WPCm 2MBERKZ3|x  Y-#Xw PE37XP#"i~'^:DPddDDDdp4D48dddddddddd88pppX|pDL|pp||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDDDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddzHxxHvppDXd<"dxtldpxxdHP4M; Local Printer; LPT1tional)HL4MPCAD.PRSXj\  P6G;\dXP2Ef XC Y-#Xw PE37=9XP#Times New RomanCG Times",tB^ f ^;C]ddCCCdCCCCddddddddddCCY~~vCN~sk~CCCddCYdYdYCdd88d8ddddJN8ddddYYdYd4dddddCddddddddd8YYYYYY~Y~Y~Y~YC8C8C8C8ddddddddddYdddddsdXdXXXddx|X~d~d|XdddddddC8ddddCdoddd|8|H~d<|8dtddddHHdlLlLlLkd|H|8~ddddddddXXXd~ddkd~ddxCddCCCWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNdddCYQQddddddFddddFCChhd44ddzzdddvooChdF"dhd9dCCzCddoddCdYds]zUvdYYCCCCz~ozoY~NYdYC8YooYdYzsdzdd~YYzozzz~CdzYzzzzCCdddddddzCsdYC\   pxtll\tll@\@\`LE7jC:,Xj\  P6G;XP8wC;,Xw PE37XPxHvppDXd<"dxtldpxxdHP4M; Local Pri; LPT1tional)HL4MPCAD.PRSXj\  P6G;\dXPtalicUnive2}  Z<A3|x HP4M; Local Printer; LPT1tional)HL4MPCAD.PRSx  @\dX@CourierCG TimesCG Times BoldCourier BoldCG Times Italic2kvp%kka8DocumentgDocument Style StyleXX` `  ` a4DocumentgDocument Style Style . a6DocumentgDocument Style Style GX  a5DocumentgDocument Style Style }X(# 2vBt,a2DocumentgDocument Style Style<o   ?  A.  a7DocumentgDocument Style StyleyXX` ` (#` BibliogrphyBibliography:X (# a1Right ParRight-Aligned Paragraph Numbers:`S@ I.  X(# 2   B a2Right ParRight-Aligned Paragraph Numbers C @` A. ` ` (#` a3DocumentgDocument Style Style B b  ?  1.  a3Right ParRight-Aligned Paragraph Numbers L! ` ` @P 1. ` `  (# a4Right ParRight-Aligned Paragraph Numbers Uj` `  @ a. ` (# 2 \,a5Right ParRight-Aligned Paragraph Numbers _o` `  @h(1)  hh#(#h a6Right ParRight-Aligned Paragraph Numbersh` `  hh#@$(a) hh#((# a7Right ParRight-Aligned Paragraph NumberspfJ` `  hh#(@*i) (h-(# a8Right ParRight-Aligned Paragraph NumbersyW"3!` `  hh#(-@p/a) -pp2(#p 277Tech InitInitialize Technical Style. k I. A. 1. a.(1)(a) i) a) 1 .1 .1 .1 .1 .1 .1 .1 Technicala1DocumentgDocument Style Style\s0  zN8F I. ׃  a5TechnicalTechnical Document Style)WD (1) . a6TechnicalTechnical Document Style)D (a) . 2"G B!a2TechnicalTechnical Document Style<6  ?  A.   a3TechnicalTechnical Document Style9Wg  2  1.   a4TechnicalTechnical Document Style8bv{ 2  a.   a1TechnicalTechnical Document StyleF!<  ?  I.   2y(6""3B#u$a7TechnicalTechnical Document Style(@D i) . a8TechnicalTechnical Document Style(D a) . Doc InitInitialize Document Stylez   0*0*0*  I. A. 1. a.(1)(a) i) a) I. 1. A. a.(1)(a) i) a)DocumentgPleadingHeader for Numbered Pleading PaperE!n    X X` hp x (#%'0*,.8135@8:><q*"xxxxWWxxxWWkkxxxK,H6X@`7h@?xxx,x `7X9ANE,mR PE37PDraw (Scalable-Cr)Line Draw (Scalable-LG)Line Draw (Scalable-PE)Line Printer 16piLine Printer 16.67cpi (Legal)CG Omega CG Omega BoldCG Omega Bold ItalicCG Om Y- ; #Xw PE37XP# ; $//Falcon Holding Group, Inc., Morganton, NC, MO&O, DA1589//$ $//$76.922 Rates for Cable Programming Service Tiers//$  Y<$/benchmark cable rates/$#x6X@`7iX@# #_ pi7-#   X-#Xw PE37XP#ъ#Xw PE37XP#2(#Xz_ pi7mX#Before the  Federal Communications Commission Washington, D.C. X-TX(#P#Xz_ pi7mX# `*(#DA 951589  Y. -#Xw PE37XP#In the Matter of  hh@) x` `  hh@)  Y -Falcon Holding Group, Inc.hh@) CUID No. NC0569 (Morganton)  Y - hh@)  Y-Benchmark Filing To Supporthh@)  Y-Cable Programming Service Pricehh@)  Y- Memorandum Opinion and Order ă  Y`-xAdopted: July 17, 1995hh@hReleased: August 16, 1995 By the Chief, Cable Services Bureau:  X- Introduction  Y-x 1. Here we consider a complaint about the price Falcon Holding Group, Inc. ("Operator") was charging for its cable programming service ("CPS") tier in Morganton,  Y-North Carolina, CUID No. NC0569. 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 time we will issue a separate  Yc-order addressing the reasonableness of the price after that date.f cg Y<ԍ#Xw PE37XP# The findings in this Order do not in any way prejudge the reasonableness of the price for CPS service after May 14, 1994 under our new rate regulations. However, to the  Y!-extent Operator has sought to take advantage of the refund deferral period under the Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice of Proposed  Y#-Rulemaking, MM Docket No. 92266, FCC 9438, 9 FCC Rcd 4119 ("Second Order on  Yk$-Reconsideration"), the maximum permitted CPS price determined herein might also apply from May 15, 1994 until the date on which Operator implemented its CPS price under the  Y?&<new regulations.  See para. 3, infra.#x6X@`7iX@# #Xw PE37XP#Furthermore, to the extent that the price as of March 31, 1994 is found to be excessive, reductions in Operator's price for the period after May 14, 1994 may be required to reflect the fact that Operator's price during the earlier period, which is used as the starting point to calculate its price for the prospective period, was"(0*0*0*Z)"  Y<unreasonable. See 47 C.F.R.  76.922(b)(4)(C). #x6X@`7iX@# f"c{0*0*0*i"Ԍ Y-ԙx2. Under the Cable Television Consumer Protection and Competition Act of 1992,{g Y,<ԍ#Xw PE37XP# Pub. L. No. 102385, 106 Stat. 1460 (1992) ("1992 Cable Act"); Communications  Y-Act,  623(c), as amended, 47 U.S.C.  543(c) (1993).#x6X@`7iX@# and our rules implementing it, 47 C.F.R. Part 76, Subpart N, the Commission must review CPS prices upon the filing of a complete and timely complaint. The filing of a complete and timely complaint triggers an   obligation on behalf of the cable operator to file a justification  Y-of its CPS prices.dg Y<ԍ#Xw PE37XP# 47 C.F.R.  76.956.#x6X@`7iX@#э Under our rules, an operator may attempt to justify its prices through  Y-either a benchmark showing or a costofservice showing.g YS <ԍ#Xw PE37XP# 47 C.F.R.  76.956(b)#x6X@`7iX@#. In either case, the operator has  Yv-the burden of demonstrating that its CPS prices are not unreasonable.vg W <ԍ#Xw PE37XP# Id.#x6X@`7iX@#р  YH-x3. The Commission's original rate regulations took effect on September 1, 1993.HHwg Yp<ԍ#Xw PE37XP# Order in MM Docket No. 92266, Implementation of Sections of the Cable Consumer Protection and Competition Act of 1992: Rate Regulation, FCC 93372, 58 Fed.  YB-Reg. 41042 (Aug. 2, 1993).#x6X@`7iX@#H  Y1-The Commission subsequently revised its rate regulations effective May 15, 1994.1 g Y<ԍ#Xw PE37XP# 47 C.F.R.  76.922(b)#x6X@`7iX@#. Operators with complete and timely 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  Y -prices were in compliance with the revised rules from May 15, 1994 forward. g Y1<ԍ#Xw PE37XP# See Second Order on Reconsideration, 9 FCC Rcd at 4190, paras. 150152.#x6X@`7iX@# Operators attempting to justify their prices for the period prior to May 15, 1994 through a benchmark  Y -showing must complete and file FCC Form 393. ^g W<ԍ#Xw PE37XP# Id.#x6X@`7iX@#р Generally, to justify their prices for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC  Yy-Form 1200 series. yg Y9"<ԍ#Xw PE37XP# 47 C.F.R.  76.922(b)(6); see also Second Order on Reconsideration, 9 FCC Rcd  Y$#-at 4189 n.195.#x6X@`7iX@#  Xb- "b 0*0*0*g"  X-Procedural Matters x4. A complete and timely CPS complaint was served on Operator on November 22,  Y-1993. F Y4<ԍ#Xw PE37XP# The complaint was signed November 22, 1993 and states that it was mailed to Operator on that date. Operator has not complied with 47 C.F.R.  76.956(a), which requires a cable operator to state when service occurred. Under these circumstances, we will consider November 22, 1993 as the service date.  It was received by the Commission on November 29, 1993. Operator did not file an  Y-FCC Form 393 until June 24, 1994.c 4F Y <ԍ #Xw PE37XP#Operator did not comply with  76.956(a) of the Commission's Rules, 47 C.F.R.  76.956(a), which required it to file FCC Form 393 with the Commission within 30 days of  Y[ -being served with a valid CPS complaint. #x6X@`7iX@#c x5. Operator states that it restructured its service offerings on September 1, 1993. In addition to its basic tier, Operator began offering eight channels on an individual, or a la carte, basis. These a la carte channels could also be purchased collectively as one eightchannel package. A similar type of restructuring was addressed in our letter of inquiry ("LOI") order released on December 2, 1994, in which we resolved the regulatory status of the tenchannel a la carte package offered by Operator to its subscribers in Southern Shores,  Y -North Carolina.  F YT<ԍ #Xw PE37XP#See Falcon Cable TV, Southern Shores, North Carolina, LOI942, DA 941551,  Y?-(Cab. Serv. Bur., released Dec. 2, 1994).#x6X@`7iX@# In the LOI order, we found that the retiering in Southern Shores constituted an evasion of rate regulation. In addition, we found an evasion of rate regulation in the case of another cable operator who retiered its service offerings on September 1, 1993 to create an eightchannel a la carte package from what would have been regulated  Y-channels.6S F Y<ԍ #Xw PE37XP# See Vision Cable of North Carolina, Inc., City of Charlotte and Mecklenburg  Y-County, North Carolina, LOI 9324, DA 941552 (Cab. Serv. Bur., released Dec. 22, 1994).#x6X@`7iX@#6 In both cases, we concluded that the operator's a la carte package must be treated as a rateregulated cable programming service tier and that the channels composing it must be counted as rateregulated channels as of September 1, 1993, for purposes of completing the rate justification forms. Likewise, Operator's eightchannel a la carte package in Morganton must also be treated as a rateregulated cable programming service tier.  X- Discussion x6. In its June 24, 1994 filing, Operator did not attempt to justify its monthly price of $9.95 for its a la carte package because Operator failed to classify this eightchannel a la  Y-carte package as a CPS tier. Upon review, we also determined that Operator miscalculated its maximum permitted perchannel rate, and it is therefore appropriate to make the following adjustments to Operator's calculations in Form 393:"e 0*((l"ԌXx` ` a. Operator's calculations for its regulated rates as of the initial date of regulation (Form 393, Part II, Worksheet 1) reflect a rate of $15.99 for the basic tier and $1.00 for the CPS tier. However, these rates were not in effect on the initial date of regulation. The rates effective on the initial date of regulation were those in effect on September 1, 1993, which were set forth in the rate card provided by Operator along with its June 24, 1994 filing. We have therefore changed Part II, Worksheet 1, Line 101, to $16.99 for the basic tier and $9.95 for the CPS tier.(# Xx` ` b. Operator's calculations for its regulated rates as of the initial date of regulation (Form 393, Part I, and Form 393, Part II, Worksheet 1) reflect 27 regulated channels and 16 satellite channels. These channel counts do not include the eight a la carte channels that were offered as a package. Consistent with our decision to classify the eightchannel a la carte package as a CPS tier, we increased the number of regulated channels to 35 channels and the number of satellite channels to 24 channels.(# Xx` ` c. In Column G of Schedules A and C of Part III of its Form 393, Operator did not correctly account for its income tax expense. By placing entries in these  Yb-columns, Operator confirms that it is a taxpaying entity (i.e., a subchapter "C" corporation). However, Operator incorrectly calculated its income tax by simply applying the corporate tax rate to its return on investment. The Commission has stated that taxpaying business entities must grossup their tax entries in Column G of  Y-Schedules A and C (i.e., calculate the tax as a percentage of return on investment  Y-plus tax).aF Yl<ԍ#Xw PE37XP# First Order on Reconsideration, Second Report and Order, and Third Notice of Proposed Rulemaking, MM Docket No. 92266, FCC 93428, 9 FCC Rcd 1164, 1196 n.92 (1993) ("Our provision to grossup the return amount for income taxes applies to all tax paying business entities to the extent that they have a state or federal income tax  Y-obligation."). See also Cable Television Rate Regulation Questions and Answers Relating to FCC Form 393, Question and Answer No. 14 (released July 30, 1993) ("The federal tax  Y<expense should be calculated based upon a pretax return on investment.")#x6X@`7iX@#. By understating its tax entries in Column G, an operator reduces its effective rate of return on equipment and installations and thereby could increase its CPS prices. We therefore recalculated Column G of Schedules A and C (and subsequent steps) using correctly grossedup tax entries.(# Xx` ` d. Operator's Form 393, Part II, Worksheet 1, Line 104 entry does 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, the current monthly equipment revenue figure it entered on Line 104 should"0*((" have been close or identical to its equipment cost figure on Part III, Step G, Line  Y-34.F Yy<ԍ#Xw PE37XP# See Questions and Answers on Completion of FCC Form 393 and Associated Filing Requirements, Question and Answer No. 7 (released Nov. 10, 1993) ("Where operators have restructured equipment rates as of September 1, 1993 in accordance with our regulations . . . operators will enter on Line 104 the same, or nearly the same, number as on  Y-Line 301.").#x6X@`7iX@# However, Operator's entries on these two lines differed substantially. We therefore adjusted Line 104 to equal the amount entered on Line 34, which includes  Y-the adjustment made when using correctly grossedup tax entries.(# Xx` ` e. Because of these errors, we conclude that Operator has failed to demonstrate that its price for the CPS tier was not unreasonable. We will therefore set a price for this tier, incorporating the adjustments discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheet 1 on the basis of the most accurate data currently available for the date  Y -Operator was required to file Form 393. 6F Y<ԍ#Xw PE37XP# See 47 C.F.R.  76.922(b)(9)(iii) (if a cable operator fails to justify its rates, rates must be adjusted in accordance with the most accurate data available at the time of analysis).  On its Form 393, Operator calculated the Inflation Adjustment Factor as of the end of November 1993 using data released on December 1, 1993. On July 29, 1994, the U.S. Department of Commerce released corrected inflation data including GNPPI figures of 122.3 for the third quarter of 1992 and 125.7 for the third quarter of 1993. Using these GNPPI figures, we calculate an Inflation Adjustment Factor of 1.032 through November 1993, the base date Operator used in justifying its rate.(#  Xb- Conclusions x7. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operator's showing justifies a maximum reasonable CPS tier price of $5.12 per month (plus franchise fee) for the period starting on November 29,  Y-1993 to May 14, 1994.vF Yr<ԍ#Xw PE37XP# This finding is based solely on the representations of Operator and the modifications described herein. Should information come to our attention that these representations were materially inaccurate, we reserve the right to take appropriate action. This Order is not to be construed as a finding that we have accepted as correct any specific entry, explanation, or argument made by any party to this proceeding not specifically addressed herein.  Y-  x8. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the November 22, 1993 complaint against the cable programming service price charged by Operator in CUID No. NC0569 IS GRANTED TO THE EXTENT INDICATED HEREIN."|0*((m"  ; x9. 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 CUID No. NC0569  Y-that portion of the amount paid for cable programming service from November 29, 1993.F YK<ԍ#Xw PE37XP# Our jurisdiction to order a refund dates from the earliest date a complete and  Y4-timely complaint is filed with the Commission. See 47 C.F.R.  76.961(b).#x6X@`7iX@#. to May 14, 1994 that exceeded the maximum price of $5.12 per month (plus franchise fee), plus interest to the date of the refund. x10. IT IS FURTHER ORDERED that Operator shall promptly determine the overcharges to CPS subscribers 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 thereof. x11. 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 for CUID No. NC0569 for the period beginning May 15, 1994, to reduce the monthly charge per tier as of March 31, 1994 (Line  Y-A6b) to equal the maximum price of $5.12 (plus franchise fee).1dF Y<ԍ#Xw PE37XP# We reserve the right to make further adjustments to Operator's price for the period  Y-after May 14, 1994, upon completion of our review of Operator's Form 1200 filing.#x6X@`7iX@#1 x12. IT IS FURTHER ORDERED that Operator shall place into effect, within 30 days after 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