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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** FOR FCC RECORD ONLY $//Order, Social Contract for Time Warner, DA 95-2491//$ $/76.922 Rates for the basic service tier and cable programming services tier/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-2491 In the Matter of ) ) Social Contract for ) Time Warner Cable ) ORDER Adopted: December 15, 1995 Released: December 15, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On November 30, 1995, the Commission adopted an order approving the Time Warner Social Contract ("Social Contract") between Time Warner Cable ("Time Warner") and the Commission. Social Contract for Time Warner Cable, FCC 95-477 (released November 30, 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 manner in which Time Warner may provide advance notice of initial changes in rates and services to subscribers, specify when Time Warner may commence rate restructuring to create the lifeline basic service tier, establish 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 all of Time Warner's pending cable programming services tier rate cases, including cable programming services tier rate cases involving cable systems Time Warner recently acquired from Houston Industries (KBLCOM) and Newhouse Broadcasting Corporation ("Newhouse"). To resolve these cases, Time Warner will make cash refunds in the form of bill credits to affected customers totaling approximately $4.7 million plus interest. Basic service tier rate cases currently pending before local franchising authorities are not resolved by the Social Contract. Those cases will continue to be resolved by Time Warner and local franchising authorities pursuant to Commission rules. Time Warner is required to create a low-cost, lifeline basic service tier on systems serving at least 85% of Time Warner's total subscribers by reducing the basic service tier rate of such systems by 10% and by offsetting this reduction in a revenue neutral manner by adjusting cable programming services tier rates. 3. The Social Contract further provides that Time Warner may migrate up to four existing services from its regulated tiers to a Migrated Product Tier (MPT) in those systems where a la carte packages were not created through migration of services from regulated tiers, and permits Time Warner to create MPTs containing no more than six services by restructuring the a la carte packages created by certain Newhouse systems purchased by Time Warner. On and after April 1, 1997, Time Warner 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. 4. Under the Social Contract, with respect to each of its systems, Time Warner will be permitted to increase the monthly rate of the cable programming services tier having the greatest number of subscribers by $1.00 during each year of the Social Contract, beginning on January 1, 1996. During this period, the only other permitted increases to Time Warner's cable programming services tier rates will be for inflation and external costs except for those systems that either return a la carte channels to regulated tiers in connection with the creation of MPTs or that shift channels from the basic service tier to a cable programming services tier to create a lifeline basic service tier. Except where a roll-out of new channels has already commenced prior to August 3, 1995 (the Publication Date of the Social Contract), Time Warner will not avail itself of any additional per-channel adjustment permitted by the Commission's Going Forward Order. Time Warner will forego its right to use cost of service justifications to justify any future rate increases during the term of the Social Contract unless a franchise agreement or local franchising authority imposes capital obligations in excess of the Social Contract. 5. The Social Contract also requires Time Warner to invest $4 billion to rebuild and upgrade all of its domestic systems from 1995 through 2000. The Social Contract further requires Time Warner to elect to utilize the Commission's recently adopted annual rate adjustments rules, In the Matter of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 92-266, Thirteenth Order on Reconsideration, FCC 95-347 (released September 22, 1995) ("Thirteenth Reconsideration Order"), obligates Time Warner to provide connections, services and other benefits to public and private schools as specified in the Social Contract, addresses the ability of Time Warner subscribers to remove, replace, rearrange, or maintain home wiring, and allows Time Warner to establish equipment and installation rates on a regional basis, subject to review by the Commission and enforcement by local franchising authorities. 6. The Social Contract provides for waiver of any Commission rule necessary to effectuate the terms of the Social Contract. Time Warner has identified specific provisions of our rules that it believes fall within this general waiver provision and has requested additional waivers of our rules. We address below a number of waiver related issues and clarify procedures necessary to implement the Social Contract Order. III. Discussion A. Rate Form 7. As indicated above, the Social Contract provides for the creation of MPTs and requires Time Warner to, among other things, restructure its rates. There are no official Commission forms, however, that Time Warner 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. 8. On December 1, 1995, Time Warner submitted two proposed Rate Forms, the Lifeline Rate Restructuring Form ("Lifeline Form") and the Annual Rate Adjustment Form ("Annual Form") for Commission review. On December 15, 1995, Time Warner submitted a revised Annual Form. The Lifeline Form is designed to establish the initial lifeline basic rate restructuring required under the Social Contract. Time Warner states that the Lifeline Form starts with the basic service tier and cable programming services tier rates in effect as of August 3, 1995, or such rates as may take effect after August 3, 1995, for which notice was given to subscribers prior to August 3, 1995, and shows calculations necessary to make the required 10% adjustment in the basic service tier rate and the offsetting, revenue neutral adjustment in the cable programming services rate. The Lifeline Form is a one-time only form, which Time Warner proposes to submit to the Commission and to all certified local franchising authorities by December 31, 1995, to be used only for establishing the restructured rate that results from implementation of this Social Contract. Thereafter, for the period covered under the Social Contract, Time Warner will establish rates in accordance with the Commission's rules and regulations and in conformance with the requirements of the Social Contract. 9. The Annual Form is designed to be used to establish the permitted annual adjustments to basic service tier and cable programming services tier rates for Time Warner's systems during the term of the Social Contract. Because the Social Contract requires Time Warner to adjust its rates on an annual, rather than quarterly basis consistent with the Thirteenth Order on Reconsideration, Time Warner states that it uses the general principles and mechanics of the FCC Form 1240 to reflect all changes and adjustments in rates permitted by the Social Contract including the $1.00 annual increase in cable programming services rates, the adjustment to cable programming service tier rates resulting from the creation of new MPTs pursuant to the Social Contact, and adjustments to the basic service tier and/or cable programming services tier resulting from the shifting of channels to create MPTs or low-cost, lifeline basic service tiers, and any other adjustments to reflect external costs and inflation. 10. We have examined Time Warner's proposed Lifeline and Annual Forms for compliance with the terms of the Social Contract. The proposed Rate Forms utilize the Commission's methodology for establishing rates on a going forward basis, providing further calculations for purposes of implementing the terms of the Social Contract. We believe that the proposed Rate Forms contain sufficient information to determine whether Time Warner is restructuring its rates and services in accordance with the terms of the Social Contract. 11. The Commission seeks to simplify the review process for reviewing basic service tier rates and we find that the proposed Rate Forms greatly simplify the review of restructured rates under the Social Contract. The proposed Rate Forms combine the principles of FCC Form 1240 and the goals of the Social Contract. In the Order adopting the Social Contract, we waived Sections 76.922(b), 76.930, and 76.956 of our rules to permit Time Warner to use the Annual Form and the Lifeline Form in situations where systems become newly regulated. Consistent with our standards regarding the submission of non-official Commission forms to local franchising authorities established in the Order adopting the Social Contract for Continental Cablevision, FCC 95-335 (released August 3, 1995), Time Warner may submit these forms to justify its rates. However, the local franchising authority may review Time Warner's rates pursuant to FCC Form 1240, taking into consideration the requirements set forth in the Social Contract. If the local franchise authority determines to review the Lifeline and Annual Rate Forms, the Commission staff will be available to provide informal guidance regarding use of these forms. B. Prior Approval Requirements 12. The Order adopting the Social Contract grants Time Warner, among other things, a one-time waiver of Sections 76.933 and 76.964 of our rules to allow it to implement rate and service restructuring and annual rate adjustments to the basic service tier and cable programming services tier on 30 days' notice or less. Under Sections 76.933(g) and 76.960 of the Commission's rules, certified local franchising authorities and the Commission are required to give approval of certain rate and service changes before such changes may be made by a cable operator. In order to facilitate the expeditious implementation of the initial rate restructuring and service changes by Time Warner under the Social Contract, we hereby waive the prior approval requirements by certified local franchising authorities and the Commission. With respect to the basic service tier rate, Time Warner may implement rate restructuring and service changes on the Initial Implementation Date without the prior approval of the local franchising authority, but only to the extent that net basic service tier rates will be reduced. We believe that this waiver is appropriate and in the public interest to effectuate the terms of the Social Contract. 13. Time Warner states that it will provide subscribers with advance notice of the initial changes in rates and services established pursuant to the Social Contract by the best practicable alternative means, such as advertisements in newspapers which circulate generally in the affected cable service areas or on-screen announcements. Time Warner further states that it will provide a written notice to all local franchising authorities of any rate and service changes initially implemented pursuant to the Social Contract as soon as practicable. Additionally, Time Warner states that it will also provide written notice of such changes to subscribers with the first bill reflecting such rate and service restructuring or through a separate mailing distributed prior to or concurrently with such billing statements. 14. Systems to be acquired by Time Warner from Cablevision Industries Corporation ("CVI") are included under the Social Contract. Time Warner maintains that because consummation of the CVI acquisition is tentatively scheduled for shortly after January 1, 1996, it will be impossible for Time Warner to implement the Social Contract as to the CVI systems on January 1, 1996, as is contemplated for current Time Warner systems. Thus, Time Warner asks for a waiver of Commission notice requirements and preemption of local notice requirements analogous to that granted to current Time Warner systems. For example, if the CVI transaction closes in the month of January 1996, Time Warner requests that it be allowed to commence implementation of the Social Contract on February 1, 1996, provided that notice is provided to subscribers and local franchising authorities by the best practicable means at any time prior to that date. If Time Warner is unable to implement rate restructuring and service changes on February 1, 1996, Time Warner requests that it be allowed to commence such implementation on March 1, 1996, provided that notice is given by the best practicable means on or before February 1, 1996. Time Warner states that after the initial restructuring takes place, the CVI systems would revert to January 1 as the annual adjustment date and that future notice of rate and service changes would be provided pursuant to Commission rules and state and local requirements. We believe that waiver of the Commission's notice requirements and preemption of state and local notice requirements are in the public interest in order to expeditiously implement the initial rate restructuring and service changes required under the Social Contract. In addition, as required for current Time Warner systems, Time Warner must provide a written notice to all local franchising authorities of any rate and service changes initially implemented pursuant to the Social Contract as soon as practicable. Time Warner must also provide written notice of such changes to subscribers with the first bill reflecting such rate and service restructuring or through a separate mailing distributed prior to or concurrently with such billing statements. C. Refunds 15. Time Warner states that it will undertake certain measures to safeguard the interests of subscribers if the Commission grants the requested waivers. Time Warner maintains that if any subscriber cancels his or her subscription to a cable programming services tier within 30 days after the date of the first bill received by such subscriber reflecting the initial increase in that cable programming services rate, Time Warner will refund to that subscriber the incremental dollar amount reflected by the increase, retroactive to the Initial Implementation Date. Additionally, in the event of a timely subscriber complaint in response to any such initial cable programming services rate adjustment, Time Warner states that it will provide refunds plus interest back to the initial implementation date if it is ultimately determined that the initial cable programming services tier rate under the Social Contract was implemented incorrectly. 16. As noted in the Order, we have found that these safeguards will protect subscribers who wish to cancel service due to a rate increase under the terms of the Social Contract. In addition, however, we will require Time Warner to refund to subscribers who cancel service due to a rate increase under the terms of the Social Contract the total rate increase which would also include external cost and inflation increases that Time Warner simultaneously implements. However, subscribers receiving both the basic service tier and the cable programming services tier are only entitled to a refund of the net increase in the combined rate for both the basic service tier and the cable programming services tier. We further clarify that this refund applies to CVI subscribers who cancel their subscription to a cable programming service tier within 30 days after the date of the first bill received by such subscribers reflecting the initial increase in that cable programming services rate that is effected without the notice that would be required but for this waiver. D. Lifeline Basic Tier 17. The Social Contract provides that Time Warner will reduce the price on its basic service tier by 10% within six months of the Effective Date of the Social Contract, with a revenue neutral increase in cable programming service rates. Local franchising authorities may elect not to have this 10% reduction by notifying Time Warner and the Commission within 45 days of the Effective Date of the Social Contract. Because the proposed initial implementation date of January 1, 1996, is less than 45 days from the Effective Date of the Social Contract, Time Warner seeks clarification that it may implement the 10% basic service tier reduction immediately on the Initial Implementation Date, January 1, 1996. Time Warner indicates that it will make appropriate adjustments in the next practicable billing cycle to rescind any such lifeline adjustments, to both basic service tier and cable programming services tier rates, retroactive to the Initial Implementation Date, January 1, 1996, if it receives notification that a local franchising authority has exercised its opt-out option. Under the Social Contract, Time Warner is only required to implement the lifeline basic service tier initially with respect to systems servicing at least 85% of its total subscribers. With respect to the remaining systems, Time Warner may defer implementation of the lifeline basic service tier until such time as it is able to restructure its basic service tier lineup to facilitate a lower cost, lifeline basic service tier. Time Warner now states that it plans to immediately implement the 10% basic service tier rate reduction with respect to substantially all of Time Warner subscribers, while retaining the flexibility to subsequently implement a one-time, revenue neutral basic service tier restructuring as required by the Social Contract. To accomplish this restructuring, Time Warner asks for a waiver of Section 76.922(g) of the Commission's rules which relate to permitted changes in the number of channels on regulated tiers. We agree that in order to facilitate the creation of the lifeline basic service tier and to create MPTs as contemplated by the Social Contract, a waiver of Section 76.922(g) of our rules is in the public interest to effectuate the terms of the Social Contract. This waiver will accomplish our objective that Time Warner promptly implement of the initial rate restructuring required under the Social Contract. E. Improperly Restructured Rates 18. Time Warner has also asked for clarification of the procedural mechanism to be used if the basic service tier and cable programming services tier rates are restructured incorrectly in creating the lifeline basic service tier. Specifically, Time Warner seeks clarification that where a local franchising authority or the Commission orders a reduction in the basic service tier rates or the cable programming services tier rates, and such reduction affects the revenue neutral restructuring provisions of the Social Contract, Time Warner may increase the other tier rates in a revenue neutral manner to offset such reduction. Additionally, Time Warner seeks to clarify that it will be liable for refunds only to basic-only subscribers in cases where further reductions in Time Warner's initial restructured rates for the basic service tier were ordered because Time Warner implemented the 10% reduction incorrectly. 19. Under the provisions of the Social Contract, the initial basic service tier rate and the cable programming services tier rates are linked. As part of the initial restructuring of rates, Time Warner is required to reduce the basic service tier rate by 10% to create the lifeline basic service tier. The Social Contract provides that such reduction shall be offset by an adjustment to the cable programming services tier rate to achieve a revenue neutral rate restructuring. Because the initial rates for the basic service tier and the cable programming services tiers are related, an error in setting the basic service tier rate or the cable programming services tier rates affect this relationship. Accordingly, Time Warner may correct the initial basic service tier rate or the cable programming services tier rate if it is found that Time Warner initially incorrectly restructured rates. 20. We further clarify that if it is determined that the initial 10% basic service tier rate reduction has not been fully implemented, any refunds ordered are limited to basic-only subscribers. Although the basic service tier rate would be subject to a further reduction, Time Warner would be permitted to make an upward adjustment to the cable programming services tier rate to maintain the revenue neutral requirements of the Social Contract. Although subscribers receiving both the basic service tier and the cable programming services tier would experience further reduction in the basic service tier rate, they would also have an offsetting upward adjustment in the cable programming services tier rate. As a result, these subscribers will not be entitled to any refunds. This clarification only applies to the initial restructured rate. Changes in the rates due to external costs and inflation are subject to review and refund under our existing procedures. F. Initial Restructured Basic Service Tier Rates 21. Time Warner requests that we clarify the procedural mechanisms related to the review of local franchising authorities of the initial restructured rates implemented on January 1, 1996, and subsequent annual adjustments in those rates. Similar to our determination in the Order implementing the Social Contract for Continental Cablevision, local franchising authorities should follow the procedures specified in our rules relating to annual rate adjustments in reviewing both the initial restructured basic service tier rates and subsequent changes to those rates, subject to certain modifications that we believe are appropriate to implement the Social Contract. With respect to the initial restructuring of basic service tier rates implemented on or after January 1, 1996, Time Warner shall file the Lifeline and Annual Forms or FCC Form 1240 with certified local franchising authorities as soon as practicable, but no later than December 31, 1995. Local franchising authorities will have a 90 day review period to evaluate the reasonableness of Time Warner's initial restructured rates even though the rates may have actually gone into effect pursuant to the waivers that we have granted earlier in the Order. If the local franchising authority has not reached a decision in the initial 90 day review period, the local franchising authority need not issue an accounting order to preserve its right to require a refund after the 90 day review period. 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. At any time before the local franchising authority issues a rate order, Time Warner may inquire whether the local franchising authority is continuing to review Time Warner's initial restructured rates. If Time Warner makes such an inquiry, the local franchising authority must respond to Time Warner within 15 days of receiving the inquiry. If the local franchising authority fails to respond within 15 days to Time Warner, the local franchising authority will lose its ability to issue refunds with respect to the initial restructured rate after the initial 90 day review period. If the local franchising authority does respond, it need only indicate whether it is continuing to review Time Warner's basic service tier rates. Such response will preserve the local franchise authority's right to order a refund. With respect to subsequent rate adjustments, the local franchising authority's review of Time Warner's Annual Form will be governed by the requirements set forth in the Thirteen Order on Reconsideration. G. Pending Complaints 22. The Social Contract delegates authority to the Cable Services Bureau to resolve all pending complaints covered by the Social Contract. Accordingly, we hereby resolve all such pending cable programming services tier rate cases before the Commission. IV. Ordering Clauses 23. Accordingly, IT IS ORDERED, that use of the proposed Lifeline Form and Rate Form is approved. 24. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.923, 76.987, 76.961(e), 76.309(c)(1)(B), 76.964, 76.960, 76.933, 76.922, 76.956, and 76.930, IS GRANTED to the extent indicated herein. 25. IT IS FURTHER ORDERED, that waiver of 47 C.F.R.  76.964, IS GRANTED to the extent indicated herein. 26. IT IS FURTHER ORDERED, that all pending complaints covered by the Social Contract for Time Warner, ARE RESOLVED. 27. IT IS FURTHER ORDERED, that preemption of any local franchise agreement or any state or local rule or regulation that requires Time Warner to give more than 30 day's notice of rate and service changes to subscribers for the period prior to January 1, 1996, IS GRANTED to the extent indicated herein. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau