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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 ) ) U S West ) CUID No. MI0500 (Village of Dexter) d/b/a MediaOne ) ) Complaint Regarding ) Cable Programming Services Tier Rates ) ORDER Adopted: March 4, 1998 Released: March 9, 1998 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider a complaint against the July 1, 1997 rate increase of the above- referenced operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. We have already issued orders in which we found that Operator's rates in effect through September 30, 1994 were reasonable. On August 1, 1995, the Federal Communications Commission ("Commission") adopted an order approving a Social Contract entered into between Operator and the Commission ("Social Contract"). On August 21, 1996, the Commission adopted an order approving an Amended Social Contract entered into between Operator and the Commission ("Amended Social Contract"), which incorporated the community referenced above. This Order addresses only the reasonableness of Operator's July 1, 1997 CPST rate increase, consistent with the terms of the Amended Social Contract. 2. Under the Communications Act, the Commission is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. If the Commission finds a rate to be unreasonable, it shall determine the correct rate and any refund liability. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the new legislation ("Interim Rules"), require that complaints against the CPST rates be filed with the Commission by a local franchising authority ("LFA") that has received more than one subscriber complaint. 3. The LFA for the franchise area referenced above filed a complaint with the Commission on December 29, 1997, against Operator's July 1, 1997 CPST rate increase from $19.34 to $19.86. In its complaint, the LFA also requested that the Commission review Operator's charges for equipment rental and installation. The LFA verified that it received more than one subscriber complaint and that the first complaint was received by the LFA on August 13, 1997. The filing of a complete and timely LFA complaint triggers an obligation upon the cable operator to file a justification of its CPST rates. The Operator has the burden of demonstrating that the CPST rates complained about are reasonable. 4. To justify rates for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. Operators are permitted to make changes to their rates on a quarterly basis using FCC Form 1210. Operators may alternatively justify adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain and quantifiable changes in external costs, inflation, and the number of regulated channels that are projected for the twelve months following the rate change. Any incurred cost that is not projected may be accrued with interest and added to rates at a later time. Operator's response to the complaint included rate justifications filed on a "Social Contract 2 Rate Form" ("Rate Form"), FCC Form 1210 and FCC Form 1205 (Equipment Form). 5. Under the terms of the Amended Social Contract, Operator is required to invest $1.7 billion to upgrade its cable systems. By January 1, 1997, Operator must create, on systems serving at least 80% of its total subscribers, a lifeline basic service tier by reducing rates on the basic service tier by 15% to 20% and offset this reduction in a revenue neutral manner by adjusting the rates on the CPST. Operator may migrate up to four existing services from its CPST to a migrated product tier ("MPT") and Operator may add an unlimited number of channels to an MPT at $.20 per added channel plus license fees. 6. Also under the terms of the Amended Social Contract, Operator "may average broad categories of equipment and various installation costs for its acquired systems on a statewide or regional basis." The geographic regions used for averaging are listed in Exhibit 1 of the Amended Social Contract. The Amended Social Contract further states that "[t]his will be accomplished by [Operator] filing FCC Form 1205 (Equipment Form) with the Commission on an annual basis beginning in 1997." The Commission "will verify the filing's accuracy and establish rates applicable to that specific state or region." Finally, the Commission stated that "we will continue the waiver we granted [Operator] in the Social Contract with respect to review by LFAs of the equipment rate form. Those forms will be reviewed by the Commission for the reasons stated in the Social Contract." 7. Upon review of Operator's Rate Form, setting an initial maximum permitted rate ("MPR") in accordance with the Amended Social Contract, and Operator's FCC Form 1210, covering the period from the Rate Form through June 30, 1997, we find Operator's actual CPST rate of $19.86, effective July 1, 1997, to be reasonable. 8. Upon review of Operator's FCC Form 1205, dated April 1, 1997, we find Operator's rates for equipment rental and installation, effective July 1, 1997, to be reasonable. 9. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the CPST rate of $19.86 charged by Operator in the community referenced above, effective July 1, 1997, IS REASONABLE. 10. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that Operator's rates for equipment rental and installation, effective July 1, 1997, ARE REASONABLE. 11. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the complaint against Operator's July 1, 1997 CPST rate increase and equipment rental and installation charges, in the community referenced above, IS DENIED. FEDERAL COMMUNICATIONS COMMISSION Elizabeth W. Beaty Chief, Financial Analysis and Compliance Division Cable Services Bureau