******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** September 17, 1997 DA 97-1995 CSB-ILR 97-8 Released: September 18, 1997 Comcast Cable Communications, Inc. c/o Thomas R. Nathan, Esq. Vice President/General Counsel 1500 Market Street Philadelphia, Pennsylvania 19102-2148 Dear Mr. Nathan: This is in response to your letter of September 9, 1996. According to your letter, a number of class-action lawsuits have been filed against cable systems owned by Comcast in the state courts of Florida and Alabama, alleging that the company has overcharged subscribers by miscalculating the amount of franchise fees that may be passed through to each subscriber. You seek guidance on whether the issues in these suits are matters of cable television rate regulation subject to the statutory and regulatory rules and procedures for the resolution of such issues. Although copies of your letter were served on counsel of record in the State cases, the Commission has received no reply to your letter. You contend that the lawsuits allege that the company's rates, which include the franchise fee as an itemized pass-through, violate state common law and seek remedies for the alleged violations apart from whether the charges violate Title VI of the Communications Act or any pertinent FCC rule. You state that the lawsuits do not contend that the alleged overcharges violate Title VI of the Communications Act or any pertinent FCC rule. What the lawsuits allege, according to your letter, is that the company's rates, which include the franchise fee as an itemized pass- through, violate state common law. You ask for confirmation that under the Communications Act and the Commission's rules a party wishing to challenge the propriety of a pass-through of a franchise fee in subscribers' rates may do so only pursuant to the Commission's rate regulation rules. Section 623(a)(1) of the Communications Act of 1934, as amended, 47 U.S.C.  543, states that [n]o Federal agency or State may regulate the rates for the provision of cable service except to the extent provided under this section and section 612. Any franchising authority may regulate the rates for the provision of cable service, or any other communications service provided over a cable system to cable subscribers, but only to the extent provided under this section. Section 623 sets forth a comprehensive framework for the regulation of rates for basic cable service and for cable programming service ("CPS") tiers, pursuant to regulations adopted by the Commission. Basic rates of systems not subject to effective competition are subject to regulation by franchising authorities or, in certain circumstances in which the franchising authority is unwilling or unable to implement such regulation, by the Commission. CPS rates of systems not subject to effective competition are subject to regulation by the Commission if a franchising authority receives complaints from subscribers regarding such rates and, in turn, files a complaint with the Commission. Basic and CPS rates of systems subject to effective competition are not subject to regulation, and rates for services provided on a per-channel or per-program basis are not subject to regulation regardless whether a system is subject to effective competition. Cable television system franchises fees are established in municipal franchise agreements or through other local ordinances or statutes. The level of such fees is limited by Section 622 of the Communications Act. The Commission's rules, which establish formulas and procedures for determining a system's maximum permissible rates for basic service and CPS tiers, specifically permit systems to pass through to subscribers the full amount of any franchise fees paid to franchising authorities. The Commission has made clear that rates for basic and CPS tiers may include pass-throughs of all franchise fees paid, including fees assessed on revenues obtained from sources other than the sale of basic and CPS service. The following question and answer appear in a Public Notice, Cable Television Rate Regulation Questions and Answers released. May 13, 1993: Question: May any portion of franchise fees attributable to unregulated services be passed through to customers? Answer: The entire amount of franchise fees may be passed through to subscribers. Thus, the Commission's regulations and policies permit a cable television operator to pass through to subscribers all franchise fees which are attributable to both regulated and unregulated services. As is evident from the foregoing, the Commission regards questions relating to the propriety of such franchise fee pass-throughs as rate regulation matters. Rate regulation issues, as is reflected in Section 623(a)(1) of the Communications Act, are to be reviewed and adjudicated by franchising authorities and/or the Commission pursuant to the Commission's rate regulation standards and procedures. Under those procedures, systems subject to regulation must provide franchising authorities and the Commission with documentation that demonstrates that any pass-throughs of franchise fees have been properly calculated. Upon receipt of such documentation, [t]he franchising authority or the Commission, as appropriate, may then review the pass-through of increases in franchise fees and may order a prospective rate reduction and refunds in accordance with our rules in the event the operator has increased its basic service rates by more than the increase in franchise fees properly allocable to the basic tier . . . . Rate justifications relating to franchise fee-related increases in CPS tier rates will be reviewed by the Commission according to existing rules for Commission review of basic service tier rates. As the Commission has stated, the Cable Act of 1992 makes clear that regulation of the 'rates for the provision of cable service' is governed exclusively by the federal statute and Commission regulations. It therefore 'specifically preempts' state and local regulation which is inconsistent with the federal rules . . . where state law stands as on obstacle to the accomplishment and execution of the full objectives of Congress, the state law is preempted . . . . The Commission's rules and procedures, therefore, provide the exclusive means for determining whether franchise fees have been properly "passed through" and whether the resulting rates are permissible. State statutes, regulations and common law that have the effect of preventing cable systems from passing through and recovering franchise fees in their entirety in regulated basic and CPS rates that conflict with the rules and procedures adopted by the Commission are inconsistent with the framework set forth in Section 623 and have been preempted. See Time Warner Cable v. Doyle, 66 F.3d 867 (7th Cir. 1995), cert. denied, 116 S.Ct. 974 (1996). Sincerely, Meredith J. Jones Chief, Cable Services Bureau cc: Counsel in State Cases Michael Jablonski, Esq. Teresa D. Jones, Esq. John M. Maddox, Esq. Steve Olen, Esq. Edward H. Pradat, Esq. Hillard R. Reddick, Esq.