47 C.F.R.  76.960, that Operator shall not be required to obtain advance approval of adjustments to its CPS price in the franchise area addressed herein for one year following the release of this Order, due to Operator's having submitted in good faith an optional supplemental filing in response to our Public Notice. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau