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 $//Falcon Holding Group, Inc., Los Angeles, California, MO&O, DA 95-857//$ $/76.922 Rates for Cable Programming Service tier/$ $/Benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-857 In the matter of ) AL0060 ) AR0048, AR0231, AR0234, AR0376 Falcon Holding ) CA0065, CA0073, CA0101, CA0152, CA0229, Group, Inc. ) CA0249, CA0450, CA0582, CA0622, CA0626, ) CA0680, CA0708, CA0778, CA0844, CA0850, ) CA0890, CA0903, CA0959, CA1048, CA1049, Order Dismissing ) CA1118, CA1187, CA1189, CA1190, CA1209, Compaints ) CA1274, CA1401 ) GA0036, GA0317 ) KY0017, KY0062, KY0067, KY0078, KY0529, KY0636 ) MD0004 ) MI0696 ) MO0019, MO0020, MO0024, MO0057, MO0750 ) NC0105, NC0119, NC0151, NC0152, NC0428, NC0965 ) OR0015, OR0045, OR0058, OR0071, OR0081, OR0180, ) OR0181, OR0199, OR0342, OR0359 ) TX0669 ) VA0025, VA0182 ) WA0168, WA0229, WA0321 Memorandum Opinion and Order Adopted: April 17, 1995 Released: April 18, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the prices Falcon Holding Group, Inc. ("Operator") charges for its cable programming service ("CPS") tiers in numerous communities designated by the Community Unit Identification ("CUID") numbers referenced above. The attached Appendix contains a list of the communities which are the subject of this Order ("subject communities"). Rather than attempting to justify its prices through a benchmark or cost of service showing, Operator responded to the complaints by stating that it has no CPS tier in those systems. On March 28, 1995, Operator submitted additional information in support of its claim that rate-regulated CPS tiers did not exist as of September 1, 1993, and still do not exist, in any of the subject communities. In addition, Operator provided an affidavit, signed by the Corporate Officer in charge of Operations, in support of its claims that in the communities covered by this Order Operator offers a la carte packages of six channels or fewer and no other CPS tiers. 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. Background 4. When Operator restructured its rates and tiers as of September 1, 1993 to conform to the Commission Regulations, it eliminated its CPS tiers in each of the subject communities and put those channels into either the basic tier or an a la carte package. We subsequently issued letters of inquiry ("LOIs") to Operator to determine whether similar restructuring in two communities - Port Orchard, Washington and Southern Shores, North Carolina - constituted an evasion of rate regulation. On December 22, 1994, we released two Orders resolving these LOIs. We found that Operator's systems in both communities were similar in that each no longer had a traditional CPS tier after restructuring on September 1, 1993, but instead had a larger regulated basic tier and a new a la carte tier. We further found that in each case Operator automatically subscribed its previous CPS customers to its a la carte package, and in each case the evidence showed that very few subscribers viewed the option of accepting individual a la carte channels as a realistic service option. The most significant difference was that in the case of Port Orchard the new a la carte package had six channels, all of which were migrated from previously regulated tiers, but in the case of Southern Shores the new a la carte package had ten channels, nine of which were migrated from previously regulated tiers. In both cases, we found that Operator's restructuring may have had the effect of evading rate regulation. However, on applying the two-part test set forth in the Rate Order and the 15 interpretive guidelines set forth in the Second Reconsideration Order, we reached substantially different conclusions regarding whether the restructuring clearly evaded the Commission's Rules in effect at the time of the restructuring: a. In the Port Orchard Order, we found that Operator's elimination of its CPS tiers and their replacement by a larger basic tier and an a la carte package of six channels was not a clear evasion of the Commission's Rules because most of the rate- regulated CPS tier channels were merely transferred to the rate-regulated basic tier, and only six of those previously regulated channels were treated as an unregulated collective offering of a la carte channels. We held that given the small number of previously regulated CPS channels moved into the new a la carte package, Operator may treat the package as a non-regulated new product tier that may be priced at market levels under the Going Forward Order. b. However, in the Southern Shores Order, we found that Operator had not sufficiently justified its elimination of the regulated CPS tiers because it used nine of those channels to create a purportedly non-regulated, 10-channel a la carte tier on the eve of regulation, and it automatically subscribed its customers to the offerings that previously had been part of its Tier 1 and Tier 2 CPS packages. Consequently, we ordered Operator to treat the ten-channel a la carte tier as a rate-regulated CPS tier. 5. Since the Port Orchard Order found that Operator's restructuring of its CPS tier into the basic tier and an a la carte tier of six channels did not constitute an evasion of rate regulation, and that those channels not placed on the basic service tier could be treated as a new product tier, there was no CPS tier in that community, as of September 1, 1993, that was subject to rate regulation pursuant to Section 76.922 of our rules. Therefore, the Bureau's action effectively dismissed all FCC Form 329 complaints filed against Operator in its Port Orchard franchise area for rates that were in effect on September 1, 1993. Discussion 6. In each of the subject communities, Operator has demonstrated that it restructured its service offerings on September 1, 1993 in essentially the same way that it did in the Port Orchard community where an LOI order has been issued. Specifically, Operator has shown that it discontinued its CPS offerings and placed all of its channels into a single basic service tier, except for a few channels which it offered on an a la carte basis. In the subject communities, Operator offered two to six a la carte channels in its unregulated a la carte package. 7. We feel that we have sufficient information regarding Operator's restructured offerings in the subject communities to conclude, in accordance with the Going Forward Order, that they should be treated the same way that we treated Operator's restructured offerings in the Port Orchard Order. As in the Port Orchard community, although the instant restructuring resulted in the elimination of Operator's CPS tiers, the small number of channels that were offered in the a la carte package did not constitute an evasion of our then existing rules. Therefore, consistent with the action taken in the Port Orchard Order, we will allow Operator to treat its a la carte packages in the subject communities as new product tiers even though they would not qualify as new product tiers under the Going Forward Order because one of the conditions for a new product tier is that channels may not be removed from a basic service tier or a CPS tier. Thus, we need not rule on the FCC Form 329 complaints filed against Operator in the subject communities because there were no CPS tiers subject to rate regulation pursuant to Section 76.922 of our rules as of September 1, 1993. In addition, nothing in these complaints indicate that Operator's new product tiers violate any of the conditions for establishing those tiers outlined in the Going Forward Order. Conclusion 8. Accordingly, IT IS ORDERED that the a la carte packages created by Falcon Holding Group, Inc. in the communities listed in the attached Appendix may be treated as new product tiers under our Going Forward Order. 9. IT IS FURTHER ORDERED that all FCC Form 329 complaints pending against the CPS rates of Falcon Holding Group, Inc. each of the communities listed in the attached Appendix are DISMISSED. 10. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau APPENDIX CUID COMMUNITY # A LA CARTE CHANNELS AL0060 Scottsboro, AL 6 AR0048 Cherokee Village, AR 3 AR0231 Shannon Hills, AR 5 AR0234 Saline County, AR 5 AR0376 Maumelle, AR 5 CA0065 Big Bear Lake, CA 3 CA0073 Los Angeles County, CA 2 CA0101 Gilroy, CA 2 CA0152 San Bernardino County, CA 2 CA0229 San Bernardino County, CA 2 CA0249 Malibu, CA 4 CA0450 Pasadena, CA 5 CA0582 Soledad, CA 4 CA0622 Monterey County, CA 3 CA0626 Pasadena, CA 4 CA0680 Los Osos, CA 4 CA0708 Los Osos, CA 4 CA0778 Atascadero, CA 4 CA0844 Monterey County, CA 3 CA0850 Thousand Oaks, CA 5 CA0890 Monterey County, CA 3 CA0903 Pasadena, CA 5 CA0959 Salinas, CA 4 CA1048 Monterey County, CA 3 CA1049 Monterey County, CA 3 CA1118 Monterey County, CA 3 CA1187 Agoura Hills, CA 4 CA1189 Salinas, CA 4 CA1190 Monterey County, CA 3 CA1209 Los Angeles, CA 4 CA1274 Running Springs, CA 3 CA1401 San Bernardino County, CA 2 GA0036 Habersham, GA 2 GA0317 Whitfield County, GA 6 KY0017 Burnside, KY 5 KY0062 Monticello, KY 5 KY0067 Mt. Vernon, KY 4 KY0078 Corbin, KY 4 KY0529 Calvert City, KY 3 KY0636 Bell County, KY 4 MD0004 Crisfield, MD 4 MI0696 Au Gres, MI 4 MO0019 West Plains, MO 6 MO0020 El Dorado, MO 3 MO0024 Warrensburg, MO 4 MO0057 Eldon, MO 4 MO0750 Sunrise Beach, MO 4 NC0105 Wilkes County, NC 3 NC0119 Kure Beach, NC 6 NC0151 Carolina Beach, NC 6 NC0152 New Hanover County, NC 6 NC0428 Pender County, NC 4 NC0965 N. Topsail Beach, NC 4 OR0015 Warrenton, OR 6 OR0045 Gold Beach, OR 5 OR0058 Florence,OR 5 OR0071 Lincoln City, OR 6 OR0081 Dallas, OR 4 OR0180 Sutherlin, OR 6 OR0181 Brookings, OR 6 OR0199 Florence, OR 5 OR0342 Silverton,OR 5 OR0359 Lincoln City, OR 6 TX0669 Port Aransas, TX 4 VA0025 Chincoteague, VA 3 VA0182 Chincoteague, VA 3 WA0168 Port Orchard, WA 6 WA0229 Bremerton, WA 6 WA0321 Kitsap County, WA 6