FOR RECORD ONLY $//Appeal ORDER, UltraCom of Marple, Inc.; Haverford, PA, DA 95-736//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ $/76.937 Burden of proof/$ $/76.944 Commission Review of Franchising Authority Decision/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-736 ) ULTRACOM OF MARPLE, INC. ) ) ) Appeal of Local ) Rate Order of Township of ) Haverford, PA ) ORDER Adopted: April 4, 1995 Released: April 6, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On October 12, 1994, UltraCom of Marple, Inc. ("UltraCom"), the franchisee in the above matter, filed an appeal of a local cable rate order adopted on September 12, 1994 by its franchising authority, the Township of Haverford, Pennsylvania ("the Township"). The Township opposes UltraCom's appeal. The Township's rate order establishes a new regulated rate schedule for UltraCom's basic service tier rates and associated equipment and installations. Specifically, the Township's rate order requires UltraCom to implement certain rate reductions and to issue refunds to subscribers, dating back to September 1, 1993. 2. In its Appeal, UltraCom raises two issues. First, UltraCom argues that the Township's decision to set its rates for remote controls and home wiring at zero is inconsistent with statutory and regulatory provisions allowing cable operators to recover their actual costs for regulated equipment and constitutes an unconstitutional taking of UltraCom's property without just compensation. Second, UltraCom asserts that the Township's rate order did not disclose the basis for its decision and therefore failed to satisfy the procedural requirements of the Commission's rules. We address each issue in turn. II. DISCUSSION 3. Under our rules, rate orders made by local franchising authorities may be appealed to the Commission. In ruling on appeals of local rate orders, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. Therefore, the Commission will reverse a franchising authority's decision only if it determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering the local rate order. If the Commission reverses a franchising authority's decision, it will not substitute its own decision but instead will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. 4. FCC Form 393 is the official form used by regulators to determine whether an operator's regulated rates for programming, equipment and installations were reasonable during the time period from September 1, 1993 until May 14, 1994. Form 393 is divided into three separate, but interrelated parts. In Part II, the operator calculates its permitted programming rates, while in Part III, the operator calculates its permitted equipment and installation rates. Part I is a cover sheet that lists the various programming, equipment and installation rates that have been calculated in Parts II and III and compares them to the rates the operator has actually charged during the period of review. 5. The operator's maximum permitted rates are derived by completing Parts II and III of the Form 393, pursuant to which the operator calculates the actual aggregate revenues collected by the operator for regulated programming, equipment and installation, as of the initial date of regulation ("current rate") or as of September 30, 1992. After calculating actual aggregate revenues, the operator converts those revenues to a per-channel rate, and then compares the per-channel figures to the applicable benchmark rate. If an operator's current per-channel rate is below the applicable benchmark rate, then the operator's rate level is deemed reasonable, but it must remain at its current level. If its current per-channel rate level exceeds the benchmark rate, the operator must then compare its September 30, 1992 per-channel rate level to the applicable benchmark rate. If its September 30, 1992 per-channel rate level is above the benchmark rate, it must reduce this rate level to the benchmark rate or by 10%, whichever reduction is less. After computing the permitted rate level in this manner (whether based on current rates or September, 1992 rates), monthly equipment and installation costs are removed to derive the maximum permitted programming rates. Maximum permitted rates for equipment and installation are based on actual costs and are separately calculated in Part III of Form 393. 6. Under our regulations the maximum permitted rates are deemed to be reasonable, as required under the 1992 Cable Act. If a franchising authority does not dispute the bases for the figures presented in a cable operator's Form 393 or has not discovered any mathematical errors in the form, the franchising authority should then approve the operator's maximum permitted rates, as derived by the form. Requiring cable operators to set all or some of their rates for programming, equipment or installation below their maximum permitted levels would force them to charge rates at levels below those specifically allowed under our rules. A. Zero Equipment Rates 7. Under the 1992 Cable Act and the Commission's rules cable operators are required to set their rates for regulated customer equipment and installations using a cost- based method. In effect, cable operators must supply customer equipment, such as converters and remote controls, at rates based on their costs, including a reasonable rate of return. In this case, the Township set UltraCom's rates for the lease of remote controls and cable home wiring at zero without any explanation for this prescribed rate. UltraCom contends that the Township's setting of those equipment rates at zero violates the Commission's rate regulations because it is not based on cost and therefore has no basis under the Commission's rules. 