NOTICE ************************************************************************* NOTICE ************************************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file pnmc5021. File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* FOR FCC RECORD ONLY $//TCI Cablevision of Greater Michigan, Inc., et al., MO&O, DA95-856//$ $/76.922 Rates for Cable Programming Service Tiers/$ $/benchmark cable rates$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-856 In the Matter of ) ) TCI Cablevision of Greater ) CUID Nos. MI0042 (South Haven), Michigan, Inc.) MI0274 (Niles), MI0275 (Niles Township) ) MI0310 (Howard), MI0368 (Buchanan), ) MI0369 (Buchanan Township), MI0421 ) (Saugatuck), MI0490 (Fennville), MI0491 ) (Douglas), MI0492 (Saugatuck), MI0660 ) (Lincoln), MI0661 (St. Joseph), MI0924 ) (Independence), MI0988 (Orion) and ) MI1477 (Milton) ) TCI Cablevision of Oakland ) CUID Nos. MI0050 (Gaylord), MI0268 County, Inc. ) (Bagley), MI0337 (Meridian), MI0826 ) (Rochester Hills), MI0827 (Berkley), ) MI0828 (Clawson), MI0833 (Auburn ) Hills), MI0834 (Rochester), MI0835 ) (Royal Oak) and MI0836 (Troy) ) TCI Cablevision of Woodhaven, ) CUID Nos. MI0432 (Lincoln Park), Inc. ) MI0447 (Gibralter), MI0448 ) (Woodhaven), MI0638 (Trenton), ) and MI0639 (Riverview) ) Benchmark Filings to Support ) Cable Programming Service Prices ) MEMORANDUM OPINION AND ORDER Adopted: April 17, 1995 Released: April 18, 1995 By the Chief, Cable Services Bureau: 1. Here we consider complaints about the prices that the above-captioned operators (each and "Operator" and, collectively, "Operators") were charging for their cable programming service ("CPS") tiers in the communities designated above. Operators have chosen to attempt to justify their prices through benchmark showings on FCC Form 393. This Order addresses the reasonableness of Operators' prices only through May 14, 1994. At a later date we will issue a separate order addressing the reasonableness of the prices 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 the respective Operators and received by the Commission on the dates set forth on Appendix A. Operators filed FCC Form 393s in response; Operators have also filed amended and supplemental Form 393 filings, most recently on May 27, 1994. 5. On June 17, 1994, the local franchising authorities ("LFAs") for the City of Gaylord, Michigan (CUID No. MI0050) and the Township of Bagley, Michigan (CUID No. MI0268) filed identical motions captioned as a "Request For Default and To Supplement the Record" against TCI Cablevision of Oakland County, Inc. ("Oakland Operator"). On June 29, 1994, Oakland Operator responded to the motions by filing motions captioned as "Motion To Strike and Opposition To Request for Default and To Supplement the Record." 6. The LFAs request that we find Oakland Operator in default for its failure to file and serve timely and proper responses to their rate complaints. The LFAs state that Oakland Operator filed its rate justifications late, in an incomplete fashion and not on the proper form. They also state that in February 1994, Oakland Operator began charging a home wire maintenance fee which is not reflected in its rate justification filings. Oakland Operator responds by stating that the Commission's Rules do not contemplate the filing of motions and Oakland Operator requests that the Commission disregard the LFAs' motions. 7. In response, we note that on May 27, 1994, Oakland Operator did file its rate justifications on the proper form within the "window of opportunity" established in our May 23, 1994 Order. We also note that while Oakland Operator may have filed its rate justifications in an untimely fashion, Oakland Operator does not claim an Inflation Adjustment Factor for any franchise area that exceeds what it could have claimed if it had timely filed. The wire maintenance fee issue is addressed below. Accordingly, we grant in part and deny in part the LFAs' and Oakland Operator's motions. 8. For some of the communities at issue in this Order, Operators' actual CPS tier prices were above the maximum permitted prices that they calculated for the CPS tier and, thus, such Operators have failed to demonstrate that their prices for the CPS tier were not unreasonable. For other communities, Operators' prices were at or below their calculated maximum permitted prices. Upon review of Operators' submissions we have found that in all cases they have not correctly calculated their maximum permitted prices, and it is therefore appropriate to make the following adjustments to Operators calculations in their Form 393s: 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. Operators, however, have not properly completed Part III of their FCC Form 393s and thus have 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 Operators have not reported any maintenance facility cost for installations and service of customer leased equipment, and on Schedule B they have not reported any costs for utilities. The lack of maintenance facility and utility costs might be correct if Operators' Schedule B allocations reflected that contract or third-party labor was performing all equipment installations and repairs. The allocations that Operators make in their Schedule B Analysis, however, indicate that their own employees performed customer equipment installation and maintenance. c. Not only are Operators' Schedule B allocations inconsistent with not having any maintenance facility costs, their allocations are also inconsistent with the argument that the repair of converters and remotes was performed off premises by a third party. Operators have included on Schedule B and their Schedule B Analysis entries for contract labor and "Converter Maintenance." These entries, however, further indicate that Operators have not fully unbundled their equipment costs from their regulated service costs. In their Part III, Step C, Line 9 explanations, Operators set forth the number of hours that they devoted to maintenance and service of remotes and converters. If Operators' contract labor and converter maintenance entries are added together and the sum is divided by the number of reported hours for converter and remote maintenance, the resulting cost per hour in these communities ranges from $5.00 to $16.50. Moreover, this calculation overstates Operators' reported labor costs because it ignores that some portion of the converter maintenance cost must be for supplies. We have recognized that it is not unreasonable to assume that operators should incur a contract labor charge of $25.00 per hour for the service and maintenance of remotes and convertors. Not only are Operators' reported labor costs for the service and maintenance of remotes and convertors substantially below this figure, they are also well below their own hourly service charge as calculated on Line 5, Step A, Part III of its Form 393s. Thus, Operators' contract labor cost added to their Converter Maintenance cost cannot represent all of Operators' converter maintenance costs, and there must remain costs related to installations and service of customer leased equipment that Operators have not included on Form 393, Part III. d. Operators have not justified their 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, Operators cannot be permitted to delay subscriber refunds by failing to provide information that is needed to determine a maximum permitted rate. Since Operators have not justified their Part III allocations and have 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 Operators Part II, Worksheet 3, Line 303 entry in each community 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, Operators must have incurred more installation and customer equipment costs than they reported, and we have therefore revised their entries 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. e. Because Operators have failed to demonstrate that their prices for the CPS tier were not unreasonable, we will set maximum permitted prices for this tier, incorporating the adjustments 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 an Operator filed. On their amended Form 393s, Operators 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 Operators used in justifying their rates, of 1.030. 9. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operators have failed to justify the rates they were charging during the period in question. Operators showings justify the maximum reasonable CPS tier prices shown on Appendix B (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. However, we further determine that for CUID No. MI0050 the total overcharge per subscriber is de minimis. Therefore, it would not serve the public interest to order a refund in this franchise area. 10. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the LFAs' and Oakland Operator's motions ARE GRANTED IN PART AND DENIED IN PART. 11. IT IS FURTHER ORDERED that the complaints referred to in Appendix A against the cable programming service prices charged by Operators in the areas referenced in the caption and at Appendix A herein, and all other complaints in these franchise areas related to the same prices, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 12. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operators shall refund to subscribers in the communities shown in Appendix B, except for CUID No. MI0050, 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 the maximum price for each franchise area set forth in Appendix B (plus franchise fee) per month, plus interest to the date of the refund. 13. IT IS FURTHER ORDERED that each Operator shall promptly determine the overcharges to its 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. 14. 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 each 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 price in each franchise area set forth in Appendix B (plus franchise fee). 15. IT IS FURTHER ORDERED that each Operator shall place into effect, within 30 days after its submission of the revised Form 1200 filings required above, prices that reflect the reductions in the CPS rates 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 MI0042 10/20/93 10/18/93 MI0050 2/28/94 2/25/94 MI0268 10/26/93 10/22/93 MI0274 10/4/93 9/29/93 MI0275 10/26/93 10/20/93 MI0310 10/14/93 9/29/93 MI0337 11/1/93 10/28/93 MI0368 11/15/93 11/8/93 MI0369 10/4/93 9/29/93 MI0421 10/18/93 10/13/93 MI0432 10/12/93 10/7/93 MI0447 10/26/93 10/20/93 MI0448 10/4/93 9/29/93 MI0490 10/18/93 10/13/93 MI0491 2/28/94 2/25/94 MI0492 2/28/94 2/28/94 MI0638 1/26/94 1/20/94 MI0639 10/12/93 10/8/93 MI0660 10/2/93 10/4/93 MI0661 11/1/93 10/25/94 MI0826 10/21/93 10/18/93 MI0827 10/1/93 9/27/93 MI0828 11/3/93 9/28/93 MI0833 11/3/93 10/26/93 MI0834 11/8/93 10/31/93 MI0835 10/8/93 10/4/93 MI0836 9/27/93 9/23/93 MI0924 10/21/93 9/18/93 MI0988 10/26/93 10/21/93 MI1477 9/30/93 9/28/93 Appendix B CUID No. Actual Rates Maximum Permitted Rates MI0042 $12.24 $11.76 MI0050 $11.70 $11.51 MI0268 $11.70 $11.51 MI0274 $11.31 $10.26 MI0275 $11.31 $10.26 MI0310 $11.31 $10.26 MI0337 $10.20 $9.58 MI0368 $11.31 $10.26 MI0369 $11.31 $10.26 MI0421 $12.24 $11.64 MI0432 $11.21 $10.75 MI0447 $11.21 $10.75 MI0448 $11.21 $10.75 MI0490 $12.24 $11.64 MI0491 $12.24 $11.64 MI0492 $12.24 $11.64 MI0638 $11.21 $10.75 MI0639 $11.21 $10.75 MI0660 $11.33 $9.90 MI0661 $11.33 $9.90 MI0826 $13.03 $11.70 MI0827 $13.03 $11.70 MI0828 $13.03 $11.70 MI0833 $13.03 $11.70 MI0834 $13.03 $11.70 MI0835 $13.03 $11.70 MI0836 $13.03 $11.70 MI0924 $12.09 $11.52 MI0988 $12.09 $11.52 MI1477 $11.31 $10.26