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. ***************************************************************** ******** $//Jones Intercable, Inc., CA, MO&O, DA 95-2087//$ $/76.922 for Cable Programming Service tiers/$ $benchmark ca ble rates/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-2087 In the Matter of ) ) Jones Intercable, Inc. ) CUID Nos. CA0396 (Oxnard) ) CA0397 (Port Hueneme) Benchmark Filings to Support ) Cable Programming Service Prices ) MEMORANDUM OPINION AND ORDER Adopted: October 2, 1995 Released: October 16, 1995 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. Here we consider complaints about the prices that the above-captioned operator ("Operator") was charging for its cable programming service ("CPS") tiers in the communities referenced above. Operator has chosen to attempt to justify its prices through benchmark showings on FCC Form 393. This Order addresses the reasonableness of Operator's prices only through May 14, 1994. At a later date we will issue a separate order addressing the reasonableness of the prices 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 complaints in each of the franchise areas which are the subject of this Order were completed and served on Operator and received by the Commission on the dates set forth on the Appendix. In response for CUID No. CA0396, Operator filed FCC Form 393 on November 15, 1993; Operator has also filed amended and supplemental Form 393 filings, most recently on June 6, 1994. For CUID No. CA0397, Operator filed a single FCC Form 393 on May 17, 1994. 5. Operator asserts that its monthly CPS prices of $5.82 (plus franchise fee) for Tier 2 and $6.35 (plus franchise fee) for Tier 3 are justified by its benchmark filings because its prices are lower than the maximum permitted charge as calculated in the filings of $5.84 (plus franchise fee) for Tier 2 and $6.37 (plus franchise fee) for Tier 3. Upon review of Operator's Form 393 filings, we have found that it has not correctly calculated its maximum permitted prices, and it is therefore appropriate to make the following adjustments to Operator's calculations in Form 393: a. In its most recent amended filing, Operator entered $14.75 for the basic service tier, $4.25 for CPS Tier 2 and $4.95 for CPS Tier 3 on Form 393, Part II, Worksheet 1, Line 101 as its monthly rates as of the initial date of regulation. However, Operator's rate card indicates that its rates in effect on the initial date of regulation were $13.89 for the basic service tier, $6.11 for CPS Tier 2 and $6.67 for CPS Tier 3. The instructions to Form 393 require the operator to enter on Line 101 its actual rates in effect on the initial date of regulation. We have therefore adjusted Line 101 using the prices for the basic and CPS tiers shown on Operator's rate card. b. In Column G of Schedules A and C of Part III of its FCC Form 393, Operator did not correctly account for its income tax expense. By placing entries in these columns, Operator confirms that it is a tax-paying 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 tax-paying business entities must gross-up their tax entries in Column G of Schedules A and C (i.e., calculate the tax as a percentage of return on investment plus tax). 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 grossed-up tax entries. c. In Column D of Schedule A of Part III of its FCC Form 393, Operator incorrectly entered negative deferred taxes. We therefore recalculate Column D of Schedule A (and subsequent steps) using amounts which were adjusted to zero. 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 have been close or identical to its equipment cost figure on Part III, Step G, Line 34. 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 the correctly grossed-up tax entries. e. Operator did not follow Commission Rules or Instructions to Form 393 regarding the unbundling of equipment charges from programming and other charges. Operator did not record any costs on Part III, Schedule C for remote control devices, even though the existence of such devices was admitted by Operator in a response to a FCC information request ex parte. Operator further stated that the costs for the remote control devices were included with the costs for converters, which are recorded on Part III, Schedule C. Therefore, for the purpose of determining Operator's rates, the remote control devices are accounted for by virtue of their inclusion with converter costs even though they are not properly unbundled. f. Operator's calculations for its Benchmark Channel Rates (Lines 121 and 220) appear to be based upon 48 regulated channels and 30 satellite channels, which yields a benchmark channel rate of .477. Our examination of the channel line-up cards reveals 48 regulated channels and 29 satellite channels. Accordingly, we reduced the number of satellite channels by 1, which yields a benchmark channel rate of .475. g. In its Form 393 filing of June 6, 1994, Operator incorrectly calculated the Inflation Adjustment Factor (Form 393, Part II, Worksheet 1, Line 127, and Form 393, Part II, Worksheet 4, Line 401). Lines 122 and 125 of Form 393 require the operator to enter Gross National Product Price Index ("GNP-PI") data for the latest quarter for which data is available that ended before the date through which the Inflation Adjustment Factor is calculated. On its most recent Form 393, Operator calculated the Inflation Adjustment Factor through September 1993. However, Operator completed Lines 122 and 125 using updated GNP-PI data for the first quarter of 1993 (released May 28, 1993), when updated data was available at least through the second quarter of 1993 (released August 31, 1993). Operator's calculation of the Inflation Adjustment Factor is therefore incorrect. h. We must therefore recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available in accordance with the Form 393 instructions. On July 29, 1994, the Department of Commerce released corrected inflation data including 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 of 1.028 through September 1993, the base date Operator used in justifying its rates. 6. Upon review of the record herein, and having incorporated the adjustments discussed above, we conclude that Operator has failed to justify the rates it was charging during the periods in question. Operator's showing justifies the maximum reasonable CPS tier price of $5.77 (plus franchise fee) for Tier 2 and $6.29 (plus franchise fee) for Tier 3 for the period from the filing of the earliest complaint in each franchise area (as set forth in the Appendix) to May 14, 1994. However, we further determine that the total overcharge per subscriber is de minimis. Therefore, it would not serve the public interest to order a refund. 7. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the complaints referred to in the Appendix against the cable programming service prices charged by Operator in the franchise areas referenced in the caption and at the Appendix herein, and all other complaints in these franchise areas related to the same prices, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 8. 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 filings with respect to the franchise areas listed herein, for the period beginning May 15, 1994, to reduce the monthly charge per tier as of March 31, 1994 for Tiers 2 and 3 (Lines A6b and A6c) to equal the maximum prices of $5.77 and $6.29, respectively (plus franchise fee). 9. IT IS FURTHER ORDERED that Operator shall place into effect, within 30 days after its submission of the revised Form 1200 filings required above, prices that reflect the reductions in the CPS rates determined in this Order. FEDERAL COMMUNICATIONS COMMISSION JoAnn Lucanik Chief, Financial Analysis and Compliance Division Cable Services Bureau Appendix CUID No. Date First Complaint Date Complaint Filed with FCC Served CA0396 10/21/93 10/16/93 CA0397 02/28/94 02/28/94