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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: ) ) TCI CABLEVISION OF TEXAS, INC. ) CSB-A-0419 ) Appeal of Rate Order of ) the City of Fredericksburg, Texas ) MEMORANDUM OPINION AND ORDER Adopted: March 31, 1998 Released: April 3, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. TCI Cablevision of Texas, Inc. ("TCI"), the franchised operator of a cable television system serving the City of Fredericksburg, Texas ("Fredericksburg"), has filed an appeal of a local rate order, issued on May 23, 1997 by Fredericksburg, which denied TCI's request to increase its basic service tier ("BST") rate from $13.77 to $14.52. TCI challenges the local rate order on the grounds that Fredericksburg premised its denial on concerns regarding the quality of TCI's service, rather than on the accuracy of the rate calculations, in its FCC Form 1240. Fredericksburg filed an opposition to TCI's appeal. II. BACKGROUND 2. Under the Commission's rules, rate orders issued by local franchising authorities may be appealed to the Commission. In ruling on an appeal of a local rate order, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. Therefore, the Commission will reverse a franchising authority's decision only if it determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering its local rate order. 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. 3. FCC Form 1240 is the official form an operator uses to justify annual rate adjustments. These rate adjustments reflect changes in certain external costs, including programming costs, channel additions and deletions and inflation. External costs include the following categories of costs: state and local taxes specifically applicable to the provision of cable television service; franchise fees; costs of complying with franchise requirements; retransmission consent fees and copyright fees incurred for the carriage of broadcast signals; other programming costs; and Commission regulatory fees. FCC Form 1205 is the official form used to update permitted regulated equipment and installation charges based on equipment costs. Higher equipment costs on Form 1205 correlate with higher equipment and installation rates. 4. An operator that wants to increase its BST rate has the burden of demonstrating that the increase is in conformance with our rules. In determining whether the operator's proposed increase is in conformance with our rules, a franchising authority may direct the operator to provide supporting information. After reviewing an operator's rate forms, and any other additional information submitted, the franchising authority may either approve the operator's requested rate increase or issue a written decision explaining the factors it considered in denying the increase requested. III. POSITIONS OF THE PARTIES A. TCI's contentions 5. TCI states that Fredericksburg's consultant found that TCI's rate calculations in its Forms 1205 and 1240 contain no errors and comply with the Commission's regulations. TCI argues that Fredericksburg, therefore, was obligated to adopt an order approving TCI's proposed rate increases both for the BST and for equipment charges. Fredericksburg approved only the equipment charges. TCI cites the Bureau's prior decision in TCI of Southeast Mississippi and asserts that quality of service concerns are not to be considered in administering rate regulation." TCI contends that Fredericksburg must administer its local rate regulations consistent with the Commission's overall regulatory scheme. TCI concludes that the Commission cannot countenance Fredericksburg's disregard for the principles of rate regulation. B. Fredericksburg's contentions 6. In response, Fredericksburg states that it approved TCI's equipment charges, but that its denial of TCI's rates proposed in Form 1240 should be upheld because the denial was premised on the fact that TCI's "overall level of cable service is poor and has not significantly improved." Fredericksburg references service complaints from two of its residents, adding that "it has a greater responsibility than to merely check the arithmetic of the cable operator." Fredericksburg maintains that, unlike the situation in TCI of Southeast Mississippi, it has denied TCI's requested rate increase, rather than requiring that the system reduce its rates based upon TCI's inferior signal quality and the revenue produced by sales on certain cable channels. Fredericksburg contends that subscribers receive neither a quality product nor adequate service from TCI and concludes that "TCI's rates, given the current state of service quality, are not reasonable." C. Discussion 7. We agree with TCI. Fredericksburg must follow the Commission's rate regulations when reviewing an operator's rate filing. If a local franchising authority ("LFA") does not dispute the bases for the figures presented in a cable operator's rate forms and has not discovered any mathematical errors in the forms, the LFA should approve the operator's rates as derived from those forms. If the LFA rejects an operator's proposed rates, it must issue a written decision affirmatively demonstrating why the rates are unreasonable. The LFA may address other, non-rate concerns through our rules on technical standards, our rules on customer service obligations, the LFA's own cable regulations, and the franchise agreement. 8. The LFA may not arbitrarily reduce BST rates below permitted rate levels or deny a justified increase of the permitted rate in an effort to address quality of service issues. Fredericksburg must adhere to the Commission's rules in reviewing TCI's rates. We find that Fredericksburg acted unreasonably in denying TCI's requested rate increase. Consequently, we remand this issue to Fredericksburg so that it can reconsider its ruling in a manner consistent with our findings. IV. ORDERING CLAUSES 9. Accordingly, IT IS ORDERED that the appeal filed by TCI Cablevision of Texas, Inc. IS GRANTED and the appeal of the local order IS REMANDED to the City of Fredericksburg, Texas for proceedings consistent with the terms of this Order. 10. IT IS FURTHER ORDERED that the request for emergency stay of Fredericksburg's rate order filed by TCI Cablevision of Texas, Inc. IS DISMISSED as moot. 11. This action is taken by the Acting Chief, Cable Services Bureau, pursuant to authority delegated by  0.321 of the Commission's Rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau