********************************************************    
                         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 Matters of               )
                                )
FALCON FIRST COMMUNICATIONS, L.P.) File No. CSB-A-0296
                                )  File No. CSB-A-0334
Appeals of Local Rate Orders    )  File No. CSB-A-0351
of Whitfield County, Georgia    )  File No. CSB-A-0466
                                )  CUID GA0317


                   MEMORANDUM OPINION AND ORDER

      Adopted:  May 11, 1999                     Released:  May 13, 1999

By the Deputy Chief, Cable Services Bureau:

     1.   Falcon First Communications, L.P. ("Falcon"), the franchised cable operator serving Whitfield
County, Georgia ("the County"), filed appeals of Resolutions adopted by the County on February 13, 1996
("February 1996 local rate order"), June 11, 1996 ("June 1996 local rate order"), August 13, 1996 ("August
1996 local rate order"), and September 26, 1997 ("September 1997 local rate order") and a petition for stay
pending review of the September 1997 local rate order.  The County has opposed Falcon's appeals, and Falcon
has replied to each of the County's oppositions.  Falcon supplemented its appeal of the February 1996 local
rate order.  Falcon's appeals raise common issues and are being consolidated in the interest of administrative
efficiency.  On November 12, 1997, the County filed a Petition for Enforcement of Local Rate Order and
Imposition of Forfeiture, which is also being consolidated in this proceeding.  Falcon has opposed the County's
Petition, and the County has replied.  The February 1996, August 1996, and September 1997 local rate orders
are remanded for further review consistent with this memorandum opinion and order.  Falcon's appeal of the
June 1996 local rate order is dismissed as moot.  The County's Petition for Enforcement is denied.

                      I.  STANDARD OF REVIEW

     2.   Under our rules, rate orders made by local franchising authorities may be appealed to the
Commission.  In ruling on appeals of local rate orders, the Commission will not conduct a de novo review,
but instead will sustain the franchising authority's decision as long as a reasonable basis for that decision
exists.  The Commission will reverse a franchising authority's rate decision only if it determines that the
franchising authority acted unreasonably in applying the Commission's rules.  If the Commission reverses a
franchising authority's decision, it will not substitute its own decision but instead will remand the issue to the
franchising authority with instructions to resolve the case consistent with the Commission's decision on
appeal. 





                         II.  BACKGROUND

     3.   The Communications Act provides that, where effective competition is absent, cable rates are
subject to regulation.  Rates for the basic service tier ("BST") must be reasonable in accordance with
Commission regulations for setting rates.  Rates for regulated equipment and installation services on the
customer's premises, the equipment basket, must be based on the operator's actual costs.  The Commission
developed a benchmark methodology for determining initial regulated programming services rates.  FCC Form
393, the Commission's first form for determining both programming services and equipment initial permitted
rates, was replaced by FCC Forms 1200 and 1205 when the Commission adjusted the benchmark formula
effective May 15, 1994.  FCC Form 1200 is used for setting initial programming services rates for regulated
cable services.  Operators that previously determined their rates with Form 393 reset their initial rates with
Form 1200.  Operators initially setting regulated rates after May 14, 1994 used Form 1200.  FCC Form 1205
is used to determine regulated cable equipment and installation rates.

     4.   When setting initial regulated rates, operators were required to unbundle their customer
equipment and installation costs from their regulated revenues and thereafter to charge separately for the
programming tiers and for customer equipment and installation.  FCC Form 1205 includes a worksheet for
determining the equipment costs to be unbundled from the programming service revenues used to set tier rates. 
In the Worksheet for Calculating Total Equipment and Installation Costs ("unbundling worksheet"), equipment
and installation costs are converted to a monthly per subscriber cost that is subtracted from the cable operator's
total per subscriber regulated revenues in Form 1200.  The maximum permitted programming service rates,
including the BST rate, are determined from the remainder.  Costs of providing regulated services that are not
included in the equipment basket are recovered in the rates for programming services.  Because of this linkage
in the unbundling calculation between revenues from regulated services and equipment and installation costs,
Form 1205 calculations resulting in lower equipment basket costs should lead to higher programming service
rates and correspondingly lower equipment and installation rates.  Conversely, calculations resulting in higher
equipment basket costs should lead to lower programming rates and correspondingly higher equipment and
installation rates.  

     5.   Once its initial regulated BST rate is established, the operator can adjust its BST rate
periodically for changes in inflation, the number of regulated channels, and external costs, including changes
in the cost of programming.  An operator using the quarterly rate adjustment method files as often as quarterly
and at least annually on Form 1210.  An operator using the annual rate adjustment method files on Form 1240.

     6.   FCC Form 1205 is also used to update permitted equipment and installation charges based
on equipment basket costs.  An operator's regulated equipment and installation charges are limited to its actual
costs as reflected in the equipment basket, and the operator must be permitted to recover all of its costs
associated with the equipment basket, including a reasonable profit.  The operator computes an hourly service
charge ("HSC"), which is used in developing permitted charges for installation and maintenance services and
is also used in computing the monthly lease rate for individual pieces of equipment. 

                         III.  DISCUSSION

     7.   The issues in these proceedings concern adjustments to the equipment basket that affect the
Falcon's initial unbundled rate for basic service, the proper calculation of Falcon's hourly service charge,
whether Falcon can impose a minimum service charge, and the regulatory status of Falcon's wire maintenance
plan.  Also at issue are the amount of programming costs Falcon can recover through its BST rate and whether
the County adequately explained some of its actions.  Falcon also challenges orders that it make refunds.

A.   Adjustments to the Equipment Basket Affecting the BST Rate

     8.   In its February 1996 Resolution, the County lowered the permitted BST rate Falcon calculated
on Form 1200.  The County did so on the basis of its consultant's analysis that Falcon had underestimated the
installation and customer equipment maintenance costs unbundled from its BST rate.  Falcon's unbundling was
based on calculations in its Form 1205 dated September 2, 1994 ("unbundling Form 1205").  The consultant
found that Falcon improperly excluded from its equipment basket:  (1) the cost of contract labor that performed
installations or customer equipment maintenance; and (2) home wire maintenance, for which it imposes a
separate charge.  Falcon argues that the County erred on both points.







     1.   Contract Labor Costs for Service Installations

     9.   As a general matter, costs of network equipment outside a subscriber's premises, including
subscriber service drops, are recovered through the operator's program tier charges.  Costs related to
installing and maintaining customer premises equipment on the subscriber's premises are included in the
equipment basket.  The only exception to this allocation of costs is for the labor cost of subscriber drops
installed at the time of the primary service installation.  In that case, the operator can include the entire labor
cost of the primary installation in the equipment basket, not just the cost of labor inside the demarcation point. 


     10.  Falcon states it used contract labor to perform installations and capitalized the labor associated
with customer installations as part of the capitalized cost of a drop at the subscriber's premises, and did not
include the contract labor expense in the equipment basket.  It argues this treatment is permitted by page 25
of the instructions to Form 1205.  The instructions at page 25, however, simply direct the operator to indicate
whether it has capitalized the labor costs associated with subscriber cable drops and refer the operator to Step
A of the Worksheet for Calculating Permitted Equipment and Installation Charges.  The instructions for Step
A specify that an operator has a choice only about capitalizing the labor costs associated with the drop.  Those
instructions clearly state:  "This choice does not include labor costs associated with equipment or inside wiring
located on customer premises."  The County was not unreasonable in concluding that labor costs associated
with installation and inside wiring must be unbundled from the tier rate and included in the equipment basket.

     11.  In its reply, Falcon argues that, if the disputed contract labor costs belong in the equipment
basket, the County consultant used the wrong figure for the costs.  According to Falcon, its records for 1992,
the year reflected in its unbundling Form 1205, show the correct figure to be $84,509.  The consultant used
$281,322, the 1994 figure for contract labor in Falcon's later Form 1205 dated February 24, 1995, which
Falcon filed to support adjustments to its equipment basket rates subsequent to unbundling its equipment basket
costs from its tier rates.  Falcon has the burden of proving to the franchising authority that its rates are
reasonable.  It did not give the County the information and did not question the County's estimate of its
contract labor expense when commenting on the consultant's draft rate report and challenging the inclusion of
contract labor in the equipment basket.  Its tender of new, unsupported factual information for the first time
in its reply in this proceeding comes too late for Bureau consideration.  

     12.  On the other hand, while the County may prescribe a rate if the operator has had an
opportunity to participate meaningfully in the rate review process and has failed to meet its burden, the
prescribed rate should be based on the best available information at the time of the County's order.  In this case,
the equipment basket costs unbundled from Falcon's tier rate were based on 1992 data in Falcon's unbundling
Form 1205.  Although the County could look to Falcon's later Form 1205 for the missing contract labor costs,
it should have adjusted those costs to estimate what would have been the costs in 1992.  For example, the
County could have calculated a per-hour contract labor rate from the 1994 contract labor information in
Falcon's February 24, 1995 Form 1205 (using 1994 costs), adjusted this hourly rate by the intervening changes
in the price index, and multiplied this result by its estimate of the hours required to perform the installation
activity in 1992.  Because nothing in the record shows any effort on the County's part to approximate 1992
contract labor costs, the County's adjustment for contract labor is not reasonable, and this issue must be
remanded.  Because this issue is being remanded for further review, Falcon is instructed to provide the County
with the contract labor expenses missing from its unbundling Form 1205 within twenty (20) days of the release
of this order.

     2.   Home Wire Maintenance

     13.  Falcon offers subscribers who own their own wiring an optional wire maintenance agreement
at a charge of $1.50 per month.  The County concluded that Falcon excluded home wire maintenance from
its equipment basket and calculated a value for the home wire maintenance expense, which it added to Falcon's
annual customer equipment and maintenance costs on the unbundling worksheet.  Falcon disagrees with both
the County's conclusion and its calculation.  In its petition, Falcon states that it did include the cost of
maintaining home wiring in its equipment basket and did not separate out expenses for service installation and
maintenance of equipment, whether owned by Falcon or by the subscriber.   It earlier told the County that
"[s]ervice work is performed by technicians whose costs and hours are excluded from the installation charge
calculation," and that it "was justified in not including the maintenance of home wiring in the equipment basket
on Forms 1200 and 1205."  In reply, Falcon explains the apparent inconsistency in its statements by stating
that it "did omit maintenance labor hours from its 1205 calculation, but it included all installation and
maintenance labor expenses."   Falcon offers no support for its statement and makes no claim that it provided
clarifying information below.  It says only that a redone Form 1205 would have no effect on the Form 1200
BST rate calculation since no expenses were omitted, and acknowledges that inclusion of the omitted hours
would affect the HSC. 

     14.  The instructions for Form 1205 are clear.  The operator is to include the costs of equipment
and plant necessary for the installation and maintenance of customer equipment in Schedule A and the total
operating expenses for installation and maintenance in Schedule B.  The totals from these schedules are then
entered on the Form 1205 unbundling worksheet and used in the calculation of the adjusted monthly equipment
and installation cost per subscriber, the number entered in Form 1200 to effect the unbundling of equipment
costs from programming tier rates.  

     15.  In light of Falcon's statements that its costs associated with the wire maintenance plan were
not included, the County's consultant recalculated the annual customer equipment and installation cost on the
unbundling worksheet, Line 7, to include a value for the home wire maintenance expense.  Lacking
information about Falcon's expenses, he used Falcon's maintenance plan rate of $1.50 as a surrogate for
maintenance expenses, although he had recommended a reduction to the monthly rate from $1.50 to $1.00, and
he multiplied this $1.50 rate by the number of subscribers in the region and the number of months in a year to
determine the annual customer equipment and installation cost before adding a value for the contract labor
expense.  Assuming arguendo that its home wiring maintenance plan is subject to regulation, Falcon argues
that the calculation should be based on the $1.00 maintenance plan fee prescribed by the County rather than
the higher fee it actually charged.  

     16.  The record before us is insufficient to determine whether Falcon did include expenses in its
rate calculation for Whitfield County.  Although a franchising authority is justified in using the best
information available to calculate a rate if the operator is not forthcoming with information, the possibility that
expenses were added twice, once by the operator and again by the County, requires a remand to resolve the
factual question about the treatment of expenses.  Falcon is instructed to provide the County with detailed
information necessary to justify its treatment of expenses associated with its wire maintenance plan within
twenty (20) days of the release of this order.  

     17.  Even if wire maintenance plan expenses were not included in the operator's rate calculation,
as Falcon's answer to the County's consultant below suggests, the County's recalculation of Falcon's wire
maintenance expense was not reasonable because it used the rejected wire maintenance charge as a basis for
calculating a value for home wire maintenance expenses.  A franchising authority revising an operator's
calculations must use the revision consistently throughout its review of the operator's rate form.  After
rejecting Falcon's $1.50 rate for the wire maintenance plan, the County should not have used that rate to
estimate Falcon's wire maintenance plan expenses.

     18.  Falcon also argues that the subscriber number used in the calculation should be the number
of subscribers in the County, not the larger number of subscribers in the region used by the consultant.  The
County explains that, like Falcon, it used the regional subscriber number in Line 7 of the unbundling worksheet
because Falcon performed its calculations for Line 7 at the regional level.  Then, like Falcon, it allocated
expenses to the franchise level on Line 8 by multiplying Line 7 by the percentage of regional subscribers living
in the unincorporated County.  The County's adjustment is consistent with the calculation in the worksheet
and is reasonable.


B.   Hourly Service Charge

     19.    The HSC equals the operator's annual equipment basket costs, excluding the purchase cost
of customer equipment, divided by the total person hours spent in installing, repairing, and servicing customer
equipment during the same period.  The calculations are made on the Form 1205 Worksheet for Calculating
Permitted Equipment and Installation Charges, Step A, which uses the capital costs of service installations and
equipment and plant maintenance computed on Schedule A of Form 1205 and the annual operating expenses
computed on Schedule B.

     1.   Adjustments to the Hourly Service Charge

     20.  In its February 1996 Resolution, the County followed the consultant's recommendation and
adjusted Falcon's HSC rate for two time periods:  May 15, 1994 - July 6, 1995 and July 7, 1995 forward.  The
consultant concluded that Falcon had underestimated its installation and customer maintenance costs for both
periods by failing to include the hours spent performing home wire maintenance in the equipment basket.  For
the period beginning May 15, 1994, the consultant additionally concluded that Falcon had failed to include the
costs of contract labor in the equipment basket.  Because Falcon disagrees that it treated these costs incorrectly,
it disputes the County's adjustments to its HSCs for the same reasons it disputes the County's adjustments to
its permitted BST rate for home wire maintenance expenses and contract labor expenses.  As the County
points out and Falcon acknowledges, however, Falcon's failure to include the hours spent on wire maintenance
in the equipment basket affects the HSC.

     21.  The consultant adjusted Falcon's hourly service charges to include his estimate of Falcon's
hours spent performing home wiring maintenance.  Like his estimate of home wire maintenance expenses, the
consultant's estimate of the hours was based on Falcon's disallowed charge for the wire maintenance plan. 
The consultant added his estimate of the hours spent on home wire maintenance to Falcon's estimate of the
hours spent performing installations and customer equipment maintenance.  To estimate home wire maintenance
hours, the consultant divided the yearly cost of Falcon's wire maintenance plan per subscriber by the HSC
Falcon had proposed, and multiplied this number by the number of subscribers in the region.  To calculate the
HSC for the first period, May 14, 1994 - July 6, 1995, the consultant added three things:  (1) Falcon's estimate
of the total expense for installations and equipment maintenance in Falcon's FCC Form 393, which used 1992
data; (2) Falcon's calculation of its contract labor expense for 1994 shown in Falcon's Form 1205 for the
second period starting July 7, 1995; and the consultant's estimate of the home wire maintenance expense
discussed supra.  He divided this sum by the total number of hours he had calculated Falcon spent performing
maintenance and installations for this period.  To calculate the HSC for the period from July 7, 1995 forward,
the consultant added the home wiring maintenance expense he had calculated to the Falcon's total expense for
installations and equipment maintenance as of the end of 1994.  After subtracting the capital cost of equipment
calculated by Falcon, the consultant divided the remainder by the total number of hours he calculated for this
period using Falcon's wire maintenance plan charge.

     22.  The County reasonably concluded that Falcon had not correctly calculated its HSC for either
period.  As discussed above, Falcon admits it did not include the hours spent on wire maintenance in the
equipment basket for either period.  For the first period, Falcon also capitalized the cost of contract labor used
in initial installations rather than including the labor costs in the equipment basket as required by the
Commission's rules and Form 1205.  

