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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 ) ) CSR-5051-R Time Warner Cable ) CSR-5052-R ) Application for Review ) Uniform Rate Structures ) ORDER Adopted: August 11, 1999 Released: August 16, 1999 By the Commission: I. INTRODUCTION 1. Before the Commission is an application for review ("Application") filed July 24, 1998, by Time Warner Cable ("TWC") of the action by the Cable Services Bureau ("Bureau"), In Re Petition of Time Warner Cable, Memorandum Opinion and Order ("Bureau Order"), denying two petitions for special relief ("Petitions") requesting approval of its uniform rate-setting methodology already in place in its cable television systems in Rochester, New York and Finger Lakes, New York. In the Bureau Order, the Bureau determined that TWC was not authorized to implement uniform rates before the adoption by the Commission of an order allowing the setting of uniform rates, specifically Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992, Rate Regulation: Uniform Rate-Setting Methodology ("Uniform Rate Order"), and before TWC obtained Commission approval of its proposed methodology. The Bureau also determined that TWC had not submitted information, required pursuant to Section 76.922(n) of the Commission's rules, that demonstrated that TWC's current rates or proposed uniform rates were calculated in accordance with the Commission's rate regulations and were reasonable, a critical element of any uniform rates proposal. Having considered TWC's application for review, we conclude that the Bureau Order should be affirmed. TWC also filed a petition for stay of the Bureau Order pending resolution of its Application. Because we resolve TWC's Application herein, we will dismiss TWC's petition for stay as moot. II. BACKGROUND 2. Under the Communications Act, cable operators that do not face effective competition are subject to regulation of their basic services tier ("BST"), cable programming services tier ("CPST"), equipment and installation rates. Operators may establish their regulated rates using either the benchmark methodology, or the cost of service methodology, both of which set a maximum permitted rate ("MPR") that an operator may charge in a local franchise area. In the Uniform Rate Order, the Commission created a variation on these rate- setting methodologies by allowing cable operators to establish uniform rates for multiple franchise areas. The Commission determined that uniform rates, when set using a methodology approved by the Commission, benefit both cable operators and subscribers by providing operators with competitive pricing options, providing subscribers with less confusing rate structures, and providing local franchising authorities ("LFAs") with enhanced incentives to pool their resources to administer rate regulation across a wider region. The Commission permits the establishment of uniform rates on a case-by-case basis after an operator submits a proposal and supporting justification demonstrating that the rate structure proposed will be reasonable. III. BUREAU ACTION 3. In September, 1996, TWC filed petitions with the Commission seeking a declaration that fifty communities that it served in the Finger Lakes, New York area and twenty-eight communities that it served in the Rochester, New York area were subject to effective competition ("Effective Competition Petitions"). The Commission rejected TWC's Effective Competition Petitions on June 5, 1997. TWC did not appeal the determination that it was not subject to effective competition in the Finger Lakes and Rochester areas. While the Effective Competition Petitions were pending, TWC implemented its uniform rate structures in response to what it characterized as the "aggressive competition" that it faced in its Rochester and Finger Lakes systems. The uniform rates took effect on January 1, 1997, three and one-half months before the Commission adopted the Uniform Rate Order and without prior Commission approval. At the time the Petitions were filed, the rates were the subject of several unresolved complaints. 4. In its Petitions, filed in June 1997, TWC requested prospective approval of its uniform rate- setting methodology, in both its Rochester and Finger Lakes systems, because the methodology is not unreasonable and because the uniform BST rate does not exceed the MPR that would otherwise apply in any of the affected communities. TWC stated that its methodology is revenue-neutral and has only a de minimis impact on CPST customers, while raising no additional complicating factors. TWC also requested retroactive approval of its uniform rate-setting methodology back to January 1, 1997, even though it was implemented prior to the release of the Uniform Rate Order. TWC argued for this treatment because it implemented the uniform rates in "good faith reliance" on its pending Effective Competition Petitions. TWC acknowledged that rate complaints had been filed against the January 1, 1997 CPST rate adjustments, but asked for a stay of enforcement pending resolution of the Petitions. The Petitions were placed on Public Notice on August 1, 1997. No other party filed comments. On June 24, 1998, the Bureau denied the Petitions in the Bureau Order. IV. APPLICATION FOR REVIEW 5. In its Application, TWC argues that the public interest benefits of its uniform rate-setting plan outweigh the concerns that the Bureau raised in the Bureau Order. TWC also argues that its plan is in compliance with the substantive requirements of the Uniform Rate Order: (i) the uniform BST rate does not exceed the MPR for the BST for any individual community, (ii) the plan is revenue-neutral and has only a de minimis impact on CPST rates, and (iii) because of the uniformity among the communities served by the Rochester and Finger lakes systems, the plan would provide all of the benefits the Uniform Rate Order was promoting. Finally, TWC argues that the Bureau's concern about the reasonableness of the specific rate calculations is misplaced because no uniform rate structure could ever be approved in advance if approval depended on a review of the specific rate calculations. 6. An operator is required to obtain the Commission's approval before implementing uniform rates. The Commission has stated that "a cable operator wishing to establish uniform rates will be required to submit a proposal with supporting justification that states fully and precisely all pertinent facts and considerations relied on to demonstrate that the proposed rates will not be unreasonable." Pre-approval ensures fairness for all interested parties because it provides an opportunity for comment, protects an LFA's jurisdiction over rates for the BST and associated equipment, and allows the Commission to examine a proposal's impact on subscribers before implementation. TWC filed its Petitions, seeking approval of its uniform rates, six months after implementing the uniform rates. 7. In its Application, TWC admits that it implemented its uniform rates on January 1, 1997 because it believed that it was subject to effective competition. It wasn't until after the Effective Competition Petitions were denied that TWC attempted to justify its rates by filing the Petitions. TWC was not authorized to implement uniform rates before the adoption of the Uniform Rate Order because, at that time, Commission rules required that rates be established on a franchise area basis and made no provision for setting a uniform rate across multiple franchise areas. Following the adoption of the Uniform Rate Order, TWC was required to obtain the Commission's approval of its proposed uniform rates methodology before implementation. The Uniform Rate Order established specific parameters which contemplate prior approval before any methodology is implemented by a cable operator. TWC's argument that it expected the Commission to find its Rochester and Finger Lakes systems subject to effective competition, thereby freeing them from regulation, is not a satisfactory justification. 8. The Commission has stated that a cable operator's "supporting justification must include a specific, detailed description of all relevant financial and economic data, and other factors (including particularly local factors) that demonstrate the impact of the proposal on subscriber rates and that justify the uniform rates as not unreasonable." According to its Petitions, TWC created its uniform rate methodology by first calculating its MPRs for both the BST and CPST on FCC Forms 1240 for each community listed in the Petitions. TWC then chose the lowest calculated BST rate as the uniform BST rate for all the communities in each Petition. The next step in TWC's methodology was "shifting foregone BST revenue for each community to that community's CPST and calculating a uniform weighted average across all communities." Although TWC states that its uniform rate-setting methodology in both systems is revenue- neutral and has only a "de minimis" impact on CPST subscribers, the Bureau's review revealed that TWC's uniform rate-setting methodology produced an increase in CPST rates in twenty-two of the twenty-eight franchises in its Rochester system with amounts ranging from $0.18 to $1.11 per month. In its Finger Lakes system, TWC's uniform rate-setting methodology produced an increase in CPST rates in thirty-one of the fifty franchises with amounts ranging from $0.01 to $1.00 per month (twenty-four of the franchises experienced an increase ranging from $0.17 to $1.00 per month). The Commission has stated that it "will be disinclined to approve any proposal that results in a more than minimal increase in CPST rates for a significant proportion of affected subscribers." The Commission has also stated that it will "be disinclined to approve any rate approach that increases the combined [BST/CPST] tier rate for subscribers by a more than minimal amount." The Bureau review revealed that TWC's uniform rate-setting methodology produced an increase in the combined BST/CPST rate in thirteen of the twenty-eight franchises in its Rochester system in amounts ranging from $0.02 to $0.96 (eleven of the franchises experience a combined BST/CPST rate increase ranging from $0.19 to $0.96). In its Finger Lakes system, sixteen of the fifty franchises experience a combined BST/CPST rate increase ranging from $0.06 to $0.84. Therefore, the Bureau found that TWC's uniform rate structure was inconsistent with the Commission's rules. 9. In addition, Section 76.922(n) of the Commission's rules states that "a cable operator that has established rates in accordance with [the Commission's rate regulations] may then be permitted to establish a uniform rate for uniform services in multiple franchise areas." Complaints against the CPST rates charged by TWC, effective January 1, 1997, the rates resulting from its uniform rate structure, were filed by LFAs for communities in both the Rochester and the Finger Lakes systems. In every community where a complaint was filed, the Bureau released orders finding that TWC had incorrectly calculated its MPRs on its FCC Forms 1240 and ordered TWC to reduce its MPRs. Subsequent to the release of those orders, and in response to petitions for reconsideration filed by TWC, the Bureau staff permitted TWC to recalculate and refile its FCC Forms 1240 for its CPST rates effective January 1, 1997 and January 1, 1998. TWC, however, did not amend its Petitions to show the correct recalculation of its MPRs in its Rochester or Finger Lakes systems. The Uniform Rate Order requires a finding that the uniform rates charged by TWC in its Rochester and Finger Lakes systems, effective January 1, 1997 and January 1, 1998, were reasonable. Therefore, the Bureau was unable to determine that the uniform rates charged by TWC in its Rochester and Finger Lakes systems were reasonable. 10. TWC argues that the Bureau's rationale in denying its Petitions is faulty because the rationale would preclude any pre-approval of uniform rates. TWC did not submit Petitions which purported to propose a methodology, consistent with the Uniform Rate Order, which, if implemented, would allow TWC to provide a uniform rate structure in the Rochester and Finger Lakes systems. What TWC proposed was a justification of actual rates that had already been implemented. To suggest that somehow the Bureau should be able to separate TWC's theoretical proposals from its already established action is inconsistent with the Petitions which requested approval of TWC's existing uniform rates. It would be unrealistic to expect that the Bureau could approve uniform rates which are premised on incorrect MPRs. TWC's argument in support of its methodology consistently refers to the reliance of TWC on its underlying benchmark rate calculations as justification for its uniform rate methodology. Therefore, TWC has not submitted information that demonstrates that its current or proposed uniform rates have been calculated in accordance with the Commission's rate regulations. 11. We believe that TWC overstates the negative effect the Bureau Order has on the public interest. Admittedly, in theory, the adoption of uniform rates may be exceedingly beneficial in a number of areas. If TWC had filed its Petitions after the issuance of the Uniform Rate Order and prior to implementing its uniform rates, there may have been some public benefit in implementing a uniform rate structure in compliance with the Uniform Rate Order. There cannot be any public benefit to approving a uniform rate structure which has been calculated using benchmark rates as the foundation when the benchmark rates are not reasonable under the Commission's rules. V. CONCLUSION AND ORDERING CLAUSE 12. For the reasons discussed above, we conclude that TWC's application for review should be denied. 13. Accordingly, IT IS ORDERED, pursuant to Section 1.115 of the Commission's Rules, 47 C.F.R.  1.115, that the Application for Review of Time Warner Cable seeking reversal of In Re Petition of Time Warner Cable, Memorandum Opinion and Order, 13 FCC Rcd 12185 (Cab. Serv. Bur. 1998), IS DENIED and the referenced Petition for Stay IS DISMISSED AS MOOT. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary