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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** FOR RECORD ONLY $//Order, Continental Cablevision, DA 95-2160//$ $/76.922(b) Rates for basic service tier and cable programming services tier/$ $/76.956 Cable operator response/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-2160 In the Matter of ) ) Social Contract for ) Continental Cablevision, Inc. ) ORDER Adopted: October 13, 1995 Released: October 17, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On August 1, 1995, the Federal Communications Commission ("Commission") adopted an order approving the Continental Cablevision Social Contract ("Social Contract") between Continental Cablevision, Inc. ("Continental") and the Commission. Social Contract for Continental Cablevision, FCC 95-335 (released August 3, 1995). Among other things, the Social Contract is designed to provide rate stability and to increase quality of service for consumers. The Commission delegated authority to the Cable Services Bureau to oversee implementation of the Social Contract. By this Order we implement several terms of the Social Contract, clarify the procedures for prospective rate reductions and/or refunds of rates restructured pursuant to the Social Contract, and address a number of waiver related issues. II. BACKGROUND 2. The Social Contract resolves 148 pending basic service tier and cable programming service tier cost of service rate cases and 229 pending cable programming service tier benchmark rate cases. Continental is required to invest at least $1.35 billion to rebuild and upgrade all of its domestic systems from 1995 through 2000 and is required to make in-kind refunds to affected customers totalling approximately $9.5 million. By January 1, 1996, Continental shall create a lifeline basic service tier by reducing rates on the basic service tier by 15% to 20% and offset this reduction in a revenue neutral manner by adjusting the rates on the cable programming service tier. Local franchising authorities have the authority to review the initial restructured basic service tier rate that Continental establishes to assure that the rate is in compliance with the Commission's rules and the terms of the Social Contract. The Social Contract also provides that Continental may migrate up to four existing services from its cable programming service tier to a Migrated Product Tier ("MPT"). Initially, Continental is prohibited from increasing the price of any migrated channel except as permitted by the Commission's rules for inflation and external cost increases. The Social Contract further provides that Continental may add an unlimited number of channels to a MPT at $.20 per added channel plus license fees. After January 1, 1997, Continental may convert any MPT into a New Product Tier as defined by the Commission in Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Nos. 92-266, 92-215, Sixth Order On Reconsideration, Fifth Report and Order, and Seventh Notice of Proposed Rulemaking ("Going Forward Order"), provided that the tier can be purchased separately without having to buy any other tier of service other than the basic service tier. Under the Social Contract, Continental may add new services as permitted under the Commission's Going Forward Order to the cable programming service tier from 1995 to 1997, and from 1998 through 2000 Continental may conduct a second round of channel additions in accordance with the terms for channel additions permitted by the Going Forward Order. 3. The Social Contract provides for waiver of any Commission rule necessary to effectuate the terms of the Social Contract. Continental has indicated specific provisions of our rules that it believes falls within this general waiver provision. We address below a number of waiver related issues and clarify procedures necessary to implement the Social Contract Order. III. Discussion A. Rate Form i. Filing Requirements 4. As indicated above, the Social Contract provides for the creation of an MPT and requires Continental to, among other things, restructure its rates. There are no official FCC forms, however, that Continental can use to implement the rate restructuring required under the Social Contract. As a result, the Social Contract contains a provision that permits modifications to the Commission's existing forms necessary to effectuate the terms of the Social Contract. 5. On August 16, 1995, Continental submitted a proposed Social Contract Rate Form ("Rate Form") which is designed to establish the initial resetting of rates required under the Social Contract. Continental states that the proposed Rate Form provides for a reduction in the basic service tier rate by 15% to 20% to create the lifeline basic service tier and offsets the reduction in basic tier revenues in a revenue neutral manner based on per subscriber rates on the cable programming service tier. Continental further states that the proposed Rate Form reflects the rates resulting from Continental's migration of channels to an MPT. According to Continental, the proposed Rate Form starts with the Form 1200 rate as of March 31, 1994, or the current rate as defined in the Social Contract and uses the general principles and mechanics of the Form 1210 to reflect channel changes and changes in external costs from March 31, 1994, to and including January 1, 1996. Continental further indicates that the proposed Rate Form allows recovery for inflation through June 30, 1995. Continental states that the proposed Rate Form is designed to reflect all changes in rates contemplated by the Social Contract by providing for a one-time change in rates no later than January 1, 1996, reflecting all factors affecting Continental's rates through that date. Continental states that this is a one-time only form, to be used only for establishing the restructured rate that results from implementation of this Social Contract. Thereafter, Continental will establish rates in accordance with the Commission's rules and regulations utilizing FCC approved forms. 6. Continental seeks to file the Rate Form with the Commission and with all currently certified local franchising authorities to implement the initial restructuring of rates pursuant to the Social Contract. Additionally, Continental requests that we waive Sections 76.922(b) and 76.956 of the Commission's rules to permit it to file the proposed Rate Form with local franchising authorities in response to Continental being notified that the local franchising authority is certified to regulate the basic service tier or with the Commission in response to a complaint in a franchise area that was unregulated prior to the effective date of the Social Contract. We have examined Continental's proposed Rate Form for compliance with the terms of the Social Contract. In general, the proposed Rate Form uses the Commission's methodology for establishing rates on a going forward basis and provides further calculations for purposes of implementing the terms of the Social Contract. We believe that the proposed Rate Form contains sufficient information to determine whether Continental is restructuring its rates in accordance with the terms of the Social Contract. Additionally, we have received correspondence from a local franchising authority in support of using the proposed Rate Form. 7. The Commission seeks to simplify the review process for reviewing basic service tier rates and we find that the proposed Rate Form greatly simplifies the review of restructured rates under the Social Contract. The proposed Rate Form combines the principles of FCC Forms 1200 and 1210 and the goals of the Social Contract. Accordingly, we will permit Continental to file the Rate Form to effectuate the initial restructured rate with the Commission and with local franchising authorities who are regulating the basic service tier. Further, we grant waiver of Sections 76.922(b) and 76.956 of our rules to permit Continental to file the Rate Form in response to it being notified that a local franchising authority is certified to regulate rates or with the Commission in response to a complaint in a franchise area that was unregulated prior to the effective date of the Social Contract. However, we will permit Continental to use this Rate Form for basic service tier rates only to the extent that the local franchising authority agrees to review this Rate From. The local franchising authority may continue to review Continental's rates pursuant to FCC Form 1200 and 1210, taking into consideration the requirements set forth in the Social Contract. Any local franchise authority wishing to use the Rate Form may contact the Commission staff who will provide informal guidance regarding use of the form. ii. Inflation Adjustments 8. To further implement application of the proposed Rate Form, Continental asks that we waive Section 76.922(d)(2) of the Commission's rules which permits an operator to adjust rates annually for inflation. First, Continental seeks authorization to use the U.S. Department of Commerce's current estimate of the inflation rate of 2.96% for the period from June 30, 1994 to June 30, 1995 because there will not be sufficient time in some but not all cases to recalculate rates based on the final inflation figure expected to be published prior to restructuring. If Continental is permitted to use the estimated inflation rate, Continental proposes at a later date to true up its rates by the difference between the estimated inflation figure and the actual inflation rate. Continental also employed an inflation adjustment of 2.15% for the period from September 30, 1993 through June 30, 1994 in its restructuring filings for transition systems. 9. An annual inflation adjustment of 1.0296 for this past year, based on changes in the Gross National Product Price Index ("GNP-PI), was recently published by the Bureau of Economic Analysis of the United States Department of Commerce. Based on this publication, the Commission announced that operators may adjust rates for this year's inflation by 2.96% anytime between October 1, 1995 and August 31, 1996. Thus, Continental's request for a waiver of Section 76.922 (d)(2) is moot for determining inflation for the period June 30, 1994 to June 30, 1995. iii. External Costs 10. Continental asks that we grant a waiver of Sections 76.922 (d)(3)(i) and 76.922 (d)(3)(vii) to permit it to charge rates to recover external cost changes that occurred or will occur between March 31, 1994 and December 31, 1995. Continental maintains that it would have adjusted its rates or planned to modify its rates based on these external cost changes during the period September 30, 1995 through December 30, 1995, but it wanted to refrain from doing so until it could implement the terms of the Social Contract. Without this waiver Continental would restructure rates on January 1, 1996 consistent with the terms of the Social Contract and then again on February 1, 1996 pursuant to our rules to recover these external costs. We believe that waiver of Sections 76.922 (d)(3)(i) and 76.922 (d)(3)(vii) to change the period in which Continental may recover these external costs is appropriate and in the public interest. The waiver enables Continental to accomplish its rate restructuring all at one time thereby avoiding subscriber disruptions and administrative burdens associated with multiple rate filings. 11. Continental also asks that we waive Section 76.922(d)(3)(iii) of the Commission's rules to allow Continental systems the option of including in their restructured rates known programming cost increases in effect as of January 1, 1996 for all services being received by subscribers on the date of rate restructuring. According to Continental, this waiver will allow its systems to change its rates once upon restructuring in January, 1996 and these systems can avoid changing rates again after March 31, 1996, the first date it could pass through these programming cost increases under current rules. According to Continental, although its initial rate restructuring will be completed by January, 1996, not all of its systems will restructure rates in January, 1996. Therefore, Continental asks that its systems that will restructure rates before the January, 1996 deadline be allowed to take externals as of June 30, 1995 instead of recovering external costs through the most recently completed calendar quarter which ends on September 30, 1995, as required by Section 76.922(d)(3)(iii) of the Commission's rules. Continental states that changes in external costs occurring in the third quarter of 1995 in those systems that will restructure rates before January, 1996 will be reflected in the systems' next Form 1210 filing. 12. Waiver of this provision of the Commission's rules promotes a one time modification of rates on account of both the rate restructuring under the Social Contract and external cost changes. Furthermore, because Continental is basing programming costs on known and external cost change increases, subscribers are protected against paying excessive rates. As an additional protection for subscribers, we direct Continental to modify its rates if its actual programming costs are different from those projected. This "true up" should be made the same time as its next rate change plus interest. Thus, we believe that waiver of Section 76.922(d)(3)(iii) is appropriate and in the public interest. 13. Continental seeks waiver of Sections 76.922 (d)(3)(i), 76.922 (d)(3)(ii), and 76.922 (d)(3)(iii) to reflect any decreases in external costs that occurred and will occur over the period March 31, 1994 through December 31, 1995. We are aware that during the course of the negotiation of the Social Contract, Continental did not make any adjustment in rates to reflect either increases or decreases in external costs. Our rules, however, require operators to adjust rates annually to reflect decreases in external costs that have not been previously accounted for in the system's rates. We will require Continental to adjust its rates to reflect decreases in external costs for any cost decreases not previously accounted for at the time it restructures rates under the Social Contract. This will further accomplish our objective of a one time rate restructuring. B. Refunds 14. The Social Contract provides that within 30 days of its effective date Continental must submit to the Commission for its review and approval proposed in-kind refunds from which customers can choose. Continental is required to initiate in-kind refunds no later than the start of the first full month beginning 90 days after the Commission approves Continental's in-kind refund options. On August 28, 1995, Continental submitted a list of in-kind refund offers for Commission review and approval. The proposed in-kind refund options are divided into the following three price categories: (1) $2.00; (2) $4.50 - $5.00; and (3) $8.00 - $9.50 - $10.00. According to Continental, it used the following criteria as required by the Social Contract, to select the proposed in-kind refund offers: 1. the retail cost of the in-kind refunds must equal or exceed the refund obligation; 2. no customer will be required to purchase any other service in order to take advantage of the in-kind refund offer; 3. at the end of the refund offer period, the service will end unless the customer is informed about the price and has affirmatively requested that the service be continued. Continental states that each Continental system will select a minimum of three options applicable to its refund obligation including at least two options that are not a program guide. 15. Continental's proposed list of in-kind refund offers varies according to the amount of the refund owed. Depending on the price category, Continental proposes to offer, among other things, free pay-per-view movies, free converter rentals and free program guides. Continental's proposal also attempts to safeguard the interests of basic-only subscribers for whom premium services may not be a meaningful choice (because they may not have a cable converter box) by including options other than free premium or pay-per-view-services. In addition, subscribers will not be required to make an additional purchase to redeem their in- kind refund. Based on our review of the proposed in-kind refund offerings, we believe that Continental has satisfied the criteria established in the Social Contract regarding in-kind refunds. Accordingly, subject to the provision that at least two options be included that are not a program guide, we approve use of the in-kind refund options submitted by Continental and as set out in the attached Appendix A. 16. The Social Contract specifies the franchise areas that are eligible for in-kind refunds. The list is not included here, but as noted in the Social Contract, each franchise area is entitled to in-kind refunds in a specific price category. Appendix A sets forth the options available for each price category. C. Remedies 17. The Social Contract states that "in order to allow subscribers the full benefit of a low-cost lifeline basic rate, local franchising authorities will not be permitted to toll the effective date of the restructured basic service tier rates." Continental has requested that we clarify the procedural mechanism that applies if the basic service tier rates and/or the cable programming service tier rates are restructured incorrectly. Continental suggests that in order to preserve the right to order rate reductions and/or refunds, a local franchising authority should issue a written accounting order to Continental by the date the restructuring becomes effective. Continental also suggests that any refunds ordered by local franchising authorities or the Commission commence no earlier than the date rates were restructured under the Social Contract. Furthermore, Continental suggests that refunds for overcharges should be based on the difference between the corrected rates and the originally implemented restructured rates. Finally, Continental suggests that prospective reductions in the basic service tier rate or cable programming service tier rate should be limited to what the restructured rates should have been had the restructuring been implemented correctly. 18. The Social Contract sets forth who will review restructured rates. As the Commission indicates in the Social Contract, "we recognize . . . a certain level of uncertainty with respect to the jurisdictional responsibilities of the local franchising authorities. Therefore, we have negotiated a modification to the Social Contract to clarify that the jurisdictional division set forth in the 1992 Cable Act and implemented by our rules has been retained." Local franchising authorities will review the basic service tier rate and the Commission will review the cable programming service tier rates that Continental establishes. 19. Local franchising authorities should follow the same procedures in reviewing restructured rates to preserve their authority to order reductions and/or refunds as they would use to review other rates subject to certain modifications that we believe are appropriate to implement the Commission's order approving the Social Contract. These procedures incorporate the protections of the current rules and the new procedures recently adopted by the Commission. In the Matter of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 92-266, Thirteen Order on Reconsideration, FCC 95-347 (released September 22, 1995) ("Thirteenth Reconsideration Order"). Specifically, as provided by our rules, local franchising authorities will have a 30- day review period to evaluate the reasonableness of Continental's initial restructured basic service tier rate, after Continental provides notice of the rate restructuring. In the order approving the Social Contract, the Commission held that local franchising authorities will not be permitted to toll the effective date of the restructured basic service tier rate. 20. In order to implement the Commission's order with a minimum of difficulty, if the local franchising authority has not reached a decision in the initial 30-day review period, the local franchising authority need not issue an accounting order to preserve its right to require a refund after the 30-day review period. Thus, a local franchising authority may order refunds with respect to the initial restructured rate for the lesser of the period from the effective date of the restructured rate to the date of its rate order or the 12 month period preceding the date of its rate order. However, at any time before the local franchising authority issues a rate order, Continental may inquire as to whether the local franchising authority is continuing to review Continental's initial restructured rate. If Continental makes such an inquiry, the local franchising authority must respond to Continental within 15 days of receiving the inquiry. If the local franchising authority fails to respond within 15 days to Continental, the local franchising authority will lose its ability to issue refunds with respect to the initial restructured rate after the initial 30-day review period. If the local franchising authority does respond, it need only indicate whether it is continuing to review Continental's filing. Such response will preserve its right to order a refund. 21. Finally, Continental seeks clarification that where a local franchise authority or the Commission orders a reduction in the basic service tier rate or cable programming services tier rate that originally become effective pursuant to the restructuring requirement and that affects the revenue neutral restructuring provisions of the Social Contract, Continental may increase the other tier rates in a revenue-neutral manner to offset such reduction. Additionally, Continental seeks to clarify that it will be liable for refunds only to basic-only subscribers in cases where Continental's initial restructured rates for the basic service tier were reduced because Continental implemented incorrect rates. 22. Under the provisions of the Social Contract, the initial basic service tier rate and the cable programming services rate are linked. As part of the initial restructuring of rates, Continental is required to reduce the basic service tier rate by 15% to 20% to create the lifeline basic tier. The Social Contract provides that such reduction shall be offset by an adjustment to the cable programming service tier rate to create a revenue neutral rate restructuring. Because the initial rates for the basic service tier and the cable programming services tier are related, an error in setting the basic service tier or the cable programming service tier rates affects this rate relationship. Therefore, we clarify that Continental may correct the initial basic service tier rate or cable programming service tier rate, if Continental initially restructures rates incorrectly. 23. We further clarify that if it is determined that the initial basic service rate has been implemented incorrectly, any refunds ordered are limited to basic-only subscribers. This clarification only applies to the initial restructured rate. Changes in the rates due to externals and inflation are subject to review under our existing procedures. Although the basic service tier rate would decrease in this situation, Continental would be permitted to make an upward adjustment to the cable programming service tier rate to maintain the revenue neutral requirements of the Social Contract. Subscribers receiving both the basic service tier and the cable programming services tier would experience a decrease in the basic service tier rate and an upward adjustment in the cable programming service tier rate, if the revenue neutral requirements of the Social Contract were violated. D. Pending Complaints 24. The Social Contract delegates authority to the Cable Services Bureau to dismiss all pending complaints covered by the Social Contract. Accordingly, we hereby resolve all pending cable programming service tier benchmark rate cases and basic service tier and cable programming service tier cost of service cases before the Commission and all basic service tier cost of services cases pending before local franchising authorities without a finding by the Commission of any wrongdoing by Continental. E. Billing Requirements 25. Continental asks that we waive the advance notice requirements of Sections 76.309(c)(3)(i)(B) and 76.964. Continental seeks to add new services before the restructuring date for purposes of providing a free preview channel until subscribers are charged for such service as of the restructuring date. Continental states that it will not be able to provide 30 days' advance notice of a service change to all of the affected subscribers because of the short time until implementation and when the customers in Continental's systems would be notified during a billing cycle. For example, if Continental were to give subscribers notice of a service change as a billing insert in December, subscribers who are billed at the beginning of the month would receive 30 days advance notice of the change in service but subscribers who are billed later in the month would not receive 30 days advance notice of this change before the January restructuring deadline. We believe that waiver of the advance notice provisions furthers our objective of allowing Continental to implement a one-time restructuring of rates. However, will require that Continental provide notice to affected customers in the most recent bill prior to the actual implementation. IV. Ordering Clauses 26. Accordingly, IT IS ORDERED, that use of the proposed Rate Form is approved. 27. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.922(b), IS GRANTED to the extent indicated herein. 28. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.956, IS GRANTED to the extent indicated herein. 29. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.922(d)(3)(i,ii, iii and vii), IS GRANTED to the extent indicated herein. 30. IT IS FURTHER ORDERED, that approval of the in-kind refund offerings submitted by Continental Cablevision to the Commission, IS GRANTED. 31. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.309(c)(3)(i)(B), IS GRANTED to the extent indicated herein. 32. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.964, IS GRANTED to the extent indicated herein. 33. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.960, IS GRANTED to the extent indicated herein. 34. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.930, IS GRANTED to the extent indicated herein. 35. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.933, IS GRANTED to the extent indicated herein. 36. IT IS FURTHER ORDERED, that all pending complaints covered by the Social Contract for Continental Cablevision, Inc. ARE DISMISSED. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau APPENDIX A Social Contract for Continental Cablevision In-Kind Refund Value: $2.00 OPTION 1 Pay-Per-View Movie 1 Issue of Better Viewing Guide 2 Months Introductory Subscription to the Cable Guide 2 Months Interactive Program Guide Where An Addressable Converter Is Already In The Home 1 Month Free Converter Rental, If Picked Up And Returned By The Customer APPEND IX A Social Contract for Continental Cablevision In-Kin d Refund Value: $4.50. - $5.00 OPTION Installations Of Additional Outlets And Free Month of A/O Service 2 Free Pay-Per-View Movies Installation And 1 Month Of An Incremental, Premium Service 2 Issues Of Better Viewing Guide 3 Months Introductory Subscription To The Cable Guide 3 Months Of The Interactive Program Guide Where Addressable Converter Is Already In The Home VCR Hook-Up Coupon Gift For Free Installation APPENDIX A Social Contract for Continental Cablevision In-Kind Refund Value: $8.00 - $9.50 - $10.00 OPTION Installation of Additional Outlet Free Month Of A/O Service and Converter If Needed to Receive Service 3 Free Pay-Per-View Movies Installation and 1 Month Of An Incremental Premium Service 4 Issues Of Better Viewing Guide 5 Or 6 Months Introductory Subscription to the Cable Guide 5 or 6 Months Of The Interactive Program Guide Where An Addressable Converter Is Already In The Home Free Converter Rental For: A) 1 Month, If Delivered B) 3 Months, If Picked Up And Returned By the Customer VCR Hook-Up Coupon Gift For Free Installation