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                            Before the
                Federal Communications Commission
                      Washington, D.C. 20554
                                 
In the Matter of                                                      )
                                )
  Prestige Cable TV, Inc.         )CSR 4610-D
                                ) 
Petition for Special Relief     )


                   MEMORANDUM OPINION AND ORDER

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

By the Chief, Cable Services Bureau:

   I.INTRODUCTION

      1.Here we address a petition for special relief ("Petition") in which Prestige Cable TV, Inc.
("Prestige") seeks a waiver of the Commission's rules to the extent necessary to permit Prestige to establish
regulated cable rates on behalf of its Spotsylvania, Virginia system 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 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.In its Petition, Prestige seeks authority to establish regulated rates for its Spotsylvania system
in accordance with the small system cost-of-service methodology.  As noted, that form of rate regulation is
only available to small systems owned by small cable companies.  According to the Petition, as of October
1995, Prestige served a total of approximately 131,000 subscribers across all of its systems.  Prestige states
that it is a totally independent cable company with no affiliation with any larger entity.  Two of its twelve
systems serve in excess of 15,000 subscribers.  Prestige requests special relief for only one of its systems,
the Spotsylvania system, which serves a total of 18,000 subscribers, thus exceeding the subscriber limit for
small systems by 3,000.

      8.In support of its Petition, Prestige argues that its Spotsylvania system shares many relevant
characteristics with qualifying small systems even though the system does not meet the numerical definition
of a small system.  According to the Petition, the Spotsylvania system serves approximately 29.3
subscribers per mile, which is below the average number of  35.3 subscribers per mile served by systems
with fewer than 15,000 subscribers, and far below the average number of 68.7 subscribers per mile served
by systems with more than 15,000 subscribers.  The Spotsylvania system has a monthly regulated revenue
per channel per subscriber of approximately $0.61, which falls between the $0.86 average monthly regulated
revenue per channel for systems serving fewer than 15,000 subscribers and the $0.44 average monthly
regulated revenue per channel for systems serving more than 15,000 subscribers.  The Petition also
indicates that the Spotsylvania system has an annual premium revenue per subscriber of $57.  This figure
is between the average of $41.00 for systems with fewer than 15,000 subscribers and the average of $73.13
for systems with more than 15,000 subscribers.

 III.DISCUSSION

      9.In the Small System Order, the Commission defined a small cable company as a cable
company "serving 400,000 or fewer subscribers over all of its systems."  The Commission also defined a
small cable system as a system that "serves 15,000 or fewer subscribers."  Prestige serves a total of
approximately 131,000 subscribers across all of its systems, and thus falls within the definition of a small
cable company, but its Spotsylvania system exceeds the small system definition by 3,000, having a total of
18,000 subscribers.  Prestige may not, therefore, establish regulated rates for its Spotsylvania system in
accordance with the small system cost-of-service methodology absent special relief.

      10.Based on the record before us, we believe that Prestige is entitled to special relief for its
Spotsylvania system.  In the Small System Order, the Commission observed that systems with fewer than
15,000 subscribers differed from systems with more than 15,000 subscribers with respect to three main
characteristics, including average number of subscribers per mile, regulated revenues, and nonregulated (or
premium) revenues.  With respect to subscriber density, Prestige's Spotsylvania system serves only 29.3
subscribers per mile, lower than the small system average of 35.3 subscribers per mile and less than half of
the larger system average of 68.7 subscribers per mile.  Low subscriber density was specifically relied on
by the Commission to establish the 15,000 subscriber threshold for small systems.  The Commission noted
in the Small System Order, that commenters had observed that "a smaller system serving a large rural area
faces increased construction 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."

      11. In the Small System Order, the Commission stated that it would also consider "evidence of
increased costs (e.g., lack of programming or equipment discounts) faced by the operator."  As we have
previously mentioned, small systems with a low subscribership density often face increased costs.  
Prestige's Spotsylvania system has a subscriber density well below the averages of both smaller and larger
systems.  On a company wide basis, Prestige serves relatively rural areas with a density that is well below
the averages of a larger company.  Of Prestige's twelve systems, only two (including the Spotsylvania
system) serve in excess of 15,000 subscribers.  The Spotsylvania system's low subscriber density is indicative
that the system would necessarily face increased costs similar to a smaller system.  Also, as evidenced by
the attachment to its Petition, Prestige's Spotsylvania system faces increased programming and equipment
costs similar to qualifying systems.        

      12.The Spotsylvania system reports an average monthly regulated revenue per channel per
subscriber of $0.61 which falls between the average revenue of smaller systems and the average revenue of
larger systems.  The $57 annual premium revenue per subscriber of the Spotsylvania system also falls
between the average for smaller systems and the average for larger systems.  While these averages alone
do not weigh in one direction or the other toward relevant characteristics shared with small systems, when
combined with other factors in Prestige's case, they weigh in favor of allowing the Spotsylvania system to
avail itself of the small system cost-of-service methodology.     

      13.We previously have granted small system status to systems that exceed the 15,000 subscriber
limit by only a small amount where it has been shown that the system in question shares relevant
characteristics with systems serving fewer than 15,000 subscribers.  In Insight, we granted special relief
so that the cable operator could use the small system rate rules for its systems serving 16,348, 16,328 and
17,798 subscribers, respectively.  We found that "even the largest of the three systems exceed[ed] the
15,000 subscriber standard by only a relatively small amount."  The subscriber count for Prestige's
Spotsylvania system exceeds the 15,000 subscriber limit by just slightly more than the largest of the Insight
systems. 
     
      14.We believe that Prestige should be allowed to defray its increased costs using the small
system cost-of-service methodology.  In the Small System Order, the Commission adjusted its definition of
small systems in order to further Congress' goal of reducing the regulatory burdens and cost of compliance
for smaller cable concerns.  The Commission noted that the goals expressed by Congress in the 1992 Cable
Act Statement of Policy would also be furthered if it expanded the category of small systems entitled to
reduced regulatory burdens.  The Small System Order allows for the filing of petitions for special relief so
that systems that fail to meet the numerical small system definition may still show that they are similar to
systems that meet the definition, and are therefore entitled to relief.  Prestige's Spotsylvania system has
characteristics that compare favorably with the various characteristics that the Commission used to determine
the category of systems deserving of regulatory relief.  For the reasons set forth herein, we believe that
granting the Petition will further the intent of Congress and therefore will serve the public interest. 

  IV.SCOPE OF THE WAIVER

      15.As a result of our grant of the Petition, Prestige's Spotsylvania system shall be deemed a
small system for purposes of rate regulation.  Accordingly, to the extent that Prestige's basic service tier
and/or cable programming service tier offerings are subject to rate regulation, Prestige may now set rates
prospectively in accordance with the small system cost-of-service methodology.

      16.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.

      17.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."  
          
      18.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.

      19.Since Prestige's Spotsylvania system has already exceeded 15,000 subscribers, there is no
obvious numerical limit to serve as a cutoff for its continued eligibility for small system treatment.  We
believe it is reasonable to presume that the Spotsylvania 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 that are in need of it due to their relatively
small size.

      20.Therefore, as we have ordered in the context of a similar waiver situation, the Prestige
waiver will terminate two years from the date of this order, subject to the conditions set forth below. 
During the waiver period, Prestige may file only one Form 1230 for each franchise area it serves.  This
should give Prestige 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,
Prestige may seek continued eligibility for small system treatment by filing a petition for special relief at the
end of the waiver period.

      21.Limiting the waiver period to two years means that any Form 1230 to be filed by Prestige
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, Prestige 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 to regulation within the next two years, Prestige 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, Prestige will not be eligible for small
system treatment under this waiver.

      22.After filing its initial Form 1230 and giving the required notice, Prestige may set its actual
rates in the 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 Prestige 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

      23.Accordingly, IT IS ORDERED that the Petition for Special Relief filed by Prestige Cable
TV, Inc. IS GRANTED.

      24.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