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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//Appeal ORDER, Comcast Cablevision, Tallahassee, FL, DA 95-1747//$ $/76.922 Rates for the basic service tier/$ $/76.923 Rates for equipment and installation/$ $/76.944 Commission Review of Franchising Authority Decisions/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-1747 In the Matter of: ) ) TCI OF SOUTHEAST ) MISSISSIPPI ) ) Appeal of Local ) Rate Order of the City of ) Ocean Springs, Mississippi ) MEMORANDUM OPINION AND ORDER Adopted: August 7, 1995 Released: August 15, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On June 22, 1994, TCI of Southeast Mississippi ("TCI") filed an appeal of a local rate order adopted on May 23, 1994 by its local franchising authority, the City of Ocean Springs, Mississippi (the "City"). The City did not file an opposition. In its rate order, based on the FCC Form 393 filed by TCI, the City established rates for basic tier service and associated equipment and installations and required King to refund overcharges to subscribers. 2. TCI challenges the City's rate order with respect to the following issues. First, TCI argues that the City inappropriately determined that TCI violated the Commission's rate freeze, which was in effect from April 5, 1993 to May 15, 1994, and that, consequently, the rate order incorrectly sets TCI's permitted rates based on the rates that were in effect prior to the rate freeze rather than those rates that were in effect on the initial date of regulation. Second, TCI contends that the City's rate order impermissibly requires TCI to reduce its permitted per channel rate for certain channels carried on the basic service tier by 25 percent to account for certain basic tier channels delivered to subscribers at a level of "compromised quality" and to account for the inclusion of "revenue producing" channels on the basic service tier. Third, TCI claims that the City's rate order incorrectly disallows certain charges for the maintenance and repair of subscriber home wiring, including a charge based on its regulated hourly service charge and a charge based on an optional monthly wire maintenance fee. Finally, TCI asserts that the City, in calculating TCI's aggregate refund liability, must offset revenues received from rates above their maximum permitted levels with those rates that are below their permitted levels. 3. Under our rules, rate orders made by local franchising authorities may be appealed to the Commission. In ruling on appeals of local rate orders, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. The Commission will reverse a franchising authority's decision only if it determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering its local rate order. If the Commission reverses a franchising authority's decision, it will not substitute its own decision but instead will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. II. DISCUSSION 4. Form 393 is the official form used by regulators to determine whether an operator's regulated rates for programming, equipment and installations were reasonable during the time period from September 1, 1993 until May 14, 1994. Form 393 is divided into three separate, but interrelated parts. In Part II, the operator calculates its maximum permitted programming rates, while in Part III, the operator calculates its equipment and installation costs and maximum permitted equipment and installation rates. Part I is a cover sheet that lists the various programming, equipment and installation rates that have been calculated in Parts II and III and compares them to the rates the operator has actually charged during the period of review. 5. The operator's maximum permitted rates are derived by completing Parts II and III of the Form 393, pursuant to which the operator calculates the actual aggregate revenues collected by the operator for regulated programming, equipment and installation, as of the initial date of regulation ("current rate") or as of September 30, 1992. After calculating actual aggregate revenues, the operator converts those revenues to a per channel rate, and then compares the per channel figure to the applicable benchmark rate. If an operator's current per channel rate level is below the applicable benchmark rate, then the operator's rate level is deemed reasonable, but it must remain at its current level. If its current per channel rate level exceeds the benchmark rate, the operator must then compare its September 30, 1992 per channel rate level to the applicable benchmark rate. If its September 30, 1992 per channel rate level is above the benchmark rate, it must reduce this rate level to the benchmark rate or by 10 percent, whichever reduction is less. After computing the permitted rate level in this manner (whether based on current rates or September, 1992 rates), monthly equipment and installation costs are removed to derive the maximum permitted programming rates. Maximum permitted rates for equipment and installation are based on actual cost and are separately calculated in Part III of the Form 393. A. Finding of Rate Freeze Violation 6. In its rate order, the City found that TCI violated the Commission's rate freeze for cable service rates subject to regulation under the 1992 Cable Act. As a consequence, the City based the calculations for TCI's permitted rates on the rates that were in effect on April 5, 1993, rather than those rates that were in effect on the initial date of regulation. TCI argues that it did not violate the Commission's rate freeze and that the City's attempt to remedy its alleged violation of the rate freeze by adjusting TCI's permitted rates is impermissible under the Commission's rules. 7. In the Rate Freeze Order, the Commission ordered that rates of cable services subject to regulation under the 1992 Cable Act be frozen as of April 5, 1993. The Rate Freeze Order sought to ensure that cable operators not continue to raise rates, pending implementation of cable service rate regulation. The rate freeze also afforded local franchising authorities an opportunity to become certified to regulate the basic service tier and allowed consumers to become familiar with and to exercise their rights to invoke Commission oversight of cable programming service tiers. The freeze was extended until May 15, 1994 in order to provide franchising authorities and other affected parties sufficient time to become familiar with pending modifications to the Commission's rate regulations before the freeze was lifted. 8. The Rate Freeze Order required that the average monthly subscriber bill for cable services subject to rate regulation under the 1992 Cable Act could not increase above the rate level in effect on April 5, 1993. The freeze did not preclude cable operators from adding subscribers, programming offerings, equipment or other services as long as the average monthly subscriber bill was maintained during the freeze period. In addition, the freeze did not preclude cable operators from "increas[ing] the charge for a tier or provision of equipment as long as the average monthly subscriber bill [did] not increase" during the freeze period. The freeze thus permitted operators to make reasonable changes in the structure of their tiers of service in response to the Commission's rate regulations while still protecting consumers from overall rate increases. In particular, the freeze was "intended to permit changes in individual rate components while constraining increases in overall rate levels." 9. The rate freeze expired for all operators on May 15, 1994 and, with respect to any particular operator, on the date on which the operator's basic service tier became subject to regulation. Even prior to May 15, 1994, then, the freeze no longer applied to a particular operator once its franchising authority became certified to regulate rates. Because a franchising authority's certification to regulate rates triggered the end of the rate freeze, franchising authorities lacked the authority to enforce the freeze. Moreover, the Commission's rules do not affirmatively grant franchising authorities the power to find violations of the rate freeze. Enforcement rests with the Commission. Consequently, the City overstepped its regulatory authority by finding TCI's rates in violation of the Commission's rate freeze. 10. Moreover, local franchising authorities are obligated to follow the Commission's rules when reviewing an operator's rate filing. FCC Form 393 is used to review those rates in effect from the initial date of regulation until May 15, 1994. The initial date of regulation for review of basic service tier rates and associated equipment and installations is the date that a local franchising authority becomes certified with the Commission to regulate rates. The City became certified to regulate rates on December 10, 1993. Therefore, TCI was obligated under the Commission's rules to justify the rates it offered on that date, subject to refund liability dating back to September 1, 1993, not the rates that were in effect on April 5, 1993, prior to the implementation of the rate freeze. We remand this issue to the City so that it can reconsider its ruling in a manner consistent with our findings. B. Reduction of Certain Per Channel Rates 11. TCI contends that the City's rate order impermissibly requires TCI to reduce its per channel rate by 25 percent below its maximum permitted level for certain channels carried on the basic service tier. The City imposed this reduction on TCI's rates to compensate for what the City considered to be compromised signal quality on certain channels, the lack of availability of those same channels to some subscribers without the use of a converter, and the inclusion of "revenue producing channels" on the basic service tier. Specifically, the City found that the channels offering C-SPAN I and C-SPAN II, included by TCI as part of its basic service tier package, were of "unsatisfactory" signal quality. It further found that those channels were not available to some subscribers without the use of a converter. The City also found that four of the channels that TCI carried on its basic service tier were "revenue producing channels," or channels that brought in revenue to TCI from sources other than from customers' subscriptions to the basic service tier. The City concluded that this additional revenue, as well as the signal quality problem and additional equipment needs, should be factored in TCI's rate calculations. 12. In its opposition, TCI argues that the signal quality delivered on the channels offering C-SPAN I and C-SPAN II on its system is satisfactory. Moreover, TCI claims no finding has been made that TCI has violated the Commission's technical requirements. With regard to the converter issue, TCI does not dispute that some subscribers must use a converter to receive the channels carrying C-SPAN I and C-SPAN II, but it contends that this is due to the limited capacity of the television sets being used by those particular subscribers rather than the signal it delivers to the subscribers' homes. TCI claims that because its system is in compliance with the Commission's technical standards and the converters are provided to subscribers at cost in accordance with the Commission's rules, it should not be penalized by a requirement to reduce its per channel rate below the level permitted under the Commission's rate rules. Finally, TCI claims that the City has no basis under the Commission's rules to treat "revenue producing channels" differently than any other channels carried on a regulated tier. 13. We agree with TCI. Our rules do not allow the City to make this type of ad hoc adjustment to TCI's basic service tier rate. The City must follow the Commission's rules for rate regulation when reviewing an operator's rate filing. If a franchising authority does not dispute the bases for the figures presented in a cable operator's Form 393 or has not discovered any mathematical errors in the form, the franchising authority should then approve the operator's maximum permitted rates, as derived by the form. A franchising authority should not require the operator to set a particular rate for programming, equipment or installation at any rate less than its maximum permitted rate, even if its current or actual rate is below its maximum permitted rate. Instead, the franchising authority should allow the operator to charge up to its maximum permitted rates, as derived by Form 393. In this proceeding, after correcting any disputed figures or calculations in TCI's Form 393, the City should allow TCI to charge its maximum permitted rates. 14. Neither signal quality issues nor concerns about equipment compatibility may be remedied through application of the Commission's rate regulations. Rather, signal quality is subject to our rules of technical standards while equipment-related problems are addressed by our equipment compatibility rules. Under our technical rules, every operator is under an affirmative obligation to ensure that its system complies with all of the pertinent quality standards throughout the system. To secure the operator's continuing compliance with these standards, we require the operator to conduct biannual performance tests of its system and to conduct any additional tests which may be requested by the Commission or the local franchising authority. Under our rules for equipment compatibility, an operator is required to inform subscribers of potential compatibility problems and of methods for resolving those problems and to offer subscribers supplemental equipment to enable them to overcome those problems. 15. A franchising authority may not arbitrarily reduce prices for programming and equipment below maximum permitted rate levels in a purported effort to address signal quality and equipment compatibility. TCI must be allowed to charge up to the maximum permitted rates derived by Form 393 for each regulated tier of service, each regulated piece of subscriber equipment and each regulated installation. Therefore, we find that the City was unreasonable in reducing TCI's per channel rate below its maximum permitted level for the two channels carrying C-SPAN I and C-SPAN II on the basic service tier. 16. Similarly, the City should not have reduced TCI's permitted per channel rate to compensate for "revenue producing channels" carried on the basic service tier. The Commission's rate regulations direct operators to derive a permitted per channel rate. Permitted rates for tiers of service are then calculated by multiplying the per channel charge by the total number of channels carried on each particular tier. The Commission's rules do not categorize particular channels as "revenue-producing" channels nor do they reserve special regulatory treatment for such channels in the Form 393 context. The City must follow exclusively the Commission's rules in establishing an operator's permitted rates. Therefore, the City was unreasonable in reducing TCI's per channel rate for these particular channels. We remand this issue to the City so that it can reconsider its ruling in a manner consistent with our findings. C. Disallowance of Fees Related to Inside Wiring 17. TCI objects to the City's disallowance of certain charges related to the repair and maintenance of home wiring, including an optional monthly maintenance fee and an hourly rate charged for each wire maintenance-related visit made to the customer's premises. Subsequent to the filing of its Form 393, TCI began charging subscribers for the repair and maintenance of inside wiring. TCI emphasizes that customers could choose from the following four options for the maintenance and repair of inside wiring: (1) paying the regulated hourly service charge, (2) fixing the problem themselves, (3) contracting an outside party to do the work, or (4) paying a monthly wire maintenance fee. Prior to rate regulation, TCI asserts that wire maintenance was included in its rates for programming and equipment and provided to all customers at no extra cost. TCI argues that it began charging for the maintenance and repair of inside wiring to comply with the requirement that cable operators "unbundle" equipment and installation rates from the rates for the basic service tier. In its rate order, the City rejected TCI's charges for wire maintenance, consisting of the option of an hourly service charge or a monthly maintenance fee, because it determined that the maintenance and repair of home wiring was previously offered to subscribers free of charge. The City further explained that requiring a charge for a service that was offered previously free of charge constitutes an unauthorized rate increase. 18. The 1992 Cable Act and the Commission's rules require that regulated equipment and installations be offered to subscribers at rate levels reflecting the operator's costs. To establish these charges, the Commission's rules direct an operator to "unbundle" its charges for equipment and installations from its rates for programming services. Therefore, charges that were bundled with programming rates prior to rate regulation may now appear as separately calculated and itemized charges. Inside wiring is one example of such charges. Inside wiring is customer equipment, the regulatory treatment of which depends upon who owns it. For example, if an operator installs inside wiring and retains ownership of that wiring, our rules specifically provide that the rate for the lease of that equipment must be justified in Part III of Form 393. The lease rate for operator-owned wiring includes a component for maintenance costs. Under those circumstances, TCI may not also charge its subscribers a separate wire maintenance fee. On the other hand, if TCI's subscribers own their inside wiring, no lease rate would apply, but TCI's costs of providing any maintenance and repair of that wiring may be recovered through a service contract. Our rules provide that charges for such service contracts must be based on the operator's hourly service charge ("HSC") multiplied by either the estimated average number or the actual number of hours for maintenance and repair. However, the record in this appeal, with regard to the ownership of the inside wiring, is unclear. 19. If subscribers own their inside wiring, an operator may also charge a rate based on the operator's HSC for installation-related activities that were properly unbundled from its programming rates. For example, an operator may choose to charge an hourly rate for the repair and maintenance of such inside wiring for each visit the operator makes to a subscriber's premises. In its rate order, the City did not find that TCI had improperly unbundled its wire maintenance charges from its programming rates. As long as TCI does not double charge its subscribers for the repair and maintenance of inside wiring by charging individual subscribers both a fee for the monthly wire maintenance plan and an hourly rate for each home visit, TCI may continue to offer both options to subscribers who own their inside wiring. Therefore, the City may not disallow TCI's use of its hourly service charge for the maintenance of subscriber-owned inside wiring or prohibit TCI from establishing a regulated monthly wire maintenance fee or restrict its ability to offer both options as mutually exclusive methods to recoup the costs associated with the repair and maintenance of inside wiring. Accordingly, we remand this issue to the City in order to allow TCI to clarify the facts regarding the ownership of inside wiring and to reconsider its ruling in a manner consistent with our findings. D. Disallowance of Refund Offsets 20. TCI contends that the City's rate order does not calculate its refund liability correctly. TCI argues that the rate order does not allow TCI to offset its total refund liability for those rates exceeding their maximum permitted levels with those rates that were below their maximum permitted levels during the period of review. Specifically, TCI asserts that although the City's rate order correctly reports that TCI's rates for remote controls and converters exceeded their maximum permitted levels during the period of review, it fails to acknowledge that TCI's rates for installations were below their maximum permitted levels. 21. After setting the various regulated rates that an operator is permitted to charge on a prospective basis, a franchising authority should then determine if the operator is liable for any subscriber refunds. A refund liability can be imposed when an operator's actual charges exceed maximum permitted levels during the applicable period of review. If an operator's aggregate revenues computed from its actual rates exceeded its revenues computed from its permitted rates during the period of review, the operator must refund the difference to subscribers. If the operator's aggregate revenues computed from its permitted rates exceeded its aggregate revenues computed from its actual rates, the operator will not be required to issue any refunds for that period of review. In this proceeding, any refunds to be paid by TCI should be calculated based on this method. While the Commission will sustain the decisions of franchising authorities if there is a reasonable basis for doing so, we expect franchising authorities to adhere to the mathematical principles underlying the benchmark methodology, particularly when calculating an operator's refund liability. For instance, in this case, the City must offset or reduce any refunds it may order by the difference between the actual installation rates that TCI charged and the maximum permitted rates that it could have charged during the applicable period of review. We remand this issue to the City so that it can reconsider its ruling in a manner consistent with our findings. III. ORDERING CLAUSES 22. Accordingly, IT IS ORDERED that the appeal filed by TCI of Southeast Mississippi, with regard to TCI's alleged violation of the Commission's rate freeze, IS REMANDED to the City of Ocean Springs, Mississippi for resolution in accordance with the terms of this Memorandum Opinion and Order. 23. IT IS FURTHER ORDERED that TCI's appeal, with regard to the City's reduction of TCI's permitted per channel rate by 25 percent for certain channels carried on the basic service tier, IS REMANDED to the City of Ocean Springs, Mississippi for resolution in accordance with the terms of this Memorandum Opinion and Order. 24. IT IS FURTHER ORDERED that TCI's appeal, with regard to TCI's charges for the repair and maintenance of inside wiring, IS REMANDED to the City of Ocean Springs, Mississippi for resolution in accordance with the terms of this Memorandum Opinion and Order. 25. IT IS FURTHER ORDERED that TCI's appeal, with regard to the calculation of TCI's refund liability, IS REMANDED to the City of Ocean Springs, Mississippi for resolution in accordance with the terms of this Memorandum Opinion and Order. 26. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by section 0.321 of the Commission's rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau