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 $//Crown Media, Inc., MO&O, DA 95-1008//$ $/76.922 Rates for Cable Programming Service tiers/$ $/benchmark cable rates/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-1008 In the Matter of ) CUID Nos. SC0518, Kershaw County, and Cencom Cable Entertainment, Inc. ) SC0130, Camden ) Cencom Cable Income Partners II, L.P. ) CUID Nos. SC0218, Williamston, and ) TX0803, Angleton Benchmark Filings to Support ) 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 operators (each "Operator" and, collectively, "Operators") were charging for their cable programming service ("CPS") tiers in the communities designated above. Operators have chosen to attempt to justify their prices through benchmark showings on FCC Form 393. This Order addresses the reasonableness of Operators' 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 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 in each of the franchise areas which is the subject of this Order was completed and served on the relevant Operator and received by the Commission on the dates set forth on Appendix A. Operators filed FCC Forms 393 in response; Operators have also filed amended and supplemental Form 393 filings, most recently on March 22, 1995, in response to inquiries by Commission staff. 5. For CUID No. SC0130, Camden, South Carolina, on November 15, 1993, Cencom Cable Entertainment, Inc. ("Entertainment Operator") filed a Motion to Dismiss the complaint referenced in Appendix A because the complainant, an individual subscriber, failed to submit a copy of his cable bill. On February 3, 1994, the complainant filed an affidavit stating that he had submitted the bottom two-thirds portion of his monthly cable bill which showed the account number, billing date, due date, an account history for the previous month and other miscellaneous information. We have examined the complainant's cable bill which was attached to his initial complaint and find it sufficient for the purpose of challenging the reasonableness of a rate increase. In general, we will find valid any complaint that states a claim and provides adequate information to allow us to process the complaint, despite minor flaws or inaccuracies. We believe this approach best implements the mandate of the 1992 Cable Act. We therefore find the complaint valid and deny Entertainment Operator's motion. 6. Operators assert that their monthly CPS tier prices are justified by their benchmark filings because their prices are lower than or equal to the maximum permitted charges as calculated in the filings. Upon review of Operators' Form 393 filings, we have found that Operators have not correctly calculated their maximum permitted prices, and it is therefore appropriate to make the following adjustments to Operators' calculations in their Forms 393: a. For CUID Nos. SC0518, Kershaw County, South Carolina, and SC0130, Camden, South Carolina, Entertainment Operator did not report any income tax expense in Column G of Schedules A and C of Part III of its FCC Forms 393 due to a net operating loss. Entertainment Operator is a Subchapter C corporation and is therefore required to pay corporate income tax. Therefore, Entertainment 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 Entertainment 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 Entertainment Operator's return on investment. b. For CUID No. SC0130, Camden, South Carolina, Entertainment Operator's calculations for its rate-regulated package as of the initial date of regulation (Form 393, Part I, and Form 393, Part II, Worksheet 1) reflect 27 satellite channels and 34 rate-regulated channels. Our examination of the channel line-up provided by Entertainment Operator in its amended filings, however, reveals only 25 satellite channels and 32 rate-regulated channels. Entertainment Operator apparently counted channels from its channel line-up for March 31, 1994. We therefore reduce the number of CPS-tier channels on Form 393, Part I, and Form 393, Part II, Worksheet 1, Line 102 from 23 to 21. We also reduce the number of rate-regulated channels used in calculating Entertainment Operator's benchmark (Form 393, Part II, Worksheet 1, Line 121) from 34 to 32, and we reduce the number of satellite channels used in claculating the benchmark from 27 to 25. c. Operators' Form 393, Worksheet 1, Line 104 entries do not represent their current monthly equipment revenue as of the initial date of regulation. Since Operators restructured their rates, including their equipment rates, on September 1, 1993, in an attempt to comply with the Commission's regulations, the monthly equipment cost figures they entered on Line 34 of Step G of Part III should have been close or identical to their Line 104 entries. However, Operators' entries on Line 104 differed substantially from their entries on Line 34. We therefore adjusted Line 104 to equal the amounts entered on Line 34. d. In their amended filings, Operators state that they calculated the Inflation Adjustment Factor (Form 393, Part II, Worksheet 1, Line 127, and Form 393, Part II, Worksheet 4, Line 401) using data they relied on when they set their CPS prices. If Operators had done so correctly (i.e., if they had completed Form 393 with accurate data, including the most recent inflation data available as of the time they set their prices), and if, based on this data, their Forms 393 indicated that their prices were reasonable, then Operators would have successfully justified their 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. e. Moreover, the figures Operators used are not consistent with data on which they should have relied in setting their CPS prices. According to Operators' amended filings, Operators calculated their prices prior to September 1, 1993. Operators 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 Operators 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. Operators' calculation of the Inflation Adjustment Factor is thus incorrect. f. We must therefore recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date for which Operators filed. On their amended Forms 393, Operators entered 12 months on Line 124, indicating that their 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 Operators used in justifying their rates, of 1.028. 7. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operators have failed to justify the rates they were charging during the periods in question. Operators' 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. 8. ACCORDINGLY, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Entertainment Operator's Motion to Dismiss the complaint referenced in Appendix A for CUID No. SC0130 IS DENIED. 9. IT IS FURTHER ORDERED that the complaints referred to in Appendix A against the cable programming service prices charged by Operators 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. 10. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operators 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 price for each franchise area set forth in Appendix B (plus franchise fee) per month, plus interest to the date of the refund. 11. IT IS FURTHER ORDERED that Operators shall promptly determine the overcharges to their 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 their plans to implement the refunds within 60 days of Commission approval of those plans. 12. 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 Operators shall, within 30 days of the release of this Order, revise their Form 1200 filings with respect to the communities 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 price in each franchise area set forth in Appendix B (plus franchise fee). 13. IT IS FURTHER ORDERED that Operators shall place into effect, within 30 days after their submission of the revised Form 1200 filings required above, prices that reflects 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 SC0218 Cencom Cable Income 2/22/94 2/14/94 Partners II, L.P. TX0803 Cencom Cable Income 10/5/93 9/30/93 Partners II, L.P. SC0518 Cencom Cable Ent., Inc. 1/26/94 1/9/94 SC0130 Cencom Cable Ent., Inc. 10/15/93 10/12/93 Appendix B CUID No. Actual Rates Maximum Permitted Rates SC0218 $14.30 $14.08 TX0803 $12.53 $12.41 SC0518 $17.11 $16.67 SC0130 $17.11 $15.94