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 $//MO&O, Continental Cablevision, FCC-95-335//$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Social Contract for ) Continental Cablevision ) ) MEMORANDUM OPINION AND ORDER Adopted: August 1, 1995 Released: August 3, 1995 By the Commission: Table of Contents Paragraphs: I. Introduction 1 II. Background 2 A. Overview of the Social Contract 6 B. Waiver 11 C. Preemption of State and Local Notice Requirements 13 III. Discussion A. System Upgrades i. Terms of the Social Contract 15 ii. Comments 16 iii. Discussion 21 B. Equipment and Installation Averaging i. Terms of the Social Contract 26 ii. Comments 27 iii. Discussion 30 C. In-Kind Refunds i. Terms of the Social Contract 33 ii. Comments 34 iii. Discussion 39 D. Lifeline Basic Tier Rates i. Terms of the Social Contract 43 ii. Comments 45 iii. Discussion 47 E. Uniform System Wide Basic Service Tier Rates i. Comments 49 ii. Discussion 51 F. Opt Out Provision i. Terms of the Social Contract 53 ii. Comments 54 iii. Discussion 56 G. Bulk Rates i. Comments 60 ii. Discussion 61 H. Migrated Product Tier i. Terms of the Social Contract 62 ii. Comments 63 iii. Discussion 65 I. Franchises Subject to Effective Competition or Price-Constraining Competition i. Terms of the Social Contract 66 ii. Comments 67 iii. Discussion 68 J. Public Participation i. Comments 69 ii. Discussion 70 K. Implementation and Remedies i. Comments 71 ii. Discussion 72 L. Implementation of the Rate Stability Plan - Jurisdiction i. Comments 73 ii. Discussion 74 M. Modification and Termination Provisions i. Terms of the Social Contract 75 ii. Comments 76 iii. Discussion 78 IV. Conclusion and Ordering Clauses 81 I. INTRODUCTION 1. Continental Cablevision, Inc. ("Continental") and the Federal Communications Commission ("Commission") have negotiated a social contract designed to provide upgrade incentives for Continental and to provide rate stability and increased quality of service for its consumers. In this Order we approve the Continental Cablevision Social Contract ("Social Contract"). (See Appendix A) The proposed Social Contract was placed on Public Notice and comment periods were established. The Commission received both initial and reply comments. II. BACKGROUND 2. In the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), Congress set as one of its policy goals ensuring that cable operators continue to expand the capacity and programs offered over their systems, where economically viable. In Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 93-215, Report and Order and Further Notice of Proposed Rulemaking ("Cost Order") establishing interim regulations for cost of service filings, we adopted on an experimental basis an Upgrade Incentive Plan to provide an opportunity for developing a type of "social contract" between customers and operators under which rates for existing services are frozen or limited to changes permitted by the benchmark/price cap approach, while the quality of existing service is at least maintained if not increased. Operators are then allowed substantial pricing flexibility for new services. Such plans are to remain in effect for a fixed period and would offer the operator an opportunity to earn higher profits as an incentive and reward for introducing successful innovations. 3. On December 15, 1994, pursuant to special ex parte procedures available in certain cable rate proceedings, Continental requested relaxed ex parte treatment to enable Continental Cablevision to discuss broad rate related matters with Commission officials. Consistent with these ex parte procedures the Cable Services Bureau and Continental negotiated the terms of the Social Contract. 4. The Social Contract between Continental and the Commission is consistent with the goals regarding upgrade incentive plans which were outlined in the Cost Order. The Social Contract benefits subscribers by assuring reasonable and stable rates in all systems, improving service offerings and picture quality with state of the art technology, increasing consumer choice with lifeline basic tier pricing and eliminating buy-through requirements, and providing refunds to customers. The local franchising authorities benefit from the opportunity to assist their elderly, lower income, or basic only subscribers with the lifeline basic pricing. The Social Contract will provide refunds to basic cost of service subscribers, and will reduce the administrative burden on local franchising authorities by eliminating their need to review cost of service cases. Continental will benefit from having a rate structure which will allow for long term strategic planning and it will be able to focus on its growth having resolved its outstanding rate complaints. In addition to these benefits, the local franchising authorities will retain their right to review prospective rates, the right to negotiate upgrades for their individual franchises, and their ability to comment and participate on any changes in this Social Contract that would affect their locality. 5. In finalizing the terms and conditions of the Social Contract and incorporating modifications, the Commission has reviewed and considered the comments of all of the affected and interested parties. The Social Contract ensures that the rights of the parties to seek redress at the Commission will be preserved. A. Overview of the Social Contract 6. The Social Contract is for a term of six years. Continental is required to invest at least $1.35 billion to rebuild and upgrade all of its domestic cable systems from 1995 through 2000. If Continental fails to invest at least 85% of the annual amount committed to infrastructure upgrades, then Continental will be required to make an in-kind refund equal to the amount by which that year's capital expenditure is less than the required investment. The Social Contract contains a provision that allows Continental to average broad categories of equipment and installation and associated costs for all of its systems on a state wide or regional basis. 7. As part of the resolution of pending cost of service and benchmark proceedings, the Social Contract provides that Continental will make in-kind refunds to affected customers totalling approximately $9.5 million. The Social Contract resolves 148 pending basic service and cable programming services cost of service cases and 229 pending cable programming services benchmark cases. The resolution of these rate cases is without a finding by the Commission of any wrongdoing by Continental. In settlement of basic service tier cost of service cases pending before local franchising authorities, Continental will provide each of the approximately 509,000 subscribers covered by the cases with an in-kind refund having a minimum retail value of $5.00. These refunds will have a minimum aggregate retail value of approximately $2,545,000. Local franchising authorities with pending BST cost of service cases will have the opportunity to opt out of the BST cost of service refund settlement provisions of the Social Contract and resolve any amounts owed to customers in such franchises with Continental pursuant to Commission rules. If an authority exercises this option, the cost of service case for the authority's jurisdiction would be resolved at the local level pursuant to cost of service rules. In settlement of pending cable programming services tier cost of service cases before the Commission, Continental will provide each of the approximately 818,000 subscribers covered by the cases with an in-kind refund having a minimum retail value of $4.50. These refunds will have a minimum aggregate retail value of $3,681,000. In settlement of Continental's pre-May 15, 1994 cable programming services tier benchmark cases, Continental will provide each of the approximately 231,000 subscribers covered by the cases with an in-kind refund having a minimum retail value of $2.00. These refunds will have a minimum aggregate retail value of $462,000. In settlement of Continental's post-May 15, 1994 cable programming services tier benchmark cases pending before the Commission, Continental will provide each of the approximately 351,000 subscribers with an in-kind refund having a minimum retail value of $8.00. These refunds will have a minimum aggregate retail value of approximately $2,808,000. 8. By January 1, 1996, under the terms of the Social Contract, Continental will create a "lifeline basic tier" priced to enhance the affordability of basic service. After the rate structure for a lifeline basic tier is implemented, Continental may not add any additional programming to the lifeline basic tier for the term of the Social Contract, except as specifically required by local franchising authorities or as required by law. 9. The Social Contract further provides that Continental will be permitted to migrate four existing services from its cable programming service tier to a Migrated Product Tier (MPT), provided that the tier is offered without a buy-through requirement of any tier other than the basic service tier. Initially, Continental is prohibited from increasing the price of any migrated channel except as allowed by the Commission's rules for inflation and external cost increases. Continental may add an unlimited number of channels to an MPT at $.20 per added channel plus license fees. After January 1, 1997, Continental may convert its MPTs into New Product Tiers (NPTs) as defined by 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"), provided that the tier is offered without a buy-through requirement other than basic service tier. The Social Contract further permits Continental to add new services to the cable programming services tier from 1995 to 1997, subject to the Going Forward rules. From 1998 through 2000 Continental will be permitted to conduct a second round of going forward channel additions. 10. Finally, during the term of the Social Contract, Continental will forego its right to use a cost of service justification to support any future rate increases in any franchise area covered by the Social Contract. The Social Contract requires Continental to provide the Commission and each local franchising authority having jurisdiction over an area covered by the Social Contract with an annual progress report outlining the amount of capital investments made, the number of subscribers affected by those investments, improvements in system reliability and service, and projected expenditure and upgrades for the following year. The Social Contract may not be modified or terminated without the mutual agreement of both parties to the Contract. In addition, Continental may petition the Commission to terminate the Contract if there is a material change in the applicable laws or regulations that would result in a material impact to Continental. B. Waiver 11. Upgrade Incentive Plans represent a departure from the Commission's procedures for resolving rate complaints against cable operators. Indeed, the Commission recognized in the Cost Order the experimental nature of these type of social contracts. There are several aspects of the Social Contract that do not conform precisely to Commission rules or to the stated experimental Upgrade Incentive Plan outlined in the Cost Order. For example, although the Cost Order contemplates a social contract that does not exceed a term of five years, the Continental Social Contract is for a term of six years. Section 1.3 of the Commission's rules states that the Commission may waive its rules on its own motion for good cause. We believe that the Social Contract furthers the Commission's policy goals of ensuring that cable operators expand the capacity and programs offered over their systems where economically viable, and reducing regulatory burdens and other policy objectives specified in the 1992 Cable Act, while still ensuring that cable rates are reasonable. As a result, we conclude that waiver of certain of the Commission's rules is in the public interest. Accordingly, we hereby waive any provision of the Commission's rules and modify the information requirements on the Commission's forms necessary to effectuate the terms of the Social Contract. 12. Additionally, we will waive Section 76.922(d)(2) of our rules, which establishes a deadline of August 31, 1995 for cable operators seeking to make adjustment to rates for inflation through June 30, 1994. We believe that permitting Continental a deferral of this deadline to make a one time restructuring of rates furthers the goal of reducing administrative burdens and subscriber disruption. Specifically, this waiver permits fewer rate changes and disruptions to subscribers because Continental can defer making a rate adjustment for inflation until it makes rate changes for the lifeline basic tier as required by the Social Contract. Accordingly, we permit Continental to recover inflation amounts from subscribers when it restructures its rates pursuant to the terms Social Contract. C. Preemption of State and Local Notice Requirements 13. On June 19, 1995 Continental asked the Commission to preempt local franchise provisions which require more than 30 days advance notice of rates and service charges to subscribers in connection with its implementation of the Social Contract. Continental asserts that it will be unable to comply with the January 1, 1996 rate restructuring deadline contained in the Social Contract and fulfill 60 or 90 day local notice requirements. Continental states that it is seeking a limited preemption that "will only apply to the rate restructuring and MPT requirements which will take place by January 1, 1996." Continental asserts that "all subscribers will receive 30 days advance written notice by means of a bill insert." 14. We believe that prompt implementation of the Social Contract will best serve the public interest. We are concerned that without our preemption Continental may not be able to implement uniformly rate adjustments pursuant to the terms of the Social Contract by January 1, 1996 because some local franchise notice requirements contained in their franchise agreements require notice of rate changes in excess of 30 days. For example, a local franchise agreement may require that the operator provide 60 days advance notice of a rate change and the franchising authority has 30 days after the release date of the Social Contract to exercise its right to opt out of the settlement provision. We are concerned that Continental could not, as a practical matter, react to the new regulatory scheme and fully implement rate adjustments prior to January 1, 1996, although we encourage Continental to notify subscribers and local franchising authorities of these implementing rate adjustments as soon as possible. Therefore, to allow Continental to implement the rate restructuring and MPT provisions of the Social Contract, any local franchise agreement or any state or local law or regulation is preempted to the extent that it requires Continental to give more than 30 days notice of rate and service changes to subscribers. Such preemption shall be limited to the period prior to January 1, 1996. III. DISCUSSION The Commission received numerous comments on several terms of the proposed Social Contract. This section addresses the concerns of the commenters and sets forth modifications to the proposed Social Contract. A. System Upgrades i. Terms of the Social Contract 15. The Social Contract provides for an investment of at least $1.35 billion to rebuild and to upgrade all of Continental's domestic cable systems from 1995 to 2000. These improvements include the deployment of fiber optic technology, increased system addressability and interactive capability, and improved system reliability and picture quality. Additionally, Continental will also upgrade those systems below 550 MHz to a minimum capacity of 550 MHz; 50% of Continental's systems will be upgraded to 750 MHz capacity. The Social Contract mandates that Continental's investment in systems will be conducted in a manner that will not discriminate based on the socio-economic status of Continental subscribers. Should Continental fail to invest at least 85% of the annual amount committed to infrastructure upgrades, taking into account accelerated payments from previous years, Continental will be required to make an in-kind refund equal to the amount by which that year's capital expenditure is less than the required investment. The refund would be distributed to the subscribers who did not receive the technical investment planned for that year based on the projected expenditure plan. At Continental's option, Continental may stay this refund obligation for one year to allow it to meet its upgrade deficiency for the previous year. ii. Comments 16. Most commenters express support for system upgrades, maintaining that subscribers will benefit from more advanced technology and increased programming choices. In addition, some commenters indicate that an advanced technological system will aid the business community. Several commenters contend that the system upgrade provisions in the proposed Social Contract do not represent a true concession from Continental. They claim that Continental would probably upgrade its systems regardless of the proposed Social Contract, either in response to a condition from local franchising authorities for the renewal of Continental's franchise or to remain competitive in the marketplace. In addition, some commenters question whether system upgrades will take place in a fair, nondiscriminatory manner. 17. The New York State Commission on Cable Television (the "New York Commission") asks that the quarterly report filed by Continental with respect to its capital expenditures be specific with respect to the systems involved and be filed with regulating local franchise authorities wherever an upgrade is a feature of an existing franchise or franchise renewal negotiations. Two commenters ask that Continental be required to specify its master plan of system upgrades. 18. In reply, Continental rejects the argument that system upgrades do not constitute a concession. Continental maintains that it has agreed to forego its right to recover costs of system upgrades through cost of service filings. Furthermore, Continental claims that without this Social Contract, the uncertainty created by the large number of pending rate cases and the potential impact of the Commission's rate rules on Continental's cash flow would inhibit Continental from making major investments in infrastructure. Continental also maintains that the characterization of the level of system upgrades required by local franchising authorities is exaggerated. Continental opposes the suggestion that it be required to specify at the outset its plan for system upgrades. Continental claims that no such plan exists and that its decisions will be in response to marketplace conditions. Continental maintains that it will evaluate the following factors in making its decision to upgrade a system: a) the current capacity and condition of the system; b) the system's spare capacity, if any; c) the number of off-air must-carry channels in the system's market; d) consumer demand for additional services in the community; and e) consumer willingness to pay for additional services. 19. Continental maintains that there are sufficient safeguards already in place to ensure that upgrades will take place in a reasonable, non-discriminatory manner. Continental argues that the proposed Social Contract requires Continental to distribute its system upgrades in a nondiscriminatory manner based on socio-economic status. Furthermore, Continental points out that the proposed Social Contract requires an annual progress report from which the Commission may assess whether the upgrades were distributed in a reasonable, non-discriminatory manner. 20. Continental states that pursuant to the request of two commenters, the Massachusetts Cable Television Commission (the "Massachusetts Commission") and the New York Commission, it would agree to a contract modification that would require Continental to submit its annual report to local franchising authorities as well as the Commission. Finally, Continental opposes the New York Commission's suggestion that Continental certify that it has fulfilled its annual capital spending requirements before it may pass through additional costs required by a local franchising authority. Continental maintains the decision to upgrade is based on marketplace considerations and not the industrial policy advocated by the commenters. iii. Discussion 21. The majority of commenters have expressed support for the provision of the Social Contract that requires Continental to invest at least $1.35 billion to rebuild and upgrade all of Continental's domestic cable systems. The commenters support the deployment of fiber optic technology, increased system addressability and interactive capability, improved reliability and picture quality, the upgrading of systems below 550 MHz to a minimum capacity of 550 MHz, and the fact that 50% of Continental's systems will have 750 MHz capacity. 22. It is significant to note that commenters do not oppose system upgrades or rebuilds per se. We find that the upgrade and rebuild provisions in the Social Contract represent a valuable benefit to subscribers in terms of advanced technology, improved reliability and picture quality, and increased programming choices. Indeed, while Continental may have upgraded some sections of system anyway, the Social Contract binds it to continue to make significant upgrades throughout its system. Moreover, the technical requirements and timetable established in the Social Contract do not preclude local franchising authorities from negotiating a higher level of upgrades and rebuilds with Continental. Furthermore, Continental is prohibited from recovering the costs of the system upgrades and rebuilds required by the Social Contract through a cost of service filing. This represents a major concession from Continental. Finally, the Social Contract will enhance Continental's ability to attract the necessary capital to invest in system upgrades and rebuilds. 23. We are mindful of the concerns expressed by some commenters that the upgrades and rebuilds may not take place in a reasonable, non-discriminatory manner. The Social Contract has built in safeguards to address these concerns. For example, the Social Contract requires Continental to invest in systems in a manner that will not discriminate on the basis of the socio-economic status of subscribers. In addition, the Social Contract ensures an upgrade to a minimum of 550 MHz for all of Continental's domestic cable systems. Moreover, if Continental does not invest at least 85% of the annual amount committed to infrastructure upgrades, then it will be required to make an in-kind refund equal to the amount by which that year's capital expenditure is less than the required investment. The Commission will be able to assess Continental's performance for upgrades and rebuilds based on the annual report filed with the Commission and local franchising authorities. Therefore, we conclude that there are sufficient safeguards in the Social Contract to ensure that upgrades and rebuilds will take place in a reasonable, non-discriminatory manner. 24. Finally, upon consideration of the request by the Massachusetts Commission and the New York Commission that Continental file its annual report with the Commission and affected local franchising authorities, we have negotiated a modification to the proposed Social Contract. Local franchising authorities should have the benefit of these reports. The burden placed on Continental to provide such reports is minimal. Continental has agreed to the request. With this modification, local franchising authorities also will have the ability to assess Continental's performance and monitor its progress accordingly. 25. As indicated above, local franchising authorities may negotiate for upgrades with Continental beyond the level specified in the Social Contract. We wish to clarify that when a local franchising authority requires Continental to upgrade a system beyond the capacity level which Continental had otherwise planned for such system pursuant to its obligations under the Social Contract, Continental may use other mechanisms permitted by law or regulation to recover the incremental costs incurred to upgrade such system from the proposed level to the local franchising required level. No cost recovery, however, through these mechanisms shall be deemed to reduce Continental's obligations to invest $1.35 billion in system upgrades by December 31, 2000 as required by the Social Contract. B. Equipment and Installation Averaging i. Terms of the Social Contract 26. Under the Social Contract, Continental may average broad categories of equipment and various installation costs for all of its systems on a statewide or regional basis. This will be accomplished by Continental filing a Form 1205, Equipment Form, with the Commission on an annual basis beginning January 1, 1996. The Commission will verify the accuracy of the filing and establish the rates that will be applicable to that specific state or region. ii. Comments 27. Commenters who support equipment averaging contend that it will benefit subscribers by eliminating drastic increases in the price of equipment, particularly when systems are upgraded. Opposition to equipment averaging is based on the concern that subscribers in low cost franchise areas will receive equipment rate increases that reflect, for the most part, the subsidization of state of the art equipment in high cost franchise areas. One commenter contends that the proposed Social Contract impermissibly transfers jurisdiction to perform the initial review of Continental's Form 1205 from local franchising authorities to the Commission. Another commenter contends that the local franchising authority is in the best position to review equipment rates. 28. The New York Commission asks that Continental's ability to average costs be limited to circumstances where averaging would not result in rates for equipment and installation in excess of a specified amount, such as 10% to 20%. The City of Fairborn also proposes limits on equipment price adjustments when the averaging methodology is used. 29. In reply to the assertions that the proposed Social Contract impermissibly transfers jurisdiction to perform the initial review of Form 1205 from the local franchising authority to the Commission, Continental maintains that the Commission's rules already allow operators to aggregate equipment and installation costs at the franchise, system, regional or company level in a manner consistent with the practices of the cable operator as of April 3, 1993. Continental also argues that it is within the Commission's discretion to waive the effective date of this provision for purposes of the Social Contract. Continental further maintains that broad averaging of equipment and installation costs will accomplish the following five goals: a) stabilize equipment pricing for subscribers as costs are spread evenly across a larger base; b) eliminate large increases in consumer rates caused by the introduction of new equipment during upgrades; c) minimize customer confusion and claims of unfair rate discrimination from community to community, while promoting the general rate setting objectives of simplicity and uniformity; d) avoid skewed equipment and installation rates based on artificial factors; and e) reduce accounting and regulatory costs. Therefore, Continental argues, Commission review of Form 1205 will ensure uniform averaging and streamline the regulatory process. Continental asserts that it will not combine the costs of addressable and nonaddressable equipment in the averaging process to avoid the subsidization concerns. Continental maintains that while certain customers may experience de minimis rate increases at any given point in time due to the averaging process, these customers will also experience rate decreases at other points in time also due to the averaging process. Therefore, over the life of the Social Contract, equipment averaging will be revenue neutral from the customer's perspective. In addition, Continental maintains that averaging will benefit customers in low cost areas by facilitating the introduction of newer equipment in such areas at more affordable prices. Continental opposes the New York Commission's proposal to limit the cost averaging arguing that it would undermine the benefits of averaging and reintroduce the administrative burdens associated with a franchise by franchise analysis. iii. Discussion 30. Our rules state that rates for installation and equipment be set at the franchise level, except for small systems. We find that a waiver of our rules is in the public interest to allow Continental to average broad categories of equipment and various installation costs for all of its system on a statewide or regional basis. The 1992 Cable Act directs the Commission to establish standards for setting, on the basis of actual cost, the rate for installation and lease of equipment used by subscribers to receive the basic service tier. As the Commission has previously recognized, the 1992 Cable Act does not mandate the level at which such rates are established i.e., the franchise, system, regional or company level. Rather, Congress only specified that rates must be based on actual cost. 31. Equipment averaging on a statewide or regional basis will promote the objectives of the Upgrade Incentive Plan and is advantageous to both subscribers and Continental in several respects. For example, equipment averaging will minimize drastic increases in rates for subscribers as upgrades take place, as required by the terms of the Social Contract. In order to minimize subsidization situations, Continental will not combine averages for addressable and nonaddressable equipment in the averaging process. As a result, subscribers using nonaddressable equipment will not be subsidizing users of more advanced equipment. Additionally, equipment and installation averaging will reduce the administrative burdens on Continental to prepare rates on a franchise by franchise basis. Further, our action is consistent with the 1992 Cable Act's directives for the Commission to establish standards by which local franchise authorities establish rates for installation and equipment used to receive basic service. Finally, our waiver to set the standards for state-wide or regional equipment and installation rates for basic service is warranted because the 1992 Cable Act does not grant local franchise authorities the jurisdiction to establish equipment and installation rates on a regional or statewide basis. 32. We decline to adopt a mechanism to limit the amount of rate increases that may occur under the equipment averaging methodology. We agree with Continental that such a mechanism would undermine the uniformity of rates that equipment averaging seeks to obtain and is unnecessary because averaging will protect consumers from high equipment pricing. C. In-Kind Refunds i. Terms of the Social Contract 33. Pursuant to the settlement of Continental's existing benchmark and cost of service cases, under the terms of the Social Contract, Continental is required to provide in- kind refunds to customers which total approximately $9.5 million. The refunds will be made by offering to subscribers at no cost a number of service choices, such as premium services, pay-per-view services, additional outlet installations, VCR installations, viewing guides, and other services or items having an established retail value. Under the terms of the Social Contract, Continental shall submit to the Commission for its approval a list of proposed in- kind refund options. Continental shall 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. ii. Comments 34. Several commenters support in-kind refunds on the grounds that they are beneficial to subscribers. For example, the Massachusetts Commission states: [O]ur substantial experience in rate setting leads us to believe that, in many situations, subscribers will be receiving an in-kind benefit in excess of any cash refund they might have reached otherwise. For comparison, we note that as a result of our prior decisions on Continental's benchmark filings, Continental subscribers received an average refund of only $1.48. No subscribers eligible for in-kind benefits under the Social Contract would receive less than $2.00; most will receive substantially more. This, too, is a victory for Massachusetts consumers, and presumably for Continental subscribers nationwide. 35. Another commenter states that without the Social Contract, it is uncertain that subscribers in its franchise area would have received any refund after adjudication of pending rate case proceedings. Specifically, the Delhi Charter Township states: We have read information provided to us by the Miami Valley Cable Commission and other sources questioning the in-kind nature of the proposed refund. After a review of this information, we have concluded an in-kind refund presented to our subscribers in the near future is better than the possibility of a cash refund or bill credit at some distant point in the future. 36. Commenters that oppose in-kind refunds do so for six reasons. First, they claim that in-kind refunds are contrary to the 1992 Cable Act and the Commission's rules. Second, they claim that the in-kind refunds have minimal value because some subscribers, mainly those receiving only basic, may not want the items comprising the in-kind refunds such as premium services or pay-per-view. Third, they maintain that these types of refunds don't compensate subscribers for the amount they were overcharged by Continental because a dollar of cash does not equal a dollar of an in-kind refund. Fourth, some commenters argue that in-kind refunds are merely promotional offerings. Fifth, a number of commenters reject in-kind refunds arguing that such refunds could result in out-of-pocket expenses by subscribers having to lay out additional money to obtain the refund. Finally some commenters maintain that in kind refunds are not an appropriate refund liability for under- investment by Continental in a system. 37. Many commenters ask that the Social Contract provide subscribers with either cash refunds or credits on bills to compensate them for being overcharged by Continental. In addition, one commenter asks that the Commission provide local governments with refunds instead of subscribers. The City of Los Angeles asks the Commission to increase the proposed Social Contract's aggregate refund amount to the extent the in-kind refund options overlap with the offerings in Continental's promotional budget. Finally, the Massachusetts Commission suggests that the proposed Social Contract require Continental to market in-kind refunds actively to subscribers as opposed to simply using bill inserts. 38. In reply, Continental maintains that in-kind refunds are not contrary to the Commission's rules or the 1992 Cable Act. Continental asserts that cash refunds are not required to penalize Continental for overcharges because such a finding has not been made by the Commission. Rather, Continental asserts that the payment of in-kind refunds are settlements in exchange for resolution of pending rate complaint proceedings. Continental contends that in-kind refunds have reasonable value to all subscribers because it will offer services including but not limited to free premium services and pay-per-view that may not be available to subscribers without a cable converter box. Continental states that some in-kind refund options have an estimated retail value in excess of the required refund amount. Continental further states that some in-kind refund options will have a wholesale cost to Continental that is more than the face value of the in-kind refund offered. Continental also maintains that its in-kind refund options are not mere promotional items. According to Continental, unlike promotional offerings, it will not be necessary for subscribers to make an additional purchase to redeem any of the in-kind service choices which will be offered. Furthermore, Continental objects to the City of Los Angeles' proposal to increase the proposed Social Contract's aggregate refund amount to the extent the in-kind refund options overlap with the offerings in Continental's promotional budget. Continental contends that payment of in-kind refunds will not reduce its promotional budget by an equivalent amount. Finally, Continental maintains that under no circumstances will a customer be billed for a service after the refund period because the customer failed to affirmatively discontinue the service. iii. Discussion 39. Some of the commenters question whether in-kind refunds are contrary to the 1992 Cable Act and the Commission's rules. The 1992 Cable Act directs the Commission to "refund such portions of the rates or charges that were paid by subscribers after the filing of such complaint and that are determined to be unreasonable." The Act does not prescribe the forms in which the Commission may allow refunds to occur. The Commission's rules allow cable operators to refund overcharges either through direct payment or a one time credit to the subscribers' bills, including interest. Furthermore, if the Commission determines that rates are unreasonable, it "may order appropriate relief, including, but not limited to, prospective rate reductions and refunds." The in-kind refunds provided for under the Social Contract are in settlement of pending basic service tier and cable programming services tier cost of service proceedings or if Continental fails to meet its upgrade investment targets rather than compensation for rates that have been determined to be unreasonable. As a result, we believe that in the compromise process necessary for settlement, in-kind refunds provide consumers with a meaningful value and are not contrary to the 1992 Cable Act or the Commission's rules. To the extent necessary, however, we find that waiver of Sections 76.957, 76.961(c), and 76.961(d) of the Commission's rules to permit in-kind refunds is in the public interest given the overall benefits of the Social Contract. We wish to clarify, however, that in-kind refunds are only permitted with the Commission's consent. 40. We believe that the concern that some commenters have expressed regarding the value of the in-kind refunds is misplaced. We will review Continental's proposed in-kind benefits to ensure that meaningful in-kind alternatives to all classes of subscribers will be offered in each Continental system. 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, Continental will offer options other than free premium or pay-per-view services. Furthermore, we disagree with those commenters who maintain that in-kind refunds do not compensate subscribers because a dollar of cash does not equal a dollar of in- kind refund. As Continental states, in-kind options will include items with established retail values in excess of the required refund. For example, customers in fully addressable systems who are entitled to receive an in-kind refund of $2.00 may be given the choice of a pay-per- view movie that is typically priced at $3.95. In addition, some refund options will have a wholesale cost to Continental that is more than the face value of the in-kind refund. For example, many subscribers will be offered as an option a free additional outlet installation, which has a cost to Continental of between $15 and $30, even though the highest in-kind refund under the Social Contract is $10. 41. Despite the concern expressed by some commenters that the in-kind refunds are merely promotional or that subscribers will have to lay out additional money to obtain the refund, under the terms of the Social Contract subscribers will not be required to make an additional purchase in order to redeem their in-kind refund. In addition, Continental states that a customer will not be billed for a service after the refund period because the customer failed to affirmatively discontinue the service. To the extent that it may occur, a subscriber would be able to seek redress with the Commission. We also reject the recommendation that we provide refunds to local governments rather than provide refunds to Continental's subscribers. Our rules specifically state that, pursuant to an appropriate order by a local franchising authority or the Commission, the subscribers will receive the refund from the cable operator. In addition, the options available to a cable operator as to the implementation of a refund do not include giving the refund to the local franchising authority. No facts have been presented in this proceeding to persuade us otherwise. We also conclude that Continental's use of bill inserts to inform subscribers as to their in-kind refund options and the period in which they may exercise those options is reasonable and consistent with the method used by Continental and other cable operators for the dissemination of important information regarding the provision of cable service. To ensure that subscribers will receive refunds expeditiously, we have negotiated a modification to the proposed Social Contract to require Continental to initiate in-kind refunds no later than the start of the first full month beginning 90 days after the Commission approves in-kind refund options. 42. Finally, under the terms of the Social Contract, Continental is required to provide in-kind refunds to subscribers in settlement of pending cost of service proceedings. Under Sections 76.942(f) and 76.961(e) of the Commission's rules, local franchising authorities are required to return to cable operators an amount equal to that portion of the franchise fee that was paid on the total amount of refunds, when refunds are ordered by local franchising authorities or the Commission because the cable rates were determined to be unreasonable. We wish to clarify that local franchising authorities for Continental's systems are not required to return any portion of franchise fees collected from Continental because of the refunds provided for under the Social Contract. The Commission has not made a determination that Continental has imposed unreasonable rates on subscribers in the Social Contract. D. Lifeline Basic Tier Rates i. Terms of the Social Contract 43. The Social Contract extends rate regulation to those Continental franchise areas that are currently unregulated pursuant to Commission rules because either the local franchising authority has not certified or no rate complaint has been filed on the cable programming services tier. This represents approximately 1.8 million subscribers to the basic service tier and 1.3 million subscribers to the cable programming services tier. 44. By January 1, 1996, Continental will create a lifeline basic service tier priced to enhance the affordability of basic service. Continental will reduce its basic service tier rates for all regulated franchises, including franchise areas where benchmark and cost of service justifications have been filed, to 15% below the rate that is produced by the Commission's benchmark formula. For franchise areas that are currently unregulated, Continental will reduce its basic service tier rates to 15% below current levels. Continental will be permitted to offset the revenue lost from the 15% reductions by increasing the rate for its cable programming services tier by the amount of the revenue decline produced by the 15% reduction. After this lifeline basic pricing is implemented, Continental will not add any additional programming to its lifeline basic tier for the terms of the Social Contract, except as specifically required by local franchising authorities or as required by law. ii. Comments 45. The majority of commenters support the rate stability plan. In particular, these commenters support the creation of the lifeline basic service tier because it will benefit elderly subscribers and subscribers on low or fixed incomes. Commenters who oppose the lifeline basic service tier do so on four principal grounds. These commenters claim that (a) by mandating a lifeline basic rate, the Commission has exceeded the scope of its authority to enter into a settlement; (b) the advantages of the lifeline basic tier will only apply to subscribers receiving only basic service; (c) the decrease in basic service tier rates will be de minimis because of the increase in cable programming services tier rates; (d) and lifeline basic tier subscribers will receive an unfair subsidy at the expense of cable programming services tier subscribers. 46. In reply, Continental argues that the Commission has the authority to enter into a settlement pursuant to the 1992 Cable Act and the Commission's rules. Continental further argues that the Rate Stability Plan exceeds the scope of present rate regulations by subjecting all Continental's franchises, including currently unregulated franchises, to the proposed Social Contract's terms. In addition, Continental argues that its commitment to forego cost of service justification to support future rate increases due to costs incurred pursuant to the terms of the Contract in any franchise covered by the proposed Social Contract will ensure that rates are stabilized. Continental contends that lifeline basic tier subscribers will receive a substantial rate reduction and that all subscribers will benefit from the 15% reduction on the basic service tier rates because all subscribers must receive the basic service tier under the Commission's rules. Although Continental acknowledges that under the proposed Social Contract, customers receiving both the basic service tier and a cable programming services tier will receive a rate increase, Continental asserts that the amount of this rate increase, five cents, is de minimis. Continental maintains that the rates provided for in the Social Contract are within a zone of reasonableness permitted by the 1992 Cable Act and the Commission's rules. iii. Discussion 47. In Implementation of Sections of the Cable Television Consumer and Protection Competition Act of 1992: Rate Regulation, MM Docket No. 92-266, Report and Order and Further Notice of Proposed Rulemaking ("Rate Order"), the Commission declined to establish a regulatory structure in which lower rates for the basic service tier were offset by higher rates for the cable programming services tier. The Commission stated that "our regulations will be tier neutral in terms of benchmark rate levels for the basic and cable programming services tiers." Under the terms of the Social Contract, the lifeline basic tier is intended as a revenue neutral mechanism that provides a means for customers to have access to a basic level of cable service at a low price. Indeed, we believe that any increase in rates for subscribers that receive both the basic service tier and the cable programming services tier will be de minimis. Accordingly, under the specific circumstances before us, we believe that the clear benefits and absence of significant harms resulting from the provision of a lifeline basic tier justify our approval of such a tier here. 48. The 1992 Cable Act provides the Commission with wide discretion to resolve cable rate complaints including resolving cases in the context of a comprehensive Social Contract like we are considering here, pursuant to our Upgrade Incentive Plan. We believe that there are strong social benefits to the creation of the lifeline basic tier. As Continental indicates, it will not have the benefit of the "lack of technical capacity" defense to the buy- through prohibition that is afforded other operators with respect to the offering of NPTs and, under the terms of the Social Contract, it must significantly increase the level of addressable technology within its system. Thus, Continental's subscribers will be able to combine the lifeline BST with a CPST, MPT, NPT or a premium or pay-per-view service. This increased flexibility will afford subscribers an even greater opportunity to reduce rates by modifying their viewing packages to meet individual needs. In addition, the Social Contract furthers the 1992 Cable Act policy to "ensure that cable operators continue to expand, where economically justified, their capacity and the programs offered over their cable systems." Specifically, the creation of a lifeline basic tier increases the options of consumers and increases competition for services on the upper tiers. First, the lifeline BST will provide an additional competitive constraint on Continental's pricing of CPSTs, MPTs, and NPTs. Second, the stricter buy-through and addressability provisions enable a consumer who wants to subscribe to an alternative video service, such as Direct Broadcast Satellite, which does not offer local over-the-air channels, to more easily complement the alternative offering with the low cost lifeline BST. E. Uniform System Wide Basic Service Tier Rates i. Comments 49. One commenter, the New York Commission, states that the Social Contract provides for a different method of determining initial rates depending upon whether a local franchising authority initiated regulation on or before April 3, 1995. The New York Commission asserts that, specifically, in a franchise area where regulation was so initiated, the monthly rate for the basic service tier shall be determined in accordance with the permitted Form 1200 rate less 15% with appropriate forward adjustments, whereas in an unregulated franchise area the BST rate shall be determined by reference to the Current Rate, as defined in the Social Contract, less 15%. Thus, in any system where some, but not all, local franchising authorities have elected rate regulation and the current rate is uniform but different from the permitted Form 1200 rate, the effect of the Social Contract will be to create unequal monthly rates for the BST. The New York Commission submits that this result is unnecessary and confusing. It states that a local franchising authority that did not elect regulation prior to the negotiation of the Social Contract should not be deprived of the opportunity to have a BST rate as of the implementation date established on the basis of Form 1200 in order that the rate be the same or at least more comparable to the BST rate in other franchise area in the same system. The New York Commission therefore suggests that the Contract be modified to permit either Continental, at its election, or an uncertified local franchising authority, at its election, to have the initial basic service tier rate in a franchise area in which the local franchising authority had not certified to be set by reference to permitted Form 1200 rates (as opposed to Current Rates) minus 15%, with the amount of the additional reduction recovered by Continental through an additional charge to the cable programming services tier. 50. In reply, Continental supports the New York Commission's goal of uniform system wide basic service tier rates, but states that the New York Commission's proposal may not accomplish the desired objective. Continental states that using the Form 1200 as the basis for the reduction would not help achieve uniformity because of the number of franchise-specific variables that lead to slightly different rates even in franchises that are part of one system. It asserts that a more workable solution would be to allow Continental or the local franchising authority, at either's election, to reduce unregulated BST rates up to an additional 5%, for a maximum reduction of 20%, with a revenue-neutral adjustment to CPST rates. Continental states that this additional adjustment will provide the flexibility necessary to achieve uniform BST pricing in a given system. Continental asserts that as long as it is permitted to make an adjustment to its CPST rate to recover the amount of the additional revenue foregone as a result of the additional BST reduction, it would not object to this proposed modification. ii. Discussion 51. Based on the concerns of both Continental and the New York Commission, we have negotiated a modification to the proposed Social Contract to provide that, in order to achieve uniform basic service tier rates in a given system, Continental, at its election, may reduce basic service tier rates up to an additional 5%, for a maximum reduction of 20%. This additional reduction may only be taken where there is a disparity in basic service tier rates among several franchise areas within a single Continental system after Continental reduces basic service tier rates in those franchises by 15% to create the lifeline basic tier, and the reduction would bring about uniformity of basic service tier rates within a system. 52. As both the New York Commission and Continental point out, providing an opportunity to assure uniform basic service tier rates in a system is consistent with the provisions in the Social Contract, which permit Continental to price equipment and installation based on average statewide or regional costs. In addition, since every franchise area with a different rate creates the need for a separate rate filing, flexibility to permit uniform system wide basic service tier rates will relieve administrative burdens by reducing the number of Forms 1200 and 1210 which Continental will have to prepare. F. Opt Out Provision i. Terms of the Social Contract 53. Local franchising authorities have the right to opt out of the Social Contract provisions that resolve pending basic service cases supported by cost of service filings. This right is exercised by notifying the Commission in writing. Should a local franchising authority elect to opt out of the basic service tier cost of service refund settlement provision, Continental and the local franchising authority will resolve the pending BST COS complaints pursuant to the Commission's rules set forth in the Cost Order. The Commission would retain its appellate jurisdiction over these cases under its rules for deciding appeals. Prospectively, after the rates are restructured pursuant to the Social Contract, all local franchising authorities will have the authority to review Continental's BST rates pursuant to the Commission's benchmark rules. ii. Comments 54. Commenters who support the opt out provision in its current form state that the opt out provision is necessary for a local franchising authority that believes it can obtain a greater refund for its subscribers than is provided for in the proposed Social Contract. Some commenters maintain that further discovery is necessary in order to determine whether opting out is appropriate. In addition, three commenters have requested an extension of the opt out deadline. Lauderhill, Plantation and Tamarac ("Lauderhill.") requests a 60-day period and the National Association of Telecommunications Officers and Advisors request a 30-day period after release of the Social Contract to opt out of the Social Contract. Lauderhill maintains that the opt out provision is meaningless. According to Lauderhill, if a local franchising authority opts out of the Social Contract, Continental would surely contend that its maximum liability is set forth in the Social Contract and would be limited by in-kind refunds. It argues that the Commission is obligated to defend the Social Contract because it is a party to the agreement. The City of Los Angeles submitted a counter-offer to the proposed Social Contract and requested an additional 60 days to review the proposed Social Contract if its counter-offer is rejected. Also, on June 28, 1995 the City of Los Angeles filed a Motion requesting an extension of the opt out period to 60 days after the Commission adopts such an Order. 55. In response to the commenters, Continental maintains that the only information that local franchising authorities require to make a decision as to whether to opt out is already in their possession because Continental has certified to all of its cost of service local franchising authorities that the rate information and supporting material provided to them is accurate. Continental expressed support for the Bureau's extension of the opt out decision in Public Notice, Cable Services Bureau Announces An Extension of Time For Which Relevant Franchise Authorities May "Opt" Out of the Social Contract for Continental Cablevision, DA 95-1180 (released May 31, 1995). Finally, Continental strongly disputes the contention that the opt out provision is meaningless. Continental argues that the proposed Social Contract states that the refunds owed in franchises where the local franchise authority opts out are governed by the Commission's rules. Continental further argues that the Commission's obligation to defend the Social Contract only commits the Commission to defend any order or other legal challenge to such an order by any third party; it does not obligate the Commission to ignore its rate regulations and to take Continental's side in any rate challenges that may occur after approval of the Social Contract. iii. Discussion 56. We believe that the opt out provision is equitable for those local franchising authorities who wish to resolve pending cost of service proceedings on their own. Under the Social Contract, Continental is required to provide in-kind refunds to subscribers in settlement of pending basic service tier cost of service proceedings. If a local franchising authority exercises its right to opt out of the in-kind settlement provision of the Social Contract, Continental and the local franchising authority will resolve the pending BST COS filings pursuant to the Commission's rules set forth in the Cost Order. We believe that the in-kind refunds provided by the Social Contract in settlement of pending cost of service proceedings will result in most local franchising authorities declining to opt out of the in-kind settlement provision of the Social Contract. 57. In order to permit local franchising authorities sufficient time to evaluate the Social Contract, the Contract extends the opt out deadline to 30 days after release of this Order. We also wish to clarify the format for opt out notices. Such notice shall (a) be in writing (b) be addressed to the Office of the Secretary, Federal Communications Commission, 1919 M Street, N.W., Washington, D.C. 20554, with a copy to Continental Cablevision, the Pilot House, Lewis Wharf, Boston, MA 02110, (c) identify the local franchising authority and the community unit identification number for the franchise area, and (d) reflect the clear intent to opt out of the settlement provisions of the Social Contract. Such notification need not meet any other requirements and may be in letter form. 58. The 30-day period provides an adequate opportunity for local franchising authorities to evaluate the Social Contract for the limited purpose of determining whether they should opt out of the BST cost of service refund settlement which is the only portion of the Social Contract from which they can opt out. The Continental-specific data is available to the public and, therefore, local franchising authorities can make the financial analyses necessary to make a decision as to whether to opt out. Therefore, the City of Los Angeles' Motion for Extension of Time is denied. 59. Finally, the concern expressed by Lauderhill that the opt out provision is meaningless is without merit. In the event that a local franchising authority elects to opt out of the Social Contract, the Commission's rules govern the procedures for reviewing Continental's rate filings. Furthermore, although the Commission has a commitment to defend the Social Contract against legal challenges by third parties, this neither affects nor compromises any appeal of a rate order regarding a basic service case supported by a cost of service filing issued by a local franchising authority after it has chosen to opt out of the Social Contract. Any appeal of a local franchising authority rate order where the local franchising authority opts out will be decided on the basis of our cost of service rules, not the terms contained in the Social Contract. G. Bulk Rates i. Comments 60. A few commenters have asked for clarification regarding the treatment of bulk rate accounts negotiated between Continental and multiple dwelling units under the Social Contract. ii. Discussion 61. We do not believe that it would be appropriate to include bulk rate accounts in the Social Contract. There is a fundamental difference between the nature of bulk rate accounts and individual residential accounts. As we stated in the Rate Order, "all multiple dwelling buildings in the franchise area must receive the same bulk rate discount rate structure ... [and] the operator must be able to demonstrate that he/she derives some economic benefit from providing the bulk rate discount. Consequently, we do not believe that requiring Continental to include bulk rate accounts in the Rate Stability Plan is necessary to further the objectives of the Social Contract. H. Migrated Product Tier i. Terms of the Social Contract 62. The proposed Social Contract provides that Continental will be permitted to migrate up to four existing services from its cable programming services tier to a Migrated Product Tier. The channels migrated from the cable programming services tier will continue to be priced at the rate regulated price subject to the Commission's rules for inflation and external cost increases. Continental may add an unlimited number of channels to the MPT at the price of $.20 per channel plus licensee fees. After January 1, 1997, Continental may convert the MPT into a New Product Tier as defined by the Commission's Going Forward rules. Finally, the Social Contract provides that the MPT and NPT may be offered only where subscribers are not required to purchase any tier other than the basic service tier to purchase the MPT, and after conversion, the NPT. ii. Comments 63. Supporters of the MPT maintain that it will benefit subscribers by providing for more programming choices and options. Commenters opposing the MPT claim that it would result in the migration of programming to unregulated tiers to the detriment of subscribers. Commenters also argue that Continental's migration of programming would violate our negative option billing requirements. 64. In reply, Continental claims that the MPT will promote the long-term viability of new programming because new programming placed on an MPT will benefit from the higher penetration and viewership created by established services moved to the MPT. Continental further claims that its decision on which services to migrate to the MPT will be largely determined by the contractual rights of each cable programming service tier programmer. Furthermore, Continental claims that it would not move the most popular services off the cable programming service tier because it would lose cable programming service tier customers. Continental claims that it has an incentive to have popular programming on all tiers so that subscribers will choose to order all levels of service. Finally, Continental claims that the movement of up to four regulated services to the MPT without remarketing the services to subscribers does not constitute negative option billing because there will not be a fundamental change in the nature of the existing service to subscribers. iii. Discussion 65. Although the Social Contract provides that Continental will be permitted to migrate up to four existing services from its cable programming services tier to an MPT, the Upgrade Incentive Plan as described in the Cost Order does not specifically mention this treatment. The Cost Order contemplates that cable operators will maintain the same program channels or channels of equivalent value when a system upgrade is completed. Furthermore, the Going Forward Order does not contemplate channel migration because it wants to ensure that cable subscribers receive basically the same cable service prior to creation of an NPT and that the BSTs and CPSTs continue to remain competitive with the NPT. We believe that a waiver of the channel migration provisions of the Cost Order and Going Forward Order is appropriate in the overall context of the Social Contract and in the public interest because the creation of MPTs and NPTs expands the programming choices for subscribers. Consistent with the philosophy described in the Cost Order, the services migrated to the MPT will continue to be priced at the rate-regulated rate until January 1, 1997. This does not constitute a fundamental change in the services or pricing available to Continental's subscribers. Pricing for the MPT may only be increased if Continental adds additional services to the tier which should increase its value to the subscriber. Should Continental elect to convert the MPT into an NPT as defined by the Going Forward Order, then the elimination of all buy-through requirements will ensure that the product offerings and rates on the NPT are competitive with the regulated BSTs and CPSTs. Otherwise subscribers would elect not to subscribe to the NPT. Conversely, Continental would be encouraged to maintain the quality of the service offerings on the CPST. Otherwise, subscribers would have the opportunity to receive the BST and the NPT and discontinue receiving the CPST. This could have the effect of reducing the overall revenue to Continental. As such, Continental has economic incentives to maintain the quality of the CPST and to ensure that the rate for the NPT is reasonable. I. Franchises Subject to Effective Competition or Price-Constraining Competition i. Terms of the Contract 66. The rate regulation terms of the Social Contract would not apply to those Continental franchises that the Commission has found to be (a) subject to effective competition under the Act or (b) price constrained by competition. However, Continental's upgrade commitments in the Social Contract would continue to apply to such franchises. ii. Comments 67. Two commenters seek removal of the "price constrained by competition" standard contained in the Social Contract. In reply, Continental maintains that this is a standard adopted by the Commission consistent with the 1992 Cable Act. Continental maintains that this proceeding is not the proper forum to challenge this standard. Continental claims that an underlying concern of one commenter, DirectTV, is that a finding that a system is price constrained by competition might affect the Commission's interpretation or enforcement of program access rules. Continental argues that neither the Commission nor Continental would be precluded from considering in the future whether the emergence of competition in the multichannel video marketplace obviates the continuing need for program access rules. iii. Discussion 68. To the extent commenters and others take issue with our authority to provide relief from rate regulation where an operator's prices are "constrained by competition," we believe that this issue is more appropriately addressed when Continental petitions the Commission to grant it such relief. Continental's petition would be placed on public notice and, at that time, interested persons will have the opportunity to comment on the issue. J. Public Participation i. Comments 69. Some commenters expressed a desire to have been given the opportunity to participate in settlement negotiations between Continental and the Commission in order to represent the interests of their subscribers. In reply, Continental maintains that such participation was neither legally required nor practically workable. Continental maintains that by allowing the parties to comment on the final version of the proposed Social Contract, the Commission has ensured that the viewpoints of all affected parties are considered and their interests protected. ii. Discussion 70. The Cost Order states that when a proposal for an upgrade incentive plan is submitted to the Commission's Cable Services Bureau, it should include an outline of the proposal and an explanation as to how it would implement the objectives, as well as statements from affected local franchising authorities. Given that the initial proposal and subsequent negotiations affected a significant number of franchises with diverse interests and concerns, it is more efficient and has proven more practical for the Commission to negotiate the proposed Social Contract with Continental. The comment period and the extensions thereof have provided ample opportunity for local franchising authorities to express their concurrence with or opposition to the proposed agreement. Indeed, the cable Ex Parte Order contemplated this type of process, with the final proposal being offered for comment. Therefore, we waive, on our own motion and for good cause shown, the requirement in the Cost Order that a company's initial proposal for an upgrade incentive plan include statements from affected local franchising authorities. K. Implementation and Remedies i. Comments 71. Some of the commenters have expressed concern about the enforcement and remedies for violations of the Social Contract by Continental. In reply, Continental maintains that if a local franchising authority disagrees with Continental's interpretation of a provision of the Social Contract, it may seek redress at the Commission. Continental states that possible remedies include the issuance of fines and forfeitures by the Commission. ii. Discussion 72. Clearly, the priority established in the 1992 Cable Act is to protect the interests of subscribers. Our obligation to establish procedures and regulations to carry out the tasks necessary to be consistent with that priority is not compromised by either our approval of the Social Contract or our enforcement of the terms and conditions therein. Indeed, the Social Contract provides remedies for violations. Moreover, as Continental points out, to the extent that local franchising authorities or other interested parties disagree with Continental's interpretation of a provision, perceive a lack of enforcement of the terms and conditions of the Contract, or disagree with the remedies we may prescribe, they may seek redress at the Commission. L. Implementation of the Rate Stability Plan - Jurisdiction i. Comments 73. Some commenters sought clarification on the review of Continental's setting of the initial rates specified in the Rate Stability Plan and the oversight role of local franchising authorities in the future. In reply, Continental maintains that there will be no change in the jurisdictional roles established in the 1992 Cable Act and in the Commission's rules. Local franchising authorities will review the initial basic service tier rates Continental establishes pursuant to the Rate Stability Plan. Continental further maintains that the Commission will perform review for the setting of initial cable programming services tier rates. Finally, Continental indicates that on a going forward basis, local franchising authorities will retain primary jurisdiction over basic service tier rates and the Commission will retain exclusive jurisdiction over cable programming services tier rates. ii. Discussion 74. The 1992 Cable Act requires that we adopt the substantive and procedural rules to govern the regulation of basic service tier rates and that the local franchising authority sets those rates consistent with our rules. The terms and conditions of the Social Contract, negotiated under our Upgrade Incentive Plan rules, are consistent with this requirement. Local franchising authorities will review the initial basic service tier rates Continental establishes pursuant to the Social Contract's Rate Stability Plan. Since Form 1200 is the basis for the restructured basic service rate, where a local franchising authority has completed its review and approved the Form 1200 rate, that task is complete. If the Form 1200 decision is still pending the local franchising authority will complete its review in accordance with the Commission's rules. In addition, where Continental has filed a cost of service justification, under the terms of the Social Contract its basic service tier rates will be set at 15% below the lower of the Current Rate or Form 1200 rate. Current Rates will require no review, but a certified local franchising authority will still review and approve the Form 1200 filing. In addition, any future increases in basic service tier rates after a franchise's rates are restructured will be made subject to review and approval by the local franchising authority. We recognize that the comments reflect 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. M. Modification and Termination Provisions i. Terms of the Contract 75. The Social Contract may not be modified or terminated without the mutual agreement of both parties. If the laws or regulations applicable to any services offered by Continental change during the term of the Social Contract in a manner that would provide a material favorable impact on Continental, then at any time after such change has occurred, Continental may petition the Commission to terminate the Social Contract. ii. Comments 76. Some commenters contend that the right to terminate the Social Contract is unfairly provided to Continental. Commenters ask that local franchising authorities also be given the right to terminate the Social Contract and that any termination by Continental be only with the consent of local franchising authorities. 77. In its reply comments, Continental maintains that it may not terminate the proposed Social Contract at will. Rather, it must petition the Commission for this relief. In addition, Continental states that because local franchising authorities are not parties to the proposed Social Contract they lack the standing to terminate the agreement. Continental contends that it is appropriate for it to have sole termination rights if there is a fundamental change in the law that affects the underlying social policies of the Social Contract. Continental has indicated that it would agree to a modification of the proposed Social Contract under which Continental would be obligated to notify local franchising authorities of its decision to petition for termination of the proposed Social Contract. Continental further would agree to a modification that would give local franchising authorities the opportunity to comment on Continental's petition to terminate the Social Contract. iii. Discussion 78. We conclude that it would not be in the public interest to provide either that local franchising authorities would have the right to terminate the Social Contract, or that any termination of the Social Contract must be made with the consent of local franchising authorities. The interests and concerns of the significant number of local franchising authorities are too diverse to make such a provision practicable. The terms and conditions of the Social Contract take into consideration all of Continental's franchises. It would not be in the public interest to allow a local authority to seek to terminate the Social Contract based on, for the most part, factors that may be peculiar to only that franchise. 79. However, we have negotiated a modification to the proposed Social Contract such that any proposal to modify the Social Contract will be placed on public notice. Continental will serve promptly all of its local franchising authorities affected by the proposed modification with a copy of the proposal and, when released, the public notice. The public notice will state that the local franchising authorities and other interested parties may submit comments to the Commission and will provide one copy to Continental no later than 30 days following the release of the public notice. Continental and other interested parties will have 15 days to file reply comments. 80. We have further negotiated a modification to the proposed Social Contract such that any proposal to terminate the Social Contract will be also be placed on public notice. Continental will serve all of its local franchising authorities with a copy of the petition for termination of the Social Contract and, when released, the public notice. The public notice will state that the local franchising authorities and other interested parties may submit comments to the Commission and will provide one copy to Continental no later than 30 days following the release of the public notice. Continental and other interested parties will have 15 days to file reply comments. IV. CONCLUSION 81. The Social Contract that we have negotiated with Continental fulfills the objectives of the Incentive Upgrade Plans which were established in the Cost Order. The Social Contract ensures that customers will have reasonable, stable rates for existing services. Additionally, Continental will obtain pricing flexibility to upgrade its system in cost effective ways in order to provide customers with increased programming choices and improved quality of service. Furthermore, the Social Contract will reduce the regulatory burdens associated with rate regulation on local franchising authorities, Continental and the Commission. 82. The Social Contract will enable Continental subscribers to obtain an improved quality of service and more programming choices. For example, Continental is required to invest at least $1.35 billion to rebuild and upgrade all of its domestic cable systems from 1995 to 2000. Furthermore, Continental is required to upgrade those systems below 550 MHz to a minimum capacity of 550 MHz and 50% of Continental's systems will be upgraded to 750 MHz capacity. Since the Social Contract permits Continental to average broad categories of equipment and installation costs for all of its systems on a statewide or regional basis, equipment averaging will help to alleviate drastic increases in equipment rates for subscribers as Continental upgrades and rebuilds its systems. 83. In settlement of 148 pending cost of service cases and 229 benchmark cases, Continental will make in-kind refunds to its affected customers totalling approximately $9.5 million. During the period that the Social Contract remains in effect, Continental will forego its right to use cost of service justifications to support any future rate increase. 84. Under the Social Contract, Continental subscribers will have a wide range of programming choices: the lifeline basic tier, the cable programming services tier, and the MPT. Moreover, these programming choices have price caps for a period of time. For example, the lifeline basic tier is designed to provide subscribers with a basic level of programming choices at a low price. The MPT is designed for subscribers who desire an increased level of programming than what is contained on the lifeline basic tier and the cable programming services tier. 85. It is our belief that by approving this Upgrade Incentive Plan we encourage upgrades that provide additional service tiers that are economically justified and that best meet customers' needs. In addition, approval of this plan will reduce regulatory burdens on all parties. Therefore, we find this plan to the extent modified above to be in the public interest and approve the agreement. 86. Accordingly, IT IS ORDERED that the Upgrade Incentive Plan between Continental Cablevision, Inc. and the Commission as modified above, IS APPROVED. 87. IT IS FURTHER ORDERED that preemption of any local franchise agreement or any state or local law or regulation that requires Continental Cablevision to give more than 30 days notice of rates and service changes to subscribers for the period prior to January 1, 1996, IS GRANTED. 88. IT IS FURTHER ORDERED that waiver of 47 C.F.R.  76.922(d)(2), IS GRANTED. 89. IT IS FURTHER ORDERED that waiver of 47 C.F.R.  76.942(f), IS GRANTED. 90. IT IS FURTHER ORDERED that waiver of 47 C.F.R.  76.957, IS GRANTED. 91. IT IS FURTHER ORDERED that waivers of 47 C.F.R.  76.961(c),(d) and (e) ARE GRANTED. 92. IT IS FURTHER ORDERED that the Motion for Extension of Time filed by the City of Los Angeles is DENIED. 93. IT IS FURTHER ORDERED that waiver of any Commission rule, modifications to the Commission's forms, necessary to effectuate the terms of the Upgrade Incentive Plan, IS GRANTED. 94. IT IS FURTHER ORDERED that the Cable Services Bureau is given delegated authority to oversee implementation of the Upgrade Incentive Plan, including authority to dismiss all pending complaints covered by the Upgrade Incentive Plan. 95. IT IS FURTHER ORDERED that the Secretary is authorized to sign the Social Contract, attached as Appendix A, on behalf of the Commission. 96. IT IS FURTHER ORDERED that is Order is effective upon adoption. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A SOCIAL CONTRACT FOR CONTINENTAL CABLEVISION, INC. FCC 95-335 Effective Date: August 1, 1995 TABLE OF CONTENTS PAGE NO. I. BACKGROUND AND SUMMARY. . . . . . . . . . . . . . . . . . . . . . . 1 II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 III. TERMS AND CONDITIONS OF THE SOCIAL CONTRACT . . . . . . . . . . . . 6 A. Customer Refunds . . . . . . . . . . . . . . . . . . . . . . . 6 1. Cost-of-Service Franchises. . . . . . . . . . . . . . . . 6 a. BST Cost-of-Service Cases. . . . . . . . . . . . . . 6 b. CPST Cost-of-Service Cases . . . . . . . . . . . . . 7 2. Benchmark Franchises. . . . . . . . . . . . . . . . . . . 8 a. BST Benchmark Cases. . . . . . . . . . . . . . . . . 8 b. CPST Benchmark Cases . . . . . . . . . . . . . . . . 8 B. Creation of a Low-Cost, Lifeline Basic Service Tier and Rate Stability Plan . . . . . . . . . . . . . . . . . 9 1. Creation of a Low-Cost, Lifeline Basic Service Tier. . . . . . . . . . . . . . . . . . . . . . . 9 2. Rate Stability Plan . . . . . . . . . . . . . . . . . . . 10 a. Regulated Benchmark Franchises . . . . . . . . . . . 10 1). BST Rate. . . . . . . . . . . . . . . . . . . . 10 2). CPST Rate . . . . . . . . . . . . . . . . . . . 11 b. Regulated Cost-of-Service Franchises.. . . . . . . . 11 1). BST Rate. . . . . . . . . . . . . . . . . . . . 11 2). CPST Rate . . . . . . . . . . . . . . . . . . . 12 c. Unregulated Franchises . . . . . . . . . . . . . . . 12 1). BST Rate. . . . . . . . . . . . . . . . . . . . 12 2). CPST Rate . . . . . . . . . . . . . . . . . . . 13 d. Equipment and Installation Rates for All Systems. . . . . . . . . . . . . . . . . . . . . . . 14 C. Limitations on Rate Increases. . . . . . . . . . . . . . . . . 14 1. BST Rates . . . . . . . . . . . . . . . . . . . . . . . . 14 2. CPST Rates. . . . . . . . . . . . . . . . . . . . . . . . 15 3. Equipment and Installation Rates. . . . . . . . . . . . . 15 4. Waiver of Right to File Cost-of-Service Cases for Future Rate Increases . . . . . . . . . . . . . . . . 16 D. Resolution of Existing Rate Cases. . . . . . . . . . . . . . . 16 E. Infrastructure Upgrade Commitment. . . . . . . . . . . . . . . 20 1. Infrastructure Upgrade: Financial. . . . . . . . . . . . 20 2. Infrastructure Upgrade: Technical. . . . . . . . . . . . 20 3. Infrastructure Upgrade: Non-Discrimination . . . . . . . 22 4. Infrastructure Upgrade: Failure to Meet Investment Target . . . . . . . . . . . . . . . . . . . . 22 F. Migrated Product Tiers and New Product Tiers . . . . . . . . . 22 1. Migrated Product Tiers. . . . . . . . . . . . . . . . . . 22 2. New Product Tiers . . . . . . . . . . . . . . . . . . . . 23 G. Franchises Subject to Effective or Price- Constraining Competition . . . . . . . . . . . . . . . . . . . 24 H. Acquired and Divested Systems. . . . . . . . . . . . . . . . . 24 I. Local Franchising Authority Right to Opt Out of the Cost-of-Service Refund Settlement. . . . . . . . . . . . . 25 1. Right to Opt Out. . . . . . . . . . . . . . . . . . . . . 25 2. Effect of Opting Out. . . . . . . . . . . . . . . . . . . 25 J. Reporting Requirements . . . . . . . . . . . . . . . . . . . . 26 K. Modification and Termination . . . . . . . . . . . . . . . . . 27 L. All Necessary Waivers and Preemptions Deemed Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 M. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 N. Service of Contract and Public Notice on Interested Parties . . . . . . . . . . . . . . . . . . . . . . 28 O. Public Notice. . . . . . . . . . . . . . . . . . . . . . . . . 29 P. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 29 Q. Severability . . . . . . . . . . . . . . . . . . . . . . . . . 30 SOCIAL CONTRACT FOR CONTINENTAL CABLEVISION, INC. I. BACKGROUND AND SUMMARY. The "Social Contract" set out in this document (the "Contract") relates to services and equipment offered by Continental Cablevision, Inc. ("Continental") and its subsidiaries actually or potentially subject to regulation under the terms of the applicable provisions of Title VI of the Communications Act of 1934, as amended ("Act"). The Commission believes that this Contract will advance the public interest by: (1) assuring fair and reasonable rates for Continental's cable service customers; (2) improving Continental's cable service by substantially upgrading the channel capacity and technical reliability of its United States cable systems; and (3) reducing the administrative burden and costs of regulation for local governments, the Federal Communications Commission ("Commission"), and Continental. The Contract has been negotiated by Continental and the Commission in accordance with the Commission's authority to consider and adopt "social contracts" as an alternative to other regulatory approaches applicable to cable television rates, see Cost-of-Service Order, 9 FCC Rcd. 4527,  295-304 (1994), and its authority to regulate Continental's cable services under the Act. This Contract covers all of Continental's cable systems owned as of the Publication Date, including those franchises that are unregulated either because no Local Franchise Authority ("LFA") has certified and/or no complaint has been filed. Those unregulated franchises serve approximately 60% or 1.8 million of Continental's basic service tier ("BST") subscribers and approximately 46% or 1.3 million of Continental's cable programming service tier ("CPST") subscribers. Thus, the Contract will provide rate stability and other benefits for Continental customers regardless of their regulatory status. The principal terms of the Contract are: The resolution of 148 cost-of-service cases and 229 benchmark cases. (The 148 cost-of-service cases consist of 73 BST and 75 CPST cases filed between September 1, 1993 and the Publication Date. The 229 CPST benchmark cases consist of 129 Form 393 cases and 100 Form 1200 cases filed between September 1, 1993 and the Publication Date.) As part of the resolution of these cost-of-service and benchmark cases, Continental will make in-kind Refunds to its affected customers totalling approximately $9.5 million. The rates for BST cost-of-service cases resolved pursuant to this Contract will be reduced as necessary from their current levels, which Continental defended under cost-of-service principles, to levels calculated pursuant to Commission Form 1200. Future BST increases for these franchises will be based solely on inflation and external cost increases, as permitted by 47 C.F.R.  76.922(d), including all subsequent clarifications and amendments. LFAs will have the ability to "opt out" of BST cost-of- service Refunds and elect to resolve any amounts owed to customers with Continental pursuant to Commission rules. Also, BST benchmark cases currently pending before LFAs will be resolved by Continental and the LFAs pursuant to Commission rules. Continental will convert its existing BSTs in all franchises into "Lifeline Basic" tiers so that customers who only can afford or who only want the most basic local programming may purchase it for a low monthly fee. To accomplish this, Continental will reduce its BST rates for all regulated franchises to a minimum of 15% below the rates required by Commission Form 1200 and will reduce its BST rates for all unregulated franchises to a minimum of 15% below Current Rates. Continental will forego its right to use cost-of- service justifications to support any future rate increases in any franchises covered by this Contract during the period that the Contract remains in effect. On a going-forward basis, Continental's BST and CPST rates for all subscribers will be limited by the Commission's rules for inflation and external cost adjustments and by the "Going-Forward" rules. In order to fund the six-year capital spending program required as part of this Contract, Continental will be permitted to conduct a second round of "Going-Forward" channel additions over the three-year period from 1998-2000. Continental will be permitted to migrate up to four existing CPST services on each system to a single "Migrated Product Tier" ("MPT"), provided the tier is offered without a buy-through requirement of any tier other than the BST. Initially, the MPT will be capped at current CPST levels for the migrated channels on the tier, and increases will be based on inflation and external costs, pursuant to Commission rules. However, there will be no limitation on the number of new channels that Continental may add to this tier at the price of $.20 per channel plus license fees. After January 1, 1997, Continental may convert the MPT into a New Product Tier ("NPT"), provided the tier is offered without a buy-through requirement of any tier other than the BST. Continental agrees to spend at least $1.35 billion from 1995 through 2000 to rebuild and upgrade its domestic cable facilities. This represents an annual investment that is 120% of Continental's average annual capital expenditures from 1990 through 1994. This Contract or any settlement contained herein does not constitute an admission by Continental of any violation of, or failure to conform to, any law, rule, or policy. II. DEFINITIONS. For the purposes of this Contract, the following definitions will apply: (a) "Current Rates" means those Continental system rates that are in effect as of April 3, 1995, the Publication Date, or rates that will become effective after the Publication Date and for which notice was given to subscribers on or before March 1, 1995. (b) "Effective Date" means the date on which the Commission adopts an order approving this Contract. (c) "Eligible Subscribers" means those subscribers who the Commission has determined qualify for a Refund in Continental franchises where there is a pending CPST benchmark case. (d) "Going-Forward rules" means the Commission's rules adopted in the Sixth Order on Reconsideration, 76 R.R.2d (P&F) 859 (1994), including all subsequent clarifications and amendments. (e) "Lifeline Basic" means a Continental BST that has had its rates reduced 15% to 20% pursuant to section III.B. below. (f) "Migrated Product Tier" or "MPT" means a tier consisting of up to four services moved from a system's existing CPST(s) and to which other services may be added (as described in section III.F. below). (g) "Publication Date" means April 3, 1995, the date on which this Contract was placed on public notice by the Commission. (h) "Refund" means an in-kind service offering in lieu of a cash amount. Such Refunds may include premium services, pay-per-view services, additional outlet and VCR installations, viewing guides, and other services or items having an established retail value. III. TERMS AND CONDITIONS OF THE SOCIAL CONTRACT. A. Customer Refunds. Pursuant to the settlement of Continental's existing benchmark and cost-of-service cases as described in this section, Continental will provide customer Refunds, which in the aggregate total approximately $9.5 million, as set forth below. The Refunds required pursuant to this section are listed in Exhibits 1-5. 1. Cost-of-Service Franchises. a. BST Cost-of-Service Cases. 1). In settlement of Continental's pre- and post-May 15, 1994 BST cost-of-service cases on file as of the Publication Date, Continental will provide each of its approximately 509,000 cost-of-service subscribers with an in-kind Refund with a minimum retail value of $5.00. This Refund has a total consolidated retail value of approximately $2,545,000. Continental will ensure that all of these cost-of-service subscribers have at least three in-kind Refund options and at least 180 days to use the option(s) of their choice. Within 30 days of the Effective Date, Continental will submit to the Commission for its approval a list of proposed in-kind Refund options. Continental shall initiate in-kind Refunds no later than the start of the first full month beginning ninety (90) days after the Commission's approval. 2). Where an LFA elects to "opt out" of BST cost-of-service settlements under section III.I. below, the consolidated Refund value shall be reduced by the product of the number of subscribers in the BST cost-of-service franchises for which LFAs have "opted-out" times the per subscriber Refund amount. Refunds will not be awarded to subscribers whose LFAs have chosen to "opt out" except as pursuant to the Commission's existing "cost-of-service" procedures and regulations. b. CPST Cost-of-Service Cases. In settlement of Continental's pre- and post-May 15, 1994 CPST cost-of-service cases on file with the Commission as of the Publication Date, Continental will provide each of its approximately 818,000 cost-of-service subscribers with an in-kind Refund with a minimum retail value of at least $4.50. This Refund has a total consolidated retail value of approximately $3,681,000. Continental will ensure that all of these cost-of- service subscribers have at least three in-kind Refund options and at least 180 days to use the option(s) of their choice. Within 30 days of the Effective Date, Continental will submit to the Commission for its approval a list of proposed in-kind Refund options. Continental shall initiate in-kind Refunds no later than the start of the first full month beginning ninety (90) days after the Commission's approval. 2. Benchmark Franchises. a. BST Benchmark Cases. Continental will resolve any pending BST benchmark rate matters, including any possible refunds, with the affected LFAs, pursuant to Commission rules. Nothing in this Contract, including Continental's commitment to reduce BST rates to a level at least 15% below the applicable Form 1200 rate, shall empower LFAs to order refunds beyond any that would be required pursuant to Commission rules. b. CPST Benchmark Cases. 1). In settlement of Continental's pre-May 15, 1994 CPST benchmark cases on file with the Commission as of the Publication Date, Continental will provide each of approximately 231,000 Eligible Subscribers with an in-kind Refund with a minimum retail value of $2.00. This Refund has a total consolidated retail value of $462,000. Continental will ensure that these Eligible Subscribers have at least three in-kind Refund options and at least 180 days to use the option(s) of their choice. Within 30 days of the Effective Date, Continental will submit to the Commission for its approval a list of proposed in-kind Refund options. Continental shall initiate in-kind Refunds no later than the start of the first full month beginning ninety (90) days after the Commission's approval. 2). In settlement of Continental's post-May 15, 1994 CPST benchmark cases on file with the Commission as of the Publication Date, Continental will provide each of approximately 351,000 Eligible Subscribers with an in-kind Refund equal to $8.00. This Refund has a total consolidated retail value of approximately $2,808,000. Continental will ensure that these Eligible Subscribers have at least three in-kind Refund options and at least 180 days to use the option(s) of their choice. Within 30 days of the Effective Date, Continental will submit to the Commission for its approval a list of proposed in- kind Refund options. Continental shall initiate in-kind Refunds no later than the start of the first full month beginning ninety (90) days after the Commission's approval. B. Creation of a Low-Cost, Lifeline Basic Service Tier and Rate Stability Plan. No later than January 1, 1996, Continental shall lower all of its BST rates. The rate reductions shall be implemented as set forth below: 1. Creation of a Low-Cost, Lifeline Basic Service Tier. In order to provide its customers with the option to purchase a low-cost basic service tier, Continental will create a Lifeline Basic tier by reducing the rates for its BSTs 15% as set forth in the next section. In order to achieve uniform BST rates in a given system, Continental may reduce BST rates up to an additional 5% for a maximum reduction of 20%. This additional reduction may only be taken where there is a disparity in BST rates among several franchise areas within a single Continental system and the reduction will bring about greater uniformity of BST rates. This conversion to Lifeline Basic service will be implemented no later than January 1, 1996. After this conversion, Continental will not add any additional programming to the Lifeline Basic tier for the term of this Contract, except, with prior notice to the Commission, as specifically required by LFAs or as required by law. The Commission shall take into account the rate restructuring done to create the low-cost Lifeline Basic tier rate in any comparison made, for any purpose, between Continental's future CPST rates and industry average CPST rates. 2. Rate Stability Plan. a. Regulated Benchmark Franchises. 1). BST Rate. By January 1, 1996, the BST rate for all Continental franchises that established their BST rate pursuant to the Commission's benchmark formula will be reduced a minimum of 15% below the Form 1200 level, as of the Publication Date, and then adjusted at Continental's option, pursuant to Commission rules, for any previously unrecovered inflation and external costs that have accrued through the most recently completed calendar quarter prior to such Lifeline Basic rate reduction. 2). CPST Rate. By January 1, 1996, the CPST rate for all Continental franchises that established their rates pursuant to the benchmark formula will be set in accordance with Commission Form 1200, as of the Publication Date, and then adjusted at Continental's option for: (a) any channels added pursuant to the Commission's Going-Forward rules; (b) an amount which yields the total revenues foregone by the 15% to 20% Lifeline Basic rate reduction; and (c) pursuant to Commission rules, any previously unrecovered inflation and external costs that have accrued through the most recently completed calendar quarter prior to such Lifeline Basic rate reduction. b. Regulated Cost-of-Service Franchises. 1). BST Rate. By January 1, 1996, the BST rate for all Continental franchises that filed a BST cost-of-service justification, including those franchises that opt out of the cost-of-service Refund settlement under section III.I, will be reduced a minimum of 15% below either the level that would be allowable based on the Form 1200 or the Current Rate, as of the Publication Date, whichever is lower, and then adjusted at Continental's option, pursuant to Commission rules, for any previously unrecovered inflation and external costs that have accrued through the most recently completed calendar quarter prior to such Lifeline Basic rate reduction. 2). CPST Rate. By January 1, 1996, the CPST rate for all Continental franchises that filed a CPST cost-of-service justification will be maintained at the Current Rate, and then adjusted at Continental's option for: (a) any channels added pursuant to the Commission's Going-Forward rules; (b) an amount which yields the total revenues foregone by the 15% to 20% Lifeline Basic rate reduction; and (c) pursuant to Commission rules, any previously unrecovered external costs that have accrued through the most recently completed calendar quarter prior to such Lifeline Basic rate reduction, and for inflation for the period beginning on either July 1, 1994, or the effective date of the last CPST rate increase in the franchise, if any, whichever is later. c. Unregulated Franchises. 1). BST Rate. i. By January 1, 1996, the BST rate for all franchises that are unregulated as of the Publication Date will be reduced a minimum of 15% below the Current Rate, and then adjusted at Continental's option, pursuant to Commission rules, for any previously unrecovered external costs that have accrued through the most recently completed calendar quarter prior to such Lifeline Basic rate reduction, and for inflation for the period beginning on either July 1, 1994, or the effective date of the last BST rate increase in the franchise, if any, whichever is later. ii. Since approximately 60% of Continental's BST customers are in unregulated franchises, this provision will assure rate stability and provide other benefits for approximately 1.8 million Continental customers whose rates are unregulated as of the Publication Date. iii. The order approving the Contract shall affirmatively find that rates set pursuant to this paragraph are reasonable under the Act and the Commission's rules. 2). CPST Rate. i. By January 1, 1996, the CPST rate for all franchises that are unregulated as of the Publication Date will be maintained at the Current Rate, and then adjusted at Continental's option for: (a) any channels added pursuant to the Commission's Going-Forward rules; (b) an amount which yields the total revenues foregone by the 15% to 20% Lifeline Basic rate reduction; and (c) pursuant to Commission rules, any previously unrecovered external costs that have accrued through the most recently completed calendar quarter prior to such Lifeline Basic rate reduction, and for inflation for the period beginning on either July 1, 1994, or the effective date of the last CPST rate increase in the franchise, if any, whichever is later. ii. Since approximately 46% of Continental's CPST customers are in unregulated franchises, this provision will assure rate stability and provide other benefits for approximately 1.3 million Continental customers whose rates are unregulated as of the Publication Date. iii. The order approving the Contract shall affirmatively find that rates set pursuant to this paragraph are reasonable under the Act and the Commission's rules. d. Equipment and Installation Rates for All Systems. In order to reduce accounting and regulatory costs, minimize fluctuations in consumer equipment prices, and eliminate large increases in such prices as system upgrades occur pursuant to the terms of section III.E., Continental will be permitted to average broad categories of equipment -- such as addressable and non- addressable converters, and remotes -- and various installation costs for all its systems on a state-wide or region-wide basis. For purposes of this Contract, "region-wide" refers to Continental's five operating regions, described in Exhibit 6 to this Contract, and any reasonable modifications to such regions. C. Limitations on Rate Increases. 1. BST Rates. After a Continental franchise's rates are restructured as required under the "Rate Stability Plan" described in the previous section, future BST rate increases will be governed by the Commission's rules regarding the pass through of external cost increases, inflation, and the rules governing LFA authority to review and approve such increases. 2. CPST Rates. After a Continental franchise's rates are restructured as required under the "Rate Stability Plan" as described in the previous section, future CPST rate increases will be governed by the Commission's rules regarding the pass through of external cost increases and inflation and by the Going-Forward rules, except as modified herein. Specifically, Continental will be entitled to conduct a second round of channel additions over the three-year period from 1998 through 2000 in accordance with the existing Going-Forward rules. Any complaint regarding future CPST rate increases will also be governed by Commission rules, including the established time period for filing complaints about such increases. 3. Equipment and Installation Rates. Beginning on January 1, 1996, Continental will file annual updates to its Form 1205 equipment and installation rates with the Commission. The Commission shall review each updated Form 1205. Continental may begin charging revised equipment and installation rates to customers based upon the updated Form 1205 upon thirty (30) days notice. These revised equipment and installation rates will be subject to refund if the Commission later concludes that lower state-wide or region-wide rates are called for by the Form 1205 and applicable rules. Such state- wide or region-wide equipment and installation charges as Continental establishes and the Commission approves pursuant to this Contract shall be subject to enforcement by local franchising authorities. Should any LFA find that Continental's equipment and installation rates exceed those permitted by the Commission, the LFA may order Continental to make refunds of any excess charges as necessary to comply with the average equipment and installation charges permitted by the Commission. 4. Waiver of Right to File Cost-of-Service Cases for Future Rate Increases. Upon the Effective Date of the Contract, Continental agrees not to file cost-of-service-based rate justifications for any future rate increases in any franchise covered by this Contract during the period that the Contract remains in effect. However, where an LFA requires Continental to upgrade a system beyond the capacity level which Continental had otherwise proposed for such system, pursuant to its obligations under section III.E., Continental shall have the right to use other mechanisms permitted by law or regulation to recover the incremental costs incurred to upgrade such system from the proposed level to the LFA-required level. Such mechanisms may include, but are not limited to, external cost pass throughs, incentive upgrades, or streamlined cost-of-service rules. No cost recovery through such mechanisms shall be deemed to reduce Continental's obligation to invest $1.35 billion in system upgrades by December 31, 2000, as specified in section III.E. D. Resolution of Existing Rate Cases. 1. All CPST benchmark and BST and CPST cost-of- service cases currently pending before the Commission are resolved and finally terminated as part of the adoption of this Contract. 2. All BST cost-of-service cases currently pending before an LFA are resolved and fully terminated as part of the adoption of this Contract, subject to the right of LFAs to "opt out" of BST cost-of-service Refund settlements under the terms of section III.I. below. 3. Continental accepts the jurisdiction of the Commission over it and the subject matter of these rate settlements for purposes of this Contract and the order approving this Contract. 4. The Commission has reviewed Continental's CPST benchmark and BST and CPST cost-of-service filings. In light of this review, the covenants and representations contained in this Contract, and in express reliance thereon, and in order to conserve Commission resources, avoid litigation costs, and achieve the other benefits to the public contained in the Contract, the Commission agrees to resolve and terminate all cases involving Continental currently pending before it and all pending BST cost-of-service cases currently pending before LFAs, subject to the right of LFAs to "opt out" of the BST cost-of- service Refund settlement under the terms of section III.I below. 5. This settlement is without a finding by the Commission of any wrongdoing by Continental. Further, the Commission agrees that it will not institute, on its own motion, any proceedings against Continental based upon the information obtained during the consideration of the Contract. In addition, in the absence of additional facts, the Commission agrees that any allegations and other circumstances involved in consideration of this Contract or settlement of the pending rate cases will not be used against Continental with respect to any future proceedings at the Commission. Nor may they be used against Continental as evidence of any refund liability due subscribers in any proceeding conducted by any LFA that elects to opt out of the BST cost-of-service Refund settlement pursuant to section III.I. below. 6. Similarly, neither the Contract, nor any settlement contained herein, constitutes an admission by Continental of any violation of, or failure to conform to, any law, rule, or policy. 7. In consideration for the Commission's agreement to enter into this Contract and resolve and terminate pending benchmark and cost-of-service cases in accordance with the terms of this Contract, Continental hereby agrees to the terms, conditions, and procedures contained in the Contract, which Continental and the Commission believe will facilitate a fair and expeditious resolution of these cases in a manner that serves the public interest. 8. Continental waives any rights it may have to judicial review, appeal, or rights otherwise to challenge or contest the validity of any order adopting this Contract, or to use this Contract as evidence in any such proceeding. Continental agrees that the provisions of this Contract shall be incorporated by reference in the order formally approving this Contract. Continental and the Commission agree that they will each actively defend any order adopting the provisions of the Contract against any appeal of or other legal challenge to such an order by any third party. Continental and the Commission each agree that they will reasonably cooperate with the other in any such defense of the Contract. 9. Continental agrees that any violation of this Contract or the order approving this Contract shall constitute a violation of a Commission order, entitling the Commission to exercise any rights and remedies attendant to the enforcement of a Commission order. 10. The Commission and Continental further agree that the effectiveness of this Contract is expressly contingent upon resolution and termination of Continental's CPST benchmark and BST and CPST cost-of-service proceedings (except as LFAs may elect to opt out of the BST cost-of-service Refund settlement under section III.I. below), issuance of an order approving the Contract, and Continental's compliance with the terms, conditions, and procedures set forth in the Contract. If this Contract is not approved by the Commission and accepted by Continental, or if the Contract is otherwise rendered invalid, in whole or in part, by final order of any court of competent jurisdiction, the Contract or such part may not be used in any fashion in any legal proceeding. 11. If the Commission, or the United States on behalf of the Commission, brings an action in any United States District Court to enforce the terms of the order approving the terms of this Contract, Continental agrees, subject to the terms of the previous paragraph, that it will not contest the validity of the order, and will consent to a judgment incorporating the terms of this Contract. E. Infrastructure Upgrade Commitment. 1. Infrastructure Upgrade: Financial. Continental commits to invest at least $1.35 billion from January 1, 1995 through December 31, 2000, to substantially upgrade all of its cable systems nationwide so as to meet the technical upgrade commitment specified in the next paragraph. Continental will make an annual investment for rebuilds and upgrades of its United States cable systems which is at least 120% of its average aggregate annual capital expenditures from 1990 through 1994. Accelerated expenditures will be credited toward future years during the Contract period. All of the $1.35 billion will be dedicated to Continental cable systems within the United States. 2. Infrastructure Upgrade: Technical. The investment commitment described in the previous paragraph will be used to upgrade and rebuild Continental's U.S. cable systems so that, by December 31, 2000, the following minimum conditions will be met: For each Continental cable system less than 550 MHz, channel capacity will increase by a minimum of 20% of its capacity, measured in MHz. All Continental subscribers will be served by a system with a capacity of at least 550 MHz; At least 50% of Continental subscribers will be served by a system with a capacity of at least 750 MHz; Systems serving at least 85% of Continental subscribers will utilize fiber optic technology to transport signals from the system headend to neighborhood nodes; All Continental systems will utilize addressability or other suitable technology to make interactive services available to subscribers and to enhance the ability of consumers to make service choices. Continental will use its best efforts to deploy new technology in a manner that is not disruptive to consumers; and System reliability and picture quality will be improved through the replacement of active components (amplifiers) with passive conductors (fiber). 3. Infrastructure Upgrade: Non-Discrimination. Continental will distribute its system upgrade efforts so as not to discriminate among subscribers based on socio-economic status. 4. Infrastructure Upgrade: Failure to Meet Investment Target. If, at the end of any calendar year, Continental has failed to invest at least 85% of the annual amount committed to infrastructure upgrades, taking into consideration accelerated payments from previous years as described in paragraph 1 of this section, Continental will be required to make an in-kind Refund equal to the amount by which that year's capital expenditure falls short of its required annual investment. Any Refund applicable to a given year may be stayed, at Continental's option, for one year to allow Continental to meet its upgrade investment commitment by the end of the following year. If by the end of the following year Continental has met its investment commitment for the previous year, then no Refunds shall be due. Refunds shall be structured so as to compensate those customers who have not benefitted from the technical upgrade requirements set out in paragraph 2 of this section. F. Migrated Product Tiers and New Product Tiers. 1. Migrated Product Tiers. a. On each of its systems, Continental may move a maximum of four CPST services to a single "Migrated Product Tier" ("MPT"). Because the MPT will initially consist of services subscribers have already asked to receive, Continental will not be required to re-market the MPT to existing subscribers. These migrated channels may also be offered on an a la carte basis. Continental may not require the subscription to any tier, other than the BST, as a condition for subscribing to an MPT, and may not require subscription to an MPT as a condition for subscribing to a CPST. b. Initially, Continental will set the rate for a franchise's MPT at the same level, on a per channel basis, that is set for that franchise's CPSTs under section III.B.2. above. There will be no limitation on the number of new services Continental may add to an MPT. Continental may increase the price of an MPT to reflect new services added to the MPT by an amount not to exceed $.20 per added channel, plus the actual license fee(s) for the added channel(s). c. Because customers will be able to subscribe to CPST(s) and an MPT on a stand-alone basis, the Commission will regulate MPT prices as of January 1, 1997 in the same manner in which the Commission currently regulates NPT prices. Prior to January 1, 1997, inflation and external cost increases will be permitted on the migrated services in the manner permitted for CPSTs under section III.B.2. 2. New Product Tiers. On or after January 1, 1997, Continental may convert the MPT in each system into an NPT, as defined in 47 C.F.R.  76.987, including subsequent clarifications or amendments. These NPTs will be treated as all other NPTs under the Commission's rules, provided the tier is offered without a buy-through requirement of any tier other than the BST. Also, nothing in the Contract shall be construed to prevent Continental from creating other NPTs and/or offering a la carte channels pursuant to Commission rules. G. Franchises Subject to Effective or Price-Constraining Competition. The rate regulation terms of this Contract shall not apply to those Continental franchises that the Commission has found to be: (1) subject to effective competition under the Act; or (2) price constrained by competition. However, Continental's upgrade commitments set out in section III.E. continue to apply to such franchises. H. Acquired and Divested Systems. 1. Cable systems acquired by Continental after the Publication Date, either through direct purchase or a system trade, may be incorporated into this Contract only after the acquisition has closed and the Commission and Continental have agreed on an amendment to include such systems under this Contract. Notwithstanding the foregoing, Continental will not be permitted to create an MPT pursuant to this Social Contract for acquired systems if NPTs already exist in those systems as a result of a la carte packaging by the prior owner(s) of such systems. 2. Rate, MPT, and Going-Forward adjustments which Continental has implemented under the Social Contract will continue to apply to cable systems divested by Continental through a system sale or trade. Other rights and obligations will apply only if the new owner notifies the Commission that it agrees to be bound by the same or similar terms and conditions as those contained in the Social Contract. Continental will not be relieved of its total investment requirement under Section III.E.1.; the investment requirement will continue to exist for Continental systems, including systems acquired through system trade after the Publication Date. I. Local Franchising Authority Right to Opt Out of the Cost-of-Service Refund Settlement. 1. Right to Opt Out. LFAs with pending BST cost-of-service cases will have the opportunity to "opt out" of the BST cost-of-service Refund settlement provisions of this Contract and resolve any amounts owed to customers in such franchises with Continental pursuant to Commission rules. To opt out of such provisions, an LFA must provide written notice to the Commission of its decision to do so no later than thirty (30) days following the release of the Commission's order. 2. Effect of Opting Out. a. In any franchise area where the LFA has opted out, Continental shall not be required to provide any Refunds to BST customers, as provided for in section III.A.1.a. Rather, the amount of refund liability, if any, must be independently determined by the relevant LFA using the Commission's established "cost-of-service" rate regulations and procedures. Additionally, an LFA may not use the facts or circumstances of this Contract, including any Refunds agreed upon by Continental or Continental's agreement to reduce rates and to create a Lifeline Basic tier, as evidence in any rate proceeding of any refund liability due BST subscribers. b. In any franchise where the LFA opts out under this section, Continental retains the right to pursue any and all legal remedies regarding the decisions of the LFA, including appeals to the Commission and/or to appropriate state, local, and/or federal courts. J. Reporting Requirements. 1. No later than ninety (90) days following the end of each calendar year that the Contract is in effect, Continental will provide an annual progress report to the Commission outlining the amount of capital investment Continental has made in compliance with section III.E.1.; the number of subscribers affected by such capital investment; system reliability and service improvements resulting from upgrades completed during the previous calendar year; and Continental's projected expenditures and upgrades for the following year. Continental shall serve all Continental LFAs with a copy of the annual progress report. 2. The Commission shall have the right to inspect the books and records of Continental to verify compliance with the terms of this Contract and to interview corporate employees. K. Modification and Termination. 1. The Contract may not be terminated or modified without the mutual agreement of Continental and the Commission. The Commission's consent to any such termination or modification shall be demonstrated by an order issued by the Cable Services Bureau or, at the Commission's option, by the Commission itself. 2. Any proposed modification to the Contract will be placed on public notice. Continental shall serve all LFAs affected by the proposed modification with a copy of the public notice. The notice shall state that the LFAs may submit comments to the Commission and shall provide one copy to Continental no later than thirty (30) days following the release date of the public notice. Continental shall have 15 days to file reply comments. 3. If the laws or regulations applicable to any services offered in any Continental franchise change during the term of the Contract in a manner that would provide a material favorable financial impact on Continental, then at any time after such change has occurred, Continental may petition the Commission to terminate this Contract. The Commission shall act expeditiously on such petition, and grant of the petition will not be unreasonably withheld. Continental shall serve all Continental LFAs with a copy of any petition for termination. The notice shall state that the LFAs may submit comments to the Commission and shall provide one copy to Continental no later than thirty (30) days following the date the petition is filed with the Commission. Continental shall have 15 days to file reply comments. L. All Necessary Waivers and Preemptions Deemed Granted. In addition to the specific waivers of the Commission's rules identified in the Contract, the order approving the Contract shall affirmatively state that any and all waivers of the Commission's rules, and any modifications to Commission forms, necessary to effectuate the terms of the Contract are deemed to be granted. The Commission will not assert in any proceeding that Continental's compliance with the terms of the Contract violates any Commission rule or order, and, in any proceeding before the Commission brought by a third party, a showing by Continental that it has complied with the terms of the Contract shall constitute a defense to any claim that Continental's actions in meeting the terms of the Contract constitute a violation of any applicable Commission rule or order. M. Term. This Contract shall become effective when the Commission adopts an order approving the Contract and shall continue in effect through December 31, 2000, subject to section III.K. above regarding modification and termination. N. Service of Contract and Public Notice on Interested Parties. Continental will serve a copy of this Social Contract and the Public Notice announcing this proposed resolution, as well as a copy of the Social Contract as adopted, on all Continental LFAs and also will serve all parties to any pending Continental cost- of-service or benchmark rate proceeding. O. Public Notice. The Commission will promptly issue a public notice in which the Commission proposes to adopt the Contract as a final order governing Continental's provision of cable services, and shall provide interested parties with thirty (30) days to comment on the Contract and an additional fifteen (15) days in which to file reply comments. P. Entire Agreement. This Contract and its exhibits, as either or both may be amended in accordance with the terms herein, constitute the entire agreement between Continental and the Commission with respect to the subject matter of this Contract and supersede all prior agreements and understandings, whether oral or written, between Continental and the Commission with respect to the subject matter of this Contract. No representation, warranty, promise, inducement, or statement of intention has been made by Continental or the Commission which is not embodied in this Contract, and neither party shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement, or statement of intention not embodied in this Contract or its exhibits. Q. Severability. If any provision, clause, or part of this Contract is invalidated, the remainder of this Contract shall not be affected thereby and shall remain in effect; provided, however, that if such invalidation is material to this Contract, the parties shall negotiate in good faith to reconstitute the Contract in a form that is, to the maximum extent possible, consistent with the original intent of Continental and the Commission. IN WITNESS WHEREOF, this Contract has been duly executed and delivered by or on behalf of the parties hereto as of the Effective Date as defined herein. CONTINENTAL CABLEVISION, INC. By: __________________________ Name: Robert J. Sachs Title: Senior Vice-President Corporate and Legal Affairs FEDERAL COMMUNICATIONS COMMISSION By: __________________________ Name: Title: EXHIBIT 1 COST OF SERVICE REFUNDS BASIC SERVICE TIER $5.00 PER SUBSCRIBER PAGE 1 OF 2 12/31/94 BST SUBS CALIFORNIA 1 BALDWIN HILLS, CA0937 7,609 2 CARSON, CA0439 12,562 3 CITY OF LA - AREA I, CA0808 112,964 4 CITY OF LA - AREA J, CA0775 13,995 5 CULVER CITY, CA0807 7,594 154,724 FLORIDA 6 LAUDERHILL, FL0185 12,991 7 OAKLAND PARK, FL0503 469 8 PLANTATION, FL0008 23,257 9 TAMARAC, FL0153 17,248 53,965 ILLINOIS 10 BUFFALO GROVE, IL0515 10,802 11 ELK GROVE VILLAGE, IL0518 8,532 12 HOFFMAN ESTATES, IL0522 11,184 13 PALATINE, IL0491 10,066 14 ROLLING MEADOWS, IL0521 5,685 46,269 MASSACHUSETTS 15 BERKLEY, MA0266 1,275 16 BERNARDSTON, MA0088 680 17 BEVERLY, MA0124 11,843 18 BILLERICA, MA0079 9,864 19 BOXFORD, MA0327 1,795 20 BURLINGTON, MA0080 6,368 21 CAMBRIDGE, MA0280 20,108 22 CHESTER, MA0342 259 23 CLINTON, MA0175 4,562 24 CONWAY, MA0325 263 25 DEERFIELD, MA0090 1,626 26 DIGHTON, MA0265 1,534 27 EASTHAM, MA0110 2,576 28 FREETOWN, MA0264 2,176 29 HAMILTON, MA0239 1,939 30 HOLLAND, MA0321 705 31 HUNTINGTON, MA0341 463 32 LAKEVILLE, MA0278 2,339 33 LANCASTER, MA0237 1,552 34 MARBLEHEAD, MA0263 6,562 35 MARION, MA0104 1,555 36 MARLBOROUGH, MA0122 10,608 37 MATTAPOISETT, MA0105 2,140 PAGE 2 OF 2 12/31/94 BST SUBS MASSACHUSETTS 38 MIDDLEBOROUGH, MA0254 5,330 39 NEEDHAM, MA0199 6,565 40 NEWTON, MA0117 17,492 41 NORTHFIELD, MA0089 828 42 ORLEANS, MA0095 3,349 43 PHILLIPSTON, MA0340 424 44 PROVINCETOWN, MA0193 2,249 45 ROCHESTER, MA0283 1,052 46 SHERBORN, MA0310 882 47 SPRINGFIELD, MA0168 40,556 48 STONEHAM, MA0042 6,573 49 SUNDERLAND, MA0091 1,199 50 TOPSFIELD, MA0288 1,637 51 TRURO, MA0284 411 52 WAREHAM, MA0106 6,721 53 WATERTOWN, MA0130 8,311 54 WAYLAND, MA0267 2,903 55 WELLESLEY, MA0241 5,392 56 WELLFLEET, MA0194 1,071 57 WENHAM, MA0240 994 58 WESTHAMPTON, MA0322 376 59 WESTON, MA0268 2,389 60 WILMINGTON, MA0078 5,262 61 WINCHENDON, MA0213 2,660 217,418 MISSOURI 62 BELLEFONTAINE NEIGHBORS, MO0341 2,728 63 BRENTWOOD, MO0374 2,426 64 RIVERVIEW, MO0345 646 65 UNIVERSITY CITY, MO0370 8,314 14,114 NEW YORK 66 BRIARCLIFF MANOR, NY0734 1,867 67 CROTON-ON-HUDSON, NY1086 1,869 68 NEW CASTLE, NY0732 4,391 69 NORTH TARRYTOWN, NY0735 2,022 70 PEEKSKILL, NY0284 6,390 71 PHILIPSTOWN, NY1208 934 72 PLEASANTVILLE, NY0737 1,901 73 TARRYTOWN, NY0738 3,109 22,483 TOTAL 508,973 EXHIBIT 2 COST OF SERVICE REFUNDS CABLE PROGRAMMING SERVICE TIER $4.50 PER SUBSCRIBER PAGE 1 OF 3 12/31/94 CPST SUBS CALIFORNIA 1 CARSON, CA0439 12,548 2 CITY OF LA - AREA I, CA0808 109,529 3 CITY OF LA - AREA J, CA0775 13,857 4 DOWNEY, CA0922 13,773 5 LA MIRADA, CA0853 7,701 6 ORANGE COUNTY, CA0811 4,104 7 POMONA, CA0810 13,082 174,594 FLORIDA 8 DEERFIELD BEACH, FL0281 13,231 9 JACKSONVILLE, FL0398 163,328 10 PLANTATION, FL0008 22,835 11 POMPANO BEACH, FL0302 24,797 12 SUNRISE, FL0207 22,264 13 TAMARAC, FL0153 16,741 14 WILTON MANORS, FL0280 3,880 267,076 ILLINOIS 15 BUFFALO GROVE, IL0515 10,757 16 ELK GROVE VILLAGE, IL0518 8,511 17 HOFFMAN ESTATES, IL0522 11,143 18 MASCOUTAH, IL0834 1,361 19 PALATINE, IL0491 10,018 20 PEOTONE, IL0542 1,002 21 ROLLING MEADOWS, IL0521 5,667 22 UNINCORPORATED WILL COUNTY, IL1077, IL1080 17,934 66,393 MASSACHUSETTS 23 BERKLEY, MA0266 1,250 24 BEVERLY, MA0124 11,556 25 BILLERICA, MA0079 9,466 26 BURLINGTON, MA0080 6,111 27 CAMBRIDGE, MA0280 18,870 28 CHESTER, MA0342 240 29 CONWAY, MA0325 254 30 DEERFIELD, MA0090 1,580 31 DIGHTON, MA0265 1,519 32 EASTHAM, MA0110 2,380 33 FREETOWN, MA0264 2,153 34 HAMILTON, MA0239 1,877 35 LAKEVILLE, MA0278 2,298 36 MARBLEHEAD, MA0263 6,337 PAGE 2 OF 3 12/31/94 CPST SUBS 37 MARION, MA0104 1467 38 MARLBOROUGH, MA0122 10492 39 MATTAPOISETT, MA0105 2039 40 MIDDLEBOROUGH, MA0254 5213 41 NEEDHAM, MA0199 6432 42 NEWTON, MA0117 17106 43 NORTHFIELD, MA0089 799 44 ORLEANS, MA0095 3101 45 PROVINCETOWN, MA0193 2041 46 ROCHESTER, MA0283 1045 47 SPRINGFIELD, MA0168 40161 48 STONEHAM, MA0042 6,375 49 SUNDERLAND, MA0091 1,146 50 TOPSFIELD, MA0288 1,585 51 TRURO, MA0284 386 52 WAREHAM, MA0106 6389 53 WELLFLEET, MA0194 931 54 WENHAM, MA0240 966 55 WESTON, MA0268 2340 56 WILMINGTON, MA0078 5,058 180,963 MICHIGAN 57 WEST BLOOMFIELD, MI0868 16246 MINNESOTA 58 ST. PAUL, MN0424 45591 MISSOURI 59 CLAYTON, MO0373 3124 60 LAKE ST. LOUIS, MO0490 2530 61 MOLINE ACRES, MO0344 587 62 UNIVERSITY CITY, MO0370 8,260 14,501 NEW HAMPSHIRE 63 DURHAM, NH0085 1750 64 KENSINGTON, NH0168 445 65 NEWMARKET, NH0072 2445 4640 PAGE 3 OF 3 12/31/94 CPST SUBS NEW YORK 66 CROTON-ON-HUDSON, NY1086 1849 67 MOUNT PLEASANT, NY0731 6296 68 NEW CASTLE, NY0732 4364 69 NORTH TARRYTOWN, NY0735 1990 70 OSSINING TOWN, NY0733 1714 71 OSSINING VILLAGE, NY0736 5319 72 PEEKSKILL, NY0284 6318 73 PLEASANTVILLE, NY0737 1878 74 TARRYTOWN, NY0738 3078 32806 VIRGINIA 75 JAMES CITY COUNTY, VA0270 15609 TOTAL 818,419 EXHIBIT 3 FORM 393 REFUNDS ONLY CABLE PROGRAMMING SERVICE TIER $2.00 PER SUBSCRIBER PAGE 1 OF 1 12/31/94 CPST SUBS CONNECTICUT 1 EAST GRANBY, CT0132 1,329 2 EAST WINDSOR, CT0135 2,868 3 ENFIELD, CT0129 12,944 4 GRANBY, CT0131 2,673 5 HARTLAND, CT0130 326 6 SOMERS, CT0136 2,196 7 STAFFORD, CT0137 3,336 8 SUFFIELD, CT0133 3,257 9 UNION, CT0138 161 10 WINDSOR LOCKS, CT0134 3,790 32,880 MASSACHUSETTS 11 ARLINGTON, MA0115 11,536 12 DEDHAM, MA0238 5,827 13 EAST BRIDGEWATER, MA0253 3,228 14 GRANBY, MA0118 1,568 15 GRANVILLE, MA0326 379 16 HANOVER, MA0244 3,380 17 HANSON, MA0215 2,488 18 HINGHAM, MA0251 5,353 19 HOLBROOK, MA0190 2,968 20 HOLYOKE, MA0034 11,584 21 IPSWICH, MA0142 3,446 22 LONGMEADOW, MA0138 4,722 23 MILTON, MA0163 6,141 24 NATICK, MA0141 7,835 25 NORTH ANDOVER, MA0102 6,746 26 NORWELL, MA0206 2,601 27 QUINCY, MA0126 27,085 28 RANDOLPH, MA0212 8,764 29 REVERE, MA0032 13,616 30 WEST BRIDGEWATER, MA0235 1,790 31 WEST NEWBURY, MA0188 970 32 WHITMAN, MA0200 3,627 135,654 MICHIGAN 33 HAZEL PARK, MI0627 4,681 TOTAL 173,215 EXHIBIT 4 FORM 1200 REFUNDS ONLY CABLE PROGRAMMING SERVICE TIER $8.00 PER SUBSCRIBER PAGE 1 OF 2 12/31/94 CPST SUBS CALIFORNIA 1 LIVE OAK, CA0700 1,214 2 SUTTER COUNTY, CA0011,CA0663,CA1170 7,123 3 YUBA CITY, CA0012 10,987 19,324 IOWA 4 KEOKUK, IA0019 4,137 ILLINOIS 5 QUINCY, IL0057 12,267 MICHIGAN 6 BLACKMAN TOWNSHIP, MI0037 4,044 7 DEARBORN HEIGHTS, MI0806 16,124 8 DELTA TOWNSHIP, MI0259 8,620 9 DEWITT TOWNSHIP, MI0370 2,751 10 GRAND LEDGE, MI0342 2,397 11 JACKSON, MI0038 10,770 12 LANSING, MI0242 34,868 13 LANSING TOWNSHIP, MI0335 3,117 14 WATERTOWN TOWNSHIP, MI1825 154 15 WESTLAND, MI0910 23,356 16 WINDSOR TOWNSHIP, MI1826 13 106,214 NEW HAMPSHIRE 17 BOW, NH0082 1,550 18 CONCORD, NH0020 13,089 19 PORTSMOUTH, NH0029 8,030 20 SALEM, NH0037 8,317 30,986 12/31/94 CPST SUBS OHIO 21 BEAVERCREEK (KETTERING), OH1350 10024 22 BELLBROOK, OH0767 2202 23 CENTERVILLE, OH0497 7109 24 ELYRIA, OH0693 13228 25 FAIRBORN, OH0295 9111 26 HUBER HEIGHTS, OH0372 10817 27 KETTERING, OH0496 18615 28 MIAMISBURG, OH0500 4951 29 MORAINE, OH0509 1317 30 NEW CARLISLE, OH0689 1545 31 NEW RUSSIA TOWNSHIP (ELYRIA), OH1607 22 32 NORWALK, OH0038 5038 33 OAKWOOD, OH0498 2763 34 SPRINGBORO, OH1245 2279 35 SPRINGFIELD, OH0279 18327 36 WASHINGTON TOWNSHIP (KETTERING), OH0610 8278 37 WEST CARROLLTON, OH0499 4358 119,984 TOTAL 292,912 EXHIBIT 5 COMBINED FORM 393 AND FORM 1200 REFUNDS CABLE PROGRAMMING SERVICE TIER $10.00 PER SUBSCRIBER PAGE 1 OF 1 12/31/94 CPST SUBS MASSACHUSETTS 1 COHASSET, MA0207 2,009 2 NEWBURY, MA0143 1,778 3 ROWLEY, MA0216 1,371 4 SCITUATE, MA0208 5,374 10,532 MICHIGAN 5 DEWITT, MI0635 1,313 MISSOURI 6 ST. LOUIS COUNTY (AREA B), MO0292 10,617 OHIO 7 ATHENS, OH0029 5,029 8 BAY VILLAGE, OH0739 4,578 9 CIRCLEVILLE, OH0311 3,369 10 EASTLAKE, OH0699 5,733 11 MENTOR, OH0740 14,598 12 WILLOUGHBY HILLS, OH0801 2,065 35,372 TOTAL 57,834 EXHIBIT 6 CONTINENTAL CABLEVISION, INC. OPERATING REGIONS Northeast: Connecticut, Maine, Massachusetts, New Hampshire, New York Southeast: Florida, Georgia, Virginia Midwest: Michigan, Ohio Central: Illinois, Iowa, Minnesota, Missouri Western: California, Nevada