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/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** Before the Federal Communications Commission Washington, D.C. 20554 ) In the Matter of) ) CUID Nos.: C-TEC Cable System of ) MI0486 (City of Coopersville) Michigan, Inc. ) MI0277 (Village of Pentwater) ) MI0746 (City of Gladwin) Small System Filings to Support ) MI0345 (Park Township) Cable Programming Service Rate ) MI0035 (Coldwater Township) Increases ) MI1610 (Robinson Township) ) MI0960 (Pentwater Township) ) MI0693 (City of Evart) ) MI0675 (Algoma Township) ) MI0103 (Village of Quincy) MEMORANDUM OPINION AND ORDER Adopted: May 20, 1996 Released: May 20, 1996 By the Chief, Cable Services Bureau: BACKGROUND 1. In this Order we address complaints filed against rate increases which C-TEC Cable System of Michigan, Inc. ("C-TEC") imposed on its cable programming service ("CPS") tier subscribers in the above-referenced franchise areas. As explained below, we grant the pending CPS complaints and deny C-TEC's requests for small system relief under the Telecommunications Act of 1996 ("1996") and the Small Systems Order. 2. The local franchising authorities ("LFAs") for the above-referenced communities filed complaints with the Federal Communications Commission ("Commission") regarding an increase in the CPS tier rate that C-TEC was charging its customers in each of the above-referenced franchise areas. The date that each complaint was filed and the amount of the increase complained of are indicated on Attachment A. 3. Under the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), the Commission is authorized to review the CPS tier rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. If the Commission finds the rate unreasonable, it shall determine the correct rate and any refund liability. The 1996 Act, and our rules implementing the new legislation, changed the process by which the Commission reviews complaints concerning rates charged for a CPS tier. 4. Under the 1992 Cable Act and our rules implementing it, subscribers, franchising authorities, or other relevant state or local government entities were permitted to file complaints concerning CPS tier rates directly with the Commission. The receipt of one valid complaint was sufficient to trigger the Commission's review jurisdiction, and imposed an obligation on the operator to file a justification of its CPS tier rates. Under the 1996 Act and our Interim Rules implementing the new legislation, complaints against the CPS tier rates are to be filed with the Commission by a franchising authority that has received subscriber complaints. A franchising authority may not file a CPS tier rate complaint unless, within 90 days after such increase becomes effective, it receives subscriber complaints. This standard requires more than one subscriber rate complaint. The provisions under the 1996 Act became effective upon its enactment on February 8, 1996. 5. The LFAs for the above-referenced communities filed complaints after February 8, 1996. These complaints are subject to the requirements of the 1996 Act. The LFAs assert that they have received more than one complaint against C-TEC's CPS tier rate increase, thereby triggering the Commission's jurisdiction to review these complaints. The complaints from the LFAs trigger an obligation on behalf of the cable operator to file justification of its CPS tier rates. 6. In this case, C-TEC is required to justify the increases in its CPS tier rates which are the subject of the LFAs' complaints. No other complaints regarding C-TEC's CPS tier rates in the above-referenced communities are before the Commission. Our review in this proceeding is with respect to the amount of the increase in each of the above-referenced franchise areas. 7. Under our rules, an operator may attempt to justify its rates through either a benchmark or cost of service showing. In either case, the operator has the burden of demonstrating that its CPS tier rates are not unreasonable. In a further effort to offer small cable companies administrative relief from rate regulation, the Commission amended the definition of small cable companies and small systems and introduced a simplified form of small system rate relief in the Small Systems Order. Cable systems serving 15,000 or fewer subscribers, and owned by a company having 400,000 or fewer subscribers, may elect to use the small cable system rate mechanism in lieu of other Commission rate processes, provided the Commission has not reached a final resolution on the rate complaint[s] filed against the system. Operators attempting to justify their rates through small system relief must file FCC Form 1230. If the maximum rate established on Form 1230 does not exceed $1.24 per channel, the rate shall be presumed reasonable. CONTENTIONS OF THE PARTIES 8. C-TEC filed a Motion to Dismiss Cable Programming Service Rate Complaint in response to each of the LFA complaints ("Motions to Dismiss") on the grounds that it qualifies as a small cable operator under the 1996 Act and, therefore, the Commission lacks jurisdiction to review its rates. C-TEC argues that it serves less than one percent of all United States subscribers and that the combined annual cable revenues of C-TEC and its affiliated cable companies do not exceed $250 million. C-TEC acknowledges that if non-cable revenues are included in this determination its combined annual revenues exceeds the $250 million revenue ceiling established in the 1996 Act. In the alternative, C-TEC submitted FCC Form 1230, arguing that if it does not quality as a small cable operator under the 1996 Act, it qualifies for small system relief under the Commission's Small Systems Order. C-TEC alleges that it has fewer than 400,000 total subscribers and that each franchises in the above-referenced communities serves fewer than 15,000 subscribers. 9. Each of the LFAs filed an Opposition to Motion to Dismiss Cable Programming Service Rate Complaint ("Oppositions") requesting that the Commission deny C-TEC's motions to dismiss on the grounds that C-TEC does not qualify as a small cable operator under either the 1996 Act or the Commission's Small Systems Order. The LFAs allege that C-TEC does not qualify as a small operator under the 1996 Act since C-TEC's combined annual revenues exceed the $250 million revenue ceiling. The LFAs further argue that C-TEC's overall subscriber count exceeds the Small Systems Order's 400,000 subscriber threshold when C-TEC's foreign cable subscribers are included. The LFAs argue that the Commission did not explicitly limit its definition of small cable operators to include only United States subscribers and that when considering a company's access to resources the overall size of the company should be considered regardless of location. 10. C-TEC filed a Reply to Opposition to Motion to Dismiss Cable Programming Services Rate Complaint ("Replies"). C-TEC argues that in regard to the $250 million revenue ceiling established in the 1996 Act, Congress intended for only cable-related revenues to be considered in the calculation. C-TEC argues that it was Congress' intent to expand the Commission's definition of a small cable operator and, hence, did not intend for non-cable revenues to be taken into consideration when determining a cable company's annual revenues. C-TEC asserts that if non-cable revenues are included it will reduce, not increase, the number of cable companies who qualify as small cable operators under the 1996 Act, which clearly was not the intent of Congress. C-TEC argues that if only its cable affiliates revenues are included, its revenues do not exceed $250 million. In the alternative, C-TEC argues that even if it does not qualify as a small operator under the 1996 Act, it at least qualifies as a small system under the Commission's Small Systems Order. C-TEC argues that when the Commission adopted the 400,000 subscriber figure to approximate a cable company's resources, the approximation was tied to the amount of regulated revenues the company earned, thereby implicitly limiting the subscriber count to United States subscribers, as the Commission only regulates the rates charged to United States cable subscribers. 11. On May 7, 1996, C-TEC supplemented its filings stating that C-Tec International, a wholly-owned subsidiary of C-TEC Corp., owns a 40 percent non-controlling interest in Megacable S.A. de CV (Megacable), a Mexican cable company. Furthermore in its supplemental filing C-TEC states that at the end of February 1996 C-TEC Cable Systems of Michigan, Mercom, and their affiliates served 371,319 subscribers in the United States and that at the end of December 1995 Megacable served approximately 177,317 subscribers in Mexico. DISCUSSION 12. The 1996 Act provides rate relief to a cable operator who "directly, or through an affiliate, serves in the aggregate fewer than one percent of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000." The Commission has defined a "small cable operator" under the 1996 Act, for interim purposes only, as one which serves fewer than 617,000 subscribers and whose gross revenues, when combined with the total annual revenues of all of its affiliates, do not exceed $250 million in the aggregate. Based on the record before us, we find that C-TEC does not qualify as a small cable operator under the 1996 Act. 13. C-TEC's annual revenues, as of February 1996, of $332,137 million combined with its affiliated companies annual revenues, as of February 1996, of $410,501 million well exceed the $250 million threshold established in the 1996 Act. 14. We also find that C-TEC does not qualify for small system rate relief under our Small Systems Order. The Commission has defined "small cable company" as one which serves less than 400,000 total subscribers and is not affiliated with or controlled by a larger company. The Commission concluded that a small cable company would be affiliated with or controlled by a company if that company holds a 20 percent equity interest (active or passive). We find that as C-TEC International, a wholly-owned subsidiary of C-TEC, owns a 40 percent interest in Megacable, C-TEC is affiliated with Megacable. Thus, for purposes of determining C-TEC's status under the Small Systems Order we include Megacable's subscribers in our determination of C-TEC's total subscriber count. When C-TEC's 371,319 subscribers are coupled with Megacable's approximately 177,317 subscribers, the total exceeds the 400,000 subscriber cap specified in the Small Systems Order. 15. We disagree with C-TEC that under our Small Systems Order, the 400,000 total subscriber threshold only includes United States subscribers. As C-TEC concedes, no such limitation is explicit in the Small Systems Order. Nevertheless, C-TEC notes that the Commission adopted the 400,000 subscriber threshold because it roughly correlates to $100 million in regulated revenues, which the Commission found to be "a reasonable standard at which to decrease regulatory burdens." C-TEC posits that since regulated revenues could only include domestic revenues, then the corresponding 400,000 subscriber threshold should only include domestic subscribers. We disagree. Had the Commission intended to restrict this test to domestic subscribers, it could easily have done so. Accepting C-TEC's interpretation of the Commission's small cable company definition would require us to insert into that definition language that the Commission omitted. Further, we disagree with C-TEC's claim that the 400,000 subscriber threshold is implicitly limited to United States subscribers. The stated intent of the Commission was to limit relief to those systems that "do not have access to the financial resources, purchasing discounts, and other efficiencies of larger companies." C-TEC serves over 400,000 subscribers, the threshold at which operating efficiencies become significant enough that small system relief is not warranted. We have no basis to conclude that such efficiencies, including factors such as cable management expertise and programming and equipment discounts, are less significant simply because some of the subscribers from which those efficiencies derive are foreign. Likewise, it appears that C-TEC presents itself to the public, including potential lenders and investors, as a company of over 400,000 subscribers. Since C-TEC uses its total number of subscribers, domestic and foreign, when seeking to improve its access to capital, the same subscriber count should be used when determining C-TEC's eligibility for a regulatory methodology designed for systems with limited access to capital. We believe the Commission adopted the 400,000 subscriber threshold intending to include the subscribers over all of a cable operator's systems. This includes subscribers served in all areas, not just within the boundaries of the United States. As a result, C-TEC does not qualify as a small cable company under the Commission's rules. 16. Upon review of the record before us, we find that C-TEC has failed to provide sufficient evidence to support its CPS tier rate increases. Because C-TEC does not qualify for small system relief under our Small Systems Order, it is not entitled to justify its rates using FCC Form 1230. Thus, we can not find that C-TEC's CPS tier rate increases are justified. Accordingly, we will require C-TEC to reduce its current CPS tier rates and will order appropriate refunds pursuant to Section 76.957 of the Commission's Rules, 47 C.F.R.  76.957. 17. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the request by C-TEC Cable System of Michigan, Inc., for de- regulation as a small operator under the Telecommunications Act of 1996, IS DENIED. 18. IT IS FURTHER ORDERED that the request by C-TEC Cable System of Michigan, Inc., for small system relief pursuant to the Commission's Small Systems Order, IS DENIED. 19. IT IS FURTHER ORDERED that the CPS tier rate increases charged by C-TEC Cable Systems of Michigan, Inc., with respect to the above-referenced CUID numbers, ARE NOT JUSTIFIED. 20. IT IS FURTHER ORDERED that the complaints against the CPS tier rate increases charged by C-TEC with respect to the above-referenced CUID numbers, ARE GRANTED. 21. IT IS FURTHER ORDERED that C-TEC Cable System of Michigan, Inc., reduce its CPS tier rates by the amount of the increase from its previous CPS tier rates in each of the above-referenced communities within 30 days of the date of this Order. 22. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R  76.961, that C-TEC Cable Systems of Michigan, Inc. shall refund to subscribers that portion of the amounts paid for CPS tier service from the date of the first filed complaints in each of the above-referenced franchise areas to the date it reduces its rate in that franchise to the CPS rate it was charging prior to the increases that are the subjects of these complaints. 23. IT IS FURTHER ORDERED, that C-TEC Cable Systems of Michigan, Inc., shall promptly determine the overcharges to CPS tier subscribers for the pertinent period, and shall within 30 days of the release of this Order file a report with the Chief, Cable Services Bureau, stating the cumulative refund amounts so determined for each of the above-referenced franchise areas (plus franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refunds within 30 days of Commission approval thereof. 24. IT IS FURTHER ORDERED that the Motions to Dismiss Cable Programming Services Rate Complaints filed by C-TEC Cable Systems of Michigan, Inc., ARE DENIED. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau ATTACHMENT A CUID Community Date of Increase CPST Rate Complaint Filed C-TEC Motion to Dismiss LFA Opposition to Motion C-TEC reply to Opposition CPST Rate Prior to Increase MI0035 Coldwater Township 2/1/96 $11.50 2/16/96 3/18/96 3/28/96 4/8/96 $10.75 MI0103 Village of Quincy 2/1/96 $11.50 2/21/96 3/14/96 3/25/96 4/496 $10.75 MI0277 Village of Pentwater 2/5/96 $8.00 2/16/96 3/18/96 3/25/96 4/8/96 $6.86 MI0345 Park Township 2/13/96 $11.00 2/16/96 3/18/96 3/28/96 4/8/96 $9.37 MI0486 Coppersville 2/5/96 $10.90 2/26/96 3/27/96 4/5/96 4/10/96 $9.82 MI0675 Algoma Township 2/13/96 $12.00 2/22/96 3/22/96 4/1/96 4/12/96 $10.50 MI0693 City of Evart 2/13/96 $6.50 2/21/96 3/22/96 4/1/96 4/10/96 $5.98 MI0746 City of Gladwin 2/13/96 $9.50 2/20/96 3/18/96 3/28/96 4/8/96 $7.80 MI0960 Pentwater Township 2/5/96 $8.00 2/21/96 3/22/96 4/1/96 4/12/96 $6.86 MI1610 Robinson Township 2/21/96 $11.00 2/22/96 3/22/96 4/1/96 4/12/96 $9.71