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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 Communications ) CUID No. TX1255 (Plano) ) Complaint Regarding ) Cable Programming Services Tier ) and ) Petition for Reconsideration ) ORDER ON RECONSIDERATION and RATE ORDER Adopted: September 21, 1998 Released: September 24, 1998 By the Deputy Chief, Cable Services Bureau: 1. In this Order we consider a complaint against the June 1, 1998 rate increase of the above- referenced operator ("Operator") for its cable programming services tier ("CPST") in the community referenced above. We have already issued a rate order concerning Operator's June 1, 1997 CPST rate increase ("1997 Order"). The local franchising authority ("LFA") for the franchise area referenced above filed a petition for reconsideration of our Prior Order on January 8, 1998 ("Petition"). This Order addresses the Petition and the reasonableness of Operator's June 1, 1998 CPST rate increase. 2. Under the Communications Act, the Federal Communications Commission ("Commission") is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. The Telecommunications Act of 1996 ("1996 Act") and our rules implementing the legislation ("Interim Rules"), require that a complaint against the CPST rate be filed with the Commission by an LFA that has received more than one subscriber complaint. 3. The LFA filed a complaint with the Commission on July 2, 1998 against Operator's June 1, 1998 CPST rate increase from $18.26 to $18.33. The LFA verified that it received more than one subscriber complaint and that the first valid complaint was received by the LFA on June 1, 1998. The filing of a complete and timely 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. If the Commission finds a rate to be unreasonable, it shall determine the correct rate and any refund liability. 4. In its complaint, the LFA requests that the Commission review Operator's charges for equipment related to the CPST. Operator responds that it does not have any equipment that is specific to the CPST. Under Section 76.923(a) of the Commission's rules, all equipment used to receive the basic service tier ("BST") is subject to rate regulation, regardless of whether such equipment is used to receive other tiers of regulated programming and/or unregulated service. Such equipment related charges are subject to regulation by the LFA. According to Operator, subscribers use the same equipment to receive both BST and CPST programming. Therefore, the LFA's complaint does not trigger our jurisdiction to regulate Operator's equipment charges. However, the LFA has jurisdiction to determine the reasonableness of Operator's equipment rates. 5. In its Petition, the LFA requests that the Commission address the revenue offset issue raised by the LFA in a separate letter which accompanied its FCC Form 329 complaint against Operator's June 1, 1997 CPST rate increase. The letter cited news articles indicating that Operator was receiving revenues in 1996 and 1997 from programmers and asserted that these revenues should be used to offset increases in Operator's external costs. The LFA attached an identical letter to its FCC Form 329 complaint against Operator's June 1, 1998 CPST rate increase. 6. The Communications Act states that the Commission, in determining whether CPST rates are unreasonable, shall consider "the revenues (if any) received by a cable operator from advertising from programming that is carried as part of the service for which a rate is being established, and changes in such revenues, or from other consideration obtained in connection" with the CPST. In Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, Report and Order and Further Notice of Proposed Rulemaking, MM Docket No. 92-266 ("Rate Order"), the Commission concluded that cable operators may recover increased costs of programming from subscribers but not to the extent an operator receives revenues from the programmer on account of carriage of programming. The Commission developed rules that required that an operator's increases in programming costs be offset by any revenues received by the operator from programmers. The Commission, however, did not "require cable companies to report increases in advertising revenues and to offset those increases against any external costs." 7. In Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket Nos. 92-266 and 93-215, Sixth Order on Reconsideration, Fifth Report and Order, and Seventh Notice of Proposed Rulemaking ("Going Forward Order"), the Commission required an operator to offset revenues received from programmers against its per channel adjustment under the new going forward methodology. Specifically, the Going Forward Order provided that revenues received from programmers must be deducted from programming costs and, to the extent revenues remain, from the operator's per channel markup. In Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket Nos. 92-266 and 93-215, Twelfth Order on Reconsideration ("Twelfth Reconsideration Order"), the Commission eliminated the requirement that home shopping service commissions be offset against the per channel markup. 8. We will grant the LFA's Petition to the extent that it request us to address the revenue offset issue raised in the LFA's 1997 and 1998 letters. Concerning Operator's 1997 CPST rate increases in various other communities, we previously ordered Operator to "file with the Chief, Cable Services Bureau, . . . a channel by channel explanation of the revenues received from programmers, a description of the revenue, as well as a channel by channel explanation of its programming costs increases, for each CPST channel for which programming costs are being increased or revenues are being received from programmers, along with documentation explaining why, pursuant to the Commission's rules, the revenues received from programmers should not offset the increases in Operator's programming costs." 9. Operator filed a request for confidential treatment of its programming cost and revenue information. The Cable Services Bureau ("Bureau") agreed to use the information provided by Operator solely for the resolution of the referenced complaints and to treat any notes, memoranda, or other written material generated by its review as confidential work product to be kept in non-public files. Members of the Bureau staff then reviewed the programming cost and revenue information, programming contracts, and other related material ("Programming Revenue Information") made available by Operator. 10. Upon review of Operator's Programming Revenue Information, we found that Operator had adequately accounted for programming revenue received from its CPST programmers in its 1997 Forms 1240. Our review and determination of the information submitted was premised on current rules implemented by the Commission with regard to revenues received by the Operator, other than those received from subscribers. While the information reviewed and the analysis performed reflected less than definitive circumstances, we could not conclude that Operator's practice warranted further action. This analysis applies equally to the identical issue raised by the LFA for the community referenced above in its 1997 and 1998 letters. We conclude that the maximum permitted rate ("MPR") calculated by Operator for the projected period June 1, 1997 to May 31, 1998, as detailed in the 1997 Order, is reasonable. We find that Operator has adequately accounted for programming revenue received from its CPST programmers through 1997, the period complained about in LFA's 1997 and 1998 letters. 11. Operators may justify 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. 12. Upon review of Operator's FCC Form 1240 for the projected period June 1, 1998 through May 31, 1998, we find that Operator has correctly calculated its MPR of $18.33. Because Operator's actual CPST rate of $18.33, effective June 1, 1998, does not exceed its MPR, we find Operator's actual CPST rate of $18.33, effective June 1, 1998, to be reasonable. 13. Accordingly, IT IS ORDERED, pursuant to Section 1.106 of the Commission's rules, 47 C.F.R. 1.106, that Operator's Petition for Reconsideration IS GRANTED TO THE EXTENT INDICATED HEREIN. 14. IT IS FURTHER ORDERED, pursuant to Section 0.32l of the Commission's rules, 47 C.F.R. 0.321, that In the Matter of TCI of Plano, Inc., 12 FCC Rcd 20411 (1997) IS AFFIRMED IN PART AND VACATED IN PART. 15. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the maximum permitted rate of $17.78, calculated by Operator for the community referenced above, as detailed in the 1997 Order, IS REASONABLE, effective June 1, 1997. 16. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. 0.321, that the CPST rate of $18.33, charged by Operator in the franchise area referenced above, effective June 1, 1998, IS REASONABLE. 17. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's rules, 47 C.F.R. Section 0.321, that the complaint referenced herein against the CPST rate charged by Operator in the community referenced above IS DENIED. FEDERAL COMMUNICATIONS COMMISSION William H. Johnson Deputy Chief, Cable Services Bureau