******************************************************** 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 ) ) TCI Communications, Inc., d/b/a ) LaSalle Telecommunications, Inc. ) CUID Nos. IL0955 (Chicago) Communications and Cable of Chicago, Inc. ) IL1104 (Chicago) South Chicago Cable, Inc. ) IL1105 (Chicago) ) Complaints Regarding ) Cable Programming Services Tier Rates ) ORDER Adopted: November 12, 1998 Released: November 16, 1998 By the Acting Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider complaints against the June 1, 1998 rate increase of the above- referenced operator ("Operator") for its cable programming services tier ("CPST") in the communities referenced above. All prior complaints against Operator's CPST rate increases have been resolved. On December 19, 1994, the Commission found that Operator was subject to effective competition in community CUID IL0955, and therefore the complaint referenced herein against the June 1, 1998 rate increase in CUID IL0955 is dismissed. Accordingly, this Order addresses only the reasonableness of Operator's June 1, 1998 CPST rate increase in the communities CUID IL1104 and IL1105. 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 a complaint with the Commission on August 19, 1998 against Operator's June 1, 1998 CPST rate increase from $17.08 to $17.58. The LFA verified that it received more than one subscriber complaint and that the first valid complaint was received by the LFA on June 2, 1998. 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. In a separate letter, the LFA requests that the Commission review Operator's charges for equipment related to the CPST. Operator responds that it does not have any equipment that is specific to the CPST. 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. According to Operator, subscribers use the same equipment to receive both BST and CPST programming. Therefore, the LFA's complaint does not trigger our jurisdiction to regulate Operator's equipment charges. However, the LFA has jurisdiction to determine the reasonableness of Operator's equipment rates. 5. In the letter referenced above, the LFA also requests that the Commission address the issue of revenue offsets. The Communications Act states that the Commission, in determining whether CPST rates are unreasonable, shall consider "the revenues (if any) received by a cable operator from advertising from programming that is carried as part of the service for which a rate is being established, and changes in such revenues, or from other consideration obtained in connection" with the CPST. We have recently reviewed Operator's programming revenue information in connection with complaints filed against Operator's 1997 CPST rate increases, and we found that Operator had adequately accounted for programming revenue received from its CPST programmers ("Revenue-Offset Order"). Operator filed a response to the LFA's complaint, stating that the "Cable Services Bureau reviewed [Operator's] affiliation agreements and other materials and determined [that Operator] had properly accounted for any revenues received from programmers and no offsetting was required. . . . Nothing has occurred since the review that would require further examination." Upon review of Operator's response, we find that Operator has adequately accounted for the programming revenue it received from its CPST programmers and that this issue does not warrant further action at this time. 6. We now review the reasonableness of Operator's June 1, 1998 CPST rate increase. 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 accrue with interest and added to rates at a later time. 7. Upon review of Operator's FCC Form 1210 covering the period July 1, 1994 to June 30, 1995, we find that Operator has not correctly calculated its maximum permitted rate ("MPR"). We adjusted Line I5 (Inflation Adjustment Factor) and Line J5 (Inflation Adjustment Factor) to 1.08% because Operator incorrectly took 2.15% inflation. Operator previously filed FCC Form 1220 (cost of service) with a test year of 1993. Therefore, Operator is not entitled to claim inflation prior to January 1, 1994. This adjustment reduced Operator's CPST MPR to $13.10, effective July 1, 1995. 8. Upon review of Operator's FCC Form 1240 for the projected period June 1, 1996 through May 31, 1997, we find that Operator has not correctly calculated its MPR. We adjusted Line A1 (Current Maximum Permitted Rate) to $13.1046 to conform to Operator's previous revised FCC Form 1210. This adjustment reduced Operator's CPST MPR to $15.51, effective June 1, 1996. 9. Upon review of Operator's FCC Form 1240 for the projected period June 1, 1997 through May 31, 1998, we find that Operator has not correctly calculated its MPR. We adjusted Line A1 (Current Maximum Permitted Rate) to $15.5092 to conform to Operator's previous revised FCC Form 1240. We also revised Line C5 (Current FCC Inflation Factor) to 1.0177. We also adjusted Lines D6 (Current True-Up Segment) to $0.9323, D7 (Current Inflation Segment) to $0.3005 and F8 (True-Up Segment for True-Up Period 1) to $0.9306. We also adjusted Line H12 (Previous Remaining True-Up Adjustment) to include previous revenue. These adjustments reduced Operator's CPST MPR to $17.51, effective June 1, 1997. 10. Upon review of Operator's FCC Form 1240 for the projected period June 1, 1998 through May 31, 1999, we find that Operator has not correctly calculated its MPR. We adjusted Line A1 (Current Maximum Permitted Rate) to $17.5081 to conform to Operator's previous revised FCC Form 1240. We also adjusted Lines D6 (Current True-Up Segment), D7 (Current Inflation Segment) and F8 (True-Up Segment for True-Up Period 1) to conform to Operator's previous revised FCC Form 1240. These adjustments reduced Operator's MPR to $19.54. Because Operator's actual CPST rate of $17.58, effective June 1, 1998, does not exceed its MPR, we find Operator's actual CPST rate of $17.58 to be reasonable. 11. 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 $17.58, charged by Operator in the communities CUID IL1104 and IL1105, effective June 1, 1998, IS REASONABLE. 12. 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. 13. 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 rate charged by Operator in CUID IL0955 is dismissed because Operator is subject to effective competition in that community. 14. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the complaints referenced herein against the CPST rate charged by Operator the communities CUID IL1104 and IL1105 ARE DENIED. FEDERAL COMMUNICATIONS COMMISSION Margaret M. Egler Acting Chief, Financial Analysis and Compliance Division Cable Services Bureau