     23.  The County's adjustments to Falcon's HSC, however, were not reasonable and must be
reviewed on remand.  Our concerns with these adjustments are the same as our concerns about the consultant's
calculation of contract labor and wire maintenance expenses.  The record is insufficient to determine whether
Falcon did include wire maintenance expenses in its rate calculation, raising the possibility that wire
maintenance expenses were included twice in the HSC calculations.  The adjustments rely on Falcon's
disallowed charge for the wire maintenance plan as adjusted by Falcon's challenged HSC and, for the
equipment rates in the first period starting May 15, 1994, include unadjusted contract labor expenses from a
later time period.  Thus, they are inconsistent with other adjustments made to Falcon's rates or do not include
the best available data.

     2.   Minimum Service Charge 

     24.  The County also found that Falcon has charged subscribers for one-half hour of labor for
installations, although company estimates showed that some installation types typically require less than one
half-hour to resolve.  The County ordered refunds of the estimated overcharges and resolved that Falcon could
not set a minimum charge for service or include travel time for service call charges.  According to the Rate
Report, Falcon excluded travel time to a customer's home in calculating its hourly service charge but was
recovering travel time from some customers by charging a minimum rate for service calls.  The estimated total
possible overcharge was $13,356 per year, for a total of $21,682 in the County. 

     25.  Falcon objects to the rejection of its minimum charge, arguing that a cable operator is entitled
to use an average for setting installation rates, and that its installation charges average out.  The County points
out that Falcon elected to use an hourly rate for all installations rather than average installation charges when
setting its initial rates, and that Falcon's exclusion of travel time from its calculation of the HSC resulted in a
higher HSC.  The County concluded that Falcon's combining of the methods resulted in an excessive recovery
for installations taking less than thirty minutes.

     26.  Neither the Commission's rules nor Form 1205 specify any particular method for counting
labor hours.  What is required, however, is that an operator use the same method for counting labor hours in
calculating the HSC as it does in calculating the specific charges for its various installations and equipment,
so that recoverable costs are allocated to the labor hours through which they are recovered.  In this way, an
operator's choice about how to handle indirect as well as direct costs is revenue neutral.  Form 1205 allows an
operator to elect whether to bill for installations on the basis of the HSC or a standard charge.  Having elected
to use the HSC, Falcon cannot recover more than the HSC for installations and maintenance, based on actual
time spent, and rationalize it as an "average."

     27.  In its Reply, Falcon states its willingness to cease charging a minimum rate and, instead,
charge for installations based on the actual time of the service call but argues that it should be excused from
refund liability.  It argues that those installations taking more that thirty minutes but for which it charged the
minimum service charge resulted in undercharges that should be offset against any overcharges.  Although
claiming that its records show the undercharges and overcharges "average out," it claims that refunds in the
circumstances under review are virtually impossible to calculate and are minimal in light of the County's
conclusion that its HSC is too low.  

     28.  Its claim that determining refund liability will be difficult does not excuse Falcon from
responsibility for any overcharges arising from its minimum service fee.  Refund liability must be based on a
comparison of Falcon's actual service charge and the maximum permitted HSC determined on remand.  If
actual data about the number of installations and time spent in the relevant periods is unavailable, the County
has the discretion to determine the best method for estimating the refund liability that is fair to both Falcon and
its subscribers.  Balancing overcharges against undercharges resulting from Falcon's minimum service fee
would be appropriate.

C.   Wire Maintenance Plan

     29.  The County treated Falcon's wire maintenance plan as a regulated offering and reduced
Falcon's rate for the maintenance agreement.  Falcon argues that the County has no jurisdiction over its rates
for the wire maintenance plan.  It views the plan as unregulated because Falcon has no ownership interest in
the wiring in subscriber homes, and the maintenance plan is offered in a competitive environment, where
customers choosing not to subscribe to the maintenance plan can pay Falcon for service calls at the regulated
HSC rate or obtain the services of a third party contractor for home wiring repairs.  Falcon analogizes the
maintenance plan for customer-owned wiring to sales of equipment to subscribers, which are exempt from price
regulation.

     30.  We disagree.  As discussed in TCI of Southeast Mississippi, the 1992 Act required the
Commission to establish standards to ensure that equipment would be available on the basis of actual cost. 
The legislative history concerning the home wiring provisions in the 1992 Act indicates that Congress wanted
the Commission to "adopt policies that will protect consumers against the imposition of unnecessary charges,
for example, for home wiring maintenance."  In establishing initial rate regulations pursuant to the 1992 Act,
the Commission implemented the law by establishing standards governing operators' rates for equipment service
plans when operators sell equipment to subscribers.   The statutory directive to ensure that equipment rates
reflect actual costs and the specific reference to "home wiring maintenance" in the legislative history of the
1992 Act give premise to the Commission's responsibility to ensure that the rates for inside wiring maintenance
plans reflect the law's standard.  This includes circumstances in which another form of service, such as an
HSC-based charge, is available.  Inside wiring maintenance fees in excess of actual cost are the type of
"unnecessary charges" Congress sought to prevent.  Section 76.923(i) of the Commission's rules states that
a cable operator may sell service contracts for the maintenance and repair of equipment sold (or given) to
subscribers and specifies a cost-based pricing formula for equipment service contracts directed to fulfilling the
law's mandate.

     31.  The exemption from price regulation for certain equipment sales does not justify a similar
exemption for inside wiring maintenance plans.  The Commission determined in adopting its rate regulations
that the sale of equipment to subscribers will be exempt from price regulation under Section 76.923(i) if the
same equipment is available from the operator on a leased, i.e., regulated, basis.  In such cases, the subscriber
would have a comparable regulated alternative to the unregulated equipment sale.  A service contract for the
maintenance and repair of equipment is not comparable to an as-needed maintenance fee based on a regulated
HSC.  A maintenance agreement is similar to an insurance contract.  It is designed to protect subscribers from
incurring essentially unquantifiable costs for service provided on an as-needed basis.  Subscriber purchase
of equipment, in contrast, is a close substitute for a lease rate.  By multiplying the lease rate by the number of
months the subscriber plans to use the equipment in question and comparing the result to the sales price and
the estimated life of the equipment, the subscriber can readily ascertain the relative costs and benefits of leasing
versus purchasing the equipment.  Comparing the relative costs and benefits of purchasing an inside wiring
maintenance plan versus relying on the HSC is a difficult, if not amorphous, task.  The analysis requires a
subscriber to make assumptions about future events that even the cable operator may be unable to predict
reliably for a particular subscriber, such as the capability of the wire to withstand a number of elements.  The
two forms of maintenance service are not comparable.  It cannot be said that a regulated, HSC-based charge
parallels the unregulated inside wiring maintenance plan.  Furthermore, equipment rates are to be cost-based. 
Falcon does not argue that its maintenance plan is, and is intended to be, based on the actual cost of the service. 
Nor has Falcon shown how competitive pressures from the service alternatives it references will ensure that
an inside wiring maintenance plan will be offered in compliance with the statutory standard.

     32.  Our cost-based formula for equipment rates, which includes a reasonable profit, results in rates
that are "comparable to those that would exist in a competitive environment."  Cost-based pricing of
equipment service contracts is appropriate regardless of whether an operator also offers to perform maintenance
and repair work on an as-needed basis at an hourly rate equal to the HSC.  Even if competitive alternatives to
Falcon's inside wiring maintenance plan were to be considered, there is no basis on the record to deregulate the
rates for Falcon's service offering.  Falcon has not provided persuasive evidence that its proffered alternatives--
the rate-regulated, as-needed HSC option and the third-party option--will provide competitive pressures
affecting the price of Falcon's inside wiring maintenance plan and ensuring that the price will be consistent with
the statutory requirement that equipment rates be based on actual cost.  The County was not unreasonable in
concluding that Falcon's wiring maintenance plan is subject to rate regulation.

D.   Programming Costs

     1.   February 1996 Local Rate Order 

     33.  In its February 1996 local rate order, the County found no fault with the external cost
information, including programming cost information, provided in Falcon's Form 1200.  However, the County
disallowed Falcon's programming cost increases claimed on Form 1210, stating that Falcon had not provided
sufficient information to support the claimed increases.  Falcon had filed Form 1210 on March 9, 1995 to
justify increases in its external costs incurred between April 1, 1994 and December 31, 1994 and planned to
recover those cost increases through its July 7, 1995 rate increase.   Falcon supplied the County with a list of
each program service and the increase in the monthly per subscriber cost to Falcon which had been imposed
during the relevant time period, but did not provide the requested copies of its contracts with program
suppliers.  Falcon argues that providing proprietary information was unnecessary in light of its lists.   The
County argues that it could not permit Falcon to pass through unverified programming cost increases of the
magnitude Falcon claimed.  While continuing to express concern about the proprietary nature of the
information in the programming contracts in its Reply, Falcon states its willingness to show the County
consultant "the information necessary to establish the correctness of the figures utilized by Falcon in its March
9, 1995 Form 1210" and asks for a remand for this purpose.

     34.  A local franchising authority reviewing a cable operator's proposed rates has the right to ask
the operator for information supporting a rate increase, including proprietary information, that is "reasonably
necessary to make a rate determination."  Upon a proper request from a franchising authority, the cable
operator must disclose material the franchising authority deems reasonably necessary for determining the
operator's maximum permitted rates.  Because confidential programming contracts may contain a substantial
amount of information that is not reasonably necessary for the rate determination, the production of which
would unnecessarily risk the disclosure of sensitive business information, we expect franchising authorities
to be judicious in their requests for programming contracts, to make sure that the information is needed, and
to narrow their requests, if appropriate, to permit cable operators to submit only the specific information
required for the rate determination.  We specifically "urge[d] franchising authorities and cable operators to
adopt procedures that will achieve the proper balance between the franchising authority's right to review
relevant information and the cable operator's interest in maintaining the confidentiality of sensitive business
information."

     35.  The County is entitled to request verification of the cost increases Falcon listed as support for
its rate increase, including verification from relevant proprietary documents.  However, nothing in the record
shows that the County narrowed its request to relevant information in Falcon's programming contracts or
offered Falcon any assurance that the confidentiality of sensitive business information would be protected. 
Under the circumstances here, we cannot find that the County's broad request for programming contracts was
reasonable for the purpose of reviewing Falcon's cost increases in its March 9,  1995 Form 1210.  On remand,
the County should address its request for proprietary information in Falcon's programming contracts to that
which is reasonably necessary to making the rate determination with respect to Falcon's program cost increases
and should work with Falcon to balance its right to review relevant information with Falcon's interest in
maintaining the confidentiality of the information in its contracts.

     2.   June 1996 and August 1996 Local Rate Orders

     36.  Falcon filed a new FCC Form 1210 on February 15, 1996, which included programming costs
experienced between January 1, 1995 and December 31, 1995.  In its June 1996 local rate order, the County
tolled the period for reviewing Falcon's rate filing until after receiving information requested regarding Falcon's
programming contracts.  In its appeal, Falcon states that it entered into a satisfactory confidentiality agreement
with the County and asks for a remand of this portion of the June 1996 local rate order so that the County can
make a decision on Falcon's submission.

     37.  In its August 1996 local rate order, the County addressed Falcon's programming costs included
in the February 15, 1996 Form 1210 and also in a Form 1240 Falcon filed on June 25, 1996.  The County
disallowed the entire amount of Falcon's proposed rate increases attributed to programming cost increases
reflected in both forms.  Its decision was based on its consultant's advice that Falcon's initial programming
costs reflected in Form 1200 should have been stated at a higher amount and, therefore, that its net cost
increases reflected in Form 1210 should have been smaller.  Because the consultant could not quantify this
amount, the County disallowed all of the Form 1210 and Form 1240 rate increases due to programming cost
increases.  

     38.  Falcon disagrees with the County's order.  Falcon explains that it calculated the programming
costs in Form 1200 pursuant to the terms of contracts under which it was then operating, some of which had
expired and were being renegotiated, and recorded precisely what it was paying on the relevant date.  When
it later negotiated contracts to replace expired contracts, its rates increased retroactively and it was required
to make supplemental payments for programming carried during the preceding period.  Falcon states that it uses
a cash method for reporting programming costs on FCC forms and recorded only actual programming costs
for the periods covered by the rate forms; it did not pass supplemental payments on to subscribers, but
absorbed them instead.  The County would have Falcon recalculate its programming costs for the period
covered by Form 1200 to include the rate adjustments later agreed to with Falcon's program suppliers and then
reduce the amount of the cost increase taken in Falcon's Form 1210 by this supplemental amount.  Because
these adjusted programming costs were retroactive to the period covered by Form 1200, the County claims
Falcon did not experience these cost increases in the period covered by its Form 1210 and should not have
included the increased costs in its rates.  The County faulted Falcon for not providing information about the
supplemental payments, and carried the reduced costs forward when reviewing Falcon's Form 1240.  Falcon
argues that the County's ruling on this issue is inequitable and must be reversed.

     39.  The Commission's rules allow cable operators to pass increases in programming costs through
to subscribers.  The calculation of these costs is governed by the Commission's forms.  Form 1200 asks the
operator to provide its programming costs as of the beginning date (the earlier of the initial date of regulation
or February 28, 1994) and adjusts those costs in Module B for any changes in programming costs that have
not been passed through to subscribers as of March 31, 1994.  Changes in costs incurred or recognized on
the operator's books after March 31, 1994 belong in the forms provided for adjusting the operator's rates after
March 31, 1994.  Although an operator may have been in negotiations regarding programming costs on the
dates addressed in Form 1200, nothing in the Commission's rules requires the operator to redo Form 1200 when
the negotiations are completed, even if the operator must make retroactive payments pursuant to a new
programming contract, unless the programming cost increase was recognized on the operator's books on the
beginning date or by March 31, 1994.  

     40.  The County does not dispute Falcon's statement that it did not seek to recover the amount of
the supplemental payments from subscribers.  Thus, Falcon's agreement to make supplemental payments for
the period during which negotiations were ongoing has no bearing on the treatment of the costs Falcon sought
to recover in its Form 1210.   Because Falcon did not include the supplemental payments in its rates, the
County's request for information about the supplemental payments was not necessary for its rate determination,
and the County was not reasonable in denying Falcon a rate adjustment for failing to provide that information. 
The County's rejection of Falcon's programming cost adjustments in its June 25,  1996 Form 1240 for failing
to provide information about supplemental payments dating back to Form 1200 is likewise not reasonable.

E.   Sufficiency of September 1997 Local Rate Order 

     41.  Falcon submitted Forms 1240 and 1205 to the County on June 23, 1997 to justify rates for
the period of October 1, 1997 through September 30, 1998.  Falcon states it twice revised its rate forms, the
second time on September 26, 1997 at the request of the County's consultant.  In its September 1997 local
rate order adopted the same day, the County ordered Falcon not to change its rates pending completion of the
County's review of these rates.  Falcon alleges that the information provided related almost totally to an
explanation of Falcon's equipment and installation rates on Form 1205.  Falcon states that it agreed to a small
change to its Form 1240, which lowered the permitted BST rate by $0.01.  In Falcon's view, its BST rate
increase is justified and the County's action is not adequately explained.  According to the County, Falcon was
repeatedly asked for information but was unresponsive even when advised that the County might deny the
proposed rate changes if the requested information was not provided.  Falcon sent information via facsimile
while the County's consultant was en route to the Board of Commissioners meeting.  In reply, Falcon states
that only one point in the consultant's information request related to Falcon's Form 1240, the requested revision
lowered the maximum permitted rate by one cent, the consultant knew the revised form was being submitted
on September 26 and knew the effect of the requested revision was de minimis.  Falcon argues that the County
knew how it wanted the Form 1240 revised and could have made the revision itself.  

     42.  The Commission's rules require a cable operator using the annual rate adjustment method to
give its franchising authority notice of rate changes 90 days before putting rate increases into effect.  If the
franchising authority has not acted within the 90 day period, the operator may put its new rates into effect
subject to subsequent review by the franchising authority at any time within twelve months of the operator's
rate filing.  Within that twelve month period,  the franchising authority can order a prospective rate reduction
and refunds for past overcharges if it finds that the operator's rates exceed the maximum permitted rates.  The
franchising authority may seek information from the cable operator.  While it cannot reject timely submitted
information it has requested or that the operator has submitted to cure a deficiency, it is not required to delay
its review pending receipt of information from an unresponsive operator.  However, if the franchising
authority denies the operator's rate increase in whole or in part, it must issue a written decision explaining why
the operator's rates are disapproved and may reduce the rate to the level permitted by the Commission's rules
or prescribe an appropriate rate based on the best information available.  The Commission's rules do not
provide for denying a rate increase pending future review of the operator's rates.  The County's Resolution,
which merely specifies the rate ordered in the County's rate order from the previous year pending further
review, does not meet the Commission's requirement for a written decision.

     43.  The County alleges that Falcon failed to comply with the Commission's rules governing the
timing of rate increases.  According to the County, Falcon implemented a rate increase less than 30 days after
filing an amended Form 1240 and less than one year after its previous rate change.  Section 76.933(g)(1) of
the Commission's rules provides that, if there is a material change in the operator's circumstances during the
90-day review period and the change affects the operator's rate filing, the operator cannot put its new rate into
effect until the franchising authority has had at least 30 days to review the operator's amendment to its Form
1240 filing.  In this case, Falcon's amended Form 1240 was filed at the County's request to correct for an
omission in its earlier filing.  According to Falcon and not disputed by the County, the impact of the change
was one cent.  We do not view this as a material change that tolls the 90-day review period.  Section
76.922(e)(1) of the Commission's rules provides that an operator can change its filing date from year-to-year
but that at least twelve months must pass before the operator can implement the next annual adjustment. 
Although stating that Falcon's scheduled implementation date was October 1, 1997, the County does not state
in its opposition when Falcon made its previous adjustment.

     44.  Falcon and the County have disagreed about what rate to use in computing future BST
adjustments when the underlying BST rate is the subject of a pending appeal.  Now that Falcon's appeals have
been resolved, the County should review the BST rates addressed in its February 1996 and August 1996
Resolutions as directed in this memorandum opinion and order and carry each revised BST rate forward in its
review of the subsequent BST rate.  The BST rate determined for Falcon's June 25, 1996 Form 1240 will
provide the starting point for Falcon's amended Form 1240 filed with the County on September 26, 1997.  

G.   Refunds

     45.  Falcon argues in its appeal of the February 1996 local rate order that the County cannot order
refunds, because it did not issue its rate order within the time specified in the Commission's rules and did not
issue an accounting order as required to preserve the authority to order refunds at a later date.  Falcon also
argues that refunds would be inappropriate in light of the Commission's failure to allow cable operators to
adjust rates to recover changes in external costs incurred from the passage of the 1992 Cable Act until the
initial date of regulation (the "gap" period) and the Commission's subsequent failure to adopt a methodology
for allowing cable operators to recover these gap period costs, as ordered in Time Warner Entertainment Co.,
L.P. v. FCC ("Time Warner Entertainment I").   In Falcon's view, allowing the County to order refunds
would be inequitable when Falcon is entitled to an upward adjustment to its tier rate for gap period external
costs.  The County disagrees, stating that it timely issued tolling and accounting orders for Falcon's Form 1200
and 1210 filings, and arguing that its refund orders are valid because they follow the Commission's rules at the
time, which had not been modified to account for the gap period.  

     1.   Accounting Orders

     46.  In support of its position regarding the accounting order for Falcon's Form 1200, the County
submitted a letter from Lenard Whaley, County Administrator, to James Ashjian, Falcon First, Inc., Pasadena,
CA.  The County states in its March 1996 Opposition at 18 that this letter was timely hand delivered by Mr.
Whaley to Jeff Yarbrough, Falcon's local manager, before December 27, 1994.  Although the copy of the letter
in the record is undated and refers only to Falcon's "rates for basic service, associated equipment and
installation," the County March 1996 Opposition is accompanied by an Affidavit dated March 26, 1996 from
Theresia McDearis, Deputy County Administrator of Whitfield County, declaring "that the facts set forth
[therein] are true and correct to the best of my knowledge."  While not conceding that an accounting order was
issued, Falcon does not challenge the County's assertion that the Whaley letter was a timely delivered
accounting order for Falcon's Form 1200 rates.  We find that the record supports the County's position and that
Falcon can face refund liability if its BST rate exceeded its maximum permitted rate computed on Form 1200.

     47.  In support of its position regarding the accounting order for Falcon's Form 1210, the County
submitted a copy of a June 14, 1995 letter directing Falcon to keep accounts of rates implemented pursuant
to its Form 1210 rate submission.  Falcon no longer contests that accounting order.

     2.   "Gap" Period

     48.  When Falcon filed its Form 1200, cable operators using the benchmark methodology to set
rates were permitted to adjust rates on account of external costs starting with the initial date of regulation for
the system or February 28, 1994, whichever was earlier.  The benchmark system was based on a survey that
demonstrated the difference between rates in competitive and noncompetitive situations on September 30, 1992. 
Under the benchmark system, most regulated cable operators were required to reduce their regulated rates to
a level that represented their September 30, 1992 regulated revenues reduced by a 17% competitive differential. 
The Commission's initial rate regulations did not allow cable operators to account for changes in external costs
between September 30, 1992 and the date of initial regulation, the "gap" period.   Before the County adopted
its February 1996 Rate local rate order, the court in Time Warner Entertainment I found that the Commission's
rationale for not permitting rate justifications based on external costs during this gap period was unacceptable
and vacated the Commission's rule insofar as it denied cable operators recovery of gap period external cost
increases.  Subsequent to the February 1996 local rate order, the Commission adopted its Gap Order
amending its rate rule to provide that an operator whose initial rates were set on the basis of rates in effect on
September 30, 1992 could adjust its rates for changes in external costs incurred between September 30, 1992
and either the initial date of regulation or February 28, 1994, whichever date applied in the individual operator's
circumstances.  The Commission explained that an operator's then current permissible rates could be adjusted
in the operator's next rate adjustment after the Commission's Gap Order to reflect the rates the operator would
be charging at the time of the adjustment if it had been permitted to include increases in external costs occurring
during the gap period.  The adjustment was to be calculated from information in a previously filed Form
1200.  Because the Commission did not provide for the recovery of the revenue deficiencies experienced by
operators during the years before the gap period costs could be reflected in rates, the court in Time Warner
Entertainment II vacated the Commission's Gap Order to that extent.  

     49.  The County argues that its failure to take into account rules that had not yet been adopted
cannot be a basis for granting Falcon's appeal.  Because Falcon's rate forms appealed in the February 1996
local rate order are being remanded for further review for other reasons, we are granting the relief requested
by Falcon.  The rule the County applied was found to be invalid by the Court, and Falcon timely questioned
the impact of its gap period costs on its potential refund liability when it appealed the February 1996 local rate
order.

     3.   Refund Period

     50.  In a footnote to its April 1996 Reply, Falcon for the first time in this proceeding states its
belief that the County has used an erroneous refund period in its February 1996 local rate order.  Falcon does
not elaborate on this point, and the County moved to dismiss the argument as improperly raised.  While we
do not condone arguments raised for the first time in reply pleadings and do not need to pursue the merits of
the argument here, we expect the County will determine any refund liability pursuant to the Commission's rules
after resolving the remanded matters.

H.   Forfeiture

     51.  The County filed a Petition for Enforcement of Local Rate Order and Imposition of Forfeiture
("Petition for Enforcement") concurrently with its November 1997 Opposition, asking that the Commission
direct Falcon to comply with its September 1997 local rate order and impose a forfeiture and any additional
remedies deemed appropriate.  According to the County, Falcon willfully implemented its rate changes on
October 1, 1997 in spite of the County's September 1997 local rate order denying Falcon's BST rate changes. 
The County argues that Falcon will not be harmed by the County's order because of the true-up mechanism
available in the Form 1240 for operators like Falcon using the annual method for adjusting rates and states that
Falcon did not seek a stay of the local rate order.  In its opposition, Falcon points out that it did seek a stay
from the Commission and argues that it had justified its rates before the County.  The County replies that
its consultant has now finished his review of Falcon's rates and the County will consider a new rate order
authorizing a rate in excess of the rate in the September 1997 local rate order.  The County disagrees that
Falcon justified the full amount of the rate increase it implemented, however.

     52.  As discussed above, the County's September 1997 local rate order was not consistent with the
Commission's rules in that it denied the operator's rate adjustment pending further County review and without
stating a reason for the denial cognizable under the Commission's rules or attempting to determine the correct
adjustment.  Although the Commission has stated that local rate orders are not stayed automatically by the
filing of an appeal, we do not believe the circumstances in this case warrant formal administrative sanctions. 
Therefore, we are denying the County's Petition for Enforcement.

I.   Conclusion

     53.  The County's February 1996, August 1996, and September 1997 local rate orders are
remanded to the County for further action consistent with this memorandum opinion and order.  Because the
County's June 1996 local rate order was superseded by the August 1996 local rate order, it is dismissed as
moot.  

J.   Ordering Clauses

     54.  Accordingly, IT IS ORDERED that the Motion to Dismiss Portions of the Reply to Opposition
to Petition for Review of Rate Order filed by Whitfield County, Georgia on May 1, 1996 IS DENIED; the
Motion for Leave to File Additional Pleading filed by Whitfield County, Georgia on May 1,  1996 IS
GRANTED; the Supplement to Petitions for Review filed by Falcon Cablevision and Falcon First
Communications, L.P. on January 17, 1997 IS DISMISSED with respect to this proceeding; and the Motion
for Extension of Time and Leave to File Opposition to Supplement to Petitions for Review filed by Whitfield
County, Georgia on February 11, 1997 IS DISMISSED.

     55.  IT IS FURTHER ORDERED that the Petition for Stay Pending Review of Rate Order filed
by Falcon First Communications, L.P. on October 27, 1997 IS DISMISSED.

     56.  IT IS FURTHER ORDERED that the Petition for Review of Rate Order filed by Falcon First
Communications, L.P. on March 14, 1996 IS GRANTED in part and DENIED in part and the matter IS
REMANDED to Whitfield County, Georgia.

     57.  IT IS FURTHER ORDERED that the Petition for Review of Rate Order filed by Falcon First
Communications, L.P. on July 15, 1996, IS DISMISSED.

     58.  IT IS FURTHER ORDERED that the Petition for Review of Rate Order filed by Falcon First
Communications, L.P. on September 12, 1996 IS GRANTED to the extent addressed herein and the matter
IS REMANDED to Whitfield County, Georgia.

     59.  IT IS FURTHER ORDERED that the Petition for Review of Rate Order filed by Falcon First
Communications, L.P. on October 27, 1997 IS GRANTED and the matter IS REMANDED to Whitfield
County, Georgia.

     60.  IT IS FURTHER ORDERED that, within twenty (20) days of the release of this order, Falcon
First Communications, L.P. MUST SUBMIT to its Whitfield County, Georgia franchising authority its 1992 contract labor expenses and detailed information necessary to justify its treatment of expenses
associated with its inside wiring maintenance plan as directed herein.

     61.  This action is taken pursuant to authority delegated by  0.321 of the Commission's rules. 
47 C.F.R.  0.321.

                              FEDERAL COMMUNICATIONS COMMISSION



                              William H. Johnson
                              Deputy Chief, Cable Services Bureau