******************************************************** 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. GA0017 (City of Gainesville) Robin Media Group, Inc. d/b/a Intermedia ) GA0104 (Hall County) ) Complaint Regarding ) Cable Programming Services Tier Rates ) ORDER Adopted: July 21, 1998 Released: July 24, 1998 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider complaints against the January 1, 1998 rate increases of the above-referenced operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced above. We have already issued an order in which we resolved all prior complaints against Operator's CPST rates in the communities referenced above. Accordingly, this Order addresses only the reasonableness of Operator's January 1, 1998 CPST rate increases. 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. If the Commission finds a rate to be unreasonable, it shall determine the correct rate and any refund liability. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the new legislation ("Interim Rules"), require that complaints against the CPST rates be filed with the Commission by a local franchising authority ("LFA") that has received more than one subscriber complaint. 3. The LFA for the City of Gainesville filed a complaint with the Commission on May 6, 1998 and the LFA for Hall County filed a complaint with the Commission on May 14, 1998, against Operator's January 1, 1998 CPST rate increase from $17.64 to $18.95. Each LFA verified that it received more than one subscriber complaint for its franchise area and that the first valid complaint was received by the LFA for the City of Gainesville on January 22, 1998 and by the LFA for Hall County on February 18, 1998. The filing of a complete and timely LFA 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. In response to the LFAs' complaints, Operator filed two FCC Form 1240s, one for the City of Gainesville and a separate filing for Hall County. Operator also filed an FCC Form 1235 (Abbreviated Cost of Service Filing for Cable Network Upgrades) which included both franchise areas. The LFAs for both the City of Gainesville and Hall County have filed petitions for special relief ("Petitions") pursuant to Sections 76.7 and 76.933(d) of the Commission's rules requesting that the Commission review the FCC Form 1235 to the extent it affects the rates for the basic service tiers ("BSTs") in the communities referenced above. Because the LFAs have certified they do not have the personnel to review the FCC Form 1235, and have requested Commission assistance, we will grant the LFAs' Petitions. 4. To justify rates for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. Operators are permitted to make changes to their rates on a quarterly basis using FCC Form 1210. 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. 5. FCC Form 1235 is an abbreviated cost of service filing used in cases of network upgrades. It allows cable operators to justify rate increases related to significant capital expenditures used to improve rate-regulated services. This option is extended only in cases of significant upgrades requiring added capital investment, such as bandwidth capacity and conversion to fiber optics, and for system rebuilds. Normal improvements and expansions of service will remain subject to the usual rate adjustments allowed by filings of FCC Forms 1210, 1220 and 1240. Cable operators that incur increases in operating costs associated with a significant network upgrade will be permitted to charge additional rates as justified by their FCC Form 1235 filing. 6. Upon review of Operator's FCC Form 1240 for the projected period January 1, 1998 through December 31, 1998 for the City of Gainesville, and Operator's FCC Form 1240 for the projected period January 1, 1998 through December 31, 1998 for Hall County, we find that Operator has justified its calculated maximum permitted ("MPR") of $20.66. 7. Our review of Operator's FCC Form 1235 reveals that Operator has certified that the upgrade meets the minimum technical requirements of FCC Form 1235 and that the upgrade was completed in October 1997. Operator chose to allocate its Monthly Network Upgrade Add-on (Section III, Lines 4 and 5) to both its BST and its CPST rates. Such an election is consistent with the FCC Form 1235 instructions. We adjusted Operator's interest expenses reported on Worksheet A (Cost Assignments and Allocations), Line 9 (Interest Expense Related to Upgrade). Operator did not calculate its interest expense in accordance with the FCC Form 1235 Instructions, which require actual interest data. Operator requested that it be allowed to use a normalized capital structure because it does not use specific project financing for its upgrade projects. Operator's use of general corporate funds to finance its projects does not preclude reliance on its actual corporate capital structure as a basis for calculating its upgrade interest expense. In the absence of any evidence of Operator's actual capital structure, we adjusted Operator's interest calculation to reflect 100% debt financing of the upgrade at an 8.5 percent cost of debt. Our adjustments also resulted in a BST MPR of $2.28 for Operator's Monthly Network Upgrade Add-on rather than Operator's calculated BST MPR of $2.57. Our adjustments resulted in a revised upgrade CPST MPR of $4.14 for Operator's Monthly Network Add-on, rather than Operator's CPST MPR of $4.22. Therefore, Operator's total revised MPR for its CPST is $24.80 rather than $24.88. Because Operator's actual CPST rate of $18.95, effective January 1, 1998, does not exceed its revised MPR, we find Operator's actual CPST rate of $18.95, effective January 1, 1998, to be reasonable. 8. 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 $18.95 charged by Operator in the communities referenced above, effective January 1, 1998, IS REASONABLE. 9. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R.  0.321, that the referenced complaints ARE DENIED. 10. IT IS FURTHER ORDERED, pursuant to Section 76.7 of the Commission's rules, 47 C.F.R.  76.7, that the petitions for special relief filed by the City of Gainesville and Hall County ARE GRANTED. 11. IT IS FURTHER ORDERED, pursuant to Section 76.933(d) of the Commission's rules, 47 C.F.R.  76.933(d), that this ruling on the FCC Form 1235 BST rate is binding on the local franchising authorities, the City of Gainesville and Hall County, and on the cable operator, Robin Media Group, d/b/a Intermedia. FEDERAL COMMUNICATIONS COMMISSION Elizabeth W. Beaty Chief, Financial Analysis and Compliance Division Cable Services Bureau