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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 re Petition of ) ) TIME WARNER CABLE ) ) For Approval of Uniform Rate Structures) CSR-5051-R Rochester, New York ) CSR-5052-R Finger Lakes, New York ) MEMORANDUM OPINION AND ORDER Adopted: June 22, 1998 Released: June 24, 1998 By the Acting Chief, Cable Services Bureau: I. INTRODUCTION 1. Pursuant to Section 76.922(n) of the Commission's rules, Time Warner Cable ("Time Warner") has filed 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 ("Rochester Petition") and Finger Lakes, New York ("Finger Lakes Petition"). Time Warner asks the Commission to approve its uniform rate methodology both prospectively and retroactively, back to January 1, 1997. The Petitions were placed on Public Notice on August 1, 1997. No other party has filed comments on these Petitions. For the reasons stated below, we deny the Petitions. II. BACKGROUND & DISCUSSION 2. Under the Communications Act, cable operators that do not face effective competition are subject to rate regulation for their basic and cable programming services tiers and for equipment and installation. 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. 3. In Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992 -- Rate Regulation: Uniform Rate-Setting Methodology ("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. Under any proposed uniform rate structure, the uniform rates for regulated basic service tiers ("BSTs") may not exceed the BST rates that would be established under existing regulations; therefore, BST rates will either decrease or remain the same under a uniform rate mechanism. 4. In September, 1996, Time Warner 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 Time Warner's Effective Competition Petitions on June 5, 1997. While the Effective Competition Petitions were pending, Time Warner implemented its uniform rate structures in response to what it characterizes as the "aggressive competition" that it faced in its Rochester and Finger Lakes systems. The rates took effect on January 1, 1997, before the Commission adopted the Uniform Rate Order and without prior Commission approval. At the time the Petitions were filed, these rates were the subject of several unresolved complaints. 5. In its Petitions, Time Warner requests that we prospectively approve its uniform rate- setting methodology, in both its Rochester and Finger Lakes systems, because it is not unreasonable and because the uniform BST rate does not exceed the MPR that would otherwise apply in any of the affected communities. Time Warner states that its methodology is revenue-neutral and has only a de minimis impact on cable programming services tier ("CPST") customers, while raising no additional complicating factors. Time Warner also requests that we retroactively approve its uniform rate-setting methodology even though it was implemented prior to the release of the Uniform Rate Order. Time Warner argues for this nunc pro tunc treatment because it implemented the uniform rates in "good faith reliance" on its then-pending Effective Competition Petitions. Time Warner acknowledges that rate complaints have been filed against the January 1, 1997 CPST rate adjustments, but asked us to stay our enforcement pending resolution of the Petitions. 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 a local franchise authority's jurisdiction over rates for the BST and associated equipment, and allows the Commission to examine a proposal's impact on subscribers before implementation. Time Warner did not file its Petitions until six months after implementing its uniform rates, nor did it wait for Commission approval. In fact, Time Warner implemented its uniform rates prior to the Commission's promulgation of its rules addressing uniform rates. 7. Time Warner was not authorized to implement uniform rates before the adoption of the Uniform Rate Order, and, as required by that Order, before it obtained the Commission's approval of its proposed methodology. The Uniform Rate Order established specific parameters which contemplate prior approval before any methodology is implemented by a cable operator. Time Warner's argument that it expected the Commission to find its Rochester and Finger Lakes systems subject to effective competition, thereby freeing them from regulation, provides no justification. The law states clearly that a cable operator subject to rate regulation remains so until the Commission makes a determination that effective competition exists. For these reasons, we deny Time Warner's request and its request for retroactive approval. 8. The Commission's rate regulations were subject to extensive comment by a range of interested parties. The rules were challenged in court by several parties, including Time Warner. The Court of Appeals for the D.C. Circuit upheld the Commission's methodology. It is a fundamental precept that once our rules become effective, those subject to those rules must obey them. Allowing cable operators to do otherwise undermines the integrity of the rules as well as the law implemented. It is also unfair to those who endeavor to adhere to the Commission's rules. 9. Moreover, the record before us indicates that Time Warner's uniform rate structure is inconsistent with the Commission's rules. 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, Time Warner 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. Time Warner then chose the lowest calculated BST rate as the uniform BST rate for all the communities in each Petition. Time Warner describes the next step of its methodology as "shifting foregone BST revenue for each community to that community's CPST and calculating a uniform weighted average across all communities." As exhibits to its Rochester Petition, Time Warner attached a copy of its channel line-up for its Rochester system and a list of calculated BST MPRs for all of the communities in the Rochester system. As exhibits to its Finger Lakes Petition, Time Warner attached a copy of its channel line-up for its Finger Lakes system, a list of calculated BST MPRs for all of its Finger Lakes communities, and the number of subscribers on the eight headends of its Finger Lakes system. Time Warner later supplemented its Petitions by filing a list, by community, of the calculated BST and CPST rates in each system, along with the percentage and net difference between the calculated total BST/CPST rate and the uniform BST/CPST rate in each community. 10. 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 Time Warner, effective January 1, 1997, i.e., those 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 had been filed, we have released orders finding that Time Warner had incorrectly calculated its MPRs on its FCC Forms 1240 and ordered Time Warner to reduce its MPRs. Since the release of those orders, and in response to the petitions for reconsideration filed by Time Warner, the Bureau staff permitted Time Warner to recalculate and refile its FCC Forms 1240 for its CPST rates effective January 1, 1997 and January 1, 1998. Time Warner, however, has not amended its Petitions to show the correct recalculation of its MPRs in its Rochester or Finger Lakes systems. Nor has Time Warner indicated that it has reduced its uniform rates in either its Rochester system or Finger Lakes system to comply with the reductions in its recalculated MPRs. We are unable to determine that the uniform rates charged by Time Warner in its Rochester and Finger Lakes systems, effective January 1, 1997 and January 1, 1998, are not unreasonable. The Uniform Rate Order requires such a finding. This information is a critical element of the Commission's review as it allows an evaluation of the proposed rate with the underlying benchmark methodology. Time Warner has presented no such information. Because Time Warner has not submitted information that demonstrates that its current or proposed uniform rates have been calculated in accordance with the Commission's rate regulations and are not unreasonable, is further reason that its Petitions be denied. III. ORDERING CLAUSES 11. Accordingly, IT IS ORDERED that Time Warner's Petitions ARE DENIED 12. IT IS FURTHER ORDERED, that Time Warner's Request for Stay of Enforcement of Rate Orders against its CPST rates in its Rochester and Finger Lakes Systems IS DENIED. 13. This action is taken by the Acting Chief, Cable Services Bureau, pursuant to authority delegated by Section 0.321 of the Commission's rules, 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION John E. Logan Acting Chief, Cable Services Bureau