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(1) (a) (i) 1) a)D )DDDFrf(q 2F S- X   ( S-  #&a\  P6G;&P#Federal Communications Commission`(#DA 98495 ă  yxdddy (P3 #&a\  P6G;&P#Before the Federal Communications Commission  S-" Washington, D.C. 20554 ă  S`-In the Matter of:R#&a\  P6G;&P#)hpp R)  S-TCI of Pennsylvania, Inc.R)h R) Appeal of a Local Rate R) Order of the Township of R) Shaler, PennsylvaniaR) T  S -  MEMORANDUM OPINION AND ORDER ă  S -X` hp x (#%'0*,.8135@8:H = yO -ԍ47 C.F.R.  76.944.> In ruling on appeals of local rate orders, the Commission will not conduct a de novo  xreview, but instead will sustain the local franchising authority's decision as long as there is a reasonable  S - xbasis for that decision.^ X= {O- x-ԍSee Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992;  {O- xYReport and Order and Further Notice of Proposed Rulemaking, ("Rate Order"), 8 FCC Rcd. at 563132; Third Order  {O-on Reconsideration ("Third Reconsideration Order"), 9 FCC Rcd. 4316, 4347 N.51 (1994). Therefore, the Commission will reverse a franchising authority's decision only  xif it determines that the local franchising authority acted unreasonably in applying the Commission's rules  S - xjin rendering its local rate order1 ~= {O-ԍId.1. If the Commission reverses a franchising authority's decision, it will not  xsubstitute its own decision but instead will remand the issue to the franchising authority with instructions  SZ-to resolve the case in a manner consistent with the Commission's decision on appeal.wZ= {O -ԍRate Order at 5732; Third Reconsideration Order, 9 FCC Rcd at 4346.w  S - IV.xDISCUSSION  S-x A.` ` Converter Rate Increase.  Sj-x` ` 1. Amount of Increase  S- ` x6.` ` TCI argues that the amount of a rate increase alone is not determinative of its  xreasonableness. It contends that the reasonableness of the proposed increase should be based on whether  xthe increase is justified in accordance with the Commission's rate regulations, rather than solely on the  xkamount of the increase or how the local franchising authority feels about the rate increase. In its local  x>order, the Township contended that a rate increase of between 100 and 300 percent for the lease of a converter box was unreasonable.  S- ` x7.` ` We agree with TCI. Pursuant to the 1992 Act, the Commission established standards for  xthe calculation of maximum permitted rates for installation and lease of equipment used by subscribers  S- xzto receive the BST.B= yO&-ԍ47 U.S.C..  543(b)(3).B A local franchising authority is authorized to review the operator's rate forms to"2 ,`(`(88"  xdetermine whether the operator's proposed rate increase for installation and lease of equipment comports  xMwith those rules. If the proposed rate increase is accurately calculated pursuant to the Commission's  xregulations, using accurate information, the rate is deemed reasonable and lawful under the 1992 Cable  S- xAct.D= yO-ԍ47 U.S.C.  543(b).D Specifically, rates at or below the benchmark are presumed to be reasonable; rates above the  S`- xkbenchmark are presumed to be unreasonable.A `X= {OX-ԍRate Order at 5882.A Therefore, the magnitude of a rate increase alone is not determinative of its reasonableness.  S-x` ` 2. Actual Charges vs. Maximum Permitted Rates.  S- ` `x8.` ` TCI asserts that as long as its lease equipment rates are within the maximum permitted  Sp- xrates, it may choose to charge subscribers less than the maximum permitted rate. p= {O - xԍParagon Cable, Appeal of Local Rate Order of the Consolidated Cable Communications Commission for  {O-Portland, Multnomah County, and Linnton, Oregon, Franchising Areas, 10 FCC Rcd 3963 (1995) at n. 14. The cable operator thus  xmaintains that the Township should only be concerned with whether the proposed rate increase comports  xto the Commission's rules and not whether TCI will exercise its business and marketing discretion and  xcharge less that the allowable rate. The Township contended that TCI failed to reveal whether it intended to charge as much as the maximum permitted rate or something less.  S - ` x9.` ` Under the 1992 Act; F= yOf-ԍ47 U.S.C.  543.; and the Commission's implementing rules,M = yO-ԍ47 C.F.R.  76.922 and 76.933.M a local franchising  xauthority has the responsibility to ensure that the rate a cable operator charges for the lease of equipment  xis within the Commission's maximum permitted rates. Whether the operator opts to charge subscribers  S-an actual lower rate, however, is a discretionary decision by the cable operator.E f = {O-ԍParagon Cable at n. 14.E  S- ` x10.` ` In the instant case, TCI determined that the maximum permitted monthly rate for the rental  xkof an addressable converter was $3.74. Therefore, the Township must determine whether that rate is  xcorrectly calculated, not whether TCI will charge subscribers a lower monthly fee. We note, however,  S@- x[that FCC Form 1205 requires the operator to compare actual charges against maximum permitted rates.H@ = yO -ԍFCC Form 1205, Summary Schedule.H If TCI did not complete the form it should have done so. The record is not clear on this point.  S-x` ` 3. Profitability.  Sx- ` x11.` ` TCI agrees that the Township is authorized to review the reasonableness of its proposed  x.rate increase but argues that the franchising authority cannot specifically inquire into the profitability of  xMthe local cable system. Township officials asserted that TCI has failed to submit certain information  xindicative of whether the cable system is experiencing a profit at the headend serving the Township. " ,`(`(88z"  S- ` 3x12.` ` Profitability is not an element that the Township should consider in the rate review of  S- xTCI's proposed benchmark rates.$= yO@- xԍBy a benchmark rate we mean a price against which a given cable system's tier rate would be compared. The  {O- xKsystem's rate would be presumed reasonable if it did not exceed the benchmark. In the Matter of Implementation  {O- xof Sections of the Cable Television Consumer Protection and Competition Act of 1992, Rate Regulation, Notice of Proposed Rulemaking, 8 FCC Rcd 510,  34 (1992).  The benchmark rates developed by the Commission already reflect  x=an element of profitability or rate of return. The Commission based benchmark calculations on the rates  xcharged by firms subject to effective competition. In doing so, it effectively accounted for the costs of  xproviding service for those systems, and also the need for any viable company to earn a "normal" or  S8- x\"competitive" rate of return.Z\8= {O - x,ԍIn the Matter of Implementation of Sections of the Cable Television Consumer Protection and Competition Act  {OV - xof 1992, Rate Regulation, First Order on Reconsideration, Second Report and Order, and Third Notice of Proposed Rulemaking, 9 FCC Rcd 1164,  13.Z A competitive rate is generally one that reflects actual cost including a  S-reasonable profit.;= {O-ԍId. at n. 80.;  S- ` 3x13.` ` We agree with TCI. The Township should not be examining the issue of profitability  xas a separate element of the benchmark rate process. Separate consideration of that element by the  xTownship is irrelevant to the ratemaking process because, as noted above, it already has been factored into the Commission's benchmark rates.  S -x` ` 4. Estimates vs. Actual Costs.  S - ` x14.` ` TCI disputes the Township's conclusion that the proposed rates for maintenance and  x[installation are unacceptable because they are based on estimates rather than on actual costs. TCI argues  SX- xthat the Commission's rulesIXj = yOb-ԍ47 C.F.R  76.92376.924. I allow cable operators to compute their proposed rates using average costs  x=of their most recent financial information (cost data) of actual work performed, even if a point system is employed.  S- ` Px15.` ` In rate regulation proceedings, the cable operator, not the local franchising authority, bears  S- xthe burden of proving the reasonableness of any proposed BST rates and associated equipment.A = yO*-ԍ47 C.F.R.  76.937(a).A The  xlocal franchising authority, after providing the cable operator with an opportunity to participate in the rate review proceeding, including the opportunity to provide documentation supporting the proposed rates, is "@ ,`(`(88c"  xfully justified in prescribing a rate based on the information available to it at the time it issues a rate order,  S- xas long as it explains = yO@- xԍ47 C.F.R.  76.936(a) provides that a local franchising authority must issue a written decision explaining the  xfactors it considered in denying the increase requested. In this case, the Township's onepage written decision  x<merely gives a general explanation or conclusion; it does not fully explain why the Township did not accept the percentage TCI assigned to converter time maintenance. why the operator's proposed rate is unreasonable and its own prescribed rate is  S-reasonable.K= {O-ԍSee Rate Order, at 57235724.K  S`- ` x16.` ` The instructions accompanying Form 1205`B= yOB -ԍFCC Form 1205; Worksheet for Calculating Permitted Equipment and Installation Charges, at 14. direct the operator to attach an explanation  xof how it calculated the time devoted to maintenance and installation of customer equipment and services.  xThe scant record before us, however, does not indicate whether the operator provided the Township with  xthe required explanation or whether the Township requested such an explanation, if it had not been provided.  Sp- ` Px17.` ` In the local rate order, the Township rejected TCI's allocation of 21 percent of labor hours  x\to the installation and maintenance of converters because the assignment was based upon service call  S - xestimates rather than on actual time records. In the Rate Order,4 = yO-ԍAt  296.4 the Commission stated that it anticipated  xLthat cable operators would "use their past experience and historical data to make the best estimate of the  S - xjnumber of service and repair hours for remotes."1 b = {O-ԍId.1 The Commission added that the "[c]harges for leasing  S - xLconverter boxes and all other equipment [would] be calculated in the same manner as for remotes."1 = {O>-ԍId.1 We  x.interpret this to mean that cable operators may use estimates for establishing labor hours devoted to the  xmaintenance of converter boxes. This is in accordance with the Hourly Service Charge methodology  xwhich "uses time spent in related activities as the factor for allocating [installation and maintenance] costs  S - xto the various charges."A  = {O0-ԍRate Order at 5817.A Thus, any reasonable allocation of labor hours for maintenance would be  xaccepted. Accordingly, we remand the issue of the use of estimates for the allocation of labor hours to the Township for resolution in accordance with our findings herein.  Sj-x B.` ` Basic Service Tier Rate Adjustment.  S-x` ` 1. Proximity Between Rate Increases.  S- ` ox18.` ` TCI asserts that its BST rate increase complies with Sections 76.309 and 76.964 of the  xCommission's rules and that the Township should, therefore, make a determination in accordance with  x!the applicable rate regulations, not on irrelevant and unfounded allegations. In its local order, the  xTownship contended that the operator's BST rate increase was submitted too soon (60 days) after a $0.06"R,`(`(88"  xrate increase had been approved. In response, TCI argues that there are no timeconstraint regulations that  xkprevent cable operators from submitting a BST rate increase soon after the local franchising authority approves a previouslysought rate increase.  S`- ` x19.` ` The proximity between rate increases is irrelevant to the rate review in question. At the  xtime of this appeal, Commission regulations limited regulated cable operators to filing rate increases no  S- x>more frequently than quarterly to account for increases in external costs, and annually for inflation.>= yOx-ԍ47 C.F.R.  922(d).>  xCable operators could file up to four rate increases per year (one every three months) with the local  xfranchising authority. The Commission's rules do not require cable operators to wait until a quarterly rate  S- xLincrease has been approved by the franchising authority before filing another quarterly request.1X= {O -ԍId.1 TCI is  xcorrect that the filing of a subsequent rate increase is not dependent on the date of approval or denial of a prior filing.  S -x` ` 2. Advertising Revenues.  S - ` 2x20.` ` TCI maintains that the Township is wrong to deny a proposed BST rate increase because  xTCI collects advertising revenues from two sources. TCI argues that the inclusion of the element of  xadvertising revenues into the ratemaking process is irrelevant. The Township claims that TCI is collecting  xadvertising revenues twice: once as compensation from the sponsors of commercial advertisements carried  xon the cable system, and once from subscribers (included in tier charges) for viewing the advertisements shown during TCI's programming.  S- ` bx21.` ` We concur with TCI. In Time Warner Entertainment Co., L.P., et al. v. Federal  Sj- x=Communications Commission,Ej= yO-ԍ56 F.3d 151 (D.C. Cir. 1995).E the U. S. Court of Appeals upheld the Commission's earlier decision to  xnot require cable operators to "report increases in advertising revenues and to offset those increases against  S- xany external costs."Dz= {O6-ԍTime Warner at p. 172.D The Township's rate review should not include an examination of TCI's advertising revenues.  S-x` ` 3. Programming and Subscriber Input.  ST- ` ~x22.` ` TCI asserts that a cable operator's choice of programming and packaging are not factors  x=to be considered in determining the reasonableness of a rate adjustment. TCI maintains that it welcomes  xcomment from subscribers which it considers in developing programming packages. The Township  xchallenged the lack of subscriber input concerning the programming TCI offers its subscribers and how  xthat programming is packaged (the Township refers to this as "bundling"). The Township also contended that TCI's channel lineup is duplicative or similar between tiers.  S<- ` x23.` ` Except for any public, educational and governmental programming required by the  x=franchise agreement, a local franchising authority cannot require a cable operator to carry a specific cable"  ,`(`(88!"  S- xservice or to package its programming in a particular manner.;= yOh-ԍ47 U.S.C.  531.; Cable operators are required to provide  xLsubscribers a BST to which subscription is required for access to any other tier of service or to purchase  S- xany other video programming.> X= yO-ԍ47 C.F.R.  76.920.> The BST, at a minimum, must include all television broadcast stations  xprovided to any subscriber (except superstations) and any public, educational and governmental  xzprogramming required by the franchise agreement to be carried on the basic tier. In addition, the cable  S8-operator has the discretion to carry additional programs on this tier.>!8= yO -ԍ47 C.F.R.  76.901.>  S- ` ox24.` ` A rate review is not the proper vehicle for the Township to deal with the programming  S- xdecisions of the cable operator. Under Section 626 of the Communications Act;"x= yO -ԍ47 U.S.C.  546.; the franchising authority  xmay provide the public in the franchise area the opportunity to participate in identifying the future cable xjrelated needs and interests of the community, and to review the performance of the cable operator during  xthe current franchise term. This authority is not related to the ratemaking authority the Township exercises pursuant to the Commission's rate regulations.  S -p$]U  V. ORDERING CLAUSES  SX- ` x25.` ` Accordingly, IT IS ORDERED that the appeal filed July 20, 1995, by TCI of  S0- xPennsylvania, Inc. is GRANTED and the local orders dated June 20, 1995 are REMANDED to the  x-Township of Shaler, Pennsylvania for proceedings consistent with the terms of this Memorandum Opinion and Order.  S- ` x26.` ` This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated  Sh-by Section 0.321 of the Commission's rules.=#h= yO-ԍ47 C.F.R.  0.321.= x` `  hh@FEDERAL COMMUNICATIONS COMMISSION x` `  hh@John E. Logan x` `  hh@Deputy Chief, Cable Services Bureau