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S- ` 2 x2.` ` Section 623(i) of the Communications Act of 1934, as amended ("Communications Act"),  xrequires that the Commission design rate regulations that reduce the administrative burdens and the cost  S- xLof regulatory compliance for cable systems with 1,000 or fewer subscribers.GX yO|-ԍx47 U.S.C.  543(i).G Accordingly, in the course  xof establishing the standard benchmark and costofservice ratemaking methodologies generally available  x>to cable operators, the Commission adopted various measures aimed specifically at easing regulatory  S - xburdens for these smaller systems.  {O-  ԍxSee, e.g., Report and Order and Further Notice of Proposed Rulemaking in MM Docket No. 92266, FCC  {O^ - x93177, 8 FCC Rcd 5631 (1993); Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice of  {O(!- xProposed Rulemaking in MM Docket No. 92266, FCC 9438, 9 FCC Rcd 4119 (1994); Fifth Order on  {O!- xReconsideration and Further Notice of Proposed Rulemaking in MM Docket Nos. 93215 & 93266, 9 FCC Rcd  {O"- x5327 (1994); Eighth Order on Reconsideration in MM Docket Nos. 92266 & 93215, FCC 9542, 10 FCC Rcd 5179 (1995). In the Small System Order, the Commission further extended small  S- xzsystem rate relief to certain systems that exceed the 1,000subscriber standard.^j  {O%-ԍxSmall System Order, 10 FCC Rcd at 7406.^ These systems were" ,**88"  xldeemed eligible for small system rate relief because they were found to face higher costs and other  S-burdens disproportionate to their size. hm {O@-  >ԍxId. at 7407. More recently, Congress amended Section 623 of the Communications Act to allow greater  xideregulation for "small cable operators," defined as operators that "directly or through an affiliate, [serve] in the  xaggregate fewer than 1 percent of all subscribers in the United States and [are] not affiliated with any entity or  xKentities whose gross annual revenues in the aggregate exceed $250,000,000." Telecommunications Act of 1996  x-("1996 Act"), Pub. L. No. 104104,  301(c), 110 Stat. 56, approved February 8, 1996; Communications Act   x623(m), 47 U.S.C.  543(m). Pursuant to this amendment, the rate regulation requirements of Sections 623(a), (b)  xand (c) do not apply to a small cable operator with respect to "(A) cable programming services, or (B) a basic service  xhtier that was the only service tier subject to regulation as of December 31, 1994," in areas where the operator serves  {O -50,000 or fewer subscribers. Id.   S- ` }x3.` ` The Small System Order defines a small system as any system that serves 15,000 or fewer  Sb- xsubscribers.^bhm {O -ԍxSmall System Order, 10 FCC Rcd at 7406.^ The Commission recognized that systems with no more than 15,000 subscribers were  x/qualitatively different from larger systems with respect to a number of characteristics, including: (1)  xkaverage monthly regulated revenues per channel per subscriber; (2) average number of subscribers per  S- xmile; and (3) average annual premium revenues per subscriber.K. hm {O-ԍXxId. at 7408.(#K The magnitude of the differences between  x.the two classes of systems as to these characteristics indicated that the 15,000 subscriber threshold was  xthe appropriate point of demarcation for purposes of providing for substantive and procedural regulatory  Sr-relief.;r hm {O-ԍxId. ;  S" - ` x4.` ` Rate relief provided under the Small System Order and the Commission's rules is also  S - xNavailable only to a small system affiliated with a small cable company, which is defined as a cable  S - xoperator that serves a total of 400,000 or fewer subscribers over all of its systems. ^ R hm {O-  [ԍxId. A small system is deemed affiliated with a cable company if the company "holds more than a 20 percent  {O- xequity USESESUSinterest (active or passive) in the system or exercises de jure control (such as through a general partnership  {OZ-or majority voting shareholder interest)." Id. at 741213, n.88. The Commission  x\adopted this threshold because it roughly corresponds to $100 million in annual regulated revenues, a  xstandard the Commission has used in other contexts to identify smaller entities deserving of relaxed  S\- xjregulatory treatment.F \xhm {Ot -ԍxId. at 740911.F The Commission found that cable companies exceeding this threshold would find  xit easier than smaller companies to attract the financing and investment necessary to maintain and improve  S - xservice.C  hm {O#-ԍxId. at 7411.C In addition, the Commission determined that cable companies that exceeded the small company  xdefinition "are better able to absorb the costs and burdens of regulation due to their expanded  S-administrative and technical resources."C hm {O&-ԍxId. at 7409.C". ,`(`(88"Ԍ S- ` oԙx5.` ` In addition to adopting the new categories of small systems and small cable companies,  S- xthe Small System Order introduced a form of rate regulation known as the small system costofservice  S- xmethodology.F hm {O-ԍxId. at 741828.F This approach, which is available only to small systems owned by small cable companies,  x[is more streamlined than the standard costofservice methodology available to cable operators generally.  xyIn addition, the small system rules include substantive differences from the standard costofservice rules  x[to take account of the proportionately higher costs of providing service faced by small systems. Eligible  x[systems establish their rates under this methodology by completing and filing FCC Form 1230. In order  xjto qualify for the small system costofservice methodology, systems and companies must meet the new  S- xsize standards as of either the effective date of the Small System Order, or on the date thereafter when  S-they file the documents necessary to elect the relief they seek.Zhm {O -ԍxId. at 7413. The effective date of the Small System Order was August 21, 1995.  SL - ` x6.` ` Cable systems that fail to meet the numerical definition of a small system, or whose  xjoperators do not qualify as small cable companies, may submit petitions for special relief requesting that  xthe Commission grant a waiver of its rules to enable the petitioning systems to utilize the various forms  S - x.of rate relief available to small systems owned by small cable companies.F hm {O`-ԍxId. at 741213.F The Commission stated that  S - xpetitioners should demonstrate that they "share relevant characteristics with qualifying systems.": ~hm {O-ԍxId.: Other  xlpotentially pertinent factors include the degree by which the system fails to satisfy either or both  xdefinitions and evidence of increased costs (e.g., lack of programming or equipment discounts) faced by  S4- xthe operator.:4hm {O-ԍxId.: If the system fails to qualify for relief based on its affiliation with a larger cable company,  xthe Commission will consider "the degree to which that affiliation exceeds our affiliation standards, and  xwhether other attributes of the system warrant that it be treated as a small system notwithstanding the  S- xpercentage ownership of the affiliate.";hm {O-ԍxId. ; The Commission also stated that "a qualifying system that seeks  xjto obtain programming from a neighboring system by way of a fiber optic link, but that is concerned that  xinterconnection of the two systems may jeopardize its status as a standalone system, may file a petition  SD- xfor special relief to ask the Commission to find that it is eligible for small system relief."=D4 hm yO -ԍxId. at 7413.= The  x=Commission specifically stated that this list of relevant factors was not exclusive and invited petitioners  S-to support their petitions with any other information and arguments they deemed relevant.: hm {OX#-ԍxId.:  S- II.xTHE PETITION  ST- ` Qx7.` ` In its Petition, Prestige seeks authority to establish regulated rates for its Spotsylvania  xsystem in accordance with the small system costofservice methodology. As noted, that form of rate",V ,`(`(88"  xregulation is only available to small systems owned by small cable companies. According to the Petition,  S- x<as of October 1995, Prestige served a total of approximately 131,000 subscribers across all of its systems.?hm yO@-ԍxPetition at 2.?  S- x=Prestige states that it is a totally independent cable company with no affiliation with any larger entity.:Xhm {O-ԍxId.:  S- xTwo of its twelve systems serve in excess of 15,000 subscribers.:hm {O-ԍxId.: Prestige requests special relief for only  xone of its systems, the Spotsylvania system, which serves a total of 18,000 subscribers, thus exceeding  S8-the subscriber limit for small systems by 3,000.;8|hm {OT -ԍxId. ;  S- ` x8.` ` In support of its Petition, Prestige argues that its Spotsylvania system shares many relevant  x{characteristics with qualifying small systems even though the system does not meet the numerical  S- xjdefinition of a small system.Bhm {OF-ԍxId. at 24.B According to the Petition, the Spotsylvania system serves approximately  x>29.3 subscribers per mile, which is below the average number of 35.3 subscribers per mile served by  xsystems with fewer than 15,000 subscribers, and far below the average number of 68.7 subscribers per  S - xmile served by systems with more than 15,000 subscribers.@ hm {O`-ԍxId. at 4.@ The Spotsylvania system has a monthly  xregulated revenue per channel per subscriber of approximately $0.61, which falls between the $0.86  xaverage monthly regulated revenue per channel for systems serving fewer than 15,000 subscribers and the  S - x$0.44 average monthly regulated revenue per channel for systems serving more than 15,000 subscribers.: 2 hm {Oz-ԍxId.:  xThe Petition also indicates that the Spotsylvania system has an annual premium revenue per subscriber  SX- xof $57.@X hm {O-ԍxId. at 4.@ This figure is between the average of $41.00 for systems with fewer than 15,000 subscribers  S0-and the average of $73.13 for systems with more than 15,000 subscribers.0V hm {O&-ԍxSmall System Order, 10 FCC Rcd at 7408. See also Petition at 4.  S- III.xDISCUSSION  S- ` x9.` ` In the Small System Order, the Commission defined a small cable company as a cable  Sj- xjcompany "serving 400,000 or fewer subscribers over all of its systems."^jhm {O#-ԍxSmall System Order, 10 FCC Rcd at 7406.^ The Commission also defined  SB- xa small cable system as a system that "serves 15,000 or fewer subscribers.":Bzhm {O\&-ԍxId.: Prestige serves a total of  xapproximately 131,000 subscribers across all of its systems, and thus falls within the definition of a small" ,`(`(88"  x[cable company, but its Spotsylvania system exceeds the small system definition by 3,000, having a total  S- xof 18,000 subscribers.? hm yO@-ԍxPetition at 2.? Prestige may not, therefore, establish regulated rates for its Spotsylvania system in accordance with the small system costofservice methodology absent special relief.  S`- ` x 10.` ` Based on the record before us, we believe that Prestige is entitled to special relief for its  S8- xSpotsylvania system. In the Small System Order, the Commission observed that systems with fewer than  x15,000 subscribers differed from systems with more than 15,000 subscribers with respect to three main  xcharacteristics, including average number of subscribers per mile, regulated revenues, and nonregulated  S- x(or premium) revenues.^!Xhm {O -ԍxSmall System Order, 10 FCC Rcd at 7408.^ With respect to subscriber density, Prestige's Spotsylvania system serves only  xL29.3 subscribers per mile, lower than the small system average of 35.3 subscribers per mile and less than  Sr- xLhalf of the larger system average of 68.7 subscribers per mile.}"rhm {O -ԍxPetition at 4. See also Small System Order, 10 FCC Rcd at 7408.} Low subscriber density was specifically  SJ - xrelied on by the Commission to establish the 15,000 subscriber threshold for small systems.^#J |hm {Of-ԍxSmall System Order, 10 FCC Rcd at 7408.^ The  S" - x/Commission noted in the Small System Order, that commenters had observed that "a smaller system  xserving a large rural area faces increased construction costs due to the increased amount of cable that must  x\be installed to reach the entire area and increased operating costs given the greater amount of facilities  S -that must be maintained."C$ hm {OZ-ԍxId. at 7402.C  S\- ` x 11.` ` In the Small System Order, the Commission stated that it would also consider "evidence  S6- xof increased costs (e.g., lack of programming or equipment discounts) faced by the operator."D%6hm {Ov-ԍxId. at 7412. D As we  S- xhave previously mentioned, small systems with a low subscribership density often face increased costs.K&2 hm {O-ԍxId. at 7402. K  x Prestige's Spotsylvania system has a subscriber density well below the averages of both smaller and larger  xsystems. On a company wide basis, Prestige serves relatively rural areas with a density that is well below  S- xthe averages of a larger company.?' hm yO-ԍxPetition at 2.? Of Prestige's twelve systems, only two (including the Spotsylvania  x system) serve in excess of 15,000 subscribers. The Spotsylvania system's low subscriber density is  xindicative that the system would necessarily face increased costs similar to a smaller system. Also, as  S- xevidenced by the attachment to its Petition,R(T hm {O$-ԍxSee Attachment to Petition.R Prestige's Spotsylvania system faces increased programming and equipment costs similar to qualifying systems.  S- ` x12.` ` The Spotsylvania system reports an average monthly regulated revenue per channel per  xsubscriber of $0.61 which falls between the average revenue of smaller systems and the average revenue"~(,`(`(88"  S- xof larger systems.?)hm yOh-ԍxPetition at 4.? The $57 annual premium revenue per subscriber of the Spotsylvania system also falls  S- xjbetween the average for smaller systems and the average for larger systems.x*Xhm {O-ԍxId. at 4. See also Small System Order, 10 FCC Rcd at 7408.x While these averages alone  xdo not weigh in one direction or the other toward relevant characteristics shared with small systems, when  xcombined with other factors in Prestige's case, they weigh in favor of allowing the Spotsylvania system to avail itself of the small system costofservice methodology.  S- ` Rx13.` ` We previously have granted small system status to systems that exceed the 15,000  xsubscriber limit by only a small amount where it has been shown that the system in question shares  S- x>relevant characteristics with systems serving fewer than 15,000 subscribers.+hm {OJ -  {ԍxSee In the Matter of Insight Communications Company, L.P., DA 952334, 11 FCC Rcd 1270 (1995)  {O -("Insight"). In Insight, we granted  xspecial relief so that the cable operator could use the small system rate rules for its systems serving  Sr- x16,348, 16,328 and 17,798 subscribers, respectively.C,rFhm {OX-ԍxId. at 1274.C We found that "even the largest of the three  SJ - xLsystems exceed[ed] the 15,000 subscriber standard by only a relatively small amount.":-J hm {O-ԍxId.: The subscriber  xcount for Prestige's Spotsylvania system exceeds the 15,000 subscriber limit by just slightly more than the largest of the Insight systems. x  S - ` Qx14.` ` We believe that Prestige should be allowed to defray its increased costs using the small  S - xjsystem costofservice methodology. In the Small System Order, the Commission adjusted its definition  x0of small systems in order to further Congress' goal of reducing the regulatory burdens and cost of  S4- x[compliance for smaller cable concerns.d.4j hm {O>-ԍxSmall System Order, 10 FCC Rcd at 7395, 7406.d The Commission noted that the goals expressed by Congress in  xthe 1992 Cable Act Statement of Policy would also be furthered if it expanded the category of small  S- x-systems entitled to reduced regulatory burdens./ hm {O-ԍxId. at 740607, citing 1992 Cable Act, Pub. L. No. 102385, 106 Stat. 1460 (1992),  2(b)(1)(3). The Small System Order allows for the filing of petitions  xfor special relief so that systems that fail to meet the numerical small system definition may still show that  S- xthey are similar to systems that meet the definition, and are therefore entitled to relief.I0 hm {O -ԍxId. at 7412.I Prestige's  x.Spotsylvania system has characteristics that compare favorably with the various characteristics that the  SF- xCommission used to determine the category of systems deserving of regulatory relief. For the reasons set  xforth herein, we believe that granting the Petition will further the intent of Congress and therefore will serve the public interest. " 0,`(`(883"Ԍ S- 8IV.xSCOPE OF THE WAIVER  S- ` `x15.` ` As a result of our grant of the Petition, Prestige's Spotsylvania system shall be deemed  xa small system for purposes of rate regulation. Accordingly, to the extent that Prestige's basic service tier  S`- x8and/or cable programming service tier offerings are subject to rate regulation,^1`hm yO-  !ԍxAs of the 1996 Act's enactment on February 8, 1996, rate regulation does not apply to a small cable  xZoperator with respect to CPSTs, or a BST that was the only service tier subject to regulation as of December 31,  x1994. For purposes of this provision, a "small cable operator" is defined as one that, directly or through an affiliate,  xserves in the aggregate fewer than 615,000 subscribers and is not affiliated with any entity whose gross annual  {O- xrevenues exceed $250,000,000. 47 U.S.C.  543(m); Order and Notice of Proposed Rulemaking in CS Docket No.  x9685, 11 FCC Rcd 5937, 5947 (1996). As discussed above, small system relief under our rules is available only  xto systems that serve fewer than 15,000 subscribers and are not affiliated with a cable operator that serves more than  {OB - x400,000 subscribers, absent a waiver. See supra paras. 34. Accordingly, a rate complaint that is filed concerning  xa cable system that is deemed a small system under our rules may not invoke rate regulation of the system's CPST, or of its BST if the BST was the only service tier subject to regulation as of December 31, 1994.^ Prestige may now set rates prospectively in accordance with the small system costofservice methodology.  S- ` x16.` ` 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:  `  ` XxX` ` 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  ` Udocumentation 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  ` "C  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  S-company that serves a total of more than 400,000 subscribers.2\d E {O-  ԍxId. at 7413. The quoted text was discussing a system's initial and continuing eligibility for "any existing  xform of relief," which did not include the small system costofservice methodology. However, later in the order  {OP-the Commission applied the same eligibility standards to that methodology as well. Id. at 742728.x`  `    Sj- ` 2x17.` ` The Commission adopted this grandfathering treatment for qualifying systems to enhance  SB- xtheir value "in the eyes of operators and, more importantly, lenders and investors."C3B hm {Oj"-ԍxId. at 7413.C As the Commission  xstated: "The enhanced value of the system thus will strengthen its viability and actually increase its ability  S-to remain independent if it so chooses.":4hm {O%-ԍxId.: x` ` "4,`(`(88"Ԍ S- ` #x18.` ` Upon exceeding the 15,000 subscriber threshold, a system that has established its rates in accordance with the small system costofservice methodology:  ` XxX` ` . . . 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 reestablished initial permitted rates  S-in accordance with our benchmark or costofservice rules.H5hm {Ox-ԍxId. at 742728. Hx`  S- ` x19.` ` Since Prestige's Spotsylvania system has already exceeded 15,000 subscribers, there is no  xobvious numerical limit to serve as a cutoff for its continued eligibility for small system treatment. We  xbelieve it is reasonable to presume that the Spotsylvania system will continue to grow. Thus, we must  xplace some duration on the waiver, since the alternative would be to grant small system status indefinitely,  xregardless of the eventual size of the system. This latter alternative is clearly inconsistent with the  x[Commission's decision to limit small system relief to systems that are in need of it due to their relatively small size.  S - ` x20.` ` Therefore, as we have ordered in the context of a similar waiver situation, the Prestige  SX- xwaiver will terminate two years from the date of this order, subject to the conditions set forth below.]6XZhm {OR-ԍxSee Insight, 11 FCC Rcd at 1276.]  S0- x.During the waiver period, Prestige may file only one Form 1230 for each franchise area it serves.70hm yO-  MԍxThe completed Form 1230 which Prestige submitted with its Petition would be required to be resubmitted with the appropriate regulatory authorities in accordance with this Order. This  xshould give Prestige adequate regulatory certainty for the foreseeable future, while still ensuring that the  x\system is not permitted to charge rates indefinitely under a scheme designed for smaller systems. Of  x.course, Prestige may seek continued eligibility for small system treatment by filing a petition for special relief at the end of the waiver period.  S@- ` Ax21.` ` Limiting the waiver period to two years means that any Form 1230 to be filed by Prestige  xjmust be submitted with the appropriate regulatory authorities within two years of the date of this order.  x>In any franchise area where the system is currently subject to regulation, Prestige may reestablish its  xmaximum permitted rates by filing Form 1230 at any time in the next two years. Where the system is  xnot currently subject to regulation but becomes subject to regulation within the next two years, Prestige  xthen may file Form 1230 within the normal response time. Where the system is not now subject to  xregulation, 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.  S- ` x22.` ` After filing its initial Form 1230 and giving the required notice, Prestige may set its actual  xyrates in the franchise area at any level that does not exceed the maximum rate, subject to the standard rate  xreview process. Subsequent increases, not to exceed the maximum rate established by the Form 1230,"D7,`(`(88"  S- x[shall be permitted, subject to the 30 days' notice requirement of the Commission's rules.8\hm {Oh-  ԍxSmall System Order, 10 FCC Rcd at 7426. Under the small system rules, rate increases taken after the  xinitial Form 1230 has been approved are not subject to further regulatory review, as long as the rate is no higher than  {O-that permitted by the previouslyfiled form. Id. As noted, the  xLmaximum rate established by the initial Form 1230 shall be a cap on the system's rates during the waiver  xperiod. If the system reaches that cap and subsequently wishes to raise rates further, it will have to justify  xthe rate increase in accordance with our standard benchmark or costofservice rules. Alternatively, the  xsystem can file another petition for special relief and seek continued treatment as a small system. Limiting  xPrestige 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 costofservice methodology.  S- V.xORDERING CLAUSES  Sp- ` x23.` ` Accordingly, IT IS ORDERED that the Petition for Special Relief filed by Prestige Cable  SH -TV, Inc. IS GRANTED.  S - ` x24.` ` This action is taken pursuant to delegated authority under Section 0.321 of the  S -Commission's rules.F9 hm yO\-ԍx47 C.F.R.  0.321.F x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhMeredith J. Jones x` `  hhChief, Cable Services Bureau