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 $//Suburban Cable TV Co., Inc., MO&O, DA 95-1227//$ $/ 76.922 Rates for the basic service tier and cable programming services tier/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-1227 In the matter of: ) ) Suburban Cable TV Co., Inc. ) CUID No. PA2146 Buckingham Township, Pennsylvania) ) Benchmark Filing to Support ) Cable Programming Service Price ) Memorandum Opinion and Order Adopted: June 5, 1995 Released: June 12, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the price Suburban Cable TV Co., Inc., ("Suburban") was charging for its cable programming service ("CPS") tier in Buckingham Township, Pennsylvania ("Buckingham"), community unit identification ("CUID") number PA2146. Suburban has chosen to attempt to justify its price through a benchmark showing on FCC Form 393. This Order addresses the reasonableness of Suburban's CPS tier price only through May 14, 1994. At a later time 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 ("1992 Cable Act"), 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 rates 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 valid CPS complaint in the Buckingham franchise area was completed and served on Suburban on December 27, 1993. The Commission received the complaint on January 4, 1994. 5. Suburban initially attempted to justify its CPS price through an FCC Form 393 filed on June 24, 1994. It filed a revised Form 393 on February 6, 1995 in response to a Cable Services Bureau Public Notice offering operators the opportunity to make optional supplemental filings. Discussion 6. In its amended benchmark filing of February 6, 1995, Suburban calculated a maximum permitted price for the CPS tier of $11.04 per month. However, Suburban's actual price for the CPS tier was $12.15 per month. Thus, Suburban has failed to demonstrate that its price for the CPS tier was not unreasonable. Furthermore, we have found the following errors that require a recalculation of Suburban's maximum permitted CPS price: a. In Column G of Schedules A and C of Part III of its FCC Form 393, Suburban did not correctly account for its income tax expense. By placing entries in these columns, Suburban confirms that it is a tax-paying entity (i.e., a "C" corporation). Suburban, however, has not included the full allowance for federal income taxes applicable to the return on its investment in property, plant and equipment associated with the provision, installation, and servicing of customer premises equipment. We therefore recalculated the federal income tax allowance 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). Application of the gross-up principle to a 34% tax rate led to an allowance for federal income taxes at .51515 of the return on investment allowed. Application of the grossed-up tax provision resulted in an increase in the federal tax provision on Schedule A from the reported $32,080.66 to $93,649.00 (at Schedule A, Col. G, Total) and on Schedule C from $30,574.19 to $89,252.00 (at Schedule C, Col. G, Total). These adjustments in turn increased the monthly equipment cost unbundled by Suburban on Line 301 of Worksheet 3, Part II from $5,344.65 to $5,643.75, thereby causing a decrease in its maximum permitted charge for CPS. b. Suburban calculated its maximum permitted price on the basis of 23 CPS channels. Suburban, however, provided along with its February 6 filing a channel line-up, as of October 6, 1993, which shows only 22 CPS channels. We therefore reduced the number of channels on the CPS tier entered on Form 393, Part I and Form 393, Part II, Worksheet 1, Line 102B from 23 to 22, and we reduced the number of rate-regulated channels used in calculating the benchmark on Form 393, Part II, Worksheet 1, Line 121 from 42 to 41, resulting in a change in the Benchmark Channel Rate on Line 121 from .532 to .541. c. Suburban calculated the Inflation Adjustment Factor on Form 393, Part II, Worksheet 1 as of the end of January 1994 using data released by the Department of Commerce on March 31, 1994. However, Suburban incorrectly entered on Line 124 that 16 months, rather than 15 months, had passed between the end of the third quarter of 1992 and the end of December 1993, the last whole month preceeding the last legal filing date for Suburban's 393 submission. Suburban's calculation of the Inflation Adjustment is thus incorrect. We must therefore recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheet 1 to reflect the correct number of months on Line 124. Additionally, we must base the adjustment on the most accurate data currently available on the date for which Suburban filed. 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 126.5 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through December 1993, the base date Suburban should have used used in justifying its rates, of 1.034. 7. Since Suburban has failed to demonstrate that its price of $12.15 for the CPS tier was not unreasonable, we will set a price for this tier, incorporating the adjustments discussed above. These adjustments reduce the maximum permitted CPS tier price for the community of Buckingham from $11.04, as Suburban calculated in its Form 393 filing, to $10.58. Conclusions 8. Upon review of the record herein and incorporating the adjustments discussed above, we conclude that Suburban's showing for the franchise area serving Buckingham Township, Pennsylvania, CUID No. PA2146, supports a maximum permitted CPS tier price of $10.58 per month (plus franchise fee) for the period from January 4, 1994 to May 14, 1994. We further determine that with respect to this franchise area 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 amount they paid in excess of a reasonable price. 9. We further conclude that for the period after May 14, 1994, Suburban must reflect in its Form 1200 rate filing for the franchise area addressed in this Order the fact that Suburban's price during the earlier period was unreasonable. We reserve the right to make further adjustments to Suburban's price for the period after May 14, 1994, upon completion of our review of Suburban's FCC Form 1200 rate filing. 10. We further conclude that Suburban has submitted in good faith a timely optional supplemental filing in response to our December 29, 1994 Public Notice. As provided in the Public Notice, we will relieve Suburban of its obligation to obtain advance Commission approval of adjustments to its CPS price in the franchise area serving Buckingham Township, Pennsylvania, for one year following the release of this Order. 11. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the complaints against the cable programming service price charged by Suburban Cable TV Co., Inc., in Buckingham Township, Pennsylvania, CUID No. PA2146, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 12. IT IS FURTHER ORDERED that the benchmark filing submitted by Suburban Cable TV Co., Inc., with respect to Buckingham Township, Pennsylvania, CUID No. PA2146, for the period beginning with the filing of the first valid complaint on January 4, 1994, and ending on May 14, 1994, justifies a maximum price of $10.58 per month (plus franchise fee) for its cable programming service tier. 13. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R. 76.961, that Suburban Cable TV Co., Inc., shall refund to subscribers in the franchise area serving Buckingham Township, Pennsylvania, CUID No. PA2146, that portion of the amounts paid for cable programming service for the period from January 4, 1994, to May 14, 1994, that exceeded $10.58 (plus franchise fee) per month and was thus unreasonable, plus interest to the date of the refund. 14. IT IS FURTHER ORDERED that Suburban Cable TV Co., Inc., shall promptly determine the overcharges to CPS subscribers in the franchise area serving Buckingham Township, Pennsylvania 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 refunds within 60 days of Commission approval thereof. 15. 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 Suburban Cable TV Co., Inc., shall, within 30 days of the release of this Order, revise its Form 1200 filing with respect to its franchise area serving Buckingham Township, Pennsylvania, CUID No. PA2146, 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 for that franchise area (plus franchise fee). 16. IT IS FURTHER ORDERED that Suburban Cable TV Co., Inc., shall place into effect, within 30 days after its submission of the revised Form 1200 filing required above, a CPS tier price that reflects the reduction in the CPS rate determined in this Order for its franchise area serving Buckingham Township, Pennsylvania, CUID No. PA2146. 17. IT IS FURTHER ORDERED, pursuant to Section 76.960 of the Commission's Rules, 47 C.F.R.  76.960, that Suburban Cable TV Co., Inc., shall not be required to obtain advance Commission approval of adjustments to its CPS price in the franchise area serving Buckingham Township, Pennsylvania, CUID No. PA2146, for one year following the release of this Order. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau