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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 ) ) Marcus Cable Associates, L.P. ) CUID No. CA0180 (City of Glendale) ) Complaints Regarding ) Cable Programming Services Tier ) Rate Increases ) ORDER Adopted: May 8, 1997 Released: May 9, 1997 By the Chief, Cable Services Bureau: 1. In this Order we consider complaints about the rates of the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. Operator has attempted to justify its CPST rates through benchmark showings on FCC Forms 1200, 1210, 1235 and 1240. We have issued a separate order in which we found that Operator's CPST rates in effect before May 15, 1994 were unreasonable ("Prior Order"). Accordingly, this Order addresses the reasonableness of Operator's CPST rates in effect from May 15, 1994 to the present. We conclude that the CPST rates charged by Operator from May 15, 1994 to May 31, 1996 are unreasonable, but that the CPST rate increases beginning June 1, 1996 are reasonable. 2. The Communications Act authorizes the Federal Communications Commission ("Commission") to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. The Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") required the Commission to review CPST rates upon the filing of a valid complaint by a subscriber. If the Commission finds the rate to be unreasonable, it shall determine the correct rate and any refund liability. 3. The Commission's original rate regulations became effective on September 1, 1993. The Commission revised its rate regulations effective May 15, 1994. Cable operators with valid CPST complaints filed prior to May 15, 1994 must demonstrate that their CPST rates complied with the Commission's initial rules from the time the complaint was filed through May 14, 1994. Their rates must also comply with the revised rules from May 15, 1994 forward. Cable operators attempting to justify their rates for the period prior to May 15, 1994 using a benchmark showing must complete and file FCC Form 393. Operators must use the FCC Form 1200 series to justify their rates for the period beginning May 15, 1994 using a benchmark showing. Cable operators may file FCC Form 1210 to justify rate increases based on the addition and deletion of channels, changes in certain external costs, and inflation. The Operator must file FCC Form 1210, at least 30 days before new rates are scheduled to go into effect, where the Commission has found the CPST rate to be unreasonable less than one year prior to the filing, or where there is a pending complaint against the CPST rate. 4. Operators may 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. If actual and projected costs are different during the rate year a "true-up" mechanism is available to correct estimated costs with actual cost changes. The "true-up" requires operators to decrease their rates or alternatively permits them to increase their rates to make an adjustment for over or under estimations of these cost changes. 5. FCC Form 1235 is an abbreviated cost of service filing used in cases of network upgrades. It allows cable operators to justify rate increases related to significant capital expenditures used to improve rate-regulated services. This option is extended only in cases of significant upgrades requiring added capital investment, such as bandwidth capacity and conversion to fiber optics, and for system rebuilds. For an operator to receive rate increases justified on an FCC Form 1235, the Commission requires: (1) that the upgrade be 'significant' and require added capital investment, such as expansion of bandwidth capacity, conversion to fiber optics or system rebuilds; (2) that the upgrade actually benefit subscribers through improvements in the regulated services subject to rate increase; (3) that the upgrade rate increase not be assessed until the upgrade is complete and providing benefits to subscribers of regulated services; (4) that the operator demonstrate its net increase in costs, taking into account current depreciation expense, projected changes in maintenance and other expenses, and changes in other revenues; and (5) that the operator allocate its costs to ensure that only costs allocable to subscribers of regulated services are imposed upon them. Normal improvements and expansions of service will remain subject to the usual rate adjustments allowed by filings of FCC Forms 1210, 1220 and 1240. Cable operators that incur increases in operating costs associated with a significant network upgrade will be permitted to charge additional rates as justified by their FCC Form 1235 filing. 6. The Telecommunications Act of 1996 ("the 1996 Act") and our rules implementing the new legislation ("Interim Rules"), require that complaints against 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 subscriber complaints. The LFA in the above-referenced community filed an FCC Form 329 ("Complaint") with the Commission on February 11, 1997. The LFA has certified that it has complied with the Interim Rules. Filed along with LFA's Complaint were Operator's rate justifications on FCC Form 1235 and FCC Form 1240. 7. Upon review of Operator's FCC Form 1200 and FCC Form 1210, filed June 6, 1995, we find that Operator has incorrectly calculated its maximum permitted rate ("MPR") and that it has charged in excess of its corrected MPR beginning May 15, 1994. We have adjusted the monthly charge per tier in Module A, Line A6(b) in Operator's FCC Form 1200 to reflect instructions given in our Prior Order. Operator was ordered to revise its FCC Form 1200 filings for the period beginning May 15, 1994 and to reduce the monthly charge on its CPST (Line A6(b)) as of March 31, 1994 to $8.57 per month (plus franchise fees). Because Operator has failed to make this adjustment, we have changed the amount on Line A6(b) from $9.16 to $8.57 (plus franchise fees). We have also adjusted Module C, Line C2(a), regarding the number of regulated non-broadcast channels per tier. Operator asserts that of its 21 basic service tier ("BST") and 17 CPST channels, 6 BST and 17 CPST channels are regulated non- broadcast channels. Our review of the channel-line up has revealed 5 non-broadcast channels on the BST and 17 non-broadcast channels on the CPST. These adjustments have resulted in an MPR of $8.33. Operator calculated an MPR of $8.40 and was actually charging a CPST rate of $9.83. Consequently, we find that the CPST rate for in effect from May 14, 1994 through March 31, 1995 is unreasonable. 8. Operator's FCC Form 1210, covering the period March 31, 1994 to March 31, 1995, was filed to justify its CPST rate of $9.16 in effect on April 1, 1995. Upon review of this FCC Form 1210, we have made adjustments. We adjusted Module A, Line A1 to reflect revisions made in the FCC Form 1200. The transition rate on Line A1 has been changed from $8.40 to $8.33 for the CPST. Further, we have disallowed until April 1, 1995 the adjustments claimed in Operator's FCC Form 1210 filing covering the period from March 31, 1994 to March 31, 1995. Operator has also claimed, and we have accepted, a 5.21% inflation adjustment for the period from April 1, 1995 to March 31, 1996. These adjustments have resulted in an MPR of $9.07 effective April 1, 1995. Operator was actually charging $9.16. Consistent with the Commission's rules, we corrected Operator's 5.21% inflation adjustment effective April 1, 1996. This has resulted in an MPR of $8.94 from April 1, 1996 through May 31, 1996. Operator continued to charge $9.16. Based on these adjustments, we find that Operator's CPST rates for the period April 1, 1995 through May 31, 1996 are unreasonable. 9. Upon review of Operator's FCC Form 1240, which was filed to justify rates from June 1, 1996 forward, we have adjusted Module A, Line A1(b) to reflect the MPR calculated in the previous FCC Form 1210. We have adjusted Line A1(b) from $9.05 to $8.85. We have also adjusted current external costs reported in Module D, Line D2(b). Current external costs were not carried forward from the previous FCC Form 1210 and so we have changed Line D2(b) from $4.44 to $4.46. Further, we note that Operator has included franchise fees in its CPST charge on all of its rate cards. In removing the franchise fee, we find that Operator was charging $9.16. We have determined that the monthly rate for the true-up period on "Worksheet 8 - True-Up Rate Charged" was $9.14. We have adjusted the rate accordingly and find that Operator has justified an MPR of $10.48. Effective June 1, 1996, Operator was charging a CPST rate of $10.29. Consequently, we find Operator's CPST rate justified effective June 1, 1996. 10. Operator's rate increase in the upgraded segments of its system reflects not only the annual increase as reported on FCC Form 1240, but also the recovery of costs for its network upgrade as reflected on FCC Form 1235. We first address clarifications sought by the franchising authority concerning FCC Form 1235 issues regarding inclusion of excess capacity in the rate base and minimal technical standards. The LFA believes that Operator is upgrading its system from 550 MHz to 750 MHz and is concerned regarding the allocation of costs beyond 550 MHz. It is our understanding that the upgrade is from 330 MHz to 750 MHz. The LFA states that the instructions to FCC Form 1235 set forth the minimal technical standards for an upgrade as requiring bandwidth to be increased to at least 550 MHz with upgrade capability to 750 MHz, and no more than 1,500 homes per node. Operator reported 161 to 2,774 homes per node with an average of 1,227 homes per node. Consequently, the LFA contends that Operator has failed to meet the minimum technical standards. 11. We agree with the LFA that the FCC Form 1235 presents "minimum technical specifications" and that Operator has failed to meet those specifications. But we also note that if the Operator does not meet the minimum technical specifications, FCC Form 1235 allows the operator to attach "a brief description of the upgrade and how the upgrade will be significant and will benefit subscribers of rate-regulated cable services." In its response to the LFA's concerns, Operator contends that it meets the significant upgrade test under the FCC Form 1235's alternative qualification standard because the upgrade adds 18 new services to its CPST. Operator also states that the upgrade will provide, in addition to increased channel capacity, enhanced picture and sound quality along with improved system reliability. In addition, the upgrade will permit Operator to provide two-way capability on its system. Upon an examination of Operator's submissions and discussions with Operator's technical staff, we have determined that the system will be capable of the described performance. Operator states that the upgraded system will give it "a platform in the future to deliver services such as home banking, video conferencing, Internet connections, and other more advanced technologies." Operator further states that "the equivalent of 33 additional channels have been set aside for such uses" and for digital compression, which will eventually allow Operator to "put ten times as many cable channels on [its] cable system." We conclude that Operator is engaged in a system upgrade having benefits that are consistent with our requirements. 12. We have reviewed Operator's cost allocations and determined that the costs Operator is seeking to recover on the CPST are properly allocable to the BST and CPST. Consequently, we accept Operator's FCC Form 1235. 13. Upon review of Operator's FCC Form 1235, we have calculated an MPR of $2.84, $0.01 less than Operator's calculated MPR of $2.85 due to rounding. When the FCC Form 1240 MPR of $10.48 is combined with the FCC Form 1235 MPR of $2.84, the combined MPR is $13.32. Operator was actually charging a combined rate of $13.15. We conclude that the CPST rate of $13.15 is reasonable in each segment of the system that it is charged as the system upgrade progresses. 14. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rates charged by Operator in the above-referenced community from May 15, 1994 to May 31, 1996 ARE UNREASONABLE. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rates charged by Operator, in the segments of its system serving the above-referenced community from June 1, 1996 to the present ARE REASONABLE. 16. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the community referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $8.33 per month (plus franchise fees), plus interest to the date of the refund, for the period from May 15, 1994 to March 31, 1995. 17. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the community referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $9.07 per month (plus franchise fees), plus interest to the date of the refund, for the period from April 1, 1995 to March 31, 1996. 18. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R.  76.961, that Operator shall refund to subscribers in the community referenced above that portion of the amount paid in excess of the maximum permitted CPST rate of $8.94 per month (plus franchise fees), plus interest to the date of the refund, for the period from April 1, 1996 to May 31, 1996. 19. IT IS FURTHER ORDERED, that Operator shall promptly determine the overcharges to CPST subscribers for the stated periods, and shall within 30 days of the release of this Order, file a 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 plan to implement the refund within 60 days of Commission approval of the plan. 20. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator revise the calculations of its maximum permitted CPST rates in its next FCC Form 1240 filing in accordance with this order. 21. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. 0.321, that the referenced complaints ARE GRANTED TO THE EXTENT DISCUSSED HEREIN. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau