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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//TCI of Pennsylvania, Inc., Millcreek, PA, MO&O, DA-95-1526//$ $/ 76.922 Rates for Cable Programming Services tiers /$ $/benchmark cable rates/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-1526 In the Matter of ) ) TCI of Pennsylvania, Inc. ) CUID No. PA0932 (Millcreek) ) Benchmark Filing to Support ) Cable Programming Service Price ) MEMORANDUM OPINION AND ORDER Adopted: July 6, 1995 Released: July 14, 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 for the franchise area which is the subject of this Order was completed and served on Operator on September 11, 1993 and received by the Commission on September 29, 1993. Operator filed FCC Form 393 in response. 5. Operator's monthly CPS tier price of $11.60 (plus franchise fee) is not justified by its benchmark filing because its price is greater than the maximum permitted charge of $11.27 per month (plus franchise fee), as calculated in the filing. Upon review of Operator's Form 393 filing, 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 its Form 393: a. The 1992 Cable Act requires operators to fully unbundle equipment and installation costs from programming costs. The Commission's regulations implement Congress's directive by requiring operators to establish an equipment basket. Section 76.923(c) of the Commission's regulations specifically states that equipment basket costs shall include "the direct and indirect material and labor costs of providing, leasing, installing, repairing, and servicing customer equipment." In its Order adopting rate regulations, the Commission amplified this regulation by stating that "[t]he basket will include an allocation of all those system joint and common costs that service installation, leasing, and equipment repair share with other system activities, excluding general system overhead." When completed correctly, Part III of FCC Form 393 unbundles equipment costs from programming costs. b. Operator, however, has not properly completed Part III of its FCC Form 393 and thus has not completely unbundled equipment and installation costs from programming costs as directed by the 1992 Cable Act and the Commission's regulations. Specifically, on Schedule A of Part III, Operator has not reported any maintenance facility cost for installations and service of customer leased equipment, and on Schedule B it has not reported any costs for utilities. The lack of maintenance facility and utility costs might be correct if Operator's Schedule B allocations reflected that contract or third-party labor was performing all equipment installations and repairs. The allocations that Operator makes in its schedule B Analyses, however, indicates that its own employees performed customer equipment installation and maintenance. c. Not only are Operator's Schedule B allocations inconsistent with not having any maintenance facility costs, its allocations are also inconsistent with the argument that the repair of converters and remotes was performed off-premises by a third party. Operator has included on Schedule B and its Schedule B Analysis entries for contract labor and "Converter Maintenance." These entries, however, further indicate that Operator has not fully unbundled its equipment costs from its regulated service costs. In its Part III, Step C, Line 9 explanation, Operator sets forth the number of hours that it devoted to maintenance and service of remotes and converters. If Operator's contract labor and converter maintenance entries are added together and the sum is divided by the number of reported hours for converter and remote maintenance, the resulting cost per hour in this community is $18.78. Moreover, this calculation overstates Operator's reported labor costs because it ignores that some portion of the converter maintenance cost must be for supplies. We have recognized that it is not unreasonable to assume that operators should incur a contract labor charge of $25.00 per hour for the service and maintenance of remotes and converters. Not only is Operator's reported labor cost for the service and maintenance of remotes and converters substantially below this figure, it is also well below its own hourly service charge as calculated on Line 5, Step A, Part III of its Form 393. Thus, Operator's contract labor cost added to its Converter Maintenance cost cannot represent all of Operator's converter maintenance costs, and there must remain costs related to installations and service of customer leased equipment that Operator has not included on Form 393, Part III. d. Operator has not justified its Part III allocations. The Commission has repeatedly stated that where an operator does not provide adequate information to justify its rate, the Commission will set the maximum permitted rate based on the best evidence available to it. Simply put, Operator cannot be permitted to delay subscriber refunds by failing to provide information that is needed to determine a maximum permitted rate. Since Operator has not justified its Part III allocations and has not calculated an acceptable figure for unbundling equipment and installation costs from programming costs, we must impute an estimated equipment cost figure. We have determined based on the best evidence available to us at this time that Operator's Part II, Worksheet 3, Line 303 entry for this community should be $0.060 of installation and customer equipment costs per subscriber per channel. We have derived this figure by analyzing a sample of other operators' FCC Form 393 filings, including both filings as to which we have already issued orders and filings that are currently under review, and we have observed that generally operators have an average unbundling figure of $0.06 per subscriber per channel. We have further determined that in order to yield an unbundling figure of $0.060 per subscriber per channel, Operator must have incurred more installation and customer equipment costs than it reported, and we have therefore revised its entries on Part II, Worksheet 1, Line 104 and Part II, Worksheet 3, Line 301. While we recognize that this is not an ideal way to determine the correct amount of costs to unbundle and thus to derive a maximum permitted CPS rate, it is the only approach available to us where an operator does not supply sufficient information to justify its price. e. On Part II, Worksheet 1, Line 101 of Form 393, Operator entered $9.43 for the basic tier and $11.60 for the CPS tier as its monthly prices for rate-regulated service as of September 1, 1993. On Line 108, Operator entered $18,814.27 as its monthly franchise fee expense. Operator's September 1993 rate card indicates, however, that the prices entered on Line 101 do not include franchise fees. Accordingly, we changed Line 108 to $0.00. f. On its Form 393 filing, Operator calculated the Inflation Adjustment Factor (Line 127, Worksheet 1, Part II) as of the end of December 1993. However, Operator cannot permissibly calculate inflation through the end of December 1993. Based on the service date of the earliest valid complaint for the franchise area at issue, Operator was required to file a rate justification no later than November 15, 1993. If Operator had filed FCC Form 393 by that date, the instructions to Form 393 would have required it to calculate the inflation adjustment only through October 1993. Operator cannot claim an additional inflation adjustment simply because it filed Form 393 late. We therefore must recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the date that Operator should have filed Form 393. 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 125.7 for the third quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through October 1993, the base date Operator should have used in justifying its rate for the franchise area at issue, of 1.030. 6. Upon review of the record herein, and having incorporated the adjustments 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 $10.85 per month (plus franchise fee) for the period from September 29, 1993 to May 14, 1994. 7. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the complaint referenced herein against the cable programming service price charged by Operator in the franchise 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. 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 franchise area referenced in the caption that portion of the amount paid for cable programming service for the period from September 29, 1993 to May 14, 1994 which exceeded the maximum price of $10.85 per month (plus franchise fee), plus interest to the date of the refund. 9. 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. 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 filing with respect to the franchise area referenced in the caption, 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 of $10.85 (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 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