******************************************************** 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 ) CUID Nos. CA0251 (Woodland Hill) ) CA1208 (Topanga) Falcon Cablevision ) ) Complaints Regarding ) Cable Programming Service Rates ) and ) Petition for Reconsideration ) ORDER ON RECONSIDERATION AND RATE ORDER Adopted: June 22, 1998 Released: June 25, 1998 By the Acting Chief, Cable Services Bureau: 1. In this Order we consider complaints against the October 1, 1997 rate increase of the above- referenced operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced above. We have already issued a rate order concerning Operator's prior CPST rates in Woodland Hill ("Prior Order"). Operator filed a petition for reconsideration of our Prior Order ("Petition") as well as a refund plan ("Refund Plan"). In this Order we consider Operator's Petition and Refund Plan as well as the above-referenced complaints. 2. Under the Communications Act, 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. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the legislation ("Interim Rules"), require that a complaint against the CPST rate be filed with the Commission by a local franchising authority ("LFA") that has received more than one subscriber complaint. 3. The LFA for the franchise areas referenced above filed complaints with the Commission on March 30, 1998 against Operator's October 1, 1997 CPST rate increase from $5.17 to $7.16. The LFA verified that it received more than one subscriber complaint for each franchise area and that the first valid complaint for each franchise area was received by the LFA on October 6, 1997. The filing of a complete and timely complaint triggers an obligation upon the cable operator to file a justification of its CPST rates. The Operator has the burden of demonstrating that the CPST rates complained about are reasonable. If the Commission finds a rate to be unreasonable, it shall determine the correct rate and any refund liability. 4. Operators with complete and timely 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 the CPST rates were in compliance with the revised rules from May 15, 1994 forward. Operators attempting to justify CPST rates for the period prior to May 15, 1994 through a benchmark showing must complete and file FCC Form 393. To justify rates for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. 5. Operators are permitted to make changes to their rates on a quarterly basis using FCC Form 1210 to account for the addition and deletion of channels, changes in certain external costs and inflation. In addition, Operators must file FCC Form 1210 at least 30 days before new rates are scheduled to go into effect, where there is a pending complaint against the CPST rate. Operators may justify 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. If actual and projected costs are different during the rate year a "true-up" mechanism is available to correct estimated costs with actual cost changes. The "true-up" requires operators to decrease their rates or alternatively permits them to increase their rates to make an adjustment for over or under estimations of these cost changes. 6. In its complaints, the LFA also questions rate increases for other cable services provided by Operator, specifically Operator's SatPac1 and SatPac2 tiers and a new interactive service called Starsight. In Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket Nos. 92-266 and 93-215, Sixth Order on Reconsideration, Fifth Report and Order, and Seventh Notice of Proposed Rulemaking ("Going Forward Order"), the Commission established criteria for the creation of New Product Tiers ("NPTs"), which cannot include channels taken from regulated tiers. The Commission concluded, however, that cable operators would be permitted to treat certain packages, in existence as of the Going Forward Order, as NPTs, so long as such packages involve only a small number of migrated channels. Upon review, we find that Operator's SatPac1 and SatPac2 tiers are NPTs under our Going Forward Order and therefore not subject to regulation. The LFA also complains about Operator's increases for the SatPac and Starsight additional outlet charges. Under Section 76.923(a) of the Commission's rules, all equipment used to receive the basic service tier ("BST") is subject to rate regulation, regardless of whether such equipment is used to receive other tiers of regulated programming and/or unregulated service. Such equipment-related charges are subject to regulation by the LFA. If subscribers obtain both the BST and unregulated programming on the outlet for which Operator imposes an additional outlet charge, the LFA has jurisdiction to determine the reasonableness of Operator's additional outlet charges. In either case, the LFA's complaint does not trigger our jurisdiction to regulate the additional outlet charges. 7. In our Prior Order, we found that Operator incurred refund liability for overcharges on its CPST beginning July 14, 1994. Although we found Operator's calculated maximum permitted rates ("MPRs") for its CPST to be reasonable, Operator was charging in excess of its calculated MPRs for the time periods July 14, 1994 through December 31, 1994; January 1, 1995 through December 31, 1995; and January 1, 1996 thorough September 30, 1996. In its Petition, Operator argues that its refund liability should not extend beyond the time period covered by its FCC Form 393. Operator argues that even though it was charging in excess of its own calculated MPRs from July 14, 1994 forward (the time period covered by the FCC Form 1200 series), it should not be held accountable for those actions because no subsequent complaints were filed. In support of its argument, Operator cites Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 92-266, Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice of Proposed Rulemaking ("Second Reconsideration Order"). Operator points particularly to that part of the Second Reconsideration Order which requires an Operator with a pending complaint to "file an FCC Form 1200 in addition to the FCC Form 393 it either has filed or must file." Operator argues that the only reason for this policy is the Commission's stated reason "that most operators whose rates did not comply with our former rules also will be in violation of our new rules due to the increased competitive differential." Operator claims that because it was in compliance during the period covered by the FCC Form 393, it would contravene Commission policy to review Operator's subsequent CPST rates. Operator's argument ignores the Commission's additional stated reason for the policy, that "rates that may have been permissible under our former rules may be in violation of our new rules. Requiring operators against whom a complaint has been filed to submit an FCC Form 1200 thus will enable us to determine whether those operators are currently complying with our rules, regardless of their status under our initial rules." Although in compliance with the initial rules, Operator failed to justify its rates under the new rules. Therefore, Operator is liable for any charges in excess of its MPRs. 8. Operator also cites our rules concerning the filing period for valid complaints in support of its position. Operator states that a complaint must be filed within a limited period of time following a rate increase or else the complaint is invalid. Operator misconstrues the intent of our rules limiting the time period during which a valid complaint may be filed. These rules exist to give operators some certainty, and finality, regarding when a rate is being complained about. They are not applicable to pending complaints which were timely filed, they apply only to complaints that are untimely filed. Operator is under a continuing obligation to provide notice to the Commission prior to a rate change so long as there is a valid pending complaint. The Commission has stated that the "notice is necessary to allow the Commission to ensure that the [CPST] rate is not unreasonable." Operator was on notice that the Commission intended to review Operator's CPST rates "on and after May 15, 1994 pursuant to the revised rules" for as long as a valid complaint was pending. Because Operator, as it acknowledges in its Petition, chose to charge CPST rates that were greater than its calculated MPRs, Operator is responsible to its CPST subscribers for its overcharges. Had Operator's actual CPST rates during the period under review been less than or equal to its calculated MPRs, Operator would not have incurred any refund liability for those time periods. 9. Finally, Operator argues that it should be able to offset its CPST undercharges against its CPST overcharges within different time periods. Unlike inter-tier offsets between the CPST and BST, which we have rejected, intra-tier offsets between two CPSTs do not require the Commission to review or monitor the BST and we have previously allowed intra-tier offsets under limited circumstances and only within the same time period. When subscriber counts indicate that intra-tier offsets between two CPSTs will not adversely affect any particular group of subscribers we have approved them. However, Operator asks that we allow intra-tier offsets across time periods when there is only one CPST. This would require subsequent subscribers to pay for undercharges which did not necessarily benefit them. Cross-period offsets could allow an operator to market a service by undercharging and then pass on that cost to a subsequent group of subscribers. Our mandate is to review an operator's actual CPST rates. In doing so, we ensure that an operator has correctly calculated, and is not charging above, its MPR. We approve an operator's actual CPST rate if it is equal to or lower than the MPR as of the effective date of the MPR. If an operator chooses to charge less than its calculated MPR at one point in time, it cannot later make up the difference by charging in excess of its calculated MPR, unless such a calculation is in accordance with an appropriate FCC Form. There is no such appropriate FCC Form before us. Operator is simply asking us to offset its overcharges for the period beginning July 14, 1994 through September 30, 1996 with its undercharges for the period of September 1, 1993 through July 13, 1994. This would require us to approve Operator's acknowledged overcharging of its CPST subscribers for the period July 14, 1994 through September 30, 1996. This, we cannot do. Therefore, we will not allow Operator to offset its CPST overcharges with CPST undercharges from a different time period. 10. Our review of Operator's Refund Plan reveals that Operator did not accurately calculate the total amount of refunds due CPST subscribers as provided in our Prior Order. In its refund calculation, Operator calculates total CPST refunds due, including interest through September 30, 1997 and offset with CPST undercharges, in the amount of $6,555.70. We find that Operator's refund calculation for the period July 14, 1994 through September 30, 1996 is generally accurate. After extending this calculation to include interest through June 30, 1998, Operator's refund liability totals $58,231.02. As noted above, we will not allow Operator to offset this liability. Provided Operator adjusts its Refund Plan as detailed herein, we will approve Operator's Refund Plan. 11. Upon review of Operator's FCC Form 1240, for the projected period October 1, 1997 through September 30, 1998, we find Operator's actual CPST rate of $7.16, effective October 1, 1997, to be reasonable. 12. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $7.16, charged by Operator in the communities referenced above, effective October 1, 1997, IS REASONABLE. 13. IT IS FURTHER ORDERED, pursuant to Section 1.106 of the Commission's rules, 47 C.F.R. 1.106, that Operator's Petition for Reconsideration of DA 97-1851 IS DENIED. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. 0.321, that Operator's Refund Plan IS APPROVED, provided Operator adjusts its total refund amount as detailed herein. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. 0.321, that the complaints against the CPST rates charged by Operator in the communities referenced above, ARE DENIED. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau