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MI0289 (Grandville)  S-d/b/a TCI Cablevision of Western Michiganj)ppMI0388 (Georgetown) j)  Sx-Complaints Regardingj)pp  SP-Cable Programming Services Tier RateVj) j)  S -T ORDER lU  S` - Adopted: January 22, 1998 VppReleased: January 23, 1998 By the Deputy Chief, Cable Services Bureau:  S-  P 1. 1. 1. a.(1)(a) i) a) I. 1. 1. a.(1)(a) i) a)1.` ` In this Order we consider complaints against the June 1, 1997 rate of the abovereferenced   operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced   jabove. We have already resolved all the complaints filed from September 1, 1993 through September 15,  SH-  1995 against Operator's CPST rates.H {O-  ԍ See In The Matter of TCI Cablevision of Western Michigan, Inc., 10 FCC Rcd 6120 (1995); vacated and  {Oz-superseded, In the Matter of TCI Communications, Inc., 11 FCC Rcd 14696 (1996). This Order addresses only the reasonableness of Operator's June 1, 1997 CPST rate.  S-  E2.` ` Under the Communications Act,$ {O-#X\  P6G;P#э Communications Act, Section 623(c), as amended, 47 U.S.C. 543(c) (1996). the Federal Communications Commission   !("Commission") is authorized to review the CPST rates of cable systems not subject to effective   competition to ensure that rates charged are not unreasonable. If the Commission finds a rate to be  SX-  unreasonable, it shall determine the correct rate and any refund liability.X {O-#X\  P6G;P#э  See Section 76.957 of the Commission's Rules, 47 C.F.R. 76.957. The Telecommunications Act  S0-  Mof 1996 ("1996 Act")S0H yO!-ԍ Pub. L. No. 104104, 110 Stat. 56 (1996).S and our rules implementing the new legislation ("Interim Rules"),0 {O"-  ԍ See Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996, 11 FCC Rcd 5937 (1996). require that   complaints against CPST rates be filed with the Commission by a local franchising authority ("LFA") that  S-has received more than one subscriber complaint.2  {O&-ԍ See Communications Act, Section 623(c), as amended, 47 U.S.C. Section 543(c) (1996).  S-" ,**88"Ԍ S-  3.` ` The LFAs for the franchise areas referenced above filed complaints with the Commission   ]on October 30, 1997 against Operator's June 1, 1997 CPST rate. Although Operator's CPST rate   =remained the same, at $14.35, the LFAs' complaints state that Operator dropped six channels and added   five channels to its CPST. The LFAs each verified that they received more than one subscriber complaint  S`-  for their franchise area.%`(] yO-  ԍ The first subscriber complaint concerning the CPST rate increase in Grandville (CUID No. MI0289) was  {O-  received by the LFA on July 21, 1997. See Letter to Mr. Gary Remondino, Federal Communications Commission,   Washington, D.C., from Dale R. Rietberg, Varnum, Riddering, Schmidt & Howlett, LLP, dated December 2, 1997.   The first subscriber complaint concerning the CPST rate increase in Georgetown (CUID No. MI0388) was received  {O-  by the LFA on June 10, 1997. See Letter to Mr. Gary Remondino, Federal Communications Commission, Washington, D.C., from Dale R. Rietberg, Varnum, Riddering, Schmidt & Howlett, LLP, dated November 24, 1997.% The filing of a complete and timely LFA complaint triggers an obligation upon  S8-  the cable operator to file a justification of its CPST rates.?8D(] yO -ԍ 47 C.F.R. 76.956.? The Operator has the burden of demonstrating  S-that the CPST rates complained about are reasonable.3 (] {O-ԍ Id.3  S-  44.` ` In its complaint, Georgetown Charter Township ("Georgetown") requests that the  S-  Commission review Operator's charges for equipment related to the CPST. Operator responds that it does  Sp-  znot have any equipment that is specific to the CPST. pf (] {Ov-#X\  P6G;P#э See Facsimile Transmittal dated January 12, 1998 from A. Bricmont. Under Section 76.923(a) of the Commission's  SH -  jrules,i H (] yO-ԍ #X\  P6G;P#47 C.F.R. 76.923(a).i all equipment used to receive the basic service tier ("BST") is subject to rate regulation, regardless  S -  \of whether such equipment is used to receive other tiers of regulated programming and/or unregulated  S -  service.Z (] {O -ԍ #X\  P6G;P#Id.Z Such equipment related charges are subject to regulation by the LFA. According to Operator,   @subscribers use the same equipment to receive both BST and CPST programming. Therefore,   Georgetown's complaint does not trigger our jurisdiction to regulate Operator's equipment charges.  S -However, Georgetown has jurisdiction to determine the reasonableness of Operator's equipment rates.  S0-  5.` ` The LFAs also attached to their complaints a Memorandum 0(] {O-  J#X\  P6G;P#э See Memorandum dated October 14, 1997 to the FCC Cable Services Bureau from John W. Pestle and Patrick A. Miles, Jr. ("Memorandum"). citing news articles   indicating that Operator was receiving revenues from programmers and asserting that these revenues   ?should be used to offset increases in Operator's external costs. Operator responded to the LFAs'  S-  zMemorandum by reviewing the various programming transactions discussed in the Memorandum and   \stating that "any revenues which [Operator] may have received in connection with these deals do not  Sh-require offsetting under the Commission's offset rule . . . and various clarifications of this rule."ht(] {O|%-  Zԍ See Letter dated January 12, 1998 to William Agee, Legal Advisor, Cable Services Bureau from Douglas G. Garrett, Senior Regulatory Counsel, TCI Communications, Inc. "@,`(`(88"Ԍ S-  P6.` ` The Communications Act states that the Commission, in determining whether CPST rates   [are unreasonable, shall consider "the revenues (if any) received by a cable operator from advertising from  S-  >programming that is carried as part of the service for which a rate is being established, and changes in  S-  Lsuch revenues, or from other consideration obtained in connection" with the CPST.(] {O-#X\  P6G;P#э Communications Act, Section 623(c)(2)(F), as amended, 47 U.S.C. 543(c)(2)(F) (1996). In Implementation   jof Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation,  S8-  Report and Order and Further Notice of Proposed Rulemaking, MM Docket No. 92266 ("Rate Order"),8Z(] yO2-#X\  P6G;P#  8 FCC Rcd 5631 at para. 253, n. 602 (1993).   {the Commission concluded that cable operators may recover increased costs of programming from   subscribers but not to the extent an operator receives revenues from the programmer on account of   carriage of programming. The Commission developed rules that required that an operator's increases in  S-  ?programming costs be offset by any revenues received by the operator from programmers.bD(] {O" -  #X\  P6G;P#э See former Section 76.922(d)(2)(ii) of the Commission's rules, 47 C.F.R. 76.922(d)(2)(vii) (1993); former   Section 76.922(d)(3)(x) of the Commission's rules, 47 C.F.R. 76.922(d)(3)(x) (1994); and former Section   76.922(d)(3)(x) of the Commission's rules, 47 C.F.R. 76.922(d)(3)(x) (1995). In Implementation of Sections of   the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 92266,   ;Thirteenth Order on Reconsideration ("Thirteenth Reconsideration Order"), the Commission relocated the revenue  {O -  offset rule to Section 76.922(f)(7) of the Commission's rules, 47 C.F.R. 76.922(f)(7) (1996). See also, Instructions   Zfor FCC Form 1210 at p.9, Line B1a (May 1994), "Programming costs are your actual net cost of programming services. ... Net programming costs are your programming costs less any payments by programmers to you."b The   Commission, however, did not "require cable companies to report increases in advertising revenues and  SH -to offset those increases against any external costs.";H (] {O-  ԍ Time Warner Entertainment, Inc. v. Federal Communications Commission, 56 F.3d 151, 172 (D.C. Cir. 1995).   The U.S. Court of Appeals for the D.C. Circuit also stated that while it found the Commission's decision not to   irequire cable companies to offset reasonable, it did not "rule out the possibility, however, that this decision could   Zbecome unreasonable over time if evidence comes before the Commission clearly demonstrating that advertising   Zrevenues have become a steady and significant source of increased revenue for cable operators, thereby calling in  {O-question the reasonableness of the rates they may charge under the price cap formula." Id at 172173.;  S -  $7.` ` The Cable Services Bureau ("Bureau") has stated that payments from programmers to   operators will be offset on a channel by channel basis; any rebates or payments in consideration of   carriage from a programmer will be applied to payments from the operator to that programmer but will  S -  not offset payments to other programmers.3$ r(] {O-  Y#X\  P6G;P#э See Letter dated May 6, 1994 to QVC Network, Inc. from Alexandra M. Wilson, Acting Chief, Cable Services  {O\ -  Bureau, 75 Rad. Reg. 2d (P&F) 292 (1994); see also Letter dated May 6, 1994 to The Home Shopping network from   JAlexandra M. Wilson, Acting Chief, Cable Services Bureau. The application of the revenue offset rule on a channel by channel basis was later codified in 47 C.F.R. 76.922(d)(3)(x) (1995).3 The channel by channel standard for offsetting may also be   applied on a programmer specific basis, where the programmers are ultimately controlled by separate and  S0-  distinct entities.#0^(] {O.%-  #X\  P6G;P#э See Letter dated December 19, 1994 to Black Entertainment Television, Inc. from Meredith J. Jones, Chief, Cable Services Bureau, 10 FCC Rcd 685 (1995) (DA 941473, released December 21, 1994).# On May 19, 1994, the Bureau stated that an operator need not offset "a programmer's   Mpayments to an operator for advertising time to promote the programmer's offerings, or payments to",`(`(88 "   reimburse the operator for reasonable, documented expenses of marketing the program service to  S-  consumers," provided "the programmer has routinely and ordinarily reimbursed the cable operator for  S-promotional expenditures prior to [May 19, 1994]."+(] {O-  #X\  P6G;P#э See Letter dated May 19, 1994 to The Disney Channel from Kathleen M.H. Wallman, Acting Chief, Cable Services Bureau, 9 FCC Rcd 7762 (1994) (DA 94520, released May 23, 1994) ("Disney Channel Letter").+  S`-  8.` ` In Implementation of Sections of the Cable Television Consumer Protection and   lCompetition Act of 1992: Rate Regulation, MM Docket Nos. 92266 and 93215, Sixth Order on   LReconsideration, Fifth Report and Order, and Seventh Notice of Proposed Rulemaking ("Going Forward  S-  yOrder"),p"(] yO -#X\  P6G;P#э 10 FCC Rcd 1226 (1995). p the Commission required an operator to offset revenues received from programmers against its  S-  per channel adjustment under the new going forward methodology. Specifically, the Going Forward Order   provided that revenues received from programmers must be deducted from programming costs and, to the  Sp-  .extent revenues remain, from the operator's per channel markup.qp(] yO-ԍ #X\  P6G;P# Going Forward Order at para. 74.q In Implementation of Sections of the   Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket Nos.  S -  92266 and 93215, Twelfth Order on Reconsideration ("Twelfth Reconsideration Order"),o B(] yO-#X\  P6G;P#э 11 FCC Rcd 785 (1996). o the  S -  Commission eliminated the requirement that home shopping service commissions be offset against the per  S -channel markup. (] {OB-#X\  P6G;P#э See Section 76.922(e)(3)(ii) of the Commission's rules, 47 C.F.R. 76.922(e)(3)(ii) (1996).  S -  9.` ` In its response to the LFAs' Memorandum, Operator cites generally the applicable rule  d (] yO-  ԍ Operator cites the current revenue offset rule, 47 C.F.R. 76.922(f)(7) (1996). The rule states that   i"[a]djustments to permitted charges on account of increases in costs of programming shall be further adjusted to   Jreflect any revenues received by the operator from the programmer. Such adjustments shall apply on a channelbychannel basis."   and Bureau letters regarding the offsetting of programming costs with additional revenues received from   the programmer. The Operator fails to provide a specific explanation concerning the application of those   ]rules to the revenues involved in the subject CPST rate justification. The Bureau's statement that   reimbursements for customary and verifiable promotional costs do not require offsetting "does not permit,   absent special circumstances justifying a waiver, programmers to initiate reimbursement of promotional  S-  expenses, or significantly expand reimbursements, without the offsetting . . . ."XL (] {O|!-ԍ See Disney Channel Letter at p. 2.X The Commission's rules   [seek "to safeguard against programmers initiating or significantly expanding promotional reimbursements   .and recovering the reimbursements in higher programming charges to operators that could, in turn, result  S-  in higher charges to subscribers . . . ."3(] {O%-ԍ Id.3 We have previously stated that we will monitor the application"p,`(`(88b"  S-  of the limitation closely.3(] {Oh-ԍ Id.3 We order the Operator to provide, for each CPST channel for   jwhich programming costs are being increased or revenues are being received from programmers, a channel   .by channel explanation of the revenues received from programmers, a description of the revenue, as well   las a channel by channel explanation of its programming costs increases, along with documentation  S`-  explaining why, pursuant to the Commission's rules,`Z(] yOZ-  <ԍ We reserve the right to modify this Order, if necessary, based on our review of the additional information provided by Operator. the revenues received from programmers should not offset the increases in Operator's programming costs.  S-  10.` ` We have examined the documentation, including FCC Forms, which Operator has   [submitted to justify its June 1, 1997 CPST rate. To justify rates for the period beginning May 15, 1994  S-  ythrough a benchmark showing, operators must use the FCC Form 1200 series.f(] yO -ԍ#X\  P6G;P# 47 C.F.R. 76.922.f Operators are permitted  Sp-  jto make changes to their rates on a quarterly basis using FCC Form 1210.Z pB(] {OR-ԍ#X\  P6G;P#  Id.Z Operators may alternatively   justify adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain   0and quantifiable changes in external costs, inflation, and the number of regulated channels that are  S -  projected for the twelve months following the rate change.Z! (] {Ol-ԍ#X\  P6G;P#  Id.Z Any incurred cost that is not projected may  S -be accrued with interest and added to rates at a later time." f (] {O-ԍ#X\  P6G;P#  Id.#Xj\  P6G;9XP#с 7$9   7$9   S -  C11.` ` On February 22, 1996, the Commission issued an order granting Operator a waiver   ("Waiver Order") of certain rate adjustment requirements in its initial filing of the Commission's annual  S0-  =rate adjustment form (FCC Form 1240).#0 (] {O-  ԍ See In the Matter of Annual Rate Adjustment System, 11 FCC Rcd 10235 (1996) (DA 96220, released February 22, 1996). Specifically, the Waiver Order allowed Operator, in its initial   FCC Form 1240 filings, to include estimated changes in costs, inflation, channels and subscriber   information attributable to the period between the last date for which actual cost data was available and   the effective date of the new rates. In the Waiver Order, Operator was instructed to include in its initial   0FCC Form 1240 filing certain calculations, such calculations to be performed on FCC Form 1240   .(primarily in Module G), or off FCC Form 1240, in an alternative showing done pursuant to the Waiver  S@-  Order's "General Guidelines."E$@R (] yO2#-ԍ Waiver Order at Appendix A.E Operator chose to use an alternative showing pursuant to the "General Guidelines" rather than perform its calculations directly on FCC Form 1240.  S-  212.` ` On October 25, 1996, Operator wrote to the Commission requesting review and approval   \of a modified FCC Form 1240 to justify rates for the projected period from June 1, 1997 to May 31,"$,`(`(88"  S-  z1998.%(] {Oh-  ԍ See Letter dated October 25, 1996, from Angela Montoya, TCI Communications, Inc. to Alex Byron, Cable Services Bureau, Federal Communications Commission. On January 9, 1997 we consented to the Operator's use of the form for such period in lieu of  S-filings on the Commission's standard FCC Form 1240.&"(] {O-  hЍ See Letter dated January 9, 1997, from Meredith Jones, Chief, Cable Services Bureau, Federal Communications Commission to Angela Montoya, TCI Communications, Inc.  S-  13. ` ` To justify its CPST rate, effective June 1, 1997, Operator submitted two FCC Form 1240s,   .the first for the projected period June 1, 1996 to May 31, 1997 ("First Form 1240"), and the second for   =the projected period June 1, 1997 to May 31, 1998 ("Second Form 1240"). Operator's First Form 1240   used Operator's alternative showing, calculated pursuant to the Waiver Order. Operator's Second Form   [1240 followed the format set forth in Operator's October 25, 1996 letter. Upon review of the submitted   [forms, we determined that neither of the submitted forms produced identical results to filings that would have been made on the Commission's standard FCC Form 1240.  SH -  14.` ` Accordingly, on December 10, 1997, Operator submitted two new standard FCC Forms   k1240, for the projected periods June 1, 1996 to May 31, 1997 and June 1, 1997 to May 31, 1998, on   .which Operator performed the Waiver Order's calculations directly on the standard FCC Forms 1240 as  S -  Lwell as the calculations described in Operator's October 25, 1996 letter.;' |(] yO-  ԍ Operator submitted these forms but also stated that it "continues to believe that these additional forms are not   Jrequired or necessary as [Operator used] the FCC approved waiver in filing the Form 1240 for this system." Letters   dated December 8, 1997, from Angela Bricmont, Director of Regulatory Compliance, TCI, Inc. to Margaret Egler,   Assistant Chief, Financial Analysis and Compliance Division, Cable Services Bureau, Federal Communications Commission.; Review of both standard FCC   Forms 1240 is necessary to calculate the appropriate maximum permitted rate ("MPR") and the refund   amount, if any, for the period beginning June 1, 1997. Operator also submitted a refund plan which   calculated the amount of refunds owed to subscribers in the communities referenced above for the duration of the one year projected period ending May 31, 1998.  S-  15.` ` Upon review of Operator's new FCC Form 1240, for the projected period June 1, 1996   to May 31, 1997, we find that Operator has correctly calculated its maximum permitted rate ("MPR") of   [$14.47. Upon review of Operator's new FCC Form 1240, for the projected period June 1, 1997 to May  Sh-  31, 1998, we find that Operator has correctly calculated its MPR of $13.22.( h, (] yO4-  ԍ These findings are based solely on the representations of Operator. Should information come to our attention   Ythat these representations were materially inaccurate, we reserve the right to take appropriate action. This Order is   not to be construed as a finding that we have accepted as correct any specific entry, explanation or argument made by any party to this proceeding not specifically addressed herein. However, Operator's actual   [CPST rate, effective June 1, 1997, is $14.35. Operator has submitted refund plans which calculate, with   \interest, the total amount of overcharges that will be collected from CPST subscribers in Georgetown  S-  (CUID No. MI0388) from June 10, 1997 (the date of the first subscriber complaint))(] {O%-ԍ See Section 623(c)(1)(C) of the Communications Act, 47 U.S.C Section 543(c)(1)(C) (1996). to May 31, 1998v*(] {O6'-ԍ See Section 76.961 of the Commission's Rules, 47 C.F.R. Section 76.961.v"8*,`(`(88"   [and in Grandville (CUID No. MI0289) from July 21, 1997 (the date of the first subscriber complaint) to   LMay 31, 1998. Upon review of Operator's refund plans, we find that Operator has correctly calculated,   with interest, the amount of overcharges that will be received from subscribers during the projected period   yending May 31, 1998. These calculations result in a total refund amount of $14.21, per CPST subscriber   in Grandville (CUID No. MI0289), including interest, and $14.17, per CPST subscriber in Georgetown   /(CUID No. MI0388), including interest. While we reserve for further review the issue of Operator's   revenue and any offsets concerning its programming costs ("revenue/offset" issue), we now order Operator   Lto pay the refund amount of $14.21 to each current CPST subscriber in Grandville (CUID No. MI0289)  S-  and $14.17 to each current CPST subscriber in Georgetown (CUID No. MI0388) within 60 days of the  S-  release of this order.|+(] {O -ԍ See Section 76.961(c) of the Commission's rules, 47 C.F.R. Section 76.961(c).| We will also order that any rate Operator charges on and after June 1, 1998 shall   be premised on Operator's use of (1) the standard FCC Form 1240 for rate calculation purposes and (2)   $13.22 as Operator's Current Maximum Permitted Rate as called for on Line A1 of its FCC Form 1240   filing for the projected period beginning June 1, 1998. Contingent upon Operator's refund payment to   Nits subscribers, we have determined that Operator's total CPST rate collections in the community   yreferenced above, for the projected period June 1, 1997 to May 31, 1998, will be reasonable, pending our review of the revenue/offset issue.  SX-  `16.` ` Accordingly, IT IS ORDERED, pursuant to Section 76.961 of the Commission's rules,   47 C.F.R. Section 76.961, that Operator shall refund to CPST subscribers in Grandville (CUID No.   MI0289) the amount of $14.21 and in Georgetown (CUID No. MI0388) the amount of $14.17 within 60  S-days of the release of this Order. hh,  S-  17.` ` IT IS FURTHER ORDERED, pursuant to Section 76.962 of the Commission's rules, 47   C.F.R. Section 76.962, that Operator, within 90 days of the release of this Order, shall file with the Chief,   Cable Services Bureau, a certification of its compliance with the refund requirements of this Order, and a certification of its intent to comply with all other aspects of this Order.  S-  18.` ` IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47   {C.F.R. Section 0.321, that Operator shall use (1) the standard FCC Form 1240 for rate calculation   purposes and (2) $13.22 as Operator's Current Maximum Permitted Rate as called for on Line A1 of its   0FCC Form 1240 filing for the projected period beginning June 1, 1998, pending our review of the revenue/offset issue.  S-  S-  19. ` ` IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47   C.F.R. Section 0.321, that Operator shall file with the Chief, Cable Services Bureau, within 30 days of   the release of this Order, a channel by channel explanation of the revenues received from programmers,   ]a description of the revenue, as well as a channel by channel explanation of its programming costs   increases, for each CPST channel for which programming costs are being increased or revenues are being   received from programmers, along with documentation explaining why, pursuant to the Commission's   rules, the revenues received from programmers should not offset the increases in Operator's programming costs. ""Z+,`(`(88$"  S-  20.` ` IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47   C.F.R. Section 0.321, that the complaints referenced herein against the rate charged by Operator in the communities set forth above ARE GRANTED TO THE EXTENT INDICATED HEREIN. ` `  hh,VFEDERAL COMMUNICATIONS COMMISSION ` `  hh,VJohn E. Logan  S-` `  hh,VDeputy Chief, Cable Services Bureauxx-  Xp-#Xj\  P6G;9XP#