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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 ) ) Falcon Video Communications ) ) CUID No. NC0047 (Town of Kill Devil Hills) ) Complaint Regarding a ) Cable Programming Services Tier ) Rate Increase ) ORDER Adopted: September 8, 1997 Released: September 10, 1997 By the Chief, Cable Services Bureau: 1. In this Order we consider a complaint against the rates of the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. Operator's response includes benchmark justifications filed on FCC Forms 393, 1200, 1210, and 1240. This Order addresses the reasonableness of Operator's rates for the period September 1, 1993 through September 30, 1997. 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"), and our rules in effect at the time the complaints were filed, required the Commission to review CPST rates upon the filing of a valid complaint by a subscriber. The filing of a valid complaint triggers an obligation on behalf of the cable operator to file a justification of its CPST rates. 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 took effect on September 1, 1993. The Commission subsequently revised its rate regulations effective May 15, 1994. Cable operators with valid CPST complaints filed against them prior to May 15, 1994 must demonstrate that their CPST rates were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that their rates were in compliance 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 also justify rate increases based on the addition and deletion of channels, changes in certain external costs, and inflation, by filing FCC Form 1210. FCC Form 1210 must be filed at least 30 days before new rates are scheduled to go into effect where the Commission has found the cable programming service rate to be unreasonable less than one year prior to the filing, or where there is a pending complaint against the CPST rate. 4. Operator filed two sets of FCC Forms to justify its rates, "Version A" and "Version B." Each set consists of Operator's FCC Form 393 for the period September 1, 1993 through May 14, 1994, and Operator's FCC Forms 1200, 1210, and 1240 for the period May 14, 1994 through November 30, 1997. Version A assumes that Operator's a la carte service offering, known as SatPac, is an unregulated tier; and Version B assumes that SatPac is regulated. Before September 1, 1993, Operator's services included a 14-channel basic service tier ("BST") for a monthly rate of $19.65 and a 21-channel CPST for $1.10 per month. On September 1, 1993, Operator's services included a 30-channel BST for $16.67 per month and seven channels offered in an a la carte package known as SatPac for $5.25. Five of the SatPac channels could be obtained individually at a monthly rate of $2.00. Operator claims that its SatPac, as offered on September 1, 1993, met the Commission's standards for treatment as an unregulated tier and that Operator's only regulated tier was its BST. 5. On December 22, 1994, the Commission released an order dealing with Operator and a community served by the same headend as the community referenced above ("Prior Order"). In the Prior Order, Operator argued that its a la carte service offering should be unregulated. Specifically, Operator's pre-September 1, 1993 service offering included a 10-channel BST for $18.00 per month, a seven-channel CPST for $2.00, and an additional 18-channel CPST for $2.41. On September 1, 1993, Operator restructured its services to include a 29-channel basic tier for $16.54 per month and seven channels offered on an individual basis as well as in an a la carte package. The seven channels in the a la carte package were eventually increased to 10. Individually, they cost $1.25 per month. As a package, their monthly price was $5.25. None of Operator's 1,263 customers purchased the individual channels; whereas, all of them purchased the a la carte package. 6. In the Prior Order, the Commission found that the a la carte channels must be treated as a rate-regulated CPST. Specifically, we found that the package did not meet the two-part test the Commission had set out in an earlier order for determining when an a la carte package would be exempt from rate regulation. First, the price for the combined package could not exceed the sum of the individual charges for each component service; and, second, the cable operator would have to continue to provide the component parts of the package to subscribers separately in addition to the package. The Commission said that the second part of the test would be satisfied only when "the per channel offering provides consumers with a realistic service choice." While it was clear in the Prior Order that Operator had met the first part of the test, we found that the per-channel offerings did not constitute a realistic service offering. One reason for this determination was that all of Operator's 1,263 customers subscribed to the a la carte package. Another reason was that 90 percent of the channels in the a la carte package had come from regulated tiers. We found that Operator had essentially taken what would have been a rate- regulated tier and called it an a la carte package. We found further that this retiering constituted an evasion of rate regulation. 7. Operator has filed an application for review of the Prior Order. Operator maintains that the disposition of its application for review will determine our regulatory treatment of its SatPac in the above-referenced matter. Pending resolution of its application for review in the Prior Order, Operator has submitted Version B of its FCC Forms, which treats Operator's SatPac as a regulated CPST. We note the similarities between the facts in our Prior Order and those in the instant case. Operator followed a parallel restructuring of channels in its neighboring service areas to create similar a la carte packages in each. In our Prior Order, all of Operator's subscribers received the a la carte package. In the above- referenced community, 3,990 of a total of 4,019 customers -- more than 99 percent -- subscribed to SatPac. Consequently, as we found in our Prior Order, we find that in the community referenced above the per-channel offerings do not constitute a realistic service offering. Rather, we find that Operator's SatPac constitutes a rate-regulated CPST. For this reason, we have reviewed Version B of Operator's FCC Forms. 8. Upon review of Operator's FCC Form 393, we find that Operator's maximum permitted rate ("MPR") of $4.05 was not unreasonable. Operator's actual CPST rate, however, effective September 1, 1993 through May 14, 1994, was $5.25. Because Operator's actual CPST rate exceeded its MPR, we find Operator's actual CPST rate of $5.25 to be unreasonable. 9. Upon review of Operator's FCC Form 1200, we find that Operator's MPR of $5.23 was not unreasonable. Operator's actual CPST rate effective May 15, 1994 through December 31, 1994, was $5.25, however. Because Operator's actual CPST rate exceeded its MPR, we find Operator's actual CPST rate of $5.25 to be unreasonable. 10. Upon review of Operator's first FCC Form 1210, for the period April 1, 1994 to December 31, 1994, we find that Operator's MPR of $5.70 was not unreasonable. Because Operator continued to charge an actual CPST rate of $5.25, effective January 1, 1995 through December 31, 1995, we find that Operator's CPST rate was not unreasonable. 11. Upon review of Operator's second FCC Form 1210, for the period January 1, 1995 to December 31, 1995, we find that Operator's MPR of $5.63 was not unreasonable. Because Operator continued to charge an actual CPST rate of $5.25, effective January 1, 1996 through September 30, 1996, we find that Operator's CPST rate was not unreasonable. 12. Operator's FCC Form 1240 set rates for the projected period October 1, 1996 to September 30, 1997. Upon review of Operator's FCC Form 1240, we find that Operator's MPR of $6.76 is not unreasonable. However, because Operator's actual CPST rate of $7.85, effective October 1, 1996 to September 30, 1997, exceeds its MPR, we find that Operator's CPST rate is unreasonable. 13. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's CPST rate of $5.25, effective September 1, 1993 through December 31, 1994, in the community referenced above, IS UNREASONABLE. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's CPST rate of $5.25, effective January 1, 1995 through September 30, 1996, in the community referenced above, IS NOT UNREASONABLE. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator's CPST rate of $7.85, effective October 1, 1996 to September 30, 1997, in the community referenced above, IS UNREASONABLE. 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 CPST rate of $4.05 per month (plus franchise fees), plus interest to the date of the refund, for the period from September 1, 1993 through May 14, 1994. 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 CPST rate of $5.23 per month (plus franchise fees), plus interest to the date of the refund, for the period from May 15, 1994 through December 31, 1994. 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 CPST rate of $6.76 per month (plus franchise fees), plus interest to the date of the refund, for the period from October 1, 1996 through the day before Operator implements the CPST rate of $6.76. 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 the complaint referenced herein against the CPST rate charged by Operator in the franchise area referenced in the caption IS GRANTED TO THE EXTENT INDICATED HEREIN. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau