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                            Before the
                Federal Communications Commission
                      Washington, D.C. 20554

In the Matter of                )
                                )
  Community TV Corporation        )CSR 4596-D
                                )
Petition for Special Relief     )

                                 
                  MEMORANDUM OPINION AND ORDER

      Adopted:  July 26, 1997  Released:  August 1, 1997  

By the Chief, Cable Services Bureau:

   I.INTRODUCTION

      1.  Here we address a petition for special relief ("Petition") in which Community TV
Corporation ("Community TV") seeks a waiver of the Commission's rules to the extent necessary to permit
Community TV to establish regulated cable rates in accordance with the small system cost-of-service
methodology adopted in the Sixth Report and Order and Eleventh Order on Reconsideration in MM Docket
Nos. 92-266 and 93-215 ("Small System Order").  No oppositions were filed in this proceeding.

      2.   Section 623(i) of the Communications Act of 1934, as amended ("Communications Act"),
requires that the Commission design rate regulations that reduce the administrative burdens and the cost of
regulatory compliance for cable systems with 1,000 or fewer subscribers.  Accordingly, in the course of
establishing the standard benchmark and cost-of-service ratemaking methodologies generally available to
cable operators, the Commission adopted various measures aimed specifically at easing regulatory burdens
for these smaller systems.  In the Small System Order, the Commission further extended small system rate
relief to certain systems that exceed the 1,000-subscriber standard.  These systems were deemed eligible
for small system rate relief because they were found to face higher costs and other burdens disproportionate
to their size.

      3.   The Small System Order defines a small system as any system that serves 15,000 or fewer
subscribers.  The Commission recognized that systems with no more than 15,000 subscribers were
qualitatively different from larger systems with respect to a number of characteristics, including:  (1) average
monthly regulated revenues per channel per subscriber; (2) average number of subscribers per mile; and (3)
average annual premium revenues per subscriber.  The magnitude of the differences between the two classes
of systems as to these characteristics indicated that the 15,000 subscriber threshold was the appropriate point
of demarcation for purposes of providing for substantive and procedural regulatory relief.    

      4.   Rate relief provided under the Small System Order and the Commission's rules is also
available only to a small system affiliated with a small cable company, which is defined as a cable operator
that serves a total of 400,000 or fewer subscribers over all of its systems.  The Commission adopted this
threshold because it roughly corresponds to $100 million in annual regulated revenues, a standard the
Commission has used in other contexts to identify smaller entities deserving of relaxed regulatory
treatment.  The Commission found that cable companies exceeding this threshold would find it easier than
smaller companies to attract the financing and investment necessary to maintain and improve service.  In
addition, the Commission determined that cable companies that exceeded the small company definition "are
better able to absorb the costs and burdens of regulation due to their expanded administrative and technical
resources." 

      5.   In addition to adopting the new categories of small systems and small cable companies, the
Small System Order introduced a form of rate regulation known as the small system cost-of-service
methodology.  This approach, which is available only to small systems owned by small cable companies,
is more streamlined than the standard cost-of-service methodology available to cable operators generally. 
In addition, the small system rules include substantive differences from the standard cost-of-service rules
to take account of the proportionately higher costs of providing service faced by small systems.  Eligible
systems establish their rates under this methodology by completing and filing FCC Form 1230.  In order to
qualify for the small system cost-of-service methodology, systems and companies must meet the new size
standards as of either the effective date of the Small System Order, or on the date thereafter when they file
the documents necessary to elect the relief they seek.

      6.   Cable systems that fail to meet the numerical definition of a small system, or whose
operators do not qualify as small cable companies, may submit petitions for special relief requesting that the
Commission grant a waiver of its rules to enable the petitioning systems to utilize the various forms of rate
relief available to small systems owned by small cable companies.  The Commission stated that petitioners
should demonstrate that they "share relevant characteristics with qualifying systems."  Other potentially
pertinent factors include the degree by which the system fails to satisfy either or both definitions and
evidence of increased costs (e.g., lack of programming or equipment discounts) faced by the operator.  If
the system fails to qualify for relief based on its affiliation with a larger cable company, the Commission will
consider "the degree to which that affiliation exceeds our affiliation standards, and whether other attributes
of the system warrant that it be treated as a small system notwithstanding the percentage ownership of the
affiliate."  The Commission also stated that "a qualifying system that seeks to obtain programming from
a neighboring system by way of a fiber optic link, but that is concerned that interconnection of the two
systems may jeopardize its status as a stand-alone small system, may file a petition for special relief to ask
the Commission to find that it is eligible for small system relief."  The Commission specifically stated that
this list of relevant factors was not exclusive and invited petitioners to support their petitions with any other
information and arguments they deemed relevant.

  II.THE PETITION

      7.   Community TV owns and operates two systems that serve 25 largely rural and vacation areas
in New Hampshire.  Prior to February 1995, Community TV was comprised of four stand-alone cable
systems, each served by one headend:  the Americable Group, which is not a subject of the Petition; two
systems serving the Lakes areas; and one system serving the Laconia area.  Community TV states that in
February 1995, it interconnected the latter three systems by fiber optic cable to "increase operating
efficiencies and improve service to subscribers."  Community TV is not affiliated with any other cable
systems. 

      8.   Community TV states that, as of June 30, 1995, the two Lakes systems served a total of
7,784 subscribers, and the Laconia system served 20,651 subscribers, for a total of 28,345 subscribers. 
According to Community TV, including the Americable Group, it serves a total of approximately 49,681
subscribers.  Therefore, while Community TV easily qualifies as a "small cable company" under the Small
System Order, the interconnected Lakes/Laconia system exceeds the 15,000-subscriber threshold for a
small system, thus making it ineligible for the small system cost-of-service rules absent a waiver.

      9.   In support of its Petition, Community TV states that, considered individually, the Lakes
systems and the Laconia system share the characteristics of the average "small system" set forth in the Small
System Order.  Specifically, the Lakes systems: (a) yield an average monthly regulated revenue per channel
per subscriber of $0.55, as compared to the $0.86 for the average small system; (b) serve an average of 18.3
subscribers per mile, versus the 35.3 subscribers per mile served by the average small system; and (c)
receive $34.33 in average premium revenue per subscriber, as compared to $41.00 received by the average
small system.  With respect to the Laconia system:  (a) the average monthly regulated revenue per channel
per subscriber is $0.50; (b) the average number of subscribers per mile is 38.0 (which Community TV
acknowledges as "slightly over" the small system average of 35.3); and (c) the average premium revenue per
subscriber is $32.87.  Community TV states that the Lakes system clearly qualifies as a small system, and
asserts that the "same is true for the Laconia Group."

      10.   Community TV states that the only qualifying criterion not satisfied by both the Lakes
systems and the Laconia system is the 15,000 subscriber maximum, which the Laconia system exceeds by
5,651.  Community TV states, however, that this figure is "misleading" because approximately 20 percent
of the homes in the Laconia area are seasonal and produce revenue only three to four months per year. 
Community TV believes that this overage should not bar the interconnected Lakes/Laconia system from
small system status because the Laconia system possesses "almost all" of the other characteristics of an
average small system.  Community TV also states that, because seasonal subscribers produce only a fraction
of the revenue produced by year-round subscribers, Community TV's ability to earn a reasonable return on
investment is significantly delayed, and in certain locations, denied altogether.  Community TV also notes
that investment in cable plant, programming and other services are no lower in these seasonal areas than in
the areas where subscribers receive service year-round.

      11.   Community TV contends that the Lakes/Laconia system should be accorded small system
status because its costs of providing service are relatively high.  First, it states that, because Community TV
has a total subscribership of only 49,681 subscribers, Community TV does not receive any of the economic
advantages available to larger systems, such as programming purchasing discounts.  Community TV also
states that its engineering and maintenance expenses are relatively high because it serves a low density area
that includes a large number of lakes.  

      12.  With respect to revenues, Community TV asserts that the interconnected Lakes/Laconia
qualifies as a small system because the income generated by the system is constrained because:  (a)  the
system serves relatively few subscribers; (b) the system serves many seasonal subscribers who take service
only three to four months per year; and (c) the system serves relatively low-income areas.  Community TV
states that the median household income in the areas served by the Lakes systems and the Laconia system
is approximately $32,000 as compared to $36,329 for the state of New Hampshire.  Community TV asserts
that these circumstances limit its ability to generate new revenue by offering new services or engaging in
promotional campaigns; in fact, Community TV has not sold any local advertising because the prospective
revenues are not sufficient to justify the necessary investment and staff.  In addition, Community TV states
that it faces difficulties in justifying the financing of upgrading or extending its system, as requested by local
franchising authorities ("LFAs").  Finally, Community TV contends that, because it is unable to spread the
costs of an in-house staff over a broad subscriber base, it must "rely heavily" on outside accounting and legal
expertise to administer its compliance with federal regulations. 

      13.  Community TV states that granting small system status to the interconnected Lakes and
Laconia systems will serve the public interest, as discussed in the Small System Order, by permitting the
systems to use streamlined ratemaking, which will greatly alleviate their compliance burdens as well as
benefit the seventeen LFAs that oversee service by the Lakes systems and the Laconia system.  These
savings would enable the systems to devote more resources toward upgrading plant, enhancing
programming, adding ancillary services and extending service to currently unserved areas. 
     

 III.DISCUSSION

      14.   We begin with a comparison of Community TV's subscriber base to the small cable company
and small system definitions.  Since Community TV is not affiliated with any other cable system, and its
systems serve a total of about 50,000 subscribers, Community TV falls well below the 400,000-subscriber
threshold for small cable companies.  On the other hand, total subscribership to the interconnected systems
that are the subject of the Petition substantially exceeds the small system definition.  The Lakes and Laconia
systems serve a total of 28,345 subscribers, or almost twice the 15,000 threshold set forth in the Small System
Order.  As a practical matter, Community TV can be viewed as a combination of two systems, that,
according to Community TV, "have been interconnected by fiber optic cable in order to enhance operating
efficiencies and improve service to subscribers."  In the Small System Order, the Commission specifically
recognized the appropriateness of waiver petitions in cases where interconnection of multiple small systems
created a single system of over 15,000 subscribers.  Moreover, as we stated in an analogous case
concerning Inter Mountain Cable, Inc. ("Inter Mountain Order"), the Commission "seeks to encourage
interconnection where it would allow an operator to become more efficient and provide benefits to
subscribers."

      15.The Inter Mountain Order is instructive.  In that case, we granted small system status to a
cable system that served more than 23,000 subscribers, because the system was comprised of over 40
interconnected systems, each of which qualified for small system status.  With respect to Community TV's
Petition, the relevant question is whether the systems that have been interconnected to create the
Lakes/Laconia system, when considered individually, may qualify for small system status.  Based on the
record before us, the Lakes systems clearly qualify.  These systems serve a total 7,784 subscribers, well
below the small system threshold, and share relevant characteristics with the average small system.  For
example, while the average small system serves about 35.3 subscribers per mile, the Lakes systems serve
only 18.3.  Likewise, the average small system earns $0.86 in monthly regulated revenues per subscriber per
channel, and $41.00 in annual premium revenues, while the Lakes systems earn only $0.55 and $34.33,
respectively.  The disparity in the subscriber density of the Lakes area is particularly persuasive.  As
summarized in the Small System Order:  "[C]ommenters observe that a smaller system serving a large rural
area faces increased costs due to the increased amount of cable that must be installed to reach the entire area
and increased operating costs given the greater amount of facilities that must be maintained."

      16.With regard to the Laconia system, it serves a total of 20,651 subscribers, or 37.6% over the
small system threshold of 15,000.  Community TV has submitted data to demonstrate that 21.89% of the
housing units in the Laconia service area are occupied on a seasonal basis for only three or four months per
year.  Applying this ratio to Laconia's subscriber base, the Laconia system serves about 16,131 year-round
subscribers, or only 7.54% over the small system threshold.

      17.   In the Third Order on Reconsideration in MM Docket No. 92-266, the Commission
decided that permitting a cable operator to include dwelling units that are inhabited only seasonally in
calculating its penetration rate in a particular area would diminish the validity of this measure as an indicator
of whether the operator faces effective competition in that area.  We stated that the "best and most constant"
indicator of subscriber choice is represented by the full-time residents of an area.  We further found that
full-time residents are most affected by the decision whether their cable rates are regulated.  We believe
this reasoning should be extended to the decision whether cable rates are regulated under streamlined
ratemaking that is available only to small systems, or otherwise.  We think it consistent with the
Commission's policies to exclude Laconia's seasonal subscribers in measuring whether and by how much
Laconia's subscribership may exceed the small system definition.

      18.   In light of other factors relevant to Community TV's Petition, we find that Laconia's service
to 2,261 subscribers over the threshold does not undermine Community TV's request that the interconnected
Lakes/Laconia system be accorded small system status.  We previously have bestowed small system status
to cable systems that exceed the 15,000 subscriber limit, where it has been shown that the cable system
shares other relevant characteristics with small systems.  For example, on a per subscriber basis, the
Laconia system receives only $0.50 in monthly regulated revenues per channel and only $32.87 in annual
premium revenues, both of which fall well below the average small system's revenues of $0.86 and $41.00,
respectively.  We note that the Laconia system's subscriber density of 38.0 subscribers per mile exceeds
the 35.3 subscribers per mile served by the average small system.  This figure is 7.65% over the average for
a small system, however, and well below the 68.7 subscribers per mile served by the average system with
over 15,000 subscribers.  We find this disparity insignificant and not a substantial impairment of Community
TV's Petition.

      19.   Both the Lakes systems and the Laconia system face other obstacles typically faced by small
systems, as well.  For example, Community TV's costs of providing service are relatively high because
Community TV serves a total of less than 50,000 subscribers.  As a result,  Community TV is unable to
secure the bulk discounts that cable programming and equipment vendors make available to larger systems. 
Community TV also describes the difficulties it has encountered in obtaining financing because its revenues
are constrained by the seasonal nature of many of its subscribers, and the fact that the Laconia and Lakes
systems serve relatively low-income areas.  This latter circumstance limits Community TV's ability to
generate new revenues through promotions or the sale of premium services.

      20.   A final factor weighing in favor of granting small system status to Community TV is the
absence of any opposition to the Petition, despite service of the Petition upon the relevant local franchising
authorities and public notice of the Petition by the Commission.

      21.   Under Section 76.7(c)(1) of the Commission's rules, a petition for special relief "shall state
fully and precisely all pertinent facts and considerations relied on to demonstrate the need for the relief
requested and to support a determination that a grant of such relief would serve the public interest." 
Community TV has adequately established its "need for the relief requested," as required by Section
76.7(c)(1).  In making this finding, we note the Commission's decision in the Small System Order to target
rate relief at small systems owned by operators with fewer than 400,000 subscribers based on the recognition
that the then-existing rate rules did not sufficiently take account of the higher costs of business faced by
smaller companies.  In addition, the Commission found that qualifying systems and companies were in
need of relief from the procedural burdens imposed upon such entities by the other forms of rate regulation. 
The Commission found that alleviating the substantive and procedural burdens associated with the standard
benchmark and cost-of-service methodologies "should free up resources that affected operators currently
devote to complying with existing regulations and should enhance those operators' ability to attract capital,
thus enabling them to achieve the goals of Congress," as set forth in the 1992 Cable Act. 
          
      22.   Community TV's subscriber base of under 50,000 clearly establishes its status as a small
cable company.  Although Community TV has configured its facilities serving the Lakes and Laconia service
areas such that they constitute a single system that exceeds the 15,000-subscriber threshold for small
systems, for the reasons stated above we conclude that this condition does not create a material distinction
between Community TV and the class of systems specifically targeted by the Commission for relief.  Based
on reasons described above, we find that the characteristics of the Lakes systems and the Laconia systems,
analyzed individually, comport with our small system requirements.  Moreover, as discussed in the Inter
Mountain Order, we seek to encourage operators to interconnect systems where benefits would accrue to
subscribers.  Thus, we conclude that Community TV's combination of the Lakes systems and the Laconia
system shall be treated as one small system.

      23.   Granting Community TV's request will reduce its burden of complying with federal
regulations, and allow more of its limited revenue to be used for the improvement of service.  As indicated
above, in the Small System Order the Commission found that extending rate relief to those operators in need
of it would further specific congressional goals set forth in the 1992 Cable Act's Statement of Policy. 
Having concluded that Community TV also needs that relief, granting the Petition will serve the same
congressional goals that were furthered by the adoption of the Small System Order and thus is in the public
interest.

  IV.SCOPE OF THE WAIVER

      24.   As a result of our grant of the Petition, Community TV interconnected Lakes/Laconia system
shall be deemed a small system for purposes of rate regulation.  Accordingly, to the extent that Community
TV's BST and CPST are subject to rate regulation, the system may now set rates prospectively in
accordance with the small system cost-of-service methodology.

      25.   We next must determine the duration of the waiver.  In the Small System Order, after
establishing the new small system and small cable company definitions, the Commission stated:

          To qualify for any existing form of [small system] relief, systems and
          companies must meet the new size standards as of either the effective date
          of this order or on the date thereafter when they file whatever
          documentation is necessary to elect the relief they seek, at their election.
          . . .  A system that is eligible for small system relief on either of the dates
          described above shall remain eligible for so long as the system has 15,000
          or fewer subscribers, regardless of a change in the status of the company
          that owns the system.  Thus, a qualifying system will remain eligible for
          relief even if the company owning the system subsequently exceeds the
          400,000 subscriber cap.  Likewise, a system that qualifies shall remain
          eligible for relief even if it is subsequently acquired by a company that
          serves a total of more than 400,000 subscribers.

      26.   The Commission adopted this grandfathering treatment for qualifying systems to enhance
their value "in the eyes of operators and, more importantly, lenders and investors."  As the Commission
stated:  "The enhanced value of the system thus will strengthen its viability and actually increase its ability
to remain independent if it so chooses."  
          
      27.   Upon exceeding the 15,000 subscriber threshold, a system that has established its rates in
accordance with the small system cost-of-service methodology:

          . . . may maintain its then existing rates.  However, any further adjustments
          shall not reflect increases in external costs, inflation or channel additions
          until the system has re-established initial permitted rates in accordance with
          our benchmark or cost-of-service rules.

      28.   Since the Lakes/Laconia system already exceed 15,000 subscribers, there is no obvious
numerical limit to serve as a cutoff for its continued eligibility for small system treatment.  However, it is
reasonable to presume that the system will continue to grow.  Thus, we must place some duration on the
waiver, since the alternative would be to grant small system status indefinitely, regardless of the eventual
size of the system.  This latter alternative is clearly inconsistent with the Commission's decision to limit
small system relief to systems who are in need of it due to their relatively small size.

      29.   Therefore, as we have ordered in the context of similar waiver situations, the Community
TV waiver will terminate two years from the date of this order, subject to the conditions set forth below. 
During the waiver period, Community TV may file only one Form 1230 for each franchise area served by
the Lakes/Laconia system.  This should give Community TV adequate regulatory certainty for the
foreseeable future, while still ensuring that the system is not permitted to charge rates indefinitely under a
scheme designed for smaller systems.  Of course, Community TV may seek continued eligibility for small
system treatment by filing a petition for special relief at the end of the waiver period.

      30.   Limiting the waiver period to two years means that any Form 1230 to be filed by Community
TV must be submitted with the appropriate regulatory authorities within two years of the date of this order. 
In any franchise area where the system is currently subject to regulation, Community TV may reestablish
its maximum permitted rates by filing Form 1230 at any time in the next two years.  Where the system is not
currently subject to regulation but  becomes subject within the next two years to regulation Community TV
then may file Form 1230 within the normal response time.  Where the system is not now subject to
regulation, and does not become subject to regulation until more than two years from now, Community TV
will not be eligible for small system treatment under this waiver.

      31.   After filing its initial Form 1230 and giving the required notice, the Lakes/Laconia system
may set its actual rates in a particular franchise area at any level that does not exceed the maximum rate,
subject to the standard rate review process.  Subsequent increases, not to exceed the maximum rate
established by the Form 1230, shall be permitted, subject to the 30 days' notice requirement of the
Commission's rules.  As noted, the maximum rate established by the initial Form 1230 shall be a cap on
the system's rates during the waiver period.  If the system reaches that cap and subsequently wishes to raise
rates further, it will have to justify the rate increase in accordance with our standard benchmark or cost-of-
service rules.  Alternatively, the system can file another petition for special relief and seek continued
treatment as a small system.  Limiting the Lakes/Laconia system to a single Form 1230 filing for each
franchise area provides further assurance that the system will not have grown too large to be establishing
rates under the small system cost-of-service methodology.

   V.ORDERING CLAUSES

      32.   Accordingly, IT IS ORDERED that the Petition for Special Relief filed by Community TV
Corporation requesting a waiver of the Commission rules defining systems subject to small system rate relief
IS GRANTED.

      33.   This action is taken pursuant to delegated authority under Section 0.321 of the Commission's
rules.

     FEDERAL COMMUNICATIONS COMMISSION



     Meredith J. Jones
     Chief, Cable Services Bureau