WPC- 2MB RCourierw Roman-#XP\  P6Q9XP#3|x w RomanTimes New Roman BoldX@]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+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN(-((((((((((---#J:55:2-:::2F::-:5-2::K::2%(#(#(#(((>((((((:((#&&++%(:#:#:#:#:#F45#2#2#2#2#:(:(:(:(:(:(:(:(:(:(:#:(:':(:(:(-(:#:#:#5#5#5+5#:22#2#2#2#:(:(:(:+:(:+:(((8-++:(22 222:(/:(:(:(:(F:555----+2"22%:(:(:(:(:(:(K::+2#2#2#:(2:(-2:(2((W888888888888888888888888888888888888888888888888xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN00%(#((((M(==(==(=##(P0P((N1=PP00/CC--P#(CP"5555==JPP(=P0.+(-N00P("i~'^09FSS999Sq+9+/SSSSSSSSSS99qqqSggnxggxx9In]nxgxgS]xgg]]?/?FS9SSISI/SS//I/xSSSS??/SInII?C/CZ9+ZF999+999999S9S/gSgSgSgSgSnnIgIgIgIgI9/9/9/9/nSxSxSxSxSxSxSxSxS]IgSxSxSxS]IxSgSgSgSgSnInInZnIxdgIgIgIgIxSxSxSxZxSxZxS9/9S999SSZZnI]/]<]9]5]/nSanSnSxSxSng?g?g?S?S?S?ZZ]<]/]FxSxSxSxSxSxSn]Z]?]?]?xS]9nSS?]9]Sd+SS8%8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuddddddddddddddddddddddddddddddddddddddddN/>/>/>/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+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN(-((((((((((---#J:55:2-:::2F::-:5-2::K::2%(#(#(#(((>((((((:((#&&++%(:#:#:#:#:#F45#2#2#2#2#:(:(:(:(:(:(:(:(:(:(:#:(:':(:(:(-(:#:#:#5#5#5+5#:22#2#2#2#:(:(:(:+:(:+:(((8-++:(22 222:(/:(:(:(:(F:555----+2"22%:(:(:(:(:(:(K::+2#2#2#:(2:(-2:(2((W888888888888888888888888888888888888888888888888xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN00%(#((((M(==(==(=##(P0P((N1=PP00/CC--P#(CP"5555==JPP(=P0.+(-N00P(2 *Z$IJ<?xxx,ix6X@`7X@7jC:,9Xj\  P6G;XP7nC:,|Xn4  pG;Xy.X80,X\  P6G;Py.\80,T\4  pG;W!@(#,h@\  P6G;hPa$G,',G\  P6G;P0t,U5.,U\  P6G;P1F3 ,"3\  P6G;"P3y.X80,IX\  P6G;P  4y.\80, {\4  pG;5H5!,,5\  P6G;,P6a$G,',YG\  P6G;P 7:*,Y*\  P6G;P\{,W80,-W*f9 xr G;X        2\>*-<?xxx,ix6X@`7X@7jC:,9Xj\  P6G;XP7nC:,|Xn4  pG;Xy.X80,X\  P6G;Py.\80,T\4  pG;W!@(#,h@\  P6G;hPa$G,',G\  P6G;P:*,*\  P6G;P\{,W80,-0W*f9 xr G;X          X-D9 X-#Xj\  P6G;9XP#Mr. Don Schanding Peter H. Feinberg, Esq. June 13, 1997  X-Page  #XP\  P6Q9XP# #X\  P6G;P# X01Í ÍX01Í Í#Xj\  P6G;9XP# 1June 13, 1997  X-x` `  hh@hpp`)(#  DA 971249 x` ` `M(#CSBILR 975  X_-x` `  hh@h`(#Released: June 16,  "M 1997 ă Mr. Don Schanding, Manager Local Government Operations and xInformation Assistance Georgia Municipal Association 201 Pryor Street, S.W. Atlanta, Georgia 30303 Peter H. Feinberg, Esquire Dow, Lohnes & Albertson Counsel for Intermedia Partners 1200 New Hampshire Avenue, N.W. Washington, D.C. 20036 Dear Sirs: " X-  "xThis letter responds to your requests c yO:- xwЍ #X\  P6G;P# See Letter of January 23, 1997 from Don Schanding, Manager, Local Government Operations and Information  xAssistance to Meredith J. Jones, Chief, Cable Services Bureau and Letter of January 31, 1997 from Peter H.  xFeinberg, Esquire, on behalf of Intermedia Partners, to Elizabeth W. Beaty, Chief, Financial Analysis and Compliance Division, Cable Services Bureau. for a letter ruling addressing the application of the  x Commission's rate regulation rules regarding the addition of channels to, and movement of  xchannels between, a cable operator's cable programming services tier ("CPST") and basic service  xMtier ("BST"). Specifically, you ask our view on rate adjustments required when a channel is  x\shifted from the CPST to the BST while at the same time two new channels are added to the CPST.   xPursuant to Section 623 of the Communications Act, the Commission adopted a  x>comprehensive framework governing the rates for BSTs and CPSTs for cable operators not  xsubject to effective competition. Under this framework, once initial rates are set pursuant to  X- x.either the benchmarkc {O<&- xЍ  See 47 CFR Section 76.922(b). The benchmark approach is designed to produce rates for regulated cable  xservices that approximate the rates of cable systems subject to effective competition as defined by the 1992 Cable  {O'- xJAct. See generally, Report and Order and Further Notice of Proposed Rulemaking ("Rate Order"), MM Docket No.  {O(- xY92266, 8 FCC Rcd 5631, 58 FR 289736 (1993) at paras. 1415, Second Order on Reconsideration, Fourth Report  {Ob)-and Order, and Fifth Notice of Proposed Rulemaking, MM Docket 92266, 9 FCC Rcd 4119 , 59 FR 1743 (1994). or cost of serviceh c {O- xЍ See 47 CFR Section 76.922(b), Report and Order and Further Notice of Proposed Rulemaking, MM Docket 92266, 93215, 9 FCC Rcd. 4527, 59 FR 18066 (1994), Rate Order at para 187. approaches, rates are governed by rules designed to""0*0*0*"  xjassure that rates for regulated cable services remain reasonable. The Commission's rules allow  x\an operator to adjust its permitted charges for inflation, changes in the number of regulated  xchannels on tiers, or changes in external costs. The Commission's rules also allow operators to  xadjust rates when channels are added to, deleted from, or moved between regulated tiers. When  X- xadding channels to a CPST, an operator may choose between the "Markup Method,"="  yOw- xЍ 47 C.F.R. Section 76.922(f)(8). This method allows an operator to adjust its rates to include a "markup" of  xZ7.5% for increases in programming costs occurring after March 31, 1994. For channels added between May 15,  x1994 and December 31, 1997 using the Markup Method, an operator may adjust its rates to include a specific per  xchannel adjustment in accordance with Section 76.922(g)(2) of the Commission's rules. 47 C.F.R. Section 76.922(g)(2).= and the  X- x"Caps Method."x  yO- xЍ 47 C.F.R. Section 76.922(g)(3). The Caps Method allows an operator to increase its rates between January 1,  xx1995 and December 31, 1997, for channel additions made between May 15, 1994 and December 31, 1997, by up  xxto twenty cents per channel, exclusive of programming costs, totalling not more than $1.20 per month, through  x December 31, 1996, and $1.40 per month, through December 31, 1997. In addition to those per channel adjustments,  xan operator may adjust its rates by a total of thirty cents per month between January 1, 1995 and December 31, 1996  xfor license fees associated with those channels. After December 31, 1996, an operator may pass through to its  yO-subscribers the full amount of the license fee for each channel added during this period.#x6X@KiX@# When adding channels to its BST, an operator may use only the Markup  Xv- x.Method, unless the system only has only a BST.ov  yO9-ԍ 47 C.F.R. Section 76.922(g)(3).#x6X@KiX@#o Channels added to a CPST using the Caps  X_- xMethod may not be moved to the BST.o_  yO-ԍ 47 C.F.R. Section 76.922(g)(5).#x6X@KiX@#o Therefore, for the purposes of this letter ruling, all of  xthe channels being discussed are presumed to have been added, or will be added, to the relevant BST or CPST using any method other than the Caps Method.   !xThe Georgia Municipal Association ("GMA") takes the position that when a channel is  x>moved from the CPST to the BST, and a channel is added to the CPST, the residual amount  xrelating to the moved channel remains in the calculation of the permitted rate for the CPST. The  xresidual is that component of a permitted rate remaining after adjustments for external costs have  X - xZbeen subtracted.lZ 2  {O - xJЍ See 47 CFR Section 76.922(c)(iii)(2). External costs include costs such as state and local taxes, franchise fees,  xcosts relating to franchise requirements, retransmission consent fees, other programming fees, and regulatory fees imposed by 47 U.S. C. 159. 47 CFR 76.922(f).l The tier to which the residual is allocated affects the permitted rate for that tier.  x=Intermedia Partners ("Intermedia") asserts that when a channel is shifted from the CPST to the  xkBST, the residual moves to the BST. The two new channels added to the CPST would each"yT0*$$  "  X-adjust the permitted rate of that tier under the Commission's channel addition rules.~ v^ {Oy-ԍ  See 47 CFR Section 76.922(g)(1) (3).# x6X@K>FX@#~     X-  |xSection 76.922(g) of the Commission's rules Zv^ {O- xЍ Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice of Proposed Rulemaking, MM Docket 92266, 9 FCC Rcd 4119, 59 FR 17943 (1994) at para 229 addresses how to adjust tier rates when  X- xchannels are added to or deleted from a tier of regulated cable service. We think it consistent  xwith the Commission's rules that when a channel   is shifted from the CPST to the BST, and is  xan additional channel on the BST, the shifted channel is treated as if it was dropped from the  x<CPST. The residual and programming costs associated with the shifted channel are moved to the  X_- xKBST.P _v^ {O -ԍ See 47 CFR Section 76.922(g)(5).P The residual and programming costs associated with the new channels added to the CPST  x[shall be added to the CPST rate pursuant to the Commission's rules for new channels added to  X1-the tier.M 1Fv^ {O(-ԍ See 47 CFR Section 76.922(g).M   xWhere an operator is only substituting a channel, the residual associated with the original  X - xchannel is not moved or replaced.F v^ yOu-ԍ 47 CFR Section 76.922(g)(6).F The purpose of the Commission's channel addition rules is  xto provide incentives for additional service. If an operator was able to substitute a new channel  xfor an existing channel and obtain the additional per channel adjustment provided under our rules,  X - x=the purpose of the rule would be undermined as the subscriber sees no increase in channels.|\ h v^ {O- xiЍ In the Matter of Implementation of Sections of the Cable Television Consumer Protection and Competition  xAct of 1992: Rate Regulation, Sixth Order on Reconsideration, Fifth Report and Order, and Seventh Notice of  {OR-Proposed Rulemaking, 10 FCC Rcd 1226, paras 75, 85 (1994).|  xIt is for this reason that when a channel is merely substituted, the residual remains and no per  Xy-channel adjustment takes place.Oy v^ {O-ԍ See 47 CFR Section 76.922(g)(6).O "b0*$$  "  X-  \xThis is not the circumstance here. Moving the residual associated with the shifted channel  x\to the BST does not increase the permitted rate without providing additional service for the  x=subscriber. The operator is providing one additional channel to the BST. Moving the residual  xof the shifted channel places it in the calculation of the permitted rate for the BST. Similarly,  X-additional channels on the CPST will be reflected in the permitted rate of that tier.v^ yO- xЍ Intermedia requests that we confirm its proposition that an operator should first shift a channel between  xregulated tiers, and then add channels to the tier which has lost a channel, rather than treating one of the added  xchannels as a substituted channel. We decline to rule on the sequence of the movement of the channels in the  xscenario given. Consequently, an operator may treat the change as a channel shift from the CPST to the BST  xfollowed by the addition of channels to the CPST, or as an addition of channels to the CPST followed by a shift of  xa different channel to the BST. In either case, the operator must account for the allocation of the appropriate  xresidual, and programming costs where applicable, to the appropriate tier rate, pursuant to the Commission's rules, and adjust its rates accordingly.   "#P  x` `  hh@Sincerely, x` `  hh@Meredith J. Jones x` `  hh@Chief, Cable Services Bureau