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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** FOR FCC RECORD ONLY $//Time Warner Cable of New York City MO&O, DA-951003//$ $/76.922 Rates for Cable Programming Service tier/$ $/benchmark cable rates/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-1003 In the Matter of: ) ) CUID No. NY0234 ) (Southern Manhattan, New York) Time Warner Cable of New York ) ) Benchmark Filing to Support ) Cable Programming Service Price ) MEMORANDUM OPINION AND ORDER Adopted: April 28, 1995 Released: May 5, 1995 By the Chief, Cable Services Bureau: 1. Here we consider complaints about the price that the above-captioned operator ("Operator") was charging for its cable programming service ("CPS") tier in the community designated above. Operator has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of Operator's price only through May 14, 1994. At a later date we will issue a separate order addressing the reasonableness of the price 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 complaint was completed and served on Operator by the City of New York before September 1, 1993. The Commission received the complaint on September 2, 1993. 5. Operator attempted to justify its CPS price through a Form 393 filed on November 15, 1993. Operator amended its justification on May 27, 1994 in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally, and again on January 27, 1995, and on April 12, 1995 in response to letters which requested further clarification of Operator's amended showing. 6. In its amended benchmark filing of February 7, 1995, Operator calculated a maximum permitted price for the CPS tier of $8.23 per month. However, Operator's actual price for the CPS tier was $8.45 per month. Thus, Operator has failed to demonstrate that its price for the CPS tier was not unreasonable. Furthermore, upon review of Operator's submission, we have found that it has not correctly calculated its maximum permitted price, and it is therefore appropriate to make the following adjustments to Operator's calculations in Form 393: a. In its Form 393 filing, Operator's calculations for its rate-regulated package as of the initial date of regulation (Form 393, Part II, Worksheet 1 and Form 393, Part I) listed its basic tier rate as being $10.97. Operator's rate card indicates that its actual monthly rate for the basic tier was $11.27. This figure is consistent with the rate shown on the cable bills submitted by complainants. Accordingly, we changed the basic tier rate entered on Form 393, Part I, Worksheet 1, line 101A from $10.97 to $11.27. b. Operator's calculations for its rate-regulated package as of September 30, 1992 (Form 393, Part II, Worksheet 2) count 28.5 channels on the basic tier. Apparently, Operator counted channel 37 as one-half of a rate-regulated channel. According to information supplied by Operator on January 27, 1995, channel 37 carried a rate- regulated non-satellite service (Manhattan Illustrated) for 89.5 hours per week and a pay-per-channel service that is not subject to rate regulation (Bravo) for 78.5 hours per week. c. Our policy on "split" channels is to categorize them according to their preponderance of use. This policy is based on the fact that the 1992 price survey underlying the benchmark system was analyzed based on whole, not fractional, channel counts. Under the benchmark system in effect prior to May 15, 1994, all channels must be characterized as either satellite or non-satellite. A "channel" is defined as a "unit of cable service identified and selected by a channel number or similar designation." FCC Form 393, p. 10. The preponderance-of-use test is the only one consistent with this conceptual framework. Because channel 37 was used to carry rate-regulated programming more than half the time that it was in use, it should have been counted as a full rate-regulated channel. We therefore increase the number of channels on the basic tier on Form 393, Part II, Worksheet 2, Line 220A from 28.5 to 29, and we calculate the Benchmark Channel Rate on Worksheet 2, Line 220 using 61 rate-regulated channels. d. In reporting its capital costs of service installation and maintenance of equipment on Part III, Schedule A, Operator overdepreciated its vehicles, exceeding the net book value of the asset. This is in violation of Generally Accepted Accounting Principles. The remaining book value prior to applying the annual depreciation expense ($432,907) was less than the annual depreciation expense ($788,309). Therefore, the depreciation expense was decreased to $432,907 in order to match the remaining book value. e. On Form 393, Part III, Schedule C, Operator depreciated its non-addressable converters over a useful life of 40.6 years. Operator did not explain why the useful life of its converters substantially exceeds the industry average of approximately 10 years. By depreciating its equipment over an excessively long useful life, an operator understates its annual depreciation costs and thereby could increase its CPS price. We therefore recalculate Operator's annual depreciation expense on non-addressable converters (and subsequent steps) using a 10 year useful life. This adjustment increases Operator's annual depreciation expense for non-addressable converters from $24,000 to $97,500. f. Because Operator has failed to demonstrate that its price for the CPS tier was not unreasonable, we must also recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date for which Operator filed Form 393. On its amended Form 393, Operator calculated the Inflation Adjustment Factor as of the end of October 1993. On July 29, 1994, the 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 1.030 as the Inflation Adjustment Factor through October 1993, the base date Operator used in justifying its rates. 7. Upon review of the record herein, and having incorporated the adjustment discussed above, we conclude that Operator has failed to justify the rate it was charging during the period in question. Operator's showing justifies a maximum reasonable CPS tier price of $8.34 (plus franchise fee) for the period from the filing of the earliest complaint in this franchise area to May 14, 1994. 8. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the September 1, 1993 complaint against the cable programming service price charged by Operator in the area referenced in the caption, and all other complaints in this franchise area related to the same price, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 9. 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 in the community referenced above that portion of the amounts paid for cable programming service for the period from the filing of the first valid complaint in this franchise area to May 14, 1994 which exceeded the maximum price for this franchise area (plus franchise fee) per month, plus interest to the date of the refund. 10. IT IS FURTHER ORDERED that Operator shall promptly determine the overcharges to CPS subscribers for the stated period, 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. 11. 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 release of this Order, revise its Form 1200 filing with respect to the community 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 permitted price in this franchise area (plus franchise fee). 12. IT IS FURTHER ORDERED that Operator shall place into effect, within 30 days after its submission of the revised Form 1200 filing required above, a price that reflects the reduction in the CPS rate determined in this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau