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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//Appeal ORDER, in Glendale, CA, DA 95-1748//$ $/76.922 Rates for the basic service tier/$ $/76.944 Commission Review of Franchising Authority Decision/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) DA 95-1748 ) SAMMONS COMMUNICATIONS, INC. ) ) Appeals of Local Rate Order ) of the City of Glendale, CA ) MEMORANDUM OPINION AND ORDER Adopted: August 8, 1995 Released: August 15, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On February 2, 1995, Sammons Communications, Inc. ("Sammons"), the franchisee in the above matter, filed an appeal of the local cable rate order ("rate order") adopted on January 3, 1994 by its franchising authority, the City of Glendale, California ("the City"). On February 14, 1995, the City filed an opposition to Sammons' appeal. Sammons did not file a reply. The rate order establishes a new regulated rate schedule for Sammons' basic service tier rates and associated equipment. Specifically, the City's rate order requires Sammons to implement certain rate reductions and to issue refunds to subscribers, dating back to July 15, 1994. 2. Sammons argues that the City, in prescribing the rate for basic service, misapplied the Commission's instructions to Line C2, Module C in FCC Form 1200. FCC Form 1200 instructs operators to indicate on Line C2 the number of regulated non-broadcast channels per tier. Sammons asserts that the City erred in finding that one of its channels (i.e., KTBN) should be classified as a broadcast channel as opposed to a non-broadcast channel. Even if the City's interpretation of the Commission's rules is correct, Sammons argues that its refund liability would not arise but for the operation of the must-carry rules, which Sammons contends are unconstitutional. Sammons urges the Commission to remand the City's rate order in light of the pendency of the legal challenge to the must-carry rules. In response, the City maintains that it correctly applied the Commission's instructions in FCC Form 1200, and that because the Commission's must-carry rules have not been declared unconstitutional by any competent court, they continue to remain in effect. II. DISCUSSION 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. Therefore, 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. 4. FCC Form 1200 is the official form used to determine whether initial regulated rates for programming are reasonable under the revised benchmark rules which apply to operators beginning May 15, 1994 or upon the expiration of the deferral period provided under our rules for operators to comply with the revisions to our rules. Through the use of Form 1200, an operator generally calculates three sets of figures: (1) the operator's actual March 31, 1994 rate level; (2) the operator's March 31, 1994 benchmark rate level; and (3) the operator's "full reduction" rate level. These figures are used to derive an operator's maximum initial permitted rates. 5. The operator first completes Module A of the Form 1200 to calculate its March 31, 1994 per subscriber monthly regulated revenue. Next, the operator completes Module B to calculate changes in external costs which the operator is entitled to reflect in its rates, but which have not yet been passed through to its subscribers. In Module C the operator enters its data with respect to a number of variables to calculate its March 31, 1994 benchmark rate level on a per subscriber, per month basis. The operator's March 31, 1994 actual rate level (Module A plus external costs calculated in Module B) is then compared to the benchmark rate level derived in Module C, with the operator carrying forward the smaller of the two. If the March 31, 1994 actual rate level is smaller, the operator completes Module D, subtracting the monthly per subscriber equipment cost calculated in Form 1205 and adding external costs calculated from Module B. If the benchmark rate level is smaller, the operator completes Module E, subtracting the monthly per subscriber equipment cost taken from Form 1205. Depending on which is used, either Module D or E establishes per-tier rates, which the operator carries forward into Module F, as its so-called provisional rates. 6. In the second part of Form 1200, the operator derives its full reduction rate based on its September 30, 1992 rates. To compute this rate, in Module G, the operator calculates its September 30, 1992 total monthly regulated revenues per subscriber, reduces that amount by 17%, and adjusts upward by 3% to reflect the inflation from September 30, 1992 until September 30, 1993. In Module H, the operator then adjusts the results from Module G for changes since September 30, 1992 with respect to the number of regulated channels carried. In Module I, the operator subtracts a monthly per subscriber equipment cost amount from Form 1205, establishes per-tier rates, and adjusts for changes in external costs. In Module J, the operator compares its aggregate provisional rate with its aggregate full reduction rate. The maximum permitted rates an operator is actually allowed to charge are either the provisional rates (Module F) or the full reduction rates (Module I), depending on whether the aggregate provisional rate is greater or less than the aggregate full reduction rate. The maximum permitted rates are entered into Module K. In addition to Form 1200, an operator may file Form 1210, up to quarterly, to claim changes in external costs, the number of regulated channels and inflation that justify rate increases. A. Line C2 of Form 1200 7. In computing its benchmark rate level in Module C, an operator is required to provide entries for the various benchmark variables. The benchmark formula is intended to derive a rate level which approximates the level a similarly situated operator subject to competition would charge. The benchmark rate level is based on the benchmark variables, which include, for example, the number of subscribers, the number of regulated channels, and the number of additional outlets charged. The benchmark formula's only function in the new system is to determine which operators are "low-priced" operators subject to transition relief and therefore not required to set their rates based on their full reduction rates. An operator with (i) a current, i.e., March 31, 1994, rate level below the benchmark rate level or (ii) a current rate level above the benchmark rate level but with a full reduction rate level below the benchmark, is a low-priced operator. The low-priced operator with a current rate level below the benchmark generally does not have to reduce its rate level, and the low-priced operator with a current rate level above the benchmark rate level but with a full reduction rate level below the benchmark is required to reduce its rate level only to the benchmark. 8. Included among the variables used in the benchmark formula is the number of regulated non-broadcast channels per tier. FCC Form 1200 instructs the operator to indicate in Module C, Line C2, the number of regulated non-broadcast channels per tier as of March 31, 1994. FCC Form 1200 defines non-broadcast channels as "channels other than broadcast signals that are receivable off-the-air by the cable system. For purposes of this definition, broadcast signals received via satellite or relayed to the cable system via microwave and not receivable off-the-air by the cable system are considered non-broadcast signals." According to the City's consultant, classifying KTBN as a broadcast channel as opposed to a non- broadcast channel has the effect of reducing Sammons' basic service tier rates. 9. According to the City, Sammons counted local station KTBN as a non- broadcast channel on its Form 1200, which the City contends is inconsistent with FCC instructions for Line C2, which provide that a channel is not a non-broadcast channel if it is also "receivable off-the-air by the cable system." The City and its consultant told Sammons that it appeared to them that KTBN can be received off-the-air by Sammons' cable system in the City. The City then requested that Sammons provide justification for its designation of KTBN as a non-broadcast channel on its Form 1200. Sammons responded, but the City asserts that Sammons' response was inadequate since it did not address the specific instructions to Line C2 of Form 1200, but rather was an historic commentary regarding the history of reception problems relating to KTBN. According to the City, it made further requests for justification, but Sammons' responses continued to be inadequate. The City charges that Sammons failed to provide reasonable proof that KTBN could not be received off-the-air by its cable system at the time of the Form 1200 filing. 10. Sammons, on the other hand, argues that the City, in its rate order, incorrectly found that KTBN should be classified as a broadcast channel. Sammons maintains that it properly counted KTBN as a non-broadcast channel since KTBN was received by its system via satellite and it was not aware that its system could receive the signal off-the-air at the time it filed Form 1200. Sammons argues that because KTBN did not provide good quality off-the-air signal in the past, its determination that KTBN would not be receivable off-the-air at the time it filed Form 1200 was reasonable. Sammons, however, notes in its Appeal that, it "has since learned, after experiencing quality problems with the satellite feed, that KTBN's off-the-air signal quality has improved. Accordingly, in November of 1994 Sammons switched its carriage of KTBN to the off-the-air signal." Nevertheless, Sammons insists that it properly listed KTBN as a non-broadcast channel on its Form 1200 since, at the time of the Form 1200 filing, KTBN was received by Sammons via satellite. 11. We find that the City's decision is consistent with our instructions for Line C2 of Form 1200 and reasonable. The Form's instructions provide that a channel is not classified as a non-broadcast channel if it can also be received off-the-air by the cable system, notwithstanding that it is a broadcast signal actually received via satellite by the system. Based on the evidence in the record, we conclude that it was not unreasonable for the City to find that Sammons did not provide adequate proof that KTBN could not be received "off-the-air" by its cable system. There is nothing in the record to indicate that Sammons presented any evidence as to whether KTBN could be received over the air in March, 1994. We will, therefore, affirm the City's rate order on this issue. B. Must-Carry 12. Sammons asserts that the rate order should be overturned on the ground that mandatory carriage of KTBN, which is required under the Commission's must-carry rules, is unconstitutional. The must-carry provisions of the 1992 Cable Act require cable television systems to devote a portion of their channels to the transmission of local broadcast television stations. The constitutionality of the must-carry provisions of the 1992 Cable Act is the subject of continuing litigation in the federal courts. While the case is pending, the must- carry provisions of the 1992 Cable Act remain in effect, as do the Commission's must-carry rules. Despite that, Sammons appears to request in its appeal that we remand the rate order back to the City, given the pending legal challenge to the must-carry rules, on the theory that if the must-carry rules are declared unconstitutional by the federal courts, then Sammons would not incur any refund liability. The result that Sammons envisions with respect to the existing litigation surrounding the must-carry rules, however, is mere speculation. We must base our decision on the applicable laws that are currently in effect. Additionally, no court of competent jurisdiction has ordered the Commission to stay the enforcement of the must- carry rules. We will therefore deny Sammons' request with respect to this issue. III. ORDERING CLAUSES 13. Accordingly, IT IS ORDERED that Sammons Communications, Inc.'s appeal of the local rate order of the City of Glendale, California IS DENIED. 14. IT IS FURTHER ORDERED that the Request for Stay of the City of Glendale's rate order filed by Sammons Communications, Inc. IS DISMISSED as moot. 15. 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