******************************************************** 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. CA1459 (Calabasas) ) Falcon Cablevision ) ) Complaints Regarding ) Cable Programming Service Rates ) ORDER Adopted: June 23, 1998 Released: June 25, 1998 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider a complaint against the October 1, 1997 rate increase of the above- referenced operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. We have already issued a rate order concerning Operator's prior CPST rates as justified on its FCC Form 393 ("Prior Order"), and an order approving Operator's refund plan of our Prior Order ("Refund Plan Order"). Accordingly, this Order addresses the reasonableness of Operator's CPST rates as justified on its FCC Form 1200 series filings. 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 area referenced above filed a complaint with the Commission on March 30, 1998 against Operator's October 1, 1997 CPST rate increase from $6.57 to $8.41. The LFA verified that it received more than one subscriber complaint and that the first valid complaint 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 complaint, 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 may treat existing packages 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 currently subject to rate 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. Upon review of Operator's FCC Form 1200 and FCC Form 1210 for the period April 1, 1994 to December 31, 1994 and FCC 1210 for the period January 1, 1995 to December 31, 1995, we accept Operator's filings and find that Operator has correctly calculated its maximum permitted rates ("MPRs"). Because Operator was charging less than its calculated MPRs, effective July 14, 1994 through September 30, 1996, we find that Operator's CPST rates, effective July 14, 1994 through September 30, 1996, to be reasonable. Upon review of Operator's FCC Form 1240, for the projected period October 1, 1996 through September 30, 1997, we find that Operator did not correctly calculate its MPR. Operator signed this FCC Form 1240 on September 9, 1997, however, Operator did not use the most current FCC Inflation Factor on Lines 104 through 106 on Worksheet 1 - True-Up Period Inflation. We therefore adjusted Line 104 through 106 which resulted in a corresponding adjustment of Line C1 (Inflation Factor for True-Up Period 1) to 1.0115. We also adjusted Line C3 (Current FCC Inflation Factor) to 1.0183. These adjustments reduced Operator's MPR to $7.94. Because Operator was charging an actual CPST rate of $6.57, we find that Operator's actual CPST rate, effective October 1, 1996, is reasonable. 8. Upon review of Operator's FCC Form 1240 for the period October 1, 1997 through September 30, 1998, we find that Operator did not correctly calculate its MPR. We adjusted Line A1 (Current Maximum Permitted Rate) to conform to the prior revised FCC Form 1240. Therefore, we revised Worksheet 1 (True-Up Period Inflation) which adjusted Line C3 (Inflation Factor for the True-Up Period 1) to 1.0213. We also revised Line C5 (Current FCC Inflation Factor) to 1.0143. We adjusted Line D6 (Current True-Up Segment) to $1.0806, and Line D7 (Current Inflation Segment) to $0.0497. We adjusted Line F8 (True-Up Segment for True-Up Period 1) to $1.1585. These revisions reduced Operator's MPR to $10.40. Because Operator's actual CPST rate, effective October 1, 1997, is $8.41, we find that Operator's actual CPST rate, effective October 1, 1997, is reasonable. 9. 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 $6.57 (exclusive of franchise fees), charged by Operator in the communities referenced above, effective October 1, 1996, IS REASONABLE. 10. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the CPST rate of $8.41 (exclusive of franchise fees), charged by Operator in the franchise area referenced above, effective October 1, 1997 to the present, IS REASONABLE. 11. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that Operator take into account our FCC Form 1240 adjustments when calculating its maximum permitted rate and performing the true-up calculation on its next FCC Form 1240. 12. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the complaint referenced herein against the rates charged by Operator in the community set forth above IS DENIED. FEDERAL COMMUNICATIONS COMMISSION Elizabeth W. Beaty Chief, Financial Analysis and Compliance Division Cable Services Bureau