8. Generally, the Commission leaves regulation of the basic service tier to the sound discretion of certified local franchising authorities. Because the Township has not indicated that it based its prescribed rate of zero for UltraCom's remote controls and cable home wiring based on cost, and because the Township has not affirmatively demonstrated in its rate order why UltraCom's proposed rates were unreasonable and why its prescribed zero rates are reasonable, we find that the Township's zero rate prescription was not in accordance with our rules and not within the scope of its regulatory authority. The Township must set UltraCom's remote control and cable home wiring rates based on cost. If the Township prescribes a rate other than the one derived from UltraCom's Form 393, it must explain the basis for the prescribed rate. This issue is therefore remanded to the Township so that it can reconsider its decision in a manner consistent with our findings. B. Written Decision 9. UltraCom argues that the Township failed to satisfy the procedural requirements of the Commission's rules by failing to provide a written decision stating the bases for its rate prescription. Specifically, UltraCom asserts that the Township failed to demonstrate in its rate order why UltraCom's rates were unreasonable and why its own prescribed rates are reasonable. UltraCom further asserts that the Township did not make available to UltraCom a consultant's report or a copy of the computations on which the Township's decision was based, thus depriving it of the ability to effectively comment on the Township's decisions. 10. In rate regulation proceedings, the cable operator bears the burden of proving the reasonableness of all of its proposed regulated rates. The local franchising authority, however, must provide the cable operator with an opportunity to participate in the rate review proceeding and to provide documentation supporting its proposed rates. While a local franchising authority is free to seek the assistance of a consultant to review and verify the information presented in an operator's Form 393, nothing in our rules requires the local franchising authorities to do so. Similarly, nothing in our rules requires local franchising authorities to provide a cable operator with reports and calculations that it may have relied upon in rendering its rate decision. Local franchising authorities are provided considerable flexibility regarding the manner in which interested parties may participate in proceedings regarding rates for the basic service tier and accompanying equipment, "as long as they provide a reasonable opportunity for consideration of the views of interested parties and act within the prescribed time periods." 11. If the local franchising authority determines that the operator's proposed rate exceeds the maximum permitted level as defined by the Commission's rate standards, it may prescribe a rate different from the proposed rate provided that, after giving the operator an opportunity to participate, the local franchising authority affirmatively demonstrates in a written decision why the operator's rate is unreasonable and why its prescribed rate is reasonable. In this case, the Township's written decision consists of a one-page document that merely indicates that it has met the FCC's certification requirements in order to regulate the basic service tier and associated equipment, and lists the prices that UltraCom is required to charge for basic service and equipment. The rate order does not state why the Township found UltraCom's rates to be unreasonable, nor does it state why its prescribed rates are reasonable. In order to comply with our rules, the rate order should contain such explanations. Since it appears from the record below that the Township's written decision did not comport with our rules in this area, this issue is remanded for further proceedings consistent with this order. III. ORDERING CLAUSES 12. Accordingly, IT IS ORDERED that the Appeal filed by UltraCom of Marple, Inc. is REMANDED to the Township of Haverford, Pennsylvania for resolution in accordance with the terms of this order. 13. IT IS FURTHER ORDERED that the Township of Haverford's motion that the Commission accept its late-filed Opposition is DENIED. 14. IT IS FURTHER ORDERED that our stay of the rate order issued by the Township of Haverford which was granted pending the resolution of this appeal is hereby VACATED. 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