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 how2ftp. File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** September 18, 1995 Mr. Paul Glist, Esq. DA 95-2003 Cole, Raywid & Braverman, L.L.P. Released: September 27, 1995 1919 Pennsylvania Avenue, NW Washington, DC 20006-9750 Dear Mr. Glist: This letter is in response to your letter of June 13, 1995, on behalf of your client Viacom Cable ("Viacom") requesting clarification of the application of the going forward rules to an integrated system undergoing a rebuild. In your letter, you indicate that Viacom is involved in extensive rebuilds and upgrades of its systems. The rebuilds do not necessarily conform to CUID boundaries, but rather conform to the engineering requirements necessary to make the expansion process as efficient as possible. Because the upgraded services become available to customers as the rebuild proceeds, Viacom has implemented two rate structures to account for varying levels of service. The dual rate structure was developed using the going forward rules at the time Viacom began switching subscribers to the upgraded service. For example, some systems added FX in 1994 under the first going forward methodology (i.e., programming expense plus 7.5%), and several other channels under the second going forward methodology (i.e., 20 cents per channel plus licensing fees). Confusion arises when new services are first delivered to a subscriber in a CUID which was not served by an upgraded area before December 31, 1994. You observe that the system in your example is technically integrated and that FX was added to the common headend in 1994. All subscribers receive the same rate and channel line-up once they are cut over to the upgraded service. Hence, the issue you wish clarified concerns the timing of the implementation of the going forward rules due to the phase-in of the rebuild. The phased in rate structure your client proposes raises two questions. First, if your client will be charging different rates to subscribers within the same franchise area, does this violate the uniform rate requirements found at Section 76.984 of our rules? This arrangement would not appear to violate the uniform rates provision since the Commission has already recognized that operators may charge different rates attributable to technological differences resulting from a staged rebuild or upgrade of a system. The second and more complex question involves the application of different going forward methodologies. The Going Forward Order provides that operators must elect to apply either the original going forward methodology (i.e., programming expense plus 7.5%) or the revised going forward methodology (i.e., up to 20 cents per channel) for all rate adjustments after December 31, 1994. Viacom wants to combine the two going forward methodologies for use in additional franchise areas within the same technologically integrated system as system upgrades are brought on line. Viacom will require a waiver of the election requirement in order to use the combined methodologies in additional franchise areas as part of an ongoing system wide upgrade. The Commission has recognized the technical and financial efficiencies associated with integrated systems and has historically interpreted its rules to encourage such operations. The waiver on the restrictions regarding the combination of the two going forward methodologies appears to be consistent with the Commission policy of allowing operators to raise rates in a consistent manner as service is upgraded. Such consistency will provide a degree of predictability to operators. Accordingly, the Bureau finds that the restrictions should be waived subject to some conditions. Operators may use both going forward methodologies within a franchise area for channels added to an additional franchise area after December 31, 1994 provided that the same going forward methodology was used prior to January 1, 1995 within another franchise area of the same integrated system to add the same channel. The additional channel must be added as part of an ongoing integrated system upgrade which began before December 31, 1994. These conditions are intended to make the rate increase methodology consistent among different franchise areas within an integrated system in a manner congruent with the justification for this waiver. Future waivers of this nature will be considered only on a case- by-case basis. Sincerely, Meredith J. Jones Chief, Cable Services Bureau