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 $//Dynamic Cablevision of Florida, Inc., Coral Gable, FL, MO&O, DA 95-860//$ $/76.922 Rates for Cable Programming Service tiers/$ $/a la carte orders/$ Before the Federal Communications Commission Washington, D.C. DA 95-860 In the matter of ) ) Dynamic Cablevision of Florida, Inc. ) Coral Gables, Florida ) CUID No. FL0674 ) Benchmark Filing To Support ) Cable Programming Service Prices ) Memorandum Opinion and Order Adopted: April 17, 1995 Released: April 21, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider a complaint about the prices Dynamic Cablevision of Florida, Inc. ("Operator") was charging for its cable programming service ("CPS") tiers in Coral Gables, Florida, CUID No. FL0674. Operator has chosen to attempt to justify its prices through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of Operator's prices only through May 14, 1994. At a later time 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. Procedural Matters 4. The first complete and timely complaint was served on Operator on September 17, 1993. The Commission received the complaint on September 28, 1993. In response to the complaint, Operator filed an FCC Form 393 on November 15, 1993. Operator amended its justification on June 23, 1994 in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally. 5. Operator states that it restructured its service offerings on September 1, 1993. In addition to its basic service tier and a CPS tier called Basic, Operator began offering ten channels on an individual, or a la carte, basis. These a la carte channels could be purchased collectively as one six-channel package (Cable Plus) and one four-channel package (Expanded). This restructuring was addressed in our letter of inquiry ("LOI") order released on December 22, 1994, in which we resolved the regulatory status of a la carte packages offered by Operator in Hialeah, Florida. In the LOI order, we found that the retiering constituted an evasion of rate regulation. We concluded that Operator's a la carte packages must be treated as rate-regulated cable programming service tiers and that the channels composing them must be counted as rate-regulated channels as of September 1, 1993, for purposes of completing the rate justification forms. 6. On January 23, 1995, Operator filed a Petition for Reconsideration of the Bureau's LOI decision regarding the treatment of its a la carte packages. On March 9, 1995, Operator filed a motion for stay of the LOI decision and a motion requesting the Bureau to defer action on the complaints pending against its CPS rates in Florida until the Bureau rules on the Petition for Reconsideration. On March 29, 1995, the Bureau granted Operator's motion to stay the LOI decision. Discussion 7. In its amended benchmark filing, Operator calculated a maximum permitted rate for the Basic CPS tier of $6.45 per month (plus franchise fee). Operator did not attempt to justify its monthly prices of $4.95 for the Cable Plus tier or $0.97 for the Expanded tier. Upon review, we have determined that Operator has not correctly calculated its maximum permitted prices, and it is therefore appropriate to make the following adjustments to Operator's calculations in Form 393: a. In its calculations on Form 393, Part I, and Form 393, Part II, Worksheet 1, Operator did not count as rate-regulated or as satellite channels the ten channels in its Cable Plus and Expanded packages. In accordance with the Bureau's LOI order, we determine Operator's maximum permitted prices by including the ten channels of Operator's Cable Plus and Expanded packages as additional CPS tiers, thereby increasing the total rate-regulated channels from 40 to 50 and the total satellite channels from 19 to 29. b. In Column G of Schedules A and C of Part III of its FCC Form 393, Operator did not correctly account for its income tax expense. By placing entries in these columns, Operator confirms that it is a tax-paying entity (i.e., a "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 tax entries. c. Because of these errors, we will set prices for these tiers, incorporating the adjustments discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheet 1, on the basis of the most accurate data currently available for the date for which Operator filed. On its amended Form 393, Operator calculated the Inflation Adjustment Factor as of the end of September 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 September 1993, the base date Operator used in justifying its rates, of 1.028. 8. These adjustments have the effect of decreasing the maximum permitted monthly price for the Basic CPS tier to $5.51 per month (plus franchise fee). Operator's actual monthly charge for the tier was $6.37 (plus franchise fee). Therefore, the actual charge for this tier was above the maximum permitted rate and was thus unreasonable. 9. The same adjustment results in a maximum permitted rate for the Cable Plus tier of $2.54 per month (plus franchise fee). Operator's actual monthly charge for the Cable Plus tier was $4.95 (plus franchise fee). Thus, the actual charge for this tier was above the maximum permitted rate and unreasonable. 10. The same adjustment results in a maximum permitted rate for the Expanded tier of $1.69 per month (plus franchise fee). Operator's actual monthly charge for the Expanded tier was $.97 (plus franchise fee). Thus, the actual charge for this tier was below the maximum permitted rate. 11. Under the Commission's rules, Operator may be liable for refunds to compensate subscribers for the overcharges described above. However, since our resolution of the issues pending in Operator's Petition for Reconsideration of our LOI decision could require revisions to our analysis, we will stay the effective date of this Order in response to Operator's motion until we have issued our decision in that proceeding. Since interest charges on any required refunds will continue to accrue during the period of this stay, Operator's subscribers will not be adversely affected. Conclusions 12. Upon review of the record herein, we conclude that, for the period from September 28, 1993, to May 14, 1994, Operator's showing supports maximum reasonable CPS tier prices of $5.51 per month (plus franchise fee) for the Basic CPS tier, $2.54 per month (plus franchise fee) for the Cable Plus tier, and $1.69 per month (plus franchise fee) for the Expanded tier. We further determine that we will order appropriate refunds pursuant to Section 76.957 of the Commission's Rules, 47 C.F.R.  76.957, in order to reimburse subscribers for the amounts they paid in excess of a reasonable price for the CPS tiers. 13. We further conclude that Operator must reflect in its Form 1200 rate filing for the period after May 14, 1994 the fact that Operator's prices for the Basic and Cable Plus CPS tiers during the earlier period were unreasonable. We reserve the right to make further adjustments to Operator's prices for the period after May 14, 1994, upon completion of our review of Operator's rate justification for that period. 14. We further conclude that the effective date of this Order will be stayed until the Bureau releases a decision on Operator's Petition for Reconsideration of the Bureau's LOI decision regarding the treatment of Operator's a la carte packages in Hialeah, Florida. 15. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the September 17, 1993 complaint against the cable programming service prices charged by Operator in Coral Gables, Florida, CUID No. FL0674, IS GRANTED TO THE EXTENT INDICATED HEREIN. 16. IT IS FURTHER ORDERED that the benchmark filing submitted by Operator with respect to Coral Gables, Florida, CUID No. FL0674, for the period of September 28, 1993 to May 14, 1994, justifies maximum prices of $5.51 per month (plus franchise fee) for the Basic CPS tier, $2.54 per month (plus franchise fee) for the Cable Plus tier, and $1.69 per month (plus franchise fee) for the Expanded tier. 17. 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 for the period from September 28, 1993 to May 14, 1994, that portion of the amounts paid for cable programming service that exceeded $5.51 per month (plus franchise fee) for the Basic CPS tier and $2.54 per month (plus franchise fee) for the Cable Plus tier, and was thus unreasonable, plus interest to the date of the refund. 18. IT IS FURTHER ORDERED that Operator shall determine the overcharges to CPS subscribers for the stated period, and shall within 30 days of the effective date 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. 19. 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 effective date of this Order, revise its Form 1200 filing for the period beginning May 15, 1994, to include the Cable Plus and Expanded packages as cable programming service tiers and to reduce the monthly charge per tier as of March 31, 1994 for Tier 2 (Line A6b) to equal the maximum price determined in this Order (plus franchise fee). 20. IT IS FURTHER ORDERED that Operator shall place into effect, within 30 days after submission of the revised Form 1200 filing required above, CPS tier prices for Coral Gables, Florida, CUID No. FL0674, that reflect the reductions in the CPS rate determined in this Order. 21. IT IS FURTHER ORDERED that Operator's motion to defer action on the complaint against its cable programming service prices is resolved as indicated herein. 22. IT IS FURTHER ORDERED that the effective date of this Order will be stayed until the Commission releases a decision on Operator's Petition for Reconsideration of the Bureau's LOI decision regarding the treatment of its a la carte packages in Hialeah, Florida. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau