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 $//Crown Media, Inc., CT, MO&O, DA 95-1007//$ $/76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-1007 In the Matter of ) CUID Nos.: CT0153, Ashford Cencom Cable N.E. Connecticut, Inc. ) CT0154, Brooklyn ) CT0155, Canterbury ) CT0156, Chaplin ) CT0157, Columbia ) CT0158, Coventry ) CT0159, Eastford ) CT0160, Hampton ) CT0161, Lebanon ) CT0162, Mansfield ) CT0163, Pomfret ) CT0164, Scotland ) CT0165, Thompson ) CT0166, Windham ) CT0167, Willington Benchmark Filings to Support ) CT0168, Woodstock Cable Programming Service Prices ) 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 prices that the above-captioned operator ("Operator") was charging for its cable programming service ("CPS") tiers in the communities designated above. Operator has chosen to attempt to justify its prices through benchmark showings on FCC Form 393. This Order addresses the reasonableness of Operator's 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 its CPS prices were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that its 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 in each of the franchise areas which is the subject of this Order was completed and served on Operator and received by the Commission on the dates set forth on Appendix A. Operator filed FCC Forms 393 in response; Operator has also filed amended and supplemental Form 393 filings, most recently on March 22, 1995, in response to an inquiry by Commission staff. 5. Operator offers two different CPS tiers in each franchise area and asserts that its monthly prices for both tiers are justified by its benchmark filings because its prices are lower than or equal to the maximum permitted charges as calculated in the filings. Upon review of Operator's Form 393 filings, we have found 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 its Forms 393: a. In Column G of Schedules A and C of Part III of its FCC Forms 393, Operator did not report any income tax expense due to a net operating loss. Operator is a Subchapter C corporation and is therefore required to pay corporate income tax. Therefore, Operator must complete Column G on the basis of its statutory tax rate, regardless of the rate it actually paid in any given year. By omitting 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 calculate Operator's federal income tax allowance on Column G of Schedules A and C on the basis of a 34% corporate tax rate. Furthermore, 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). In accordance with this principle, we recalculate Column G of Schedules A and C (and subsequent steps) using a grossed-up federal income tax rate of 51.51% of Operator's return on investment. b. Operator's Form 393, Worksheet 1, Line 104 entries do not represent its current monthly equipment revenue as of the initial date of regulation. Since Operator restructured its rates, including its equipment rates, on September 1, 1993, in an attempt to comply with the Commission's regulations, the monthly equipment cost figures it entered on Line 34 of Step G of Part III should have been close or identical to its Line 104 entries. However, Operator's entries on Line 104 differed substantially from its entries on Line 34. We therefore adjusted Line 104 to equal the amounts entered on Line 34. c. In its amended filings, Operator states that it calculated the Inflation Adjustment Factor (Form 393, Part II, Worksheet 1, Line 127, and Form 393, Part II, Worksheet 4, Line 401) using data it relied on when it set its CPS prices. If Operator had done so correctly (i.e., if it had completed Form 393 with accurate data, including the most recent inflation data available as of the time it set its prices), and if, based on this data, its Forms 393 indicated that its prices were reasonable, then Operator would have successfully justified its prices under paragraph 94 of the Third Order on Reconsideration. However, the errors described above are of such a magnitude that the CPS prices were excessive even when set. d. Moreover, the figures Operator used are not consistent with data on which it should have relied in setting its CPS prices. According to Operator's amended filings, Operator calculated its prices prior to September 1, 1993. Operator used Gross National Product Price Index ("GNP-PI") data released by the U.S. Department of Commerce on May 28, 1993, to complete Lines 122, 123 and 125, but Operator claimed an Adjustment Time Period extending through September 1993 (Line 124), which is inconsistent with an attempt to justify rates based on May 1993 data. Operator's calculation of the Inflation Adjustment Factor is thus incorrect. e. We must therefore recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date for which Operator filed. On its amended Forms 393, Operator entered 12 months on Line 124, indicating that its filings were as of the end of September 1993. On July 29, 1994, the Department of Commerce released corrected inflation data including 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. 6. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operator has failed to justify the rates it was charging during the periods in question. Operator's 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. 7. ACCORDINGLY, IT IS ORDERED that the complaints referred to in Appendix A against the cable programming service prices charged by Operator in the areas referenced in the caption and at Appendix A, and all other complaints in these franchise areas related to the same prices, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 8. 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 communities addressed herein 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 prices for each franchise area set forth in Appendix B (plus franchise fee) per month, plus interest to the date of the refund. 9. IT IS FURTHER ORDERED that 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 reports with the Chief, Cable Services Bureau, stating the cumulative refund amounts so determined (including franchise fees and interest), describing the calculation thereof, and describing its plans to implement the refunds within 60 days of Commission approval of those plans. 10. 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 filings with respect to the communities listed herein, for the period beginning May 15, 1994, to reduce the monthly charges per tier as of March 31, 1994 for Tiers 2 and 3 (Lines A6b and A6c) to equal the maximum prices in each franchise area set forth in Appendix B (plus franchise fee). 11. IT IS FURTHER ORDERED that 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. Subsidiary Date First Complaint Date Complaint Filed with FCC Served CT0153 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0154 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0155 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0156 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0157 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0158 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0159 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0160 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0161 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0162 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0163 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0164 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0165 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0166 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0167 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. CT0168 Cencom Cable N.E. 9/3/93 9/1/93 Connecticut, Inc. Appendix B CUID No. Actual Rates Maximum Permitted Rates for CPS Tier 2 for CPS Tier 2 CT0153 $9.41 $9.19 CT0154 $9.41 $9.19 CT0155 $9.41 $9.19 CT0156 $9.41 $9.19 CT0157 $9.41 $9.19 CT0158 $9.41 $9.19 CT0159 $9.41 $9.19 CT0160 $9.41 $9.19 CT0161 $9.41 $9.19 CT0162 $9.41 $9.19 CT0163 $9.41 $9.19 CT0164 $9.41 $9.19 CT0165 $9.41 $9.19 CT0166 $9.41 $9.19 CT0167 $9.41 $9.19 CT0168 $9.41 $9.19 CUID No. Actual Rates Maximum Permitted Rates for CPS Tier 3 for CPS Tier 3 CT0153 $4.39 $4.29 CT0154 $4.39 $4.29 CT0155 $4.39 $4.29 CT0156 $4.39 $4.29 CT0157 $4.39 $4.29 CT0158 $4.39 $4.29 CT0159 $4.39 $4.29 CT0160 $4.39 $4.29 CT0161 $4.39 $4.29 CT0162 $4.39 $4.29 CT0163 $4.39 $4.29 CT0164 $4.39 $4.29 CT0165 $4.39 $4.29 CT0166 $4.39 $4.29 CT0167 $4.39 $4.29 CT0168 $4.39 $4.29