WPC)! 2MB%RK Z3|XTimes New RomanTimes New Roman Bold P6G;P"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+99999999S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""FCC Form 393, by adding the appropriate amounts together for all twelve months, and then dividing the total by twelve.  X- ` x2.` ` Under our rules, rate orders made by local franchising authorities may be appealed  X- x[to the Commission.G {O-ԍSee 47 C.F.R. 76.944.G In ruling on appeals of local rate orders, the Commission will not conduct  X- xa de novo review, but instead will sustain the franchising authority's decision as long as there is  Xx- x a reasonable basis for that decision.'&xZ {O - xԍSee Report and Order and Further Notice of Proposed Rulemaking, MM Docket No. 92266, 8 FCC Rcd 5631,  {OM - x.5731 (1993) ("Rate Order"); Implementation of Sections of the Cable Television Consumer Protection and  yO - xCompetition Act of 1992: Rate Regulation & BuyThrough Prohibition, Third Order on Reconsideration, MM  {O -Docket Nos. 92266 and 92262, 9 FCC Rcd 4316, 4346 (1994) ("Third Recon. Order").' Therefore, the Commission will reverse a franchising  xauthority's decision only if it determines that the franchising authority acted unreasonably in  XJ- x.applying the Commission's rules in rendering the local rate order.TJH {OC-ԍThird Recon. Order, 9 FCC Rcd at 4346.T If the Commission reverses  xa franchising authority's decision, it will not substitute its own decision but instead will remand  x.the issue to the franchising authority with instructions to resolve the case consistent with the  X -Commission's decision on appeal.1  {O-ԍId.1  X - ` x3.` ` FCC Form 393 is the official form used by regulators to determine whether an  xoperator's regulated rates for programming, equipment and installations were reasonable during  X - xthe time period from September 1, 1993 until May 14, 1994. l  yO- xԍTo the extent that an operator has sought to take advantage of the refund deferral period available under the  yO- xJSecond Order on Reconsideration, Fourth Report and Order, and Fifth Notice of Proposed Rulemaking, MM Docket  {OV- xyNo. 92266, 9 FCC Rcd 4119, 4183, 4185 (1994)("Second Recon. Order"), as Cablevision did, the maximum  x<permitted rates determined under Form 393 may also apply from May 15, 1994 until the date that the operator implemented its new rates as determined under the Form 1200 series.  Form 393 is divided into three  x0separate, but interrelated parts. In Part II, the operator calculates its maximum permitted  xprogramming rates, while in Part III, the operator calculates its equipment and installation costs  xand maximum permitted equipment and installation rates. Part I is a cover sheet that lists the  xvarious programming, equipment and installation rates that have been calculated in Parts II and III and compares them to the rates the operator has actually charged during the period of review.  X- II.xDEFINITION OF "GROSS REVENUES"  X-x A. ` ` Contentions of the parties  X-  X- ` x4.` ` Cablevision asserts that franchising authorities are precluded from charging  xfranchise fees in excess of five percent of gross subscriber revenues, pursuant to 622(b) of the",N(N(ZZQ"  x1992 Cable Act. Cablevision argues that it is required each month to pay NYC a franchise fee  xof 5.27%, which consists of 5% of the total amount that subscribers pay for cable services in  X- x=addition to 5% of the franchise fee that Cablevision collects from its subscribers.x yOK- xԍSpecifically, Cablevision contends that NYC's ". . . claim that it is entitled to $0.46 in franchise fees proceeds  xfrom the erroneous premise that Cablevision's gross revenues collected from basic service tier customers amount to  xx$9.18. In fact, each month, Cablevision collects $8.74 in gross programming service revenues from its basic tier  xsubscribers. Cablevision also collects five percent of this amount$0.44 per monthin the form of a franchise fee  xJwhich is paid directly to the City. Consistent with Congressional intent, the basic service programming rate and the  xfranchise fee are itemized separately on subscriber bills. The $0.44 itemized monthly amount paid by basic subscribers in New York does not represent gross revenues to Cablevision." (footnotes omitted) According  xlto Cablevision, this is, in effect, a taxontax, which is precluded by 47 U.S.C. 542(b). In  X- xxsupport of its argument, Cablevision cites the Third Recon. Order,@  yO] -ԍ9 FCC Rcd at 4354.@ in which the Commission held  xthat where a franchise fee was calculated as a percentage of the cable operator's gross revenues,  xand those revenues have been reduced because of refunds, ". . . the franchising authority must  xpromptly return to the cable operator the amount that was overpaid as a result of the cable  xoperator's newlydiminished gross revenues." According to Cablevision, NYC believes that all  x=governmental levies imposed upon a cable system, including taxes and franchise fees, are part  xof gross revenues, which may be subject to local franchise fees. Cablevision argues, however,  xthat the Commission has stated that a cable operator's maximum permissible revenue for service  x-can be established only after subtracting monies collected from subscribers that are paid to cities  xin the form of franchise fees. Citing page 2 of FCC Form 1200, and note 1, page 8 of the same  X - xform,   yO - xԍThe text of this note is as follows: "The maximum permitted rate figures do not include franchise fees. The amounts billed to your subscribers will be the sum of the appropriate permitted rate and any applicable franchise fee." Cablevision notes that a system's maximum permitted rates under the cost of service rules  x.are calculated after excluding franchise fees. Likewise, page 10 of the FCC's instructions to its  xForm 393 for comparing initial subscriber rates to the permissible benchmark contains the  xKfollowing provision: ". . . you separate out any franchise fees that you include in your subscriber  xrates." Cablevision asserts that these instructions make clear that franchise fees are not to be included in gross revenues.  X- ` x5.` ` In response, NYC asserts that pursuant to 1.22 of the City's Franchise Agreement  xwith Cablevision, dated July 19, 1983, the term "gross revenues," which is subject to a franchise  x[fee of 5%, means the total amount that Cablevision receives from its subscribers, including the  xamount of franchise fees. NYC adds that normally the Commission will defer to the judgment  x=of local franchising authorities and uphold their rate orders if there are rational bases for them,  X-citing the Commission's Rate Order.D   yOM$-ԍ8 FCC Rcd 5631, 5731 (1993).D " ,N(N(ZZ3"Ԍ X-x B.` ` Discussion  X- ` _ x6.` ` In its recent decision in United Artists Cable of Baltimore, the Commission noted  xthat it would ". . . exercise jurisdiction over franchise fee disputes that impinge on a national  X- x policy concerning cable communications.'"W  yO-ԍFCC 96188, para. 28 (released April 26, 1996).W Specifically, the Commission indicated that it  xintended to exercise jurisdiction over disputes arising directly under the the provisions of the  Xx- xKCommunications Act, as opposed to specific fact patterns concerning various local issues.1 xX {O -ԍId.1 The  xCommission gave as a specific example the fact that  622(b) states that franchise fees are to be  XJ- x>calculated based on "gross revenues . . . derived from the operation of the cable system."1J {O -ԍId.1  xTherefore the Commission reasoned, the issue of precisely what constitutes "gross revenues...  xderived from the operation of a cable system" does not arise from individual franchise  X - xagreements, but from a specific provision of the statute itself.1 | {O2-ԍId.1 When Congress enacted this  xyprovision, it established a uniform federal standard governing the calculation of franchise fees,  x[and the issue of franchise fee calculation necessarily impinges upon a national policy on cable  X - xfranchise fees, according to the Commission.1  {O-ԍId.1 The Commission concluded that it is fully  xconsistent with our policy on resolving franchise fee disputes and appropriate for the Commission  xto exercise its jurisdiction over this issue in order to provide a Commission interpretation of this statutory term that can serve as precedent in future cases.  XM- ` x7.` ` In United Artists Cable of Baltimore, the Commission also upheld the Bureau's  xconclusion that the franchise fee a cable operator collects from subscribers should not be included  xin calculating an operator's "gross revenues," because franchise fees are a charge levied by the  X - xfranchising authority, rather than revenues derived from the operation of the cable system.?  {O[-ԍSupra at para 9.?  X- xyMoreover, given the statutory franchise fee cap of 5%,iZ2  {O - xԍSee Communications Act  622(b), 47 U. S. C.  542(b), which limits the amount of franchise fees paid by  xwa cable operator to 5% of its "gross revenues"and which also limits the term "gross revenues" only to those revenues derived ". . . from the operation of the cable system."i a cable operator could be obligated to  xypay more than the maximum franchise fee permitted under the Cable Act, were the franchise fee  X- xitself subject to a franchise fee. We hold, therefore, that Cablevision is correct in its contention  xthat the franchise fee it collects from its subscribers for NYC does not constitute gross revenues  xfrom the operation of the cable system, and that NYC is not entitled, therefore, to charge a 5%  xfranchise fee on the total amount that Cablevision collects from its subscribers, including the"T ,N(N(ZZn" franchise fee.  X- III.xMONTHLY FRANCHISE FEES ON LINE 204  X-  X-x A.` ` Contentions of the parties  Xv- ` x8.` ` The second issue raised by Cablevision concerns NYC's methodology in  xydetermining equipment revenues on line 204 of FCC Form 393 and for determining franchise fee  xyexpenses on line 208 of the same form. Cablevision claims this is inconsistent and results in an  x overstatement of the system's average franchise fee expense and an understatement of the  xsystem's average equipment revenue, and that it artificially decreases Cablevision's maximum  X - x/permitted per channel rate from $0.394 to $0.367.EX  yO| - xxԍCablevision requests that if it is required to use September 1992 for the data in line 204, it also be allowed to  xxuse September 1992 information for calculating line 208. However, it is unnecessary to address this issue in view of our decision herein. E According to Cablevision, because FCC  xjForm 393 specifies that to calculate its monthly average equipment revenue on line 204, a cable  xoperator should divide its total yearly revenues by twelve, FCC Form 393 must also mean that  xa cable operator should follow the same procedure in calculating the average monthly franchise fee on line 208 of the same form.  Xy- ` x9.` ` NYC, however, notes that the instructions for line 208 of FCC Form 393 direct  xcable operators to "[c]alculate the (nonitemized) franchise fees you paid for regulated tiers of  x<service for the community unit during an average month." NYC contends that, had this language  xmeant that cable operators should total the year's franchise fees and then divide the total by  x/twelve to obtain an average figure, instead of merely entering the figure for an average or a  xjrepresentative month, the Commission would have so specified, as it did in the instructions for line 204 of the same form.  X- xB.` ` Discussion  X- ` x10.` ` Cablevision's contention regarding the instructions for lines 204 and 208 of FCC  xForm 393 is correct. Line 204 of FCC Form 393 states: to obtain the monthly equipment  xrevenue figures as of September 30, 1992, cable operators must add the seven revenue  XN- x/components listed for the year together and then divide the total amount by twelve.`N yO - xԍThe instructions for line 204 of FCC Form 393 specifically direct cable operators to take the total revenues  xearned over the preceding fiscal year for the community unit for the following seven categories of equipment and  xwinstallation services: converter box rental; remote control rental; additional outlet fees; installation fees; disconnect  xfees; reconnect fees; and tier changing fees and to divide the sum of these figures by twelve in order to compute the monthly equipment revenue amount.` The  xinstructions for line 208 of the same form state: "[c]alculate the (nonitemized) franchise fees  xyou paid for regulated tiers of service for the community unit during an average month during  xkthe fiscal year preceding September 30, 1992. Enter that total monthly payment in Column E" ,N(N(ZZ="  xof Line 208," We think it is clear that operators should total the relevant fees for the year and  xjthen divide the resulting sum by twelve. We will remand this issue to the City for resolution in accordance with the terms of this Order.  X- IV.xORDERING CLAUSES  Xv- ` x11.` ` Accordingly, IT IS ORDERED that the appeal filed by Cablevision of New York  X_- xCity Phase I IS GRANTED , and the proceeding IS REMANDED to the City of New York for  XH-proceedings consistent with the terms of this Order.  X1-  X - ` Bx12.` ` This action is taken by the Chief, Cable Services Bureau pursuant to authority delegated by 0.321 of the Commission's Rules. 47 C.F.R. 0.321. x` `  hh@FEDERAL COMMUNICATIONS COMMISSION x` `  hh@Meredith J. Jones x` `  hh@Chief, Cable Services Bureau