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. ***************************************************************** ******** FOR RECORD ONLY $//Letter, Continental Cablevision, DA 95-2203//$ $/Request for Clarification/$ $/76.981 negative option billing/$ FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 October 20, 1995 IN REPLY REFER TO: DA 95-2203 Released: October 20, 1995 Ms. Frances J. Chetwynd Cole, Raywid & Braverman, L.L.P. 1919 Pennsylvania Ave., N.W. Washington, DC 20006-3458 Dear Ms. Chetwynd: This letter is in response to your letter of July 24, 1995, in which American Cablesystems of Florida, Ltd., a subsidiary of Continental Cablevision, Inc., d/b/a Continental Cablevision of Broward County ("Continental"), requests confirmation that certain rate and service restructurings implemented by it on August 31, 1993 do not violate the Commission's prohibition against negative option billing. In addition, Continental requests confirmation that, to the extent Florida law would have required Continental to seek affirmative consent from subscribers to accomplish such restructurings, Florida law is inconsistent with federal regulation and is, therefore, preempted. Continental further requests confirmation that the manner in which it notified subscribers of its rate and tier restructurings and the way in which it billed subscribers for its restructured services complies with the procedures stipulated in the Commission's order, released on July 27, 1993 in MM Docket 92-266, FCC 93-372 ("the July 27 Order"). Continental indicates that a copy of its letter was also sent to Ted Edwards, the attorney for the plaintiff in a pending lawsuit against Continental concerning alleged negative option billing practices (Pala v. Continental Cablevision, Inc.). The Commission has not received a reply to Continental's letter. Continental alleges that it restructured its service offerings in Broward County, Florida on August 31, 1993, one day prior to the effective date of cable rate regulation. Continental asserts that its expanded basic service package, designated "Total TV Package", consisted of 46 channels both before and after its August 31, 1993 restructuring. Continental states that prior to restructuring, the 46-channel "Total TV Package" included two levels of service: (1) a 21-channel basic service tier known as "Lifeline Basic" available at a monthly charge of $10.00 and (2) a 25-channel cable programming service tier known as "Satellite Service" available at a monthly charge of $13.85. According to Continental, the "Total TV Package" could be purchased for $23.85 per month. Continental states that on August 31, 1993, it restructured its "Total TV Package" to consist of three levels of service: (1) a 21- channel basic service tier called "Lifeline Basic" available at $10.59 per month; (2) a 22- channel cable programming service tier known as "Satellite Service" available at $14.01 per month; and (3) a 3-channel package designated the "Plus Package" priced at $1.83 per month. After August 31, 1993, the "Total TV Package" was available for a monthly charge of $26.43. Continental contends that the 3-channel "Plus Package" consisted of two channels previously included in "Lifeline Basic" and one channel previously included in "Satellite Service". Continental explains that, partly in response to the must carry rules, some channels were added to "Lifeline Basic" to retain the total number of channels at 21. Continental notes that the channels making up the"Plus Package" were not offered on an individual or a la carte basis. Continental indicates that effective September 1, 1993, existing "Total TV Package" subscribers were automatically subscribed to the new 3-channel "Plus Package". Continental explains that it is the defendant in a class action lawsuit now pending in Florida state court, Pala v. Continental Cablevision, Inc., in which the plaintiff alleges that Continental's restructuring in August/September 1993 violated Section 623(f) of the Communications Act, 47 U.S.C.  543(f), Section 76.981 of the Commission's rules, 47 C.F.R.  76.981, and Florida state law. Consequently, Continental seeks confirmation of the following assertions: (1) that Continental's tier restructuring on August 31, 1993, and in particular the introduction of the "Plus Package" and the delivery of that programming to all "Total TV Package" subscribers, is in compliance with all Commission rules, including those on negative option billing; (2) that to the extent, if any, that Florida rules on negative option billing would have required Continental to give notification to subscribers and obtain affirmative subscriber consent for rate and tier restructuring, Florida law was preempted by the July 27 Order; (3) that the manner in which Continental notified subscribers of the rate and tier restructuring is in compliance with all Commission rules, including those on negative option billing; and (4) that the manner in which Continental billed subscribers for its restructured services, including the adjustments made in September for charges previously billed in August, is in compliance with Commission rules and with the July 27 Order. Section 623(f) of the Communications Act, 47 U.S.C.  543(f), states that "[a] cable operator shall not charge a subscriber for any service or equipment that the subscriber has not affirmatively requested by name." It further specifies that "a subscriber's failure to refuse a cable operator's proposal to provide such service or equipment shall not be deemed to be an affirmative request for such service or equipment." This prohibited billing practice is commonly referred to as negative option billing. In the Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket 92-266, Report and Order and Further Notice of Proposed Rulemaking, 8 FCC Rcd 5631 (1993), the Commission explained that the prohibition against negative option billing applies to "additions of a new tier of service or a new single channel service without the affirmative assent of a subscriber." Id. at  440. It added, however, that the negative option billing provision does not apply to "a change in the mix of channels in a tier, including additions or deletions of channels . . . unless they change the fundamental nature of the tier" or to rate increases unless the price change is accompanied by a fundamental change in service, such as the addition of a new tier. See id. Further, it stated that restructuring of tiers and equipment will not bring the prohibition into play if the subscribers continue to receive the same number of channels and the same equipment unless the restructuring effects a fundamental change in the nature of the service. Id. at  440-441 & n.1105. The Commission's rule on negative option billing is set forth in Section 76.981, 47 C.F.R.  76.981. In a Memorandum Opinion and Order released in Warner Cable Communications, Milwaukee, Wisconsin, LOI-93-14, 10 FCC Rcd 2103 (1995) ("Warner-Milwaukee"), we determined that the negative option billing prohibition was not violated in the context of a restructuring similar to the facts that Continental alleges. In that case, the cable operator moved two channels from the basic tier and two channels from a cable programming service tier to create a four channel a la carte package on September 1, 1993, the effective date of our rate regulations. The operator also automatically subscribed its customers to individual a la carte channels and the a la carte package of four channels so that they received the same channels they had prior to the restructuring. We found that, under the circumstances of that case, no negative option billing had occurred. The Court of Appeals for the Seventh Circuit also examined Time Warner's billing practices and restructuring in Milwaukee and determined that the operator's actions were permitted by the federal regulation on negative option billing. See Time Warner Cable v. Doyle, No. 94-1894, slip op. at 27, __F.3d__ (7th Cir. Sept. 25,1995). In addition, the Commission determined that certain restructurings implemented by Comcast Cablevision and C-TEC Cable Systems on or about September 1, 1993 did not violate the federal prohibition against negative option billing. See Comcast Cablevision, Tallahassee, Florida, LOI-93-2, 10 FCC Rcd 2106 (1995) and In the Matter of Letters of Inquiry on Negative Option Billing, LOI-93-1, et al., 10 FCC Rcd 2139 (1995). Copies of Commission orders in all of these cases are attached. With regard to the issue of preemption, in Warner Milwaukee we noted that in the Going Forward Order the Commission stated that it specifically contemplated that, as part of the process of complying with the initial introduction of rate regulation, cable operators would have the flexibility and in some cases be required to retier, divide, or unbundle their service offerings on a faster than usual schedule without complying, for example, with notice or other requirements generally applicable. Warner-Milwaukee at 12 (citing Sixth Order on Reconsideration and Seventh Notice of Proposed Rulemaking ("Going Forward Order"), Docket Nos. 92-266 and 93-215, 10 FCC Rcd 1226 at  119 (1994)). Therefore, we signaled our belief in Warner-Milwaukee that state negative option billing rules would be preempted in that case by stating that it was "one of those situations that the Commission has previously referenced where state and local officials may not enforce negative option billing rules that would obstruct the accomplishment of the objectives of Congress's cable rate provisions. " Id; see also Time Warner Cable v. Doyle, No. 94-1894, __F.3d__ (7th Cir. Sept. 25, 1995); Memorandum, Ninth Judicial Circuit of Florida, to Ted B. Edwards, et al., October 11, 1995, re: Mauldin and Cooley v. Time Warner Entertainment Company, L.P. (Case No. CI 93-6998). If the facts are as Continental has described in its letter, then the attached orders on negative option billing, would be dispositive of the Bureau's view and, in particular, the conclusions reached in our Warner-Milwaukee decision would apply. In its letter, Continental also requests confirmation that it complied with the notice and billing provisions of the Commission's July 27, 1993 Order. The July 27 Order moved the effective date of cable service rate regulation from October 1, 1993 to September 1, 1993. To support the transition to this new effective date, the Commission's July 27 Order also preempted state or local notice requirements and waived the Commission's own notice requirements contained in 47 C.F.R. Sections 76.932, 76.964, and 76.309(c)(3)(i)(B) until September 1, 1993 to permit cable operators to restructure rates and services up until September 1, 1993 without prior notice to subscribers. The Commission stated that cable operators could implement rate and service changes to comply with rate regulation by "taking reasonable steps, such as public notices in newspapers and on-screen messages over the cable system" to announce such new offerings at any time prior to 12:01 a.m. September 1, 1993. July 27 Order at  8. In its letter, Continental states that it notified subscribers of new rates and service offerings by public notices in local newspapers and on-screen messages over the cable system. Continental asserts that prior to September 1, 1993 subscribers also received a first class mailing concerning rate regulation changes which Continental attaches to its letter. If, prior to September 1, 1993, Continental did in fact provide subscribers with the kind of notice it describes in its letter, it would appear that Continental complied with the notification provisions of the July 27 Order. The July 27 Order also addressed billing issues raised by the September 1, 1993 effective date of cable service rate regulation. Specifically, the July 27 Order permitted cable operators unable to conform subscriber bills to reflect restructured rates and services effective September 1, 1993 to make those changes as soon as practically possible, but no later than October 1, 1993. In its letter, Continental explains that bills received by subscribers in August of 1993 covered some services in September and reflected old rates for that portion of September covered by the August bill. Continental states, however, that the bills it sent out in September of 1993 included adjustments to charges previously made for September service to reflect new rates and tier structures. The July 27 Order is reflective of a unique episode in the implementation phase of the rate regulation provisions of the 1992 Cable Act. Congress was concerned that system operators had been and were continuing to charge rates that were not subject to appropriate regulatory controls and found it imperative that such controls be introduced without delay. As reflected in the July 27 Order (advancing the effective date of the rules from October 1, 1993 to September 1, 1993), administrative resource issues first delayed and then accelerated the effective date of the rules. Changes in billing practices associated with the introduction of regulation and in particular with the restructuring and unbundling of service offerings, imposed heavy compliance burdens. To facilitate this unique implementation phase of the regulatory process, the July 27 Order of necessity suspended certain notice and billing practice requirements that would otherwise have been associated with these changes. State or local requirements in conflict were necessarily preempted to make compliance with the introduction of both federal and local rate regulation possible. The efforts described by Continental were associated with the effective date of the new rules. Thus, assuming, as Continental alleges, that all of its billing adjustments to conform charges to reflect the new rates and service effective September 1, 1993 were completed by no later than October 1, 1993, Continental's efforts would comply with the billing cycle requirements of the July 27 Order. Sincerely, Meredith J. Jones Chief, Cable Services Bureau cc: Ted Edwards, Esq. (attorney for plaintiff Pala)