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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 ) Bozrah, CT ) Colchester, CT CENTURY NORWICH CORPORATION ) Franklin, CT ) Lisbon, CT Petition for Review of Local ) Norwich, CT Rate Order of the Connecticut ) Preston, CT Department of Public Utility Control ) Sprague, CT ) MEMORANDUM OPINION AND ORDER Adopted: November 18, 1997 Released: November 19, 1997 By the Chief, Cable Services Bureau: I. Introduction 1. On September 16, 1994, Century Norwich Corporation ("Century") filed with the Commission a Petition for Review of Rate Order ("Appeal") of the Connecticut Department of Public Utility Control ("DPUC"). Century also filed an Emergency Petition for a Stay of Enforcement Pending Review of the local rate order on August 26, 1994. This petition for a stay of the local rate order was granted on October 6, 1994, pending resolution of the instant appeal. The local rate order establishes a new rate schedule for Century's basic service tier and directs Century to implement certain rate reductions and to issue refunds to subscribers, dating back to September 1, 1993. The principal basis for ordering these reductions was the DPUC's determination that Century's collective or package offerings, known as the Century Select 1 and Century Select 2 packages, were regulated tiers of service. 2. The main issue raised by Century in its Appeal centers on the proper regulatory treatment of Century's a la carte package offering. Century argues that the DPUC's decision to treat its a la carte package as a regulated tier of service is contrary to the objectives of the 1992 Cable Act and the Commission's a la carte rules and, therefore, the DPUC's adverse ruling on Century's a la carte offering should be overturned. In response, the DPUC asserts that it properly applied the Commission's guidelines on a la carte packages in treating Century's packages as regulated tiers. Century also appeals the DPUC's decision to establish two separate basic tier rates for Century, one covering the period prior to the introduction of the Century Select 2 package, and one covering the period subsequent to the introduction of the Century Select 2 package. II. Standard of Review 3. Under our rules, rate orders made by local franchising authorities may be appealed to the Commission. In ruling on appeals of local rate orders, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. Therefore, the Commission will reverse a franchising authority's decision only if it is determined that the franchising authority acted unreasonably in applying the Commission's rules in rendering its local rate order. If the Commission reverses a franchising authority's decision, it will not substitute its own decision, but instead will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. With respect to a determination made by a franchising authority on the regulatory status of an a la carte package as part of its final decision setting rates for the basic service tier, the Commission has stated that "the Commission will defer to the local authority's findings of fact if there is a reasonable basis for the local findings," and the Commission "will then apply FCC rules and precedent to those facts to determine the appropriate regulatory status of the [a la carte package] in question." III. Discussion 4. Century objects to the DPUC's finding in the local order that the channels comprising the Century Select a la carte packages must be treated as regulated channels. Century argues that its a la carte packages comply with the Commission's a la carte rules in effect at the time each package was created and that the City's reliance upon the 15 interpretive guidelines announced by the Commission in March 1994 to determine the regulatory status of Century's a la carte channels constituted "retroactive rulemaking." 5. The differences between the two packages require us to examine each separately. The Century Select 1 package consists of three channels, all of which were removed from Century's "Silver" cable programming service tier, while the Century Select 2 package consists of five channels, all of which were new to Century's system. Furthermore, the two packages were first made available to subscribers at different times. Century Select 1, which was created as part of Century's restructuring prior to the beginning of rate regulation, was first offered on September 1, 1993. Century Select 2 was first offered to subscribers on March 31, 1994, well after rate regulation began. A. Century Select 1 6. The Century Select 1 package was first offered to Century's subscribers on September 1, 1993, when Century restructured the service offerings on its system serving the towns of Bozrah, Colchester, Franklin, Lisbon, Norwich, Preston and Sprague, Connecticut. Century states that its restructuring involved eliminating its 13 channel "Silver" cable programming service tier and offering three channels, TNT, CNN and the Discovery Channel, on an individual basis (for $1.35 apiece), and also as a package (for $3.00) that Century alleges is not subject to rate regulation. Century moved the remaining ten channels from the "Silver" cable programming service tier to its basic service tier. 7. The facts surrounding the offering of Century Select 1 closely resemble the facts presented in one of our letter of inquiry orders on a la carte packages, Century Cable TV, Morgantown, West Virginia, LOI-93-34, DA 94-1358 (Cab. Serv. Bur., released Dec. 2, 1994) ("Century of Morgantown"), in which we resolved the regulatory status of an a la carte package offered by Century on its Morgantown, West Virginia system. The a la carte package at issue in Century of Morgantown was a three channel package, made up of channels formerly available on a cable programming service tier, which was first offered as part of a restructuring. In that case, we found we could not say that it was clear that the a la carte package at issue was not a permissible non-rate regulated offering under our rules. We further concluded that in light of the prior confusion over what constituted a permissible non- rate regulated a la carte offering, it would be inequitable to subject the operator to refund liability or to require the operator to restructure its tiers so as to return the channels offered in the a la carte package to regulated tiers. Instead, we found that the a la carte package at issue may be treated as a new product tier under the Commission's Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, Sixth Order on Reconsideration and Fifth Report and Order, MM Docket Nos. 92-266 and 93-215, 10 FCC Rcd 1226 (1994) ("Going Forward Order"). 8. We find that the DPUC's determination that the Century Select 1 a la carte package is a regulated tier is inconsistent with the action taken in the letter of inquiry orders, and in particular, in Century of Morgantown. We further find that, in accordance with Century of Morgantown, the Century Select 1 a la carte package should not be treated as a rate regulated tier of service. Accordingly, we remand this issue to the DPUC for resolution in accordance with our findings in Century of Morgantown. B. Century Select 2 9. The second a la carte package, Century Select 2, was first offered to Century's subscribers on March 31, 1994. It consists of five channels (Bravo, Weather Channel, Court TV, Family Channel, and ESPN2) that were not previously offered on the system. Century states that the channels in the Century Select 2 package are available on an individual basis (for $1.35 apiece) and also as a package (for $3.95) that Century alleges is not subject to rate regulation. Century did not remove any channels from otherwise rate-regulated tiers to create the Century Select 2 package of channels. 10. The 1992 Cable Act requires the Commission to adopt standards and guidelines to prevent evasions, which we define as an act or practice that "avoids the rate regulation provisions of the [1992 Cable] Act or our rules contrary to the intent of the Act or its underlying policies." We must examine whether the Century Select 2 package had the effect of evading rate regulation for channels that Congress intended to be rate-regulated. The Bureau has stated previously that a particular factor favoring the unregulated treatment of an operator's a la carte package was the fact that a limited number of channels were removed from a regulated tier. Thus, because no channels were removed from regulated tiers, it does not appear that Century was attempting to avoid application of our regulations. 11. Other factors corroborate our view that the Century Select 2 package was not intended to have the effect of avoiding rate regulation. First, it did not offer this package on the eve of regulation. Second, it did not automatically subscribe its customers to the Century Select 2 package. Fewer than 1,000 of Century's 19,000 BST subscribers initially elected to subscribe to Century Select 2. In light of the above facts, it does not appear that the Century Select 2 package was intended to evade rate regulation. Furthermore, we will not find an actual evasion occurred if Century's action complied with our a la carte policy that was in effect at the time of the introduction of the Century Select 2 package. 12. In our Rate Order, the Commission recognized that "a la carte packages" appear to be "cable programming services," which are subject to regulation, but said that "interpreting the statute in such a literal fashion could disadvantage consumers by denying them discounts on packages of per- channel or per-program services and by limiting subscriber access to a greater quantity of premium programming." We had envisioned that cable operators, for the most part, would offer channels that previously had been offered a la carte in discounted packages, and concluded that it would be better for consumers if we construed the 1992 Cable Act to permit such discounting. The Commission determined in the Rate Order that a la carte packages would be exempt from rate regulation, i.e., would be deemed not to fall within the definition of "cable programming service," if two conditions were met: (1) the price for the combined package must not exceed the sum of the individual charges for each component service; and (2) the cable operator must continue to provide the component parts of the package to subscribers separately in addition to the package. The Commission said that the second condition would be satisfied only when "the per channel offering provides consumers with a realistic service choice." 13. Under the two-part test that we set forth in the Rate Order, it is clear, first, that the price for the combined package does not exceed the sum of the individual charges for the five channels because subscribers may purchase the five-channel package for $3.95, while the individual channels may be purchased for $1.35 apiece. The second part of the test is whether the separate parts of the package constitute a "realistic service offering." Our review of Century's submission reveals that 523 customers subscribe to the Century Select 2 package, while 136 subscribe to Court TV, 86 subscribe to ESPN2, 77 subscribe to the Weather Channel, 18 subscribe to Bravo, and none subscribe to the Family Channel. These facts, together with the other factors present in this case, tend to show, in this instance, that the per-channel offering does constitute a realistic service offering, since, in addition to the 523 Century Select 2 subscribers, there were 317 subscriptions to individual channels. Because the Century Select 2 package satisfies the requirements for a permissible a la carte package as set forth in the Rate Order, it is exempt from rate regulation. Thus, we need not consider the 15 interpretive guidelines set forth in our Second Reconsideration Order. 14. However, in the Commission's Going Forward Order, it was determined that a la carte packages are in fact cable programming service tiers within the meaning of Section 3(l)(2) of the 1992 Cable Act. Thus, a la carte packages are subject to rate regulation and should not continue to be treated as unregulated package of channels. In reaching this conclusion in the Going Forward Order, we acknowledged that, as applied to many fact patterns, we did not provide a clear test in the Rate Order and the Second Reconsideration Order for determining whether an a la carte package was permissible. 15. Because of the confusion surrounding our a la carte rules, as well as the fact that the Century Select 2 package satisfies the requirements for a permissible a la carte package as set forth in the Rate Order, and thus does not constitute an evasion of our regulations, we think that it would be inequitable to subject Century to refund liability for the Century Select 2 package. We will not require that the channels in the Century Select 2 a la carte package be treated as regulated channels. Instead, on a prospective basis, we will consider the Century Select 2 collective offering of a la carte channels a new product tier. Accordingly, we remand this issue to the DPUC for resolution in accordance with the terms of this Order. IV. Ordering Clauses 16. Accordingly, IT IS ORDERED that the local rate order is REMANDED to the DPUC for resolution in accordance with the terms of this Order. 17. IT IS FURTHER ORDERED that our stay of the local order, which was granted pending the resolution of this appeal, is hereby VACATED. 18. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by section 0.321 of the Commission's rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau