******************************************************** 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. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) East Arkansas Cablevision, Inc. ) CUID Nos. IN0407 (Schererville) ) IN0408 (Munster) Complaint Regarding ) Cable Programming Services Tier Rates) ORDER ON RECONSIDERATION AND RATE ORDER Adopted: May 18, 1998 Released: May 21, 1998 By the Acting Chief, Cable Services Bureau: 1. In this Order we consider complaints concerning the rates charged by the above-captioned operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced above. Operator's response includes benchmark justifications filed on FCC Form 1200, multiple FCC Forms 1210, and multiple FCC Forms 1240. We have already issued separate orders ("Prior Orders") addressing the reasonableness of Operator's rates effective September 1, 1993 through May 14, 1994. Operator filed a consolidated petition for reconsideration ("Petition") of our Prior Orders on November 6, 1995. Consequently, this Order addresses Operator's Petition as well as the reasonableness of Operator's rates for the period after May 14, 1994, as justified on Operator's FCC Form 1200, multiple FCC Forms 1210 and multiple FCC Forms 1240. This order also addresses a complaint filed on February 25, 1998 against Operator's CPST rate of $15.25, effective January 1, 1998. 2. Operator filed a Motion for Leave to File Consolidated Petition for Reconsideration along with its Petition ("Motion"). The Petition concerns the Prior Orders as well as an order concerning the pre-May 14, 1994 CPST rates charged by the cable operator in Mayville, New York ("Mayville System") which, at the time the Petition was filed, was owned by the same multiple system owner as the above- captioned systems. Since the filing of the Petition, the Mayville System has been sold to a different operator than the above-captioned systems. In its Motion, Operator asks that we reconsider all three of the prior orders simultaneously because of the similarity of the issues involved. In the interests of administrative efficiency, we will grant the Motion and consider the Petition. Because of the change of ownership of the Mayville System, however, we will not review the post-May 14, 1994 CPST rates of that system in this order. 3. In its Petition, Operator raises four issues. In its first issue, Operator argues that the complaints upon which the Commission based its jurisdiction were invalid and should have been dismissed with prejudice. In each community, the complaint against Operator's CPST rates was initially dismissed and then was refiled by the complainant. Upon review of the complaints, we find that the complaints against Operator's CPST rates in the Schererville, Indiana system ("Schererville System") and the Mayville System to be valid. Each complaint was refiled in a timely fashion pursuant to the Commission's rules. Also, each complaint states a claim upon which relief can be granted, despite minor flaws or inaccuracies. Therefore, we find that the complaints filed against the CPST rates in the Schererville System and Mayville System are valid. The complaint filed against the CPST rate charged in the Munster, Indiana system ("Munster System") however, was not refiled with Commission in a timely fashion. Therefore, we will dismiss the late-filed complaint and vacate the Prior Order concerning the Munster System. We will, however, review the January 1, 1998 rate increase concerning the Munster System because of the February 25, 1998 complaint filed by the local franchising authority for the Munster System. 4. The second issue raised concerns the adjustment of Line 104 of Operator's FCC Form 393. In each of the Prior Orders we stated that: Operator's Form 393, Part II, Worksheet 1, Line 104 entry does not represent its current monthly equipment revenue as of the initial date of regulation. Since Operator restructured its rates, including its equipment rates, on September 1, 1993, in an attempt to comply with the [Federal Communications Commission ("Commission")]'s regulations, the monthly equipment cost figure it entered on Line 34 of Step G of Part III should have been close or identical to its Line 104 entry. However, Operator's entry on Line 104 differed substantially from its entry on Line 34. We therefore adjusted Line 104 to equal the amount entered on Line 34. Operator contends that the Prior Orders failed to consider the fact that Line 104 (Equipment Revenue Per Month) included additional outlet revenue while Line 34 (Monthly Equipment and Installation Cost) did not. Operator contends that by adjusting Line 104 of the FCC Form 393, the Cable Services Bureau ("Bureau") failed to consider all of the equipment revenue, including additional outlet revenue, which Operator collected prior to the beginning of rate regulation. This error, according to Operator, incorrectly lowered Operator's CPST rates. 5. The Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") required operators to assess charges to subscribers for cable equipment and installation on a cost basis. To implement the 1992 Cable Act, the Commission required operators to remove or "unbundle" equipment and installation rates from rates for programming services. FCC Form 393 is the official form used by the Commission to determine whether an operator's regulated rates for programming, equipment and installation were reasonable during the time period from September 1, 1993 until May 14, 1994. FCC Form 393 is divided into three separate but interrelated parts. In Part II, the operator calculates its maximum permitted programming rates, while in Part III, the operator calculates its equipment and installation costs and maximum permitted equipment and installation rates. Part I is a cover sheet that lists the various programming, equipment and installation rates that have been calculated in Parts II and III and compares them to the rates the operator has actually charged during the period of review. 6. In order to calculate a maximum permitted rate ("MPR") for its regulated programming services, in accordance with the Commission's rules, an operator must first calculate its Base Rate Per Channel ("Base Rate") and enter that number on Line 300 of Part II. The operator must then remove its equipment and installation costs from the Base Rate. To do this, the operator must first calculate its Monthly Equipment and Installation Costs on Line 34 of Part III. Once this figure has been calculated, it is entered onto Line 301 (Equipment and Installation Cost, Monthly) of Part II and subtracted from the Base Rate on Line 304 of Part II. Therefore, the resulting number on Line 304 (Base Service Rate Per Channel) contains no equipment and installation costs. 7. On Line 104 (Equipment Revenue, Monthly) of Part II, the operator places the amount that it receives in monthly equipment revenue as of the operator's initial date of regulation. To do this, the operator calculates the total revenues earned over the last fiscal year for (1) converter box rental; (2) remote control rental; (3) additional outlet fees; (4) installation fees; (5) disconnect fees (6) reconnect fees; and (7) tier changing fees; and then divides that total by twelve. In an effort to clarify the inter-relation between Line 301 (which is the same number as Line 34) and Line 104, for operators that had restructured their rates as of September 1, 1993, the Commission explained in its Public Notice: Questions and Answers on Completion of FCC Form 393 and Associated Filing Requirements ("Public Notice") that: [t]he instructions for completing Worksheet 1 Line 104 of FCC Form 393 specify that equipment revenues for the year preceding that date shall be used in computations of the current rate per channel which is to be compared to the benchmark. Revenues for the previous years may not be sufficiently representative where the operator already has unbundled and instituted cost-based pricing in accordance with our requirements. This answer clarifies that in completing Line 104 operators must use equipment revenues that will be representative of the equipment rates that were in effect as of the initial date of regulation. Where available, actual revenues should be used. Where operators have restructured equipment rates as of September 1, 1993 in accordance with our regulations, we would anticipate that in most cases, absent special circumstances, operators will enter on Line 104 the same, or nearly the same, number on Line 301. Line 301 is the anticipated revenues based on equipment rates derived in accordance with FCC rate regulations. 8. In its Petition, Operator states that it restructured its rates by September 1, 1993 to comply with the Commission's rules. However, in its FCC Form 393, it included additional outlet revenue on Line 104, even though such additional outlet revenue, generated from non-cost-based rates established prior to the initial date of regulation, was not representative of rates in effect on the initial date of regulation. This meant that Operator's equipment revenue figure on Line 104 did not represent cost- based pricing as required by the 1992 Cable Act. This conclusion was obvious to the Bureau because Operator's equipment and installation costs, as found on Line 34 and then Line 301, differed significantly from Operator's entry on Line 104 of its FCC Form 393. Had the Bureau permitted Operator to include its additional outlet revenue on Line 104, Operator would have calculated its initial CPST MPR using equipment revenue that was not cost-based and Operator would have received a higher MPR for its CPST than was intended by the 1992 Cable Act. The Commission released its Public Notice to ensure that operators which had restructured their rates as of September 1, 1993 were aware of the Commission's interpretation of FCC Form 393. Therefore, Operator's claim that its addition of additional outlet revenue to Line 104 is a special circumstance has no validity. Consequently, we find that the Bureau did not err when it made this correction and that Operator's allegations on this issue have no merit. 9. Operator's third issue is that the Bureau erred when it refreshed Operator's inflation factor on its FCC Form 393 to the most accurate data available at the time of the Bureau's review. The Commission has already dealt with this issue in Cencom Cable Partners II, L.P. ("Cencom"). The Commission has stated "if a rate is unreasonable on its face or has to be adjusted for reasons other than the availability of more accurate inflation figure, e.g., because the operator failed to provide correct information on its rate justification or failed to complete its rate justification form correctly, the Bureau recalculates the MPR using the most accurate inflation information available, rather than earlier estimates. This practice is consistent with 47 C.F.R. Section 76.922(b)(9)(iii), which provides: [I]f the rates charged by a cable operator are not justified by an analysis based on the data available at the time it initially adjusted its rates, the cable operator must adjust its rates in accordance with the most accurate data available at the time of the analysis." The Commission also found that the practice of refreshing inflation factors was correct because "where review indicates that an adjustment is required, it would be unfair to operators and subscribers alike not use the most recent and accurate figures applicable to that period, even though those figures may not have been available to the cable operator at the time of its filing. In some instances, such an adjustment may be advantageous to cable subscribers and, in others, to the operator. In all instances, however, the required adjustment will more accurately ensure that the rates being charged to subscribers are in fact not unreasonable." Because the Commission has already determined that the refreshing of inflation factors is required when the Bureau reviews rate forms, we find Operator's arguments regarding this issue to be meritless. 10. Operator's fourth and final issue concerns whether the Commission permitted Operator to account for external costs increases incurred during the period of time from the effective date of the 1992 Cable Act through the initial date of regulation in its CPST rates (the "Gap Period"). Operator states that in Time Warner Entertainment Co. v. FCC, the United States Court of Appeals for the District of Columbia Circuit held that the Commission improperly failed to permit cable operators to adjust their rates to account for these external cost increases. Operator concludes that it is entitled to offset any refunds owed with any Gap Period external costs that it did not collect. Subsequent to Operator's filing of its Petition, the Commission issued an order ("Gap Period Order") and amended its rules to allow certain cable operators which had not collected external costs incurred during the Gap Period to collect those costs by adjusting their CPST rates. The Commission set out detailed instructions regarding how those external costs are to be calculated and instructed operators to make this adjustment in their next rate adjustments. Therefore, to the extent that Operator is entitled to take an adjustment for external costs incurred during the Gap Period, pursuant to the Commission's rules, and has not yet done so, it may do so in its next rate filing. 11. We will now proceed with our review of Operator's CPST rates for the period beginning May 15, 1994 for Schererville System and beginning January 1, 1998 for the Munster System. Under the Communications Act, the Commission is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. The 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. The Telecommunications Act of 1996 ("1996 Act"), and our rules, require that complaints against CPST rates be filed with the Commission by a franchising authority that has received subscriber complaints. A franchising authority may not file a CPST rate complaint unless, within 90 days after such increase becomes effective, it receives more than one subscriber complaint. 12. 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 using a benchmark showing must use the FCC Form 1200 series to justify their rates for the period beginning May 15, 1994. 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. Operators may alternatively justify adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain and quantifiable changes in external costs, inflation, and the number of regulated channels that are projected for the twelve months following the rate change. Any incurred cost that is not projected may be accrued with interest and added to rates at a later time. 13. The Commission's rules also provide for a refund liability deferral period, if timely requested by Operator, beginning May 15, 1994 and ending July 14, 1994, for any overcharges resulting from Operator's calculation of a new maximum permitted rate ("MPR") on FCC Form 1200. This deferral of refund liability, however, does not apply to refund liability that may have occurred because Operator's March 31, 1994 rates for its CPST subject to regulation were higher than levels permitted under the Commission's rules in effect before May 15, 1994. Accordingly, while the liability period for Operator's overcharges associated with its FCC Form 1200 filing may not begin to run until July 15, 1994, Operator will incur refund liability between May 15, 1994 and July 14, 1994 for any CPST rates charged above the MPR approved by the Commission on Operator's FCC Form 393. In our Prior Order, Operator's FCC Form 393 MPR was determined to be $12.00. 14. On February 25, 1998, the local franchising authority ("LFA") for the communities referenced above filed its complaint against Operator's January 1, 1998 CPST rate increase. In its complaint, the LFA asserts that it has received more than one subscriber complaint against Operator's CPST rate increase in each community, thereby triggering the Commission's jurisdiction to review this complaint. The valid complaint from the LFA triggers an obligation on behalf of the cable operator to file a justification of its CPST rates with the LFA. Thus, in this case, Operator is required to justify the increase in its CPST rate which is the subject of the LFA complaint. Operator filed FCC Forms 1240 with the LFA as justification for this rate increase. 15. Upon review of Operator's FCC Form 1200, for the Schererville System, we find that Operator has justified its MPR of $11.08. Because Operator's actual CPST rate of $12.04 exceeds both the MPR set in our Prior Order and Operator's FCC Form 1200 MPR, we find Operator's actual CPST rate of $12.04, effective May 15, 1994 to September 30, 1994, to be unreasonable for the Schererville System. 16. Upon review of Operator's FCC Form 1210, for the Schererville System, covering the period March 31, 1994 through September 30, 1994, we find that Operator has justified its MPR of $11.66, effective October 1, 1994. Because Operator continued to charge $12.04 for its actual CPST rate, we find that Operator's CPST rate of $12.04, effective October 1, 1994 to May 31, 1995, to be unreasonable for the Schererville System. Operator reduced its actual CPST rate, effective June 1, 1995, from $12.04 to $11.97. Because this rate is still above Operator's MPR of $11.66, we find that Operator's actual CPST rate of $11.97, effective June 1, 1995 to September 30, 1995, to be unreasonable for the Schererville system. 17. Upon review of Operator's FCC Form 1210, for the Schererville System, covering period September 30, 1994 to September 30, 1995, we find that Operator has justified its MPR of $12.25, effective October 1, 1995. Therefore, we find Operator's actual CPST rate of $11.97, effective October 1, 1995 to December 31, 1995, and its actual CPST rate of $12.25, effective January 1, 1996 to July 31, 1996, to be reasonable for the Schererville System. 18. Upon review of Operator's FCC Form 1240, for the Schererville System, for the Projected Period August 1, 1996 to July 31, 1997, we find Operator's actual CPST rate of $13.32, effective August 1, 1996, to be reasonable for the Schererville system. 19. Upon review of Operator's FCC Form 1240 for both the Schererville and the Munster Systems, for the Projected Period January 1, 1998 to December 31, 1998, we find Operator's actual CPST rate of $15.25, effective January 1, 1998, to be reasonable for both systems. 20. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's Motion to file Consolidated Petition for Reconsideration IS GRANTED. 21. IT IS FURTHER ORDERED, pursuant to Section 1.106 of the Commission's rules, 47 C.F.R. Section 1.106, that Operator's Consolidated Petition for Reconsideration IS GRANTED TO THE EXTENT INDICATED HEREIN AND DENIED IN ALL OTHER RESPECTS. 22. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R. Section 0.321, that In the Matter of US Cable of Northern Indiana (CUID No. IN0408, Munster), 10 FCC Rcd 10992 (1995) IS VACATED. 23. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $12.04, effective May 15, 1994 to May 31, 1995, in the Schererville System, IS UNREASONABLE. 24. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $11.97, effective June 1, 1995 to December 31, 1995, in the Schererville System, IS UNREASONABLE. 25. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $12.25, effective January 1, 1996, in the Schererville System, IS REASONABLE. 26. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $13.32, effective August 1, 1996 to December 31, 1997, in the Schererville System, IS REASONABLE. 27. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321 that Operator's CPST rate of $15.25, effective January 1, 1998, in both communities set forth above, IS REASONABLE. 28. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. Section 76.961, that Operator shall refund to subscribers in the Schererville System that portion of the amount paid in excess of the maximum permitted CPST rate of $12.00 per month (plus franchise fees), plus interest to the date of the refund, for the period May 15, 1994 to July 14, 1994. 29. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. Section 76.961, that Operator shall refund to subscribers in the Schererville System that portion of the amount paid in excess of the maximum permitted CPST rate of $11.08 per month (plus franchise fees), plus interest to the date of the refund, for the period July 15, 1994 to September 30, 1994. 30. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's rules, 47 C.F.R. Section 76.961, that Operator shall refund to subscribers in the Schererville System that portion of the amount paid in excess of the maximum permitted CPST rate of $11.66 per month (plus franchise fees), plus interest to the date of the refund, for the period October 1, 1994 to September 30, 1995. 31. 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. 32. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321, that the December 7, 1993 complaint referenced herein against the rates charged by Operator in the community set forth above IS GRANTED. 33. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. Section 0.321, that the February 25, 1998 complaint referenced herein against the $15.25 rate charged by Operator in the community set forth above IS DENIED. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau