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Before the
               Federal Communications Commission
                     Washington, D.C. 20554


In the Matter of

INTER MOUNTAIN CABLE, INC.

Petition for Special Relief
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CSR 4580-D



                  MEMORANDUM OPINION AND ORDER

        Adopted:  January 31, 2000                 Released:  February 3, 2000

By the Chief, Cable Services Bureau:
                                
                      I.INTRODUCTION
1.     Here we address a petition for special relief ("Petition"), as well as a Motion to Stay, filed by
Inter Mountain Cable, Inc ("IMC").  IMC seeks a waiver of the Commission's rules to the extent necessary
to permit IMC to establish regulated cable rates on behalf of its system in Virginia, West Virginia and
Kentucky, in accordance with the small system cost-of-service methodology adopted in the Sixth Report and
Order and Eleventh Order on Reconsideration in MM Docket Nos. 92-266 and 93-215 ("Small System
Order"). We grant the Petition upon a finding that a waiver of the Commission's rules is in the public
interest.

       2.   Section 623(i) of the Communications Act of 1934, as amended ("Communications Act"),
requires that the Commission design rate regulations that reduce the administrative burdens and the cost of
regulatory compliance for cable systems with 1,000 or fewer subscribers.  Accordingly, in the course of
establishing the standard benchmark and cost-of-service ratemaking methodologies generally available to
cable operators, the Commission adopted various measures aimed specifically at easing regulatory burdens for
these smaller systems. In the Small System Order, the Commission further extended small system rate relief
to certain systems that exceed the 1,000-subscriber criterion.  These systems were deemed eligible for small
system rate relief because they were found to face higher costs and other burdens disproportionate to their
size.

       3.    The Small System Order defines a small system as any system that serves 15,000 or fewer
subscribers.  The Commission recognized that systems with no more than 15,000 subscribers were
qualitatively different from larger systems with respect to a number of characteristics, including: (1) average
monthly regulated revenues per channel per subscriber; (2) average number of subscribers per mile; and, (3)
average annual premium revenues per subscriber.  The magnitude of the differences between the two classes
of systems as to these characteristics indicated that the 15,000-subscriber threshold was the appropriate point
of demarcation for purposes of providing for substantive and procedural regulatory relief.

       4.    Rate relief provided under the Small Systems Order is available to independent small systems
as well as small systems affiliated with another cable company, as long as that cable company serves a total
of 400,000 or fewer subscribers over all of its systems.  The Commission adopted this threshold because it
roughly corresponds to $100 million in annual regulated revenues, a standard the Commission has used in
other contexts to identify smaller entities deserving of relaxed regulatory treatment.  The Commission found
that cable companies exceeding this threshold would find it easier than smaller companies to attract the
financing and investment necessary to maintain and improve service.  In addition, the Commission
determined that cable companies that exceeded the small company definition "are better able to absorb the
costs and burdens of regulation due to their expanded administrative and technical resources.
       5.   In addition to adopting the new categories of small systems and small cable companies, the
Small System Order introduced a form of rate regulation known as the small system cost-of-service
methodology.  This approach, which is available only to small systems owned by small cable companies, is
more streamlined than the standard cost-of-service methodology available to cable operators generally.  In
addition, the small system rules include substantive differences from the standard cost-of-service rules to take
account of the proportionately higher costs of providing service faced by small systems.  Eligible systems
establish their rates under this methodology by completing and filing FCC Form 1230.  In order to qualify for
the small system cost-of-service methodology, systems and companies must meet the new size standards as of
either the effective date of the Small System Order, or on the date thereafter when they file the documents
necessary to elect the relief they seek.

       6.    Cable systems that fail to meet the numerical definition of a small system, or whose operators
do not qualify as small cable companies, may submit petitions for special relief requesting that the
Commission grant a waiver of its rules to enable the petitioning systems to utilize the various forms of rate
relief available to small systems owned by small cable companies. The Commission stated that petitioners
should demonstrate that they "share relevant characteristics with qualifying systems."  Other potentially
pertinent factors include the degree by which the system fails to satisfy either or both definitions and evidence
of increased costs (e.g., lack of programming or equipment discounts) faced by the operator.  If the system
fails to qualify for relief based on its affiliation with a larger cable company, the Commission will consider
"the degree to which that affiliation exceeds our affiliation standards, and whether other attributes of the
system warrant that it be treated as a small system notwithstanding the percentage ownership of the
affiliate."  The Commission also stated that "a qualifying system that seeks to obtain programming from a
neighboring system by way of a fiber optic link, but that is concerned that interconnection of the two systems
may jeopardize its status as a stand-alone small system, may file a petition for special relief to ask the
Commission to find that it is eligible for small system relief."  The Commission specifically stated that this
list of relevant factors was not exclusive and invited petitioners to support their petitions with any other
information and arguments they deemed relevant.



II.    PETITION 

7.   On June 13, 1996, the Commission granted IMC a waiver of the Commission's rules in order to
allow IMC to take advantage of the rate regulation relief available to small systems.  On June 1, 1998, IMC
filed a Request for Extension of Small System Status.

8.     According to its Petition, IMC operates a single cable system in eight largely rural counties in
Virginia, West Virginia and Kentucky.  The system was built by acquiring over 40 separate small cable
systems and integrating them by microwave into one system served by a single master headend.  In 1996,
when the Commission granted IMC's earlier Petition, the IMC system served 22,763 subscribers, in excess
of the 15,000-subscriber limit for small systems.  While IMC easily qualified as a small cable company, its
system could not be considered a small cable system under our rules.

9.    Nonetheless, in considering IMC's earlier Petition, we concluded that IMC can and should be
viewed as a collection of multiple small systems.  "But for its decision to use microwave technology, the
facilities that comprise the Inter Mountain system would constitute over 40 small systems, each one of which
would be eligible for small system status . . . Inter Mountain acquired each of these systems and then
integrated them, thus reducing costs, increasing channel capacity, and allowing subscribers in previously
unserved areas to receive multichannel video programming services."  

10.    Nonetheless, because we were concerned that IMC's system could continue to grow, departing
even further from the criteria for a small cable system, we limited the scope of IMC's waiver to a two-year
period, which expired on June 12, 1998.

11.    Our concern with IMC's potential for growth is dispelled by information submitted in IMC's
current Petition, according to which the system has actually become smaller during the preceding two years. 
 For example, as of March 31, 1999, the IMC system served only 22,134 subscribers, 629 fewer than it
served in 1995.  Not surprisingly, IMC's subscriber density per mile also dropped during the same period,
decreasing from 21.46 in 1995 to 20.17 in 1998, to 19.17 in 1999.  In addition, IMC's annual premium
revenue per subscriber also decreased from $8.03 in 1995 to $6.94 in 1998 and $7.46 in 1999.  

III.   DISCUSSION
12.   Because IMC's system has decreased in size since its earlier two-year waiver was granted, the
reasoning that led us to grant that waiver applies to IMC's current petition with added force.  As we noted in
the 1996 Order, IMC's average annual premium revenue per subscriber is significantly less than that of the
average small system, which earns about $41 per subscriber per year.  The Commission recognized the
disparity in premium revenues as a justification for the small system definition.

13.   Likewise, IMC's subscriber density of 19.71 subscribers per mile is much lower than the small
system average of 35.3 subscribers per mile.  The Commission recognized that lower subscriber density was
another factor justifying rate relief for small systems, because low subscriber density implies higher costs per
subscriber.

14.   A final factor weighing in favor of granting small system status to IMC is the absence of any
opposition to its Petition, despite service of the Petition on the pertinent local franchising authorities and
public notice of the Petition by the Commission.

15.   Under section 76.7(c)(1) of the Commission's rules, a petition for special relief "shall state fully
and precisely all pertinent facts and considerations relied on to demonstrate the need for the relief requested
and to support a determination that a grant of such relief would serve the public interest."  IMC has
adequately established its "need for the relief requested" as required by Section 76.7(c)(1).  In making this
finding, we note the Commission's decision in the Small System Order to target relief at small systems owned
by operators with fewer than 400,000 subscribers, based on a recognition that the then-existing rate rules did
not sufficiently take into account the higher costs of business faced by smaller companies.  In addition, the
Commission found that qualifying systems and companies were in need of relief from the procedural burdens
imposed upon such entities by the other forms of rate regulation.  The Commission found that alleviating the
substantive and procedural burdens associated with the standard benchmark and cost-of-service methodologies
"should free up resources that affected operators currently devote to complying with existing regulations and
should enhance those operators' ability to attract capital, thus enabling them to achieve the goals of
Congress," as set forth in the Cable Television Consumer Protection and Competition Act of 1992.

16.   IMC's subscriber base of about 22,000 clearly establishes its status as a small cable company. 
Although IMC has configured its facilities such that they constitute a single system that exceeds the 15,000-
subscriber threshold for small systems, for the reasons stated above, we conclude that this condition does not
create a material distinction between IMC and the class of systems specifically targeted by the Commission
for relief.  Thus, we conclude that IMC has shown its need for the requested relief.

17.    We also find the grant of the Petition would serve the public interest.  As indicated above, in the
Small System Order, the Commission found that extending rate relief to those operators in need of it would
further specific congressional goals set forth in the 1992 Cable Act.  Having concluded that IMC is likewise
in need of that relief, granting the Petition will serve the same congressional goals that were furthered by the
adoption of the Small System Order, and thus is in the public interest.
18.    As a result of our grant of the Petition, IMC's system shall continue to be deemed a small
system for purposes of rate regulation.  Accordingly, IMC may now set rates prospectively in accordance with
the small system cost-of-service methodology.
                                 
                     IV.SCOPE OF THE WAIVER
19.    We next must determine the duration of the waiver.  In the Small System Order, after
establishing the new small system and small cable company definitions, the Commission stated:

To qualify for any existing form of [small system] relief, systems and
companies must meet the new size standards as of either the effective
date of this order or on the date thereafter when they file whatever docu-
mentation is necessary to elect the relief they seek, at their election . . . 
A system that is eligible for small system relief on either of the dates 
described above shall remain eligible for so long as the system has 15,000 
or fewer subscribers, regardless of a change in the status of the company
that owns the system.  Thus, a qualifying system will remain eligible for
relief even if the company owning the system subsequently exceeds the 
400,000 subscriber cap.  Likewise, a system that qualifies shall remain
eligible for relief even if it is subsequently acquired by a company that
serves a total of more than 400,000 subscribers.

       20.   The Commission adopted this grandfathering treatment for qualifying systems to enhance
their value "in the eyes of operators and, more importantly, lenders and investors."  As the Commission
stated: "The enhanced value of the system thus will strengthen its viability and actually increase its ability to
remain independent if it so chooses."

       21.    Upon exceeding the 15,000-subscriber cap, a system that has established its rates in
accordance with the small system cost-of-service methodology "may maintain its then existing rates. 
However, any further adjustments shall not reflect increases in external costs, inflation or channel additions
until the system has re-established initial permitted rates in accordance with our benchmark or cost-of-service
rules."
                                
       22.    Since the IMC system has already exceeded 15,000 subscribers, there is no obvious
numerical limit to serve as a cutoff for its continued eligibility for small system treatment.  However, this
waiver is granted to ease the regulatory burdens on IMC in order to encourage the system's growth. 
Therefore, we must place some duration on the waiver, because the alternative would be to grant small system
status indefinitely, regardless of the eventual size of the system.  This latter alternative is clearly inconsistent
with the Commission's decision to limit small system relief to systems that are in need of it due to their
relatively small size.

     23.    Therefore, as with IMC's earlier Petition, the IMC waiver will terminate two years from the
date of this order, unless extended further, subject to the conditions set forth below.  During the waiver period,
IMC may file only one Form 1230 for each franchise area it serves. This should give IMC adequate regulatory
certainty for the foreseeable future, while still ensuring that the system is not permitted to charge rates
indefinitely under a scheme designed for smaller systems.  Of course, IMC may seek continued eligibility for
small system treatment by filing a petition for special relief at the end of the waiver period.

     24.   Limiting the waiver period to two years means that any Form 1230 to be filed by IMC must
be submitted with the appropriate regulatory authorities within two years of the date of this order.  In any
franchise area where the system is currently subject to regulation, IMC may reestablish its maximum
permitted rates by filing Form 1230 at any time in the next two years.  Where the system is not currently
subject to regulation but, within the next two years, becomes subject to regulation due to the certification of
a local franchising authority or the filing of a rate complaint, IMC then may file Form 1230 within the normal
response time.  Where the system is not now subject to regulation, and does not become subject to regulation
until more than two years from now, IMC will not be eligible for small system treatment under this waiver.

     25.   After filing its initial Form 1230 and giving the required notice, IMC may set its actual rates
in the franchise area at any level that does not exceed the maximum rate, subject to the standard rate review
process.  Subsequent increases, not to exceed the maximum rate established by the Form 1230, shall be
permitted, subject to the 30 days' notice requirement of the Commission's rules.  As noted, the maximum
rate established by the initial Form 1230 shall be a cap on the system's rates during the waiver period.  If the
system reaches that cap and subsequently wishes to raise rates further, it will have to justify the rate increase
in accordance with our standard benchmark or cost-of-service rules.  Alternatively, the system can file another
petition for special relief and seek continued treatment as a small system.  Limiting IMC to a single Form
1230 filing for each franchise area provides further assurance that the system will not have grown too large
to be establishing rates under the small system cost-of-service methodology.

     V.   ORDERING CLAUSES
     26.   Accordingly, IT IS ORDERED that the Petition for Special Relief filed by Inter Mountain
Cable, Inc. requesting a waiver of the Commission rules defining systems subject to small system rate relief
IS GRANTED.
                                
     
     
     
     
                         
     27.   These actions are taken pursuant to delegated authority under Section 0.321 of the
Commission's rules.
     
                                                         FEDERAL COMMUNICATIONS COMMISSION
     
     
     
                         Deborah A. Lathen
                         Chief, Cable Services Bureau