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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: ) ) City of Antioch, California ) CSR-5239-R ) Petition for Declaratory Ruling ) Regarding Senior Citizen Discounts in ) Local Franchise Agreements ) MEMORANDUM OPINION AND ORDER Adopted: January 29, 1999 Released: February 2, 1999 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. The City of Antioch, California ("Antioch" or "City") filed a Petition for Declaratory Ruling ("Petition") requesting the Commission to make a determination regarding the enforcement of local franchise agreements with respect to senior citizen discount requirements in such agreements. Specifically, Antioch, a certified franchise authority, states that Tele-Vue Systems, Inc. ("Tele-Vue"), the cable franchisee in Antioch, unilaterally terminated a reduced senior citizen rate in its franchise agreement because Tele-Vue believed that the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") preempted local franchise agreements on the issue of reduced rates for qualified senior citizens. In its Petition, Antioch seeks to have the Commission determine whether the 1992 Cable Act supersedes local franchise provisions regarding: 1) the eligibility standards for a senior citizen rate; and, 2) the formula for adjusting the senior citizen rate. II. THE FACTS 2. On September 11, 1984, Antioch and Tele-Vue entered into a franchise agreement. The agreement, which was reached as a settlement of litigation between the parties, was later extended in 1991 for an additional 10 year term. The controversy regarding the senior citizen rate discount arises from paragraphs 5 through 8 of the 1984 franchise agreement. Those paragraphs, in pertinent part, are as follows: (5). In settlement of litigation between the parties in Case No. 231497 . . . the parties have elected to establish rate regulation . . . it being recognized that [cable operator] cannot waive its right to deregulate . . . . (6). [Cable operator] shall offer a "tier" of basic service . . . . For the period of May 1, 1984, to May 1, 1985, the monthly rate for this level of service shall be $8.65. Persons who are 62 years of age or older and who qualify for the special water rates specified in Antioch Municipal Code 6-5.01(f) shall be eligible for this basic tier of service at the monthly rate of $7.35. (7). CITY will maintain rate regulation only on the above-referenced lowest level of service, or Basic Service. [Cable operator] shall have the right . . . to increase . . . its discounted Basic Service rate for senior citizens by an amount of $.25 annually cumulative since [cable operator]'s last rate increase; or by a rate equal to 50% of the increase in the Consumer Price Index for the San Francisco Bay Area for All Urban Consumers (1967=100), as published by the Bureau of labor Statistics . . . whichever is the larger amount. Provided, however, that no rate increase on basic service shall exceed $.50 annually . . . without City Council approval . . . . (8). The qualifications for eligibility for the discounted monthly rate for Basic Service for senior citizens may be renegotiated at [cable operator]'s request at any time following the fifth anniversary date of the execution of this Agreement. 3. Despite these provisions, Antioch states that on or about July 7, 1994, Tele-Vue announced an increase in its senior citizen rates from $7.50 to $11.83 per month. According to Antioch, this increase affects approximately 1,000 eligible senior citizens within the city. In addition, Antioch also states that Tele- Vue announced that effective September 1, 1994, the senior citizen eligibility standards would be revised so that "only persons receiving SSDI and SSI benefits will be eligible for the senior discount." According to Antioch, this change in the senior citizen eligibility requirements also reduces the number of seniors eligible to receive the senior discount. 4. Under the terms of the disputed franchise agreement, Antioch notes that for only a $1.00 more than the basic service rate, seniors could receive a satellite package for the total senior rate of $8.50. Antioch states that now for seniors to continue that former level of service with a satellite package included, the payment increases to a senior rate of $19.84 per month. In addition, Antioch states that Tele-Vue's new senior eligibility standards eliminate most Antioch senior subscribers from receiving a senior rate and will force them into paying the standard cable rate of $24.80 per month. Antioch states that the majority of its senior citizens would then have to pay an increase of $16.30 per month for the same cable television service that they previously received when they qualified for the formerly reduced senior rate. Antioch states that, in light of the franchise provisions at issue, it objects to Tele-Vue's practices regarding senior citizen cable rates. Tele- Vue responds by stating that the 1992 Cable Act preempts these issues. III. ARGUMENTS OF THE PARTIES 5. Antioch argues that enforcement of the franchise agreement between the City and Tele-Vue to provide a senior citizen discount for cable rates is a matter of state contract law, not rate regulation, and therefore is not preempted by the Communications Act or the Commission's rules. Antioch notes that on February 19, 1997, the Commission endorsed this same analysis and issued a Letter Ruling in response to identical concerns raised by senior citizens of Antioch. Antioch requests that the Commission reaffirm this ruling. In pertinent part, the Letter Ruling states: Your letter of February 4, 1997 asks a number of questions dealing with enforcement of the terms of local franchise agreements, specifically regarding senior citizen discounts in such agreements. Your principal inquiry appears to be whether federal law or the Commission's rules endorse or prohibit such terms. Our view is that federal law and the Commission's rules do neither. Federal law, specifically the Cable Television Consumer Protection and Competition Act of 1992 . . . , authorizes cable operators to offer senior citizen discounts but does not require such discounts . . . . Federal law and the Commission's rules are silent on enforcement of an agreement between a cable operator and a local authority under which the operator has agreed to provide discounts to senior citizens. We regard such an agreement -- its terms and enforcement -- to be subject to contract law and not federal communications law. (Emphasis added). 6. In further support of its position, Antioch states that Section 623(e)(1) of the Communications Act confers discretion upon cable operators to offer senior citizen rates lower than rates charged to other subscribers. Antioch notes that Section 623(e)(1) of the Act is an exception to the regulatory requirement for a uniform rate structure throughout the franchise area. According to Antioch, rather than mandate a discount rate less than the maximum permitted rate, Congress devised a scheme through Section 623(e)(1) that permits cable operators to agree contractually to offer such a rate to economically disadvantaged groups, including senior citizens. 7. Antioch argues that such contractual agreements cannot be considered as rate regulation. Antioch states that Section 623(a)(1) of the Communications Act provides that "[a]ny franchising authority may regulate the rates for the provision of cable service . . . but only to the extent provided under this section." According to Antioch, Section 623(e)(1) carves out an area removed from the regulatory power of Federal, State or local franchising authorities because cable operators are granted discretion in the matter of allowing for senior rate discounts. 8. Alternatively, Antioch contends that even if the senior citizen rate requirement is found to be rate regulation, that senior rate can still be enforced by Antioch. Antioch argues that the senior rate could only be preempted if found to be in conflict with federal law. Antioch notes that Section 636(c) of the Communications Act states that "any provision of law of any . . . franchising authority, or any provision of any franchise granted by such authority, which is inconsistent with this Act shall be deemed to be preempted and superseded." Antioch argues that the disputed senior rate is in harmony with the purpose and operation of the 1992 Cable Act. Antioch contends that Section 623(e)(1) embodies an intent to render cable services more accessible to those identified consumer groups least able to afford maximum permissible rates as calculated under the Commission's rules. Thus, Antioch argues that the senior rate and the 1992 Cable Act can coexist together. 9. Tele-Vue responds by noting that Antioch does not dispute that the 1992 Cable Act vests discretion with cable operators, rather than franchise authorities, to offer senior discount rates. According to Tele-Vue, however, Antioch errs by insisting that cable operators can be forced to offer senior discounts found in a franchise agreement made at a time when basic rates were entirely unregulated pursuant to the Cable Communications Policy Act of 1984 ("1984 Cable Act"). Tele-Vue contends that when the parties reaffirmed their franchise agreement when they amended it in 1991, to the extent that Tele-Vue agreed to continue the senior discount rate found in that agreement, it did so in an environment where it had discretion to set, change, and increase its other rates, including its basic service rate. Tele-Vue argues that it did not agree to provide the senior discount now in dispute in the current regulatory environment where its basic cable rates are capped pursuant to the 1992 Cable Act. According to Tele-Vue, Antioch's attempt to enforce those disputed discount provisions has the effect of establishing rates for its cable system that are below the maximum permitted under the current regulatory scheme. Tele-Vue notes that when Antioch applied for certification to regulate basic rates under the 1992 Cable Act, it agreed to regulate rates consistent with the Act. Thus, Tele-Vue contends that Antioch is violating its certification agreement by insisting on regulating Tele-Vue's basic rates while at the same time requiring Tele-Vue to provide a steeply-discounted rate for seniors. 10. Tele-Vue argues that the senior discount that Antioch now attempts to enforce was preempted and superseded by the 1984 Cable Act, and therefore could not have been enforced at any time after the designated sunset period in 1986. Specifically, Tele-Vue notes that rates set forth in franchise agreements were explicitly nullified and preempted by Section 636(c) of the 1984 Cable Act, which stated that the preemptive effect of the 1984 Act applied both to "any provision of law" and to "any provision of any franchise." Tele-Vue disputes Antioch's contention that the senior discount rate which it seeks to enforce is not rate regulation subject to preemption by federal telecommunications law because the senior discount is set forth in a franchise agreement. Tele-Vue argues that the relevant text of Section 636(c) did not change when the Communications Act was amended in 1992. Thus, Tele-Vue argues that for purposes of Section 636(c), whether under the 1992 Cable Act or under the 1984 Cable Act, local rate regulation which is inconsistent with what is permitted under the federal scheme is preempted and superseded whether found in a provision of law or in a provision of a franchise agreement. Accordingly, Tele-Vue argues that the senior rate discount found in the parties' franchise agreement is clearly subject to preemption by the 1992 Act. Tele-Vue further argues that the provisions of the franchise agreement are not among those grandfathered by Section 623(j) of the 1992 Cable Act and notes that Antioch does not argue otherwise. 11. In response, Antioch argues that the senior discount provisions of the franchise agreement were never void, but merely unenforceable between 1984 and 1992, and the relevant contractual provisions were revived as a matter of state law upon the passage of the 1992 Cable Act, which Antioch claims removed the preemptive impact of federal law. Antioch also argues that no inequity results from allowing the enforcement of the senior discount provisions. Antioch claims that absent the City's enforcement, Tele-Vue admits that it would only continue the disputed senior discounts if it could pass along those costs to the remainder of its customers. Antioch argues that such an admission accentuates the need for permitting enforcement of voluntary agreements as a necessary means of effectuating the intent of the 1992 Cable Act to provide increased access to cable services to disadvantaged segments of the population. IV. DISCUSSION 12. For the reasons discussed below, we uphold the Bureau's February 19, 1997 Letter Ruling which addresses the same senior citizen discount issues raised in the instant Petition for Declaratory Ruling. As a general rule, the Commission considers franchise agreements to be within the jurisdiction of the local franchising authority, and not the Commission. The Bureau's February 19, 1997 Letter Ruling confirms that general proposition and goes further by stating that the specific senior citizen rate provisions in the agreement are solely within the purview of local law. 13. In Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992 -- Rate Regulation, the Commission has, to a limited extent, addressed the issue of federal preemption of local rate restrictions contained in local franchising agreements. In interpreting the 1992 Cable Act, the Commission has stated that "all provisions in franchising agreements barring rate regulations by franchise authorities are preempted by federal law." It does not appear that the Commission specifically addressed the issue of preemption regarding existing rate regulations as they existed in local franchising agreements at the time. However, Section 623(j) of the Act specifically "grandfathered" rate regulation in local franchise agreements in existence before the enactment of the 1992 Cable Act unless there was effective competition in existence in the community under the Commission's rules in effect on July 1, 1990. 14. Antioch does not make any showing regarding the grandfathering of the senior discount in its franchise agreement, but rather appears to concede that effective competition was present given the provisions of the Commission's then existing definitions of where competition did not exist by noting that those provisions were "exceedingly narrow and inapplicable to the geographic region in which the City is located." More basically, however, Antioch appears to be arguing that it believes that the senior rate discount at issue falls outside of the Commission's rate regulation scheme and was not intended to be abrogated regardless of the specific requirement of the grandfathering provision. Given the absence of any specific information demonstrating that effective competition did not exist during the relevant time period combined with the absence of specific rate controls during the time period in question, we are not prepared to conclude that the discount provision involved here is a "grandfathered" rate regulation under Section 623(j). 15. In making our decision here, we note that at the time the parties entered into their franchise agreement, Tele-Vue had complete control over its rate structure with Antioch, including setting variable rates for categories of subscribers. In settlement of litigation between the parties in 1984, Tele-Vue agreed to provide cable rate discounts to the senior citizens of Antioch. On December 17, 1991, shortly before the enactment of the 1992 Cable Act, Tele-Vue agreed with Antioch to amend and extend the same franchise agreement, without alteration to the senior citizen discounts. Despite Tele-Vue's claims that the 1992 Cable Act barred it from providing these same senior discounts in a new regulatory environment, it was not until July 1994 that Tele-Vue unilaterally cancelled the senior rate. We note that for two years after the enactment of the 1992 Cable Act, Tele-Vue continued to honor the terms of its franchise agreement with Antioch. 16. We believe that public policy requires that we avoid unnecessary regulatory interference regarding contracts, such as franchise agreements, entered into by consenting parties. In this instance, in settlement of a private lawsuit, the parties agreed to establish franchise provisions regarding the eligibility standards for a senior citizen rate and the formula for adjusting that rate. We recognize Tele-Vue's argument that it did not agree to provide the disputed senior discount in the current regulatory environment. However, Tele-Vue did agree to those terms of its own volition in 1984, and again amended and extended the franchise agreement in 1991, for a ten year term. Tele-Vue then continued to abide by the terms of that franchise agreement well after the enactment of the 1992 Cable Act. We cannot agree with Tele-Vue that the senior citizen discount provisions in that franchise agreement should be rendered null and void and preempted by federal law because those provisions are now financially undesirable for Tele-Vue. We recognize that the regulatory environment has changed, but we are unwilling to tamper with the terms of a local franchise agreement mutually consented to by the parties. 17. We cannot disagree, however, with Tele-Vue's argument that the disputed senior discount rate does impact the general rate regulatory scheme. While we recognize that the senior rate impacts, in part, how Tele-Vue is affected by the system of rate regulation implemented by the 1992 Cable Act, we do not believe that the senior discount at issue is preempted by Section 636(c). We agree with Antioch that the senior rate could only be preempted if found to be in conflict with federal law. By enacting Section 623(e)(1) into its system of rate regulation pursuant to the 1992 Cable Act, Congress clearly intended to encourage cable operators to offer, and to continue to offer through franchise agreements, reasonable discounts to senior citizens or other economically disadvantaged groups. Thus, we conclude that the disputed senior rate does not conflict with federal law, but is consistent with the purpose and operation of the 1992 Cable Act. Accordingly, we will not interfere with Antioch's efforts to enforce the terms of its franchise agreement with Tele-Vue regarding senior citizen discounts. V. ORDERING CLAUSES 18. Accordingly, IT IS ORDERED that the Petition for Declaratory ruling filed by the City of Antioch IS GRANTED to the extent indicated herein. 19. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by Section 0.321 of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Deborah A. Lathen Chief, Cable Services Bureau