******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of) ) Falcon Cablevision ) ) CUID Nos. KY0091 and KY1132 (Pulaski) Complaints Regarding ) Cable Programming Services ) Rate Increases ) ORDER Adopted: December 31, 1996 Released: January 3, 1997 By the Chief, Cable Services Bureau: 1. In this Order we consider four complaints concerning the May 1, 1996 and August 1, 1996 rate increases by Falcon Cablevision ("Falcon") for its cable programming services tier ("CPST") and satellite package tier ("SATPAC") in the County of Pulaski, Kentucky CUID Nos. KY0091 and KY1132. Falcon has asked that the complaints be consolidated and has chosen to justify all rate increases on two FCC Forms 1210. We conclude, for the reasons discussed below, that the CPST rate increase Falcon implemented on May 1, 1996 for CUID No. KY0091 is not unreasonable. However, we find that the May 1, 1996 CPST rate increase for CUID KY1132 is unreasonable. We further conclude that Falcon's requests for dismissal of the complaints against the SATPAC increases are granted for the reasons discussed below. 2. Under the Communications Act, the Federal Communications Commission ("Commission") is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the new legislation, require that complaints against the CPST rates be filed with the Commission by a local franchising authority ("LFA") that has received subscriber complaints. An LFA may not file a CPST rate complaint unless, within 90 days after such increase becomes effective, it receives more than one subscriber rate complaint. If the Commission finds the rate unreasonable, it shall determine the correct rate and any refund liability. 3. To justify rates for the period beginning May 15, 1994 through a benchmark or cost of service showing, operators must use the FCC Form 1200 series. Operators are permitted to make changes to their rates on a quarterly basis using FCC Form 1210. Operators may alternatively justify adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain and quantifiable changes in external costs, inflation, and the number of regulated channels that are projected for the twelve months following the rate change. Any incurred cost that is not projected may be accrued with interest and added to rates at a later time. 4. On October 2, 1996, the County of Pulaski ("County") filed valid complaints with the Commission regarding increases in Falcon's CPST and SATPAC rates in the above- referenced franchise area. The rate increases complained of went into effect on May 1, 1996 and August 1, 1996. The valid complaints from the LFA trigger an obligation on behalf of the cable operator to justify its CPST and SATPAC rates. 5. As of August 1, Falcon began making the Disney Channel available to its customers in Pulaski County as part of its SATPAC in both communities. As a result of this addition, Falcon maintains that the SATPAC now consists of nine channels including Nickelodeon, the Nashville Network, WTBS 17-IND Atlanta, GA, WGN-TV, WWOR-TV, The Family Channel, ESPN 2, Newstalk Television and the Disney Channel. 6. On September 4, 1996 Falcon requested that the LFA dismiss the LFA's draft FCC Forms 329 that challenged the rate increases associated with the SATPAC offerings. At that time, Falcon certified that SATPAC is a new product tier ("NPT") and that it is therefore not subject to regulation. Citing the Sixth Order on Reconsideration, Fifth Report and Order, and Seventh Notice of Proposed Rulemaking, 10 FCC Rcd 1226 (1994) ("Going Forward Order"), Falcon argues that because the SATPAC tier is a new product tier, it was not required to complete any forms or obtain agency approval. Falcon offers a subscriber notice of the proposed change and the channel lineups before and after the change as support for the proposition that the SATPAC offering is a NPT. In its September 4, 1994 letter, Falcon argues that according to the Going Forward Order cable operators are free to expand an existing NPT, following 30 days notice to subscribers, so long as any new services were not offered as part of a regulated tier on September 30, 1994. Falcon maintains that the Disney Channel was previously available as a stand alone channel service and was not part of Falcon's basic service tier or any cable programming service tier as of September 30, 1994. Falcon further argues that there are no channel movements associated with the addition of the Disney channel and that the change was made consistent with the Going Forward Order. 7. The Commission's Going Forward Order provides that an operator may not drop channels from BSTs and CPSTs and move them to NPTs, if channels were offered on their BSTs and CPSTs on September 30, 1994. However, operators may offer new channels on CPSTs before moving them to NPTs. Falcon has presented channel line ups showing its regulatory status from March 1, 1993, up until the addition of the Disney channel. The March 1, 1993 channel line up shows that five channels, the Nashville Network, WTBS 17-IND Atlanta, GA, WGN-TV, WWOR-TV, and the Family Channel were offerings on regulated tiers, but that on the eve of regulation, these channels were formed into a SATPAC tier. Channel line ups for the months of April and December 1995, show that Falcon added Nickelodeon, ESPN2 and Newstalk as new services to their SATPAC tier. On March 1, 1996, for CUID No. KY1132, and on June 1, 1996, for CUID No. KY0091, Falcon provided to its subscribers the proper thirty day notification of the addition of the Disney Channel and the proposed rate increases. 8. Based on an analysis of the channel lineups filed by Falcon, we acknowledge that the Disney Channel was previously available as a stand alone channel service and was not part of Falcon's basic service tier or any cable programming tier as of September 30, 1994. We further acknowledge that Congress in H.R. Rep No. 92, 102d Cong., 1st Sess. 77 (1991), has indicated that the only cable services that are not subject to the Commission's regulatory authority would be services traditionally offered on a stand alone per channel basis or other programming that operators choose to offer on a per-programming service or pay-per-view basis. The Going Forward Order seeks to treat existing packages as NPTs provided such packages involve only a small number of migrated channels. The migration of five channels from regulated offerings to SATPAC offerings, falls within the Commission's guidelines as a small number of migrated channels. The channel lineups and the subscriber notices reflect that the Disney channel was properly added to a pre-existing unregulated SATPAC tier after September 30, 1994. We therefore dismiss the complaints regarding the SATPAC rate increases because they constitute unregulated offerings. 9. Upon review of Falcon's FCC Form 1210 filed in response to complaints for the CPST tier for CUID No. KY0091, we find no apparent errors in Falcon's calculation of its CPST rate increase. We conclude, therefore, that Falcon's CPST rate increase of $0.09 which went into effect on May 1, 1996 is justified. 10. Upon review of Falcon's FCC Form 1210 filed in response to complaints for the CPST tier for CUID No. KY1132, we find that Falcon has not justified its May 1, 1996 CPST rate increase of $0.21. In fact, Falcon acknowledges that its rate increase was excessive. We find that Falcon has justified a rate increase of only $0.11. 11. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that in Pulaski, Kentucky CUID No. KY0091, Falcon Cablevision's CPST rate increase of $0.09 which went into effect on May 1, 1996 IS NOT UNREASONABLE. 12. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaint referenced herein against the May 1, 1996 CPST rate increase charged by Falcon Cablevision in Pulaski, Kentucky CUID No. KY0091, IS DENIED. 13. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that in Pulaski, Kentucky CUID No. KY1132, Falcon Cablevision's CPST rate increase of $0.21 which went into effect on May 1, 1996 IS UNREASONABLE. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaint referenced herein against the May 1, 1996 CPST rate increase charged by Falcon Cablevision in Pulaski, Kentucky CUID No. KY1132, IS GRANTED. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the complaints referenced herein against the May 1, 1996 and August 1, 1996 SATPAC rate increases charged by Falcon Cablevision in Pulaski, Kentucky CUID No. KY0091 and KY1132, ARE DENIED. 16. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Falcon shall refund to subscribers in the franchise area referenced in the caption for CUID No. KY1132 any increase in CPST rates in excess of $0.11 made effective on May 1, 1996 and billed to subscribers on that date or thereafter. 17. IT IS FURTHER ORDERED that Falcon shall promptly determine the overcharges to CPST subscribers for the stated period, and shall within 30 days of the release of this Order file a revised report with the Chief, Cable Services Bureau, stating the cumulative refund amount so determined (including franchise fees and interest), describing the calculation thereof, and describing its revised plan to implement the refund within 60 days of Commission approval of the plan. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau