FOR FCC RECORD ONLY $//Cox Cable University City, Inc., MO&O, DA 95-696//$ $/76.922 Rates for cable programming service tiers/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-696 In the Matter of ) ) Cox Cable University City, Inc. ) CUID No. FL0340 Alachua County, Florida ) ) Benchmark Filing To Support ) Cable Programming Service Price ) Memorandum Opinion and Order Adopted: March 31, 1995 Released: April 6, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the price Cox Cable University City, Inc. ("Operator") was charging for its cable programming service ("CPS") tier in its Alachua County, Florida franchise area, CUID No. FL0340. The Operator has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of the Operator's price only through May 14, 1994. At a later time 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 complete and timely complaint. The filing of a complete and timely 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 complete and timely 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. A complete and timely CPS complaint was completed and served on Operator for CUID No. FL0340 on February 25, 1994. It was received by the Commission on February 28, 1994. 5. Operator filed a Form 393 with the Commission on November 30, 1993. The Operator submitted additional information on February 7, 1995 in response to a Cable Services Bureau Public Notice offering operators the opportunity to make optional supplemental filings. Discussion 6. Operator's monthly CPS price of $12.85 is higher than the maximum permitted price of $12.37 as calculated in its February 7, 1995 filing. Thus, Operator has failed to demonstrate that the actual charge for its CPS tier was at or below the maximum permitted rate. Furthermore, upon review we have determined that Operator has not correctly calculated its maximum permitted price, and it is therefore appropriate to make the following adjustments to its calculations in Form 393 in addition to those already made by Operator in its February 7, 1995 filing: a. In Column G of Schedules A and C of Part III of its FCC Form 393, Operator did not correctly account for income tax expense. By placing entries in these columns, Operator confirms that it is a tax-paying entity (i.e., a subchapter "C" corporation). However, Operator incorrectly calculated its income tax by simply applying the corporate tax rate to its return on investment. The Commission has stated that tax-paying business entities must gross-up their tax entries in Column G of Schedules A and C (i.e., calculate the tax as a percentage of return on investment plus tax). By understating its tax entries in Column G, an operator reduces its effective rate of return on equipment and installations and thereby could increase its CPS price. We therefore recalculate Column G of Schedules A and C (and subsequent steps) using correctly grossed-up entries. b. Since Operator restructured its rates, including its equipment rates, on September 1, 1993, the current monthly equipment revenue figure it entered in Part II, Worksheet 1, Line 104 should have been close or identical to its equipment cost figure on Part III, Step G, Line 34. However, Operator's entries on these two lines were substantially different. Accordingly, on Line 104 we enter $129,379.83, the same figure that appears on Line 34, as adjusted pursuant to paragraph 6a, supra. c. Operator incorrectly calculated its benchmark rate as of the initial date of regulation on Form 393, Part II, Worksheet 1, Line 121. The instructions to Form 393 permit an Operator to calculate its benchmark channel rate using either the benchmark formula or the benchmark tables. However, the benchmark figure that Operator entered on Line 121 does not agree with the numbers of regulated channels, satellite channels, and subscribers reported by Operator using either method. Accordingly, we changed Line 121 to .666, the figure yielded by the benchmark formula using the information that Operator reported. d. Because Operator has failed to demonstrate that its price for the CPS tier was not unreasonable, we will set a price for this tier, incorporating the adjustments discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheet 1. On its Form 393, Operator calculated the Inflation Adjustment Factor using data it relied upon when it set its $12.85 CPS price. If based on this data Form 393 indicated that Operator's price was reasonable, then Operator would have successfully justified its price under paragraph 94 of the Third Order on Reconsideration. However, Operator has not shown that its price was reasonable, so we must recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date that Operator was requested to file FCC Form 393. On July 29, 1994, the U. S. Department of Commerce released corrected inflation data including GNP-PI figures of 122.3 for the third quarter of 1992 and 126.5 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through February 1994, the month preceding Operator's last legal filing date of March 28, 1994 filing, of 1.039. Conclusions 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 $12.58 per month (plus franchise fee) for the period starting on February 28, 1994 and ending on May 14, 1994 for CUID No. FL0340. 8. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the complaints against the cable programming service price charged by Cox Cable University City, Inc., in Alachua County, Florida, CUID No. FL0340, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 9. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R.  76.961, that Cox Cable University City, Inc. shall refund to subscribers in the franchise area designated by CUID No. FL0340 that portion of the amount paid for cable programming service from February 28, 1994 to May 14, 1994, that exceeded $12.58 per month (plus franchise fee) and was thus unreasonable, plus interest to the date of the refund. 10. IT IS FURTHER ORDERED that Cox Cable University City, Inc. shall promptly determine the overcharges to CPS subscribers of CUID No. FL0340 for the same 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 thereof. 11. 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 Cox Cable University City, Inc. shall, within 30 days of the release of this Order, revise its Form 1200 filing for CUID No. FL0340 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 price for that franchise area (plus franchise fee). 12. IT IS FURTHER ORDERED that Cox Cable University City, Inc. shall place into effect, within 30 days after submission of the revised Form 1200 filing required above, a CPS tier price for CUID No. FL0340 that reflects the reduction in the CPS rate determined in this Order. 13. 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 Service Bureau