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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** FOR FCC RECORD ONLY $//ORDER Remanding Appeal in Schaumburg, IL, DA 95-997//$ $//76.944 Commission Review of Franchising Authority Decisions//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-997 ) TELENOIS, INC. ) ) Appeal of the Local Rate ) Order of the Village of ) Schaumburg, Illinois ) ORDER Adopted: May 1, 1995 Released: May 3, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On December 15, 1994, Telenois, Inc. ("Telenois"), the franchisee in the above matter, filed an Appeal of Local Rate Order adopted on November 15, 1994 by its local franchising authority, the Village of Schaumburg, Illinois ("the Village"). The Village opposes Telenois' appeal. The Rate Order establishes a new regulated rate schedule for Telenois' basic service tier rates and associated equipment. Specifically, the Village's Rate Order requires Telenois to implement certain rate reductions and to issue refunds to subscribers for all payments made in excess of the rates set forth in the local order for the period September 1, 1993 through May 15, 1994. 2. In its review of Telenois' Form 393, the Village approved Telenois' permitted rates for some equipment and installations, but ordered Telenois to keep its rates for its basic service tier, converter boxes and remote controls at the current levels, rather than at the higher, maximum permitted levels. Telenois argues that because of this misapplication of the Commission's rate regulations, the Village has improperly reduced Telenois' regulated revenues by setting its rates for basic service tier, converter boxes and remote controls below the levels permitted under the benchmark regime and has imposed a refund liability that is greater than the level allowed under our rules. Telenois argues that it should be permitted to offset its refund liability for certain equipment and installation rates with its undercharges for its basic service tier, converter boxes and remote control rates. Telenois further contends that the Village compounded its mistake by setting some of Telenois' rates below the actual rates to reflect any discount or promotional rates that Telenois occasionally charged. Finally, Telenois contends that the Village improperly regulated rates for certain types of equipment, A/B switches, VCR connections and equipment used to receive Digital Music Express ("DMX") and FM radio services from Telenois, which Telenois argues are not subject to regulation. 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 its 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. A. Refund Offsets 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 maximum permitted programming rates, while in Part III, the operator calculates its equipment and installation costs and maximum 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 level 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 cost and are separately calculated in Part III of the Form 393. 6. 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. A franchising authority should not require the operator to set a particular rate for programming, equipment or installation at any rate less than its maximum permitted rate, even if its current or actual rate is below its maximum permitted rate. Furthermore, a franchising authority should not require an operator that has promotional offerings for equipment and installations to set any of those rates below its maximum permitted rates. Instead, the franchising authority should allow the operator to charge up to its maximum permitted rates, as derived by Form 393. In this proceeding, the Village only disputed the validity of Telenois' number of addressable converter boxes in service, an issue Telenois does not contest on appeal. Otherwise, the Village did not dispute the figures used in Telenois' Form 393 or the accuracy of the calculations in the form. Therefore, the Village should allow Telenois to charge its maximum permitted rates, as derived by the Form 393. 7. After setting the various regulated rates that an operator is permitted to charge on a prospective basis, a franchising authority should then determine if the operator is liable for any subscriber refunds. A refund liability can be imposed when an operator's actual charges exceed maximum permitted levels during the applicable period of review. If an operator's aggregate revenues computed from its actual rates exceeded its revenues computed from its permitted rates during the period of review, the operator must refund the difference to subscribers. If the operator's aggregate revenues computed from its permitted rates exceeded its aggregate revenues computed from its actual rates, the operator will not be required to issue any refunds for that period of review. In this proceeding, any refunds to be paid by Telenois should be calculated based on this method. 8. While the Commission will sustain the decisions of franchising authorities if there is a reasonable basis for doing so, we expect franchising authorities to adhere to the mathematical principles underlying the benchmark methodology, particularly when calculating an operator's refund liability. For instance, in this case, the Village may not order Telenois to set its basic service tier, converter and remote rates below maximum permitted levels. Further, the Village must offset or reduce any refunds it may order by the difference between the actual rates that Telenois charged and the maximum permitted rates that it could have charged during the applicable period of review. According to Telenois' uncontested submission, the Village has directed Telenois to charge less than its maximum permitted levels for certain components of its regulated service and to issue refunds without regard to the fact that some rates are below maximum permitted levels. We are remanding this case to the Village so that it can reconsider its ruling in a manner consistent with our findings. B. Regulatory Status of Equipment/Installations 9. Telenois next contends that the Village improperly set rates for certain equipment that Telenois claims is nonregulated. Specifically, the Village established rates for A/B switches, VCR connections performed by Telenois employees, and for equipment to receive DMX (a music service) and FM radio services provided by Telenois through its cable system. Telenois argues that this equipment is not properly subject to regulation by the Village because it is used by subscribers only to receive off-the-air broadcasts, and to record (not receive) basic cable programming and radio signals and is not used for the reception of its basic tier service. 10. We have previously held that A/B switches and equipment used to receive DMX and FM radio services are not devices directly related to the delivery of basic cable service and that therefore their price should remain unregulated. Regulated equipment consists of equipment in the subscriber's home that is used to receive regulated cable service. A/B switches are used by subscribers to switch off cable services and to receive, instead, over-the-air broadcast signals. Likewise, the audio equipment is used only by subscribers who choose to receive music and radio services, not basic cable, from their cable operator Since the switches and audio equipment are not "equipment used by subscribers to receive the basic service tier" within the meaning of Section 3(b)(3) of the 1992 Cable Act, their price is not subject to regulation. 11. We disagree with Telenois, however, that the regulatory treatment accorded to A/B switches and audio equipment should be accorded to VCR installations as well. We have previously held that, since VCRs are used "to receive the basic service tier," they are subject to our rate regulations. Telenois established two different charges to install a subscriber's VCR by connecting the VCR to the subscriber's cable service. One charge applied to the operator's installation of the VCR during the subscriber's initial installation of cable service. A second, higher charge applied to the operator's installation of the subscriber's VCR if a separate trip by a cable technician was required. The 1992 Cable Act directed us to establish rate standards for "installation and lease of equipment used to receive the basic service tier." Our rules provide that regulated equipment consists of all equipment in a subscriber's home used to receive basic service. Rates for installation of such equipment must be based on actual costs and must be "unbundled" or priced separately. When basic service is installed through a subscriber's VCR, the VCR is used "to receive the basic service tier." Since VCRs are, indeed, used "to receive the basic service tier," Telenois' charges for VCR installations are subject to our rate regulations. Those charges must comport with the actual cost standard of our rules. Telenois' appeal on this issue is therefore remanded to the Village for further proceedings consistent with this order. III. ORDERING CLAUSES 11. Accordingly, IT IS ORDERED that Telenois, Inc.'s appeal of the Village of Schaumburg's local Rate Order IS REMANDED to the local franchising authority for resolution in accordance with the terms of this Order. 12. 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 (1993). FